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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
ACTV, Inc.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 94-2907258
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(212) 262-2570 (Registrant's telephone number, including area code)
______________
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of exchange on which registered
___________________ ____________________________________
Common Stock, Par Value $0.10 Boston Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.10 per share
_______________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
As of November 13, 1996, there were 11,787,105 shares of the registrant's common
stock outstanding.
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ACTV, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
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ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
(UNAUDITED)
-------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......... $3,531,782 $3,021,321
Restricted cash................... -- 6,026,294
Accounts receivable............... 349,291 353,575
Education equipment inventory..... 112,218 190,113
Other............................. 61,011 240,263
----------- -----------
Total current assets.......... 4,054,302 9,831,566
----------- -----------
Property and equipment-net........ 416,895 758,759
----------- -----------
Other Assets:
Video program inventory-net....... 214,824 --
Patents and patents pending-net... 268,980 257,579
Goodwill-net...................... 3,493,932 3,174,153
Other............................. 102,195 336,106
----------- -----------
Total other assets............ 4,079,931 3,767,838
----------- -----------
Total ..................... $8,551,128 $14,358,163
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses.... $1,090,392 $1,265,828
Deferred stock appreciation rights 566,883 404,367
Preferred stock dividend payable......... -- 28,493
Escrow funds............................. -- 6,026,294
----------- -----------
Total current liabilities............ 1,657,275 7,724,982
----------- -----------
Total liabilities.................... 1,657,275 7,724,982
Shareholders' equity:
Preferred stock, $.10 par value, 1,000,000
shares authorized, none issued....... -- --
Convertible preferred stock, no par value,
436,000 shares authorized: issued and
outstanding none at December 31, 1995,
400,000 at September 30, 1996........ -- 3,600,601
Common stock, $.10 par value, 35,000,000
shares authorized: issued and outstand-
ing 11,396,419 at December 31, 1995,
11,787,105 at September 30, 1996...... 1,139,642 1,178,711
Additional paid-in capital................ 36,686,742 38,297,705
Notes receivable from stock sales. (567,500) (200,000)
----------- -----------
Total................................ 37,258,884 42,877,017
Accumulated deficit...................... (30,365,031) (36,243,836)
----------- -----------
Total shareholders' equity........... 6,893,853 6,633,181
----------- -----------
Total............................. $8,551,128 $14,358,163
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
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ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS THREE MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1996 1995 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales revenues.............. $1,075,925 $1,093,127 $322,036 $329,612
License fees from related party -- 12,689 -- 2,608
----------- ------------ ------------ ------------
Total revenues........... 1,075,925 1,105,816 322,036 332,220
Cost of Sales............... 318,665 480,321 106,328 165,711
----------- ------------ ------------ ------------
Gross profit............. 757,260 625,495 215,708 166,509
Expenses:
Operating expenses.......... 829,781 1,407,558 300,743 401,570
Selling and administrative.. 3,600,124 4,614,826 1,135,076 1,645,944
Depreciation and amortization 499,261 362,563 187,645 37,327
Amortization of goodwill.... 319,779 319,779 106,593 106,593
Stock appreciation rights... 1,249,206 (162,516) 800,851 (217,099)
----------- ------------ ------------ ------------
Total expense............ 6,498,151 6,542,210 2,530,908 1,974,335
Interest (income)............. (83,150) (66,403) (26,680) (10,533)
Interest expense-related parties 93,596 -- 20,001 --
----------- ------------ ------------ ------------
Interest expense - net...... 10,446 (66,403) (6,679) (10,533)
----------- ------------ ------------ ------------
Net loss before extraordinary 5,751,337 5,850,312 2,308,521 1,797,293
gain..........................
Gain on extinguishment of debt 94,117 -- -- --
obligations...................
----------- ------------ ------------ ------------
Net loss...................... 5,657,220 5,850,312 2,308,521 1,797,293
Preferred stock dividend...... -- 28,493 -- 28,493
Loss applicable to common stock 5,657,220 5,878,805 2,308,521 1,825,786
shareholders..................
=========== ============ ============ ============
Loss per common share before $.59 $.50 $.23 $.15
extraordinary gain............
Loss per common share after $.58 $.50 $.23 $.15
extraordinary gain............
Weighted average number of 9,748,209 11,723,874 9,981,194 11,799,797
common shares outstanding.....
</TABLE>
See Notes to Consolidated Financial Statements
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ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS THREE MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1996 1995 1996
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $5,657,220 $5,878,805 $2,308,521 $1,825,786
------------- ------------ ------------ -------------
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization..... 926,402 682,341 401,367 143,919
Stock appreciation rights......... 543,956 (162,516) 256,850 (217,099)
Gain on extinguishment of debt (94,717) -- -- --
obligations........................
Common stock issued for services.. 563,430 114,047 415,500 --
Changes in operating assets and
liabilities:
Accounts receivable............... (138,858) (4,284) 133,999 114,350
Other assets...................... 56,992 (191,800) 50,126 19,363
Accounts payable and accrued
expenses.......................... 3,986 175,436 (138,367) 69,460
Preferred dividend payable........ -- 28,493 -- 28,493
Education equipment inventory..... (23,327) (77,895) (24,996) 30,880
Interest payable.................. 93,333 -- 20,001 --
------------- ------------ ------------ -------------
Net cash (used) in operating
activities................. (3,726,023) (5,314,983) (1,194,041) (1,636,420)
------------- ------------ ------------ -------------
Cash flows from financing
activities:
Proceeds from sale of common stock 8,951,859 1,903,485 5,660,984 --
Proceeds from exercise of options. 68,600 -- -- --
Proceeds from sale of preferred
stock............................. -- 3,600,601 -- 3,600,601
Discounted prepayment of note..... (101,458) -- -- --
Repayment of note................. (2,025,250) -- (1,500,000) --
------------- ------------ ------------ -------------
Net cash provided by (used in) 6,893,751 5,504,086 4,160,984 3,600,601
financing activities..................
Cash flows from investing activities:
Investment in property and equipment 556,926 699,564 94,182 132,367
------------- ------------ ------------ -------------
Net cash used in investing
activities................. 556,926 699,564 94,182 132,367
------------- ------------ ------------ -------------
Net increase (decrease) in cash and cash 2,610,802 (510,461) 2,872,761 1,831,814
equivalents...........................
Cash and cash equivalents,
beginning of period............... 2,479,840 3,531,782 2,217,881 1,189,507
------------- ------------ ------------ -------------
Cash and cash equivalents,
end of period..................... 5,090,642 3,021,321 5,090,642 3,021,321
============= ============ ============ =============
</TABLE>
Supplemental disclosure of noncash investing activity: the consolidated balance
sheet at September 30, 1995, reflects decreases in common stock of $10,500 and
additional paid-in-capital of $357,000 and a corresponding decrease in notes
receivable from stock sales of $367,500.
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ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
1(a). The consolidated financial statements are unaudited, except as indicated.
In the opinion of management, these consolidated financial statements reflect
all normal, recurring adjustments necessary for a fair presentation of the
results for all periods. The financial results for the interim periods presented
are not necessarily indicative of the results to be expected for either
succeeding quarters or the full fiscal year.
1(b) In August 1996, the Company raised $10 million (before expenses and
commissions related to the fund raising) from the issuance by two wholly-owned
subsidiaries of the Company, ACTV Holdings, Inc. and ACTV Financing, Inc., of
convertible preferred shares to private investors. Pursuant to this transaction,
the subsidiaries issued preferred shares that are convertible into common shares
of ACTV, Inc. beginning January 1, 1997. The conversion price of the preferred
shares is at a discount to the market price for the ACTV, Inc. common shares at
the time of conversion. The percentage discount increases as the length of the
holding period prior to conversion increases, from a base of 14% for conversion
in January 1997 to a maximum of 30.375% for conversion in September 1997 or
thereafter. The $10 million financing consists of $4 million in immediately
available funds, with the remaining $6 million paid into an escrow account. The
escrow funds are to become available to the Company contingent upon the
satisfaction of certain conditions in the contracts with the holders of the
preferred stock.
The Company believes that it has sufficient resources to fund its operations for
the next twelve month period. However, if the Company does not gain access to
the escrowed funds and/or does not obtain additional financing, it may be
required to severely reduce certain planned expenditures in certain of the
markets it is attempting to develop. If management's assumptions regarding
future events prove incorrect, the Company may be unable to fund its operations,
even at a reduced level, for the next twelve months. The Company has no
agreements, arrangements or understanding to obtain additional financing, other
than as disclosed herein. There can be no assurance that additional financing,
if it should be needed, will be available on terms satisfactory to the Company
or at all.
2. For a summary of significant accounting policies and additional financial
information, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
3. The consolidated statements of operations for the nine month period ended
September 30, 1995, reflect an extraordinary gain of $94,117 on the
extinguishment of an obligation to Nolan Bushnell. On April 25, 1994, the
Company entered into a Settlement Agreement (the "Bushnell Settlement
Agreement") with Mr. Bushnell under which Mr. Bushnell released the Company from
certain obligations. Pursuant to the Bushnell Settlement Agreement, ACTV issued
to Mr. Bushnell, among other consideration, a promissory note in the principal
amount of $190,000, payable in two
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installments on June 30, 1995, and June 30, 1996. In January 1995, the Company
and Mr. Bushnell agreed to a discounting of the note for payment in full at that
time.
4. The cash position on the Company's balance sheet at September 30, 1996
includes $6,000,000 (plus accrued interest) in escrowed funds that are available
to the Company only upon the satisfaction of certain conditions in the contracts
with the holders of preferred stock. Such conditions have not yet been
satisfied; if they remain unsatisfied through December 31, 1996, the Company
will forfeit its right to the escrowed amount. The Company's balance sheet at
September 30, 1996 reflects a credit to shareholders' equity of $55,000 related
to options issued but not yet vested at a price below the prevailing market
price on the date of issuance. The options were issued to acquire a patent in
September 1995. The Company's balance sheets at December 31, 1996 and September
30, 1996 also reflect debits to shareholders' equity of $567,500 and $200,000,
respectively, related to non-recourse loans made by the Company to certain
employees in August 1995 to purchase the Company's common stock by exercising
options. The due dates of the non-recourse loans correspond with the respective
expiration dates of the options exercised. During the three months ended
September 20, 1996, two shareholder loans totaling $367,500 were cancelled in
exchange for the corresponding cancellation of the shares associated with such
loans.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
ACTV, Inc. (the "Company") was organized to develop and market ACTV programming
technology, which permits each viewer to simultaneously experience
individualized television programming. Since its inception, the Company has
incurred operating losses approximating $36.2 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, at the Company's request, 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 ceased providing programming to LGV and
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.
In March 1995, the Company formed The Los Angeles Individualized Television
Network, Inc., one of its wholly-owned subsidiaries, to operate the Company's
individualized television trial in Southern California. If the trial is
successful, this subsidiary will operate the planned regional
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television network targeting approximately 4.8 million sports subscribers in the
region that reaches from Los Angeles to San Diego and Phoenix.
The trial, which marks the introduction of the Company's first U.S. regional
individualized network (the "Regional Network"), began 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, a unit of Liberty Media's Liberty Sports division, which has approximately
4.8 million subscribers in the Southwest region of the U.S.; Cable News Network,
Inc. ("CNN"); the Game Show Network, a subsidiary of Sony Entertainment, Inc.
("Sony"); and Viacom. Liberty Media is jointly owned by Telecommunications Inc.
("TCI") and Fox Sports. The cable operator for the Regional Network is TCI of
Ventura County.
The Company has established five new wholly-owned subsidiaries that would
operate additional regional individualized networks covering the San Francisco,
Chicago, New York, Atlanta and Texas regions in the event that the Company
decides to expand and provide similar services to those of the Regional Network
in other regions across the U.S. To date, the five new wholly-owned subsidiaries
have not engaged in any business activities, nor does the Company have any
present intention to launch their activities. The Regional Network, and any
expansion plans related thereto, is part of the Company's plan to develop the
entertainment division of its business which, to date, does not generate any
revenue for the Company.
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.
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 8% note due December 31, 1996 (the "Note").
Subsequently, all operations by the Company's subsidiaries associated with the
education market have been consolidated with the results of the Company. During
1995, the Note, including accrued interest, was paid in full.
In January 1995, the Company granted an exclusive license to Greenwich
Entertainment Group ("The Greenwich Group") for the use of its programming
technology in the theater environment, specifically in shopping malls, museums
and entertainment centers. The Company's agreement with The Greenwich Group
stipulates the payment of a license fee of 8% to 10% of annual ticket sales per
theater, dependent upon each theater's volume. The agreement also calls for
minimum annual payments 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 payments are not paid, the Company has the right to cancel the license.
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Additionally, the Company has made equity investments in The Greenwich Group of
$24,325 in March 1996 and $250,000 in April 1996.
In July 1995, the Company formed 3D Virtual, Inc., a wholly owned subsidiary
engaged in the development of three dimensional applications of the Company's
programming technology.
In August 1996, the Company formed two wholly-owned subsidiaries, ACTV
Financing, Inc. and ACTV Holding, Inc. to facilitate a fundraising transaction
in which the Company raised $10 million (before expenses and commissions related
to the fund raising). Pursuant to this transaction, the subsidiaries issued
preferred shares that are convertible into common shares of ACTV, Inc. beginning
January 1, 1997. The conversion price of the preferred shares is at a discount
to the market price for the ACTV, Inc. common shares at the time of conversion.
The percentage discount increases as the length of the holding period prior to
conversion increases, from a base of 14% for conversion in January 1997 to a
maximum of 30.375% for conversion in September 1997 or thereafter. The $10
million financing consists of $4 million in immediately available funds, with
the remaining $6 million paid into an escrow account. The escrow funds are to
become available to the Company contingent upon the satisfaction of certain
conditions in the contracts with the holders of the preferred stock.
11
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RESULTS OF OPERATIONS
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
During the nine month period ended September 30, 1996, the Company's revenues
increased 3% to $1,105,816, from $1,075,925 in the nine month period ended
September 30, 1995. In the more recent period, the Company's revenues derived
from education sales, as well as from license and executive producer fees
related to its agreement with The Greenwich Group. All revenues in the nine
month period ended September 30, 1995 were derived from the education market.
Cost of sales in the nine months ended September 30, 1996, was $480,321, an
increase of 51% over cost of sales of $318,655 in the nine months ended
September 30, 1995. The Company's gross margin declined to 57% in the more
recent period, from 70% in the corresponding 1995 period. The decline was due to
the inclusion in the more recent period of executive production fees, which
carry a lower profit margin than the Company's other revenue sources, and from
proportionately lesser revenues from education programs, when compared to the
nine months ended September 30, 1995. Education programs have a higher gross
margin than other education products sold by the Company.
Total expenses excluding cost of sales and interest expense in the nine months
ended September 30, 1996, increased 1%, to $6,542,210, from $6,498,151 in the
comparable period in 1995. While operating expenses and selling and
administrative expenses increased by approximately $1.6 million due to higher
research and development expenses, and to higher expenses associated with the
Company's interactive television network trial in California, stock appreciation
rights expense decreased by approximately $1.4 million. This decrease was due
principally to a lower market price for the Company's common stock at September
30, 1996.
Depreciation and amortization expense for the nine months ended September 30,
1996, decreased 27% to $362,563, from $499,261 for the nine months ended
September 30, 1995. This decrease was due primarily to the relatively higher
depreciation expense related to set-top cable converters purchased for the
California trial that was incurred the 1995 period.
The Company incurred no interest expense for the nine months ended September 30,
1996, compared to interest expense of $93,596 in the prior year's comparable
period. During 1995, the Company paid in full all of its short and long-term
interest bearing obligations. Interest income in the nine months ended September
30, 1996, decreased 20% to $66,403, compared with $83,150 in the nine months
ended September 30, 1995. The decrease was the result of lower available cash
balances in the more recent period.
For the nine months ended September 30, 1996, the Company's net loss increased
2%, to $5,878,805, or $.50 per share, compared to the net loss before
extraordinary gain of $5,751,327, or $.59 per share incurred in the prior year's
comparable period. The Company recorded an extraordinary gain of $94,117 in the
nine months ended September 30, 1995, the result of the extinguishment of debt
obligations for value that was less than the amounts recorded on the
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Company's books for such obligations. Net loss after extraordinary gain for the
nine months ended September 30, 1995, was $5,657,210, or $.58 per share.
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
During the nine month period ended September 30, 1995, the Company's revenues
increased 40%, to $1,075,925, from $768,739 in the nine month period ended
September 30, 1994. The increase was the result of higher sales to the education
market, including revenues relating to the Company's new distance learning
product. The increase was also partially due to the inclusion of the Company's
education sales for the entire nine month period of 1995 versus only a portion
of the comparable period in 1994. From January 1, 1994, to March 11, 1994,
education sales were reported separately by the Company's 49% subsidiary ACTV
Interactive, which was acquired in full by ACTV, Inc. on March 11, 1994. Prior
to this purchase, the results of ACTV Interactive were accounted for under the
equity method of accounting.
Cost of sales in the nine months ended September 30, 1995, was $318,665, an
increase of 36% over cost of sales of $233,661 in the nine months ended
September 30, 1994. The Company's cost of sales as a percentage of sales revenue
on a year to year basis remained stable at 30.4% in 1994 and 29.6% in the 1995
period.
Total expenses excluding cost of sales and interest expense in the nine months
ended September 30, 1995, increased 55%, to $6,498,151, from $4,182,060 in the
comparable period in 1994. 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 for a portion of the 1994 period were
reported separately. The increase was due also to significantly greater expenses
related to the Company's SAR plan, higher research and development expenses, and
to greater general and administrative costs associated with the launch in May
1995 of the Company's interactive television network trial in California.
Depreciation and amortization expense for the nine months ended September 30,
1995, increased 43% to $819,040, from $571,133 for the nine months ended
September 30, 1994. This increase was partially the result of the Company's
amortization for the entire nine month period of 1995 versus a portion of the
same period in 1994 of goodwill arising from the purchase of the Washington
Post's interest in ACTV Interactive. In addition, for the nine months ended
September 30, 1995, the Company recorded increased depreciation expense related
to equipment purchased for the California trial referred to above.
The Company's interest expense for the nine months ended September 30, 1995,
decreased 49%, to $93,596, compared to $184,186 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 a decrease in notes payable
during the more recent period. Interest income in the nine months ended
September 30, 1995, was $83,150, compared with $37,995
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in the nine months ended September 30, 1994. The increase resulted from higher
available cash balances and higher prevailing market rates of interest in the
more recent period.
For the nine months ended September 30, 1995, the Company's net loss before
extraordinary items was $5,751,337 or $.59 per share, an increase of 46% over
the net loss before extraordinary items of $3,929,537, or $.51 per share,
incurred in the prior year's comparable period. The Company recorded
extraordinary gains of $94,117 in the nine months ended September 30, 1995 and
$521,803 in the nine months ended September 30, 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
extraordinary gain for the nine months ended September 30, 1995, was $5,657,220,
or $.58 per share, an increase of 66% over the net loss after extraordinary gain
for the comparable period of 1994 of $3,407,554, or $.44 per share.
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30,
1995
During the three month period ended September 30, 1996 ("Third Quarter 1996"),
the Company's revenues increased approximately 3%, to $332,220, from $322,036 in
the three month period ended September 30, 1995 ("Third Quarter 1995"). In the
more recent quarter, the Company's revenues derived from education sales, as
well as from license and executive producer fees related to its agreement with
The Greenwich Group. All revenues in Third Quarter 1995 were derived from the
education market.
Cost of sales in Third Quarter 1996 was $165,711, a 56% increase compared to
Third Quarter 1995's cost of sales of $106,328. The Company's gross margin
decreased to 50% in the more recent quarter, from 67% in the corresponding 1995
quarter. The gross margin decrease was due to a significantly lower percentage
of education program sales in the revenue mix for the more recent quarter, as
well as to the inclusion in Third Quarter 1996 of lower-margin production
revenues. Education programs have a higher gross margin than other education
products sold by the Company.
Total expenses excluding cost of sales and interest expense decreased
approximately 22% in Third Quarter 1996, to $1,974,335, from $2,530,908 in Third
Quarter 1995. The decrease was due principally to a gain of approximately
$217,000 related to stock appreciation rights in Third Quarter 1996, versus a
corresponding expense of approximately $801,000 in Third Quarter 1995. This
difference more than offset higher operating and selling and administrative
expenses associated with the Company's operation of its California trial during
the more recent quarter.
Depreciation and amortization expense decreased in Third Quarter 1996 to
$37,327, from $187,645 in Third Quarter 1995. The decrease resulted from the
full depreciation prior to Third Quarter 1996 of set-top cable converters
purchased for the California trial.
The Company incurred no interest expense in Third Quarter 1996, compared to
interest expense of $20,001 in Third Quarter 1995. During 1995, the Company paid
in full all of its short and long-term interest bearing obligations. Interest
income in Third Quarter 1996 was $10,533, a decrease of 61%
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compared with $26,680 in Third Quarter 1995. The decrease resulted from lower
available cash balances in the more recent period.
The Company's net loss in Third Quarter 1996 decreased approximately 21%, to
$1,825,786, or $.15 per share, from $2,308,521, or $.23 per share, in Third
Quarter 1995, principally the result of lower stock appreciation rights expense,
which more than offset greater operating, selling and administrative expenses
related to the California trial.
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND
SEPTEMBER 30, 1994
During the three month period ended September 30, 1995 (the "Third Quarter
1995"), the Company's revenues increased 6% to $322,036, compared to revenues of
$304,261 for the three month period ended September 30, 1994 (the "Third Quarter
1994"). The increase was the result of higher education sales, including
revenues related to the Company's new distance learning product.
Cost of sales in the Third Quarter 1995 was $106,328, an increase of 12% from
cost of sales of $95,215 in the Third Quarter 1994. The increase was due to
higher sales levels in the Third Quarter 1995 as compared to the Third Quarter
1994. The Company's cost of sales as a percentage of sales revenue on a quarter
to quarter basis remained relatively stable at 31% in 1994 and 33% in the 1995
period.
Total expenses excluding cost of sales and interest expense increased 64% in the
Third Quarter 1995, to $2,530,908, from $1,542,070 in the Third Quarter 1994.
This increase resulted from significantly greater expenses related to the
Company's SAR plan, higher research and development expenses, higher general and
administrative costs associated with the launch in May 1995 of the Company's
interactive television network trial in California, and to increased
depreciation and amortization expenses in the more recent period.
Depreciation and amortization expense increased 35% in the Third Quarter 1995 to
$294,238, from $217,691 in the Third Quarter 1994, due to higher depreciation
expense related to equipment purchased for the California trial.
Interest expense declined 54% in the Third Quarter 1995, to $20,001, from
$43,057 in the Third Quarter 1994, due to decreased note payable obligations in
the more recent quarter. Interest income in the Third Quarter 1995 was $26,680,
compared with $7,358 in the Third Quarter 1994. The increase resulted from
higher available cash balances and higher prevailing market rates of interest in
the more recent period.
The Company's net loss for the Third Quarter 1995 was $2,301,521 or $.23 per
share, an increase of 70% compared to the net loss before extraordinary item of
$1,361,407 or $.17 per share incurred in Third Quarter 1994. The Company
recorded an extraordinary gain of $289,958 in the Third Quarter 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 Third Quarter 1994 was $1,071,449 or $.13 per share.
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company (including its operating subsidiaries) has not
generated revenues sufficient to fund its operations, and has incurred operating
losses. Through September 30, 1996, the Company had an accumulated deficit of
approximately $36.2 million. The Company's cash position on September 30, 1996
was $3,021,321, compared to $3,531,782 on December 31, 1995. An additional six
million dollars (plus accrued interest) is being held in escrow and will become
available to the Company only upon the occurrence of certain events (see below).
During Third Quarter 1996 the Company used $1,636,420 in cash for its
operations, compared with $1,194,041 in Third Quarter 1995. The increase in
Third Quarter 1996 was due principally to comparatively lower non-cash expenses
(depreciation/amortization and stock appreciation rights) in the more recent
period, as well as to changes in accounts payable and accrued expenses. The
Company met its cash needs in Third Quarter 1996 from sales of common stock
totaling $1.9 million that were concluded during the first quarter of 1996 and
from sales of convertible preferred stock totaling $10 million ($6 million of
which is currently held in escrow) in August 1996 (see below). The Company met
its cash needs in Third Quarter 1995 from the proceeds of sales of common stock
to private investors completed in the last quarter of 1994 and the first three
quarters of 1995.
With respect to investing activities, in Third Quarter 1996 and 1995 the Company
used cash of $132,367 and $94,182, respectively. Investment activities for Third
Quarter 1996 and Third Quarter 1995 related principally to office improvements
and equipment purchases for the California trial, respectively. The Company's
operating subsidiaries are dependent on advances from the Company to meet their
obligations.
The Company's balance sheets at September 30, 1996 and December 31, 1995 reflect
expense accruals of $566,883 and $404,367, respectively, related to the
Company's stock appreciation rights plan.
In August 1996, the Company raised $10 million (before expenses and commissions
related to the fund raising) from the issuance by two wholly-owned subsidiaries
of the Company, ACTV Holdings, Inc. and ACTV Financing, Inc., of convertible
preferred shares to private investors. Pursuant to this transaction, the
subsidiaries issued preferred shares that are convertible into common shares of
ACTV, Inc. beginning January 1, 1997. The conversion price of the preferred
shares is at a discount to the market price for the ACTV, Inc. common shares at
the time of conversion. The percentage discount increases as the length of the
holding period prior to conversion increases, from a base of 14% for conversion
in January 1997 to a maximum of 30.375% for conversion in September 1997 or
thereafter. The $10 million financing consists of $4 million in immediately
available funds, with the remaining $6 million paid into an escrow account. The
escrow funds are to become available to the Company contingent upon the
satisfaction of certain conditions in the contracts with the holders of the
preferred stock.
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In the first quarter of 1996, the Company raised approximately $1.9 million from
the private sale of shares of the Company's common stock.
The Company believes that it has sufficient resources to fund its operations for
the next twelve month period. However, if the Company does not receive the
escrowed funds and/or does not obtain additional financing, it may be required
to reduce certain planned expenditures in certain of the markets it is
attempting to develop. If management's assumptions regarding future events prove
incorrect, the Company may be unable to fund its operations, even at a reduced
level, for the next twelve months. The Company has no agreements, arrangements
or understanding to obtain additional financing, other than as disclosed herein.
There can be no assurance that additional financing, if it should be needed,
will be available on terms satisfactory to the Company or at all.
The Company believes that it may be required to expend approximately $500,000 in
the remainder of 1996 and the first six months of 1997 to facilitate the
completion of current research and development projects, relating primarily to
the development of software to implement the Company's programming technology in
digital set-top terminals.
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.
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is
a party.
Item 2 CHANGES IN SECURITIES
None.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On July 17, 1996 the Company held an Annual Meeting of Shareholders for
which it solicited votes by proxy. The following is a brief description of the
matters voted upon at the meeting and a statement of the number of votes cast
for and against, and the number of abstentions as to each matter.
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1. To approve an amendment to the Company's By-Laws to provide for the election
of directors to staggered terms.
For Against Abstain
6,142,468 339,897 96,700
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2. Election of directors:
For Withheld
William C. Samuels 10,970,518 92,385
William A. Frank 10,976,918 85,985
David Reese 10,983,118 79,785
Steven W. Schuster 10,983,718 79,185
Bruce Crowley 10,983,118 79,785
Richard Hyman 10,983,718 79,185
3. To approve an amendment to the Company's Restated Certificate of
Incorporation that would increase the authorized shares of the Company's Common
Stock to 35,000.
For Against Abstain
9,995,974 276,794 109,035
4. To adopt the Company's 1996 Stock Appreciation Rights Plan.
For Against Abstain
5,337,077 687,706 497,265
5. To adopt the Company's 1996 Stock Option Plan.
For Against Abstain
5,596,137 803,256 503,655
6. To ratify appointment of Deloitte & Touche LLP as independent auditors of
the Company.
For Against Abstain
10,524,583 28,735 85,585
Item 5 OTHER INFORMATION
None.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed herewith or incorporated by reference as
indicated:
3.1 Amended and Restated Certificate of Incorporation of ACTV, Inc.
10.1 Registration Rights and Exchange Agreement
10.2 Preferred Stock Investment Agreement [ACTV Financing, Inc.]
10.3 Preferred Stock Investment Agreement [ACTV Holdings, Inc.]
11.1 Computation of Loss Per Common Share
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTV, Inc.
Registrant
Date: November 13, 1996 /s/ William C. Samuels
----------------- ----------------------
William C. Samuels
Chairman, Chief Executive Officer
and Director
Date: November 13, 1996 /s/ Christopher C. Cline
----------------- ------------------------
Christopher C. Cline
Vice President (principal financial
and accounting officer)
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INDEX TO EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of ACTV, Inc.
10.1 Registration Rights and Exchange Agreement
10.2 Preferred Stock Investment Agreement [ACTV Financing, Inc.]
10.3 Preferred Stock Investment Agreement [ACTV Holdings, Inc.]
11.1 Statement regarding computation of loss per share
27.1 Financial data schedule
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Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ACTV, INC.
* * * * *
ACTV, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of ACTV, Inc.
(the "Corporation"), resolutions were duly adopted setting forth a proposed
amendment to the Restated Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and calling an annual meeting of the
stockholders of the Corporation for consideration of, among other things, said
amendment. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Company's Restated Certificate of
Incorporation be amended by deleting the first paragraph of
Article IV of the Restated Certificate of Incorporation of the
Company in its entirety and substituting in lieu thereof the
following:
"FOURTH: (A) The aggregate number of shares of all
classes of stock which the corporation shall have
authority to issue is THIRTY-SIX MILLION
(36,000,000) shares, divided into classes as
follows:
(1) THIRTY-FIVE MILLION (35,000,000) shares of
Common Stock, $0.10 per share (hereinafter called the
"Common Stock"); and
(2) ONE MILLION (1,000,000) shares of Preferred
Stock, $0.10 per share (hereinafter called the "Preferred
Stock"), to be issued in series;" and it is further
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RESOLVED, that except as expressly amended, the Fourth
Article of the Restated Certificate of Incorporation of the
Corporation shall hereby remain in effect as heretofore set forth
and shall be unchanged in any respect by any provision thereof.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Corporation shall not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused this certificate
to be signed by William C. Samuels, its Chief Executive Officer and President
and attested to by Christopher C. Cline, its Secretary, this 31st day of July,
1996.
By: /s/ William C. Samuels
Chief Executive Officer and President
ATTEST:
By: /s/ Christopher Cline
Secretary
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Exhibit 10.1
REGISTRATION RIGHTS AND EXCHANGE AGREEMENT
THIS REGISTRATION RIGHTS AND EXCHANGE AGREEMENT ("Exchange
Agreement") entered into as of August ___, 1996 between ACTV, Inc., a Delaware
corporation with offices at 1270 Avenue of the Americas, New York, New York
10020 ("ACTV"), and each of the entities listed under "Investors" on the
signature page hereto (each an "Investor" and collectively the "Investors"),
each with offices at the address listed under such Investor's name on Schedule I
hereto.
W I T N E S S E T H:
WHEREAS, ACTV Financing, Inc., a Delaware corporation
("Financing"), and ACTV Holdings, Inc., a Delaware corporation ("Holdings", and
together with Financing, the "Subsidiaries"), are wholly-owned subsidiaries of
ACTV;
WHEREAS, pursuant to that certain Preferred Stock Investment
Agreement dated as of the date hereof by and between Financing and the Investors
(the "Financing Investment Agreement"), Financing has agreed to sell and issue
to the Investors, and the Investors have agreed to purchase from Financing, an
aggregate of 240,000 shares of Financing's 5% Cumulative Convertible Preferred
Stock (the "Financing Preferred Shares") on the terms and conditions set forth
therein;
WHEREAS, pursuant to that certain Preferred Stock Investment
Agreement dated as of the date hereof by and between Holdings and the Investors
(the "Holdings Investment Agreement", and together with the Financing Investment
Agreement, the "Investment Agreements"), Holdings has agreed to sell and issue
to the Investors, and the Investors have agreed to purchase from Holdings, an
aggregate of 160,000 shares of Holdings' 5% Cumulative Convertible Preferred
Stock (the "Holdings Preferred Shares", and together with the Financing
Preferred Shares, the "Preferred Shares") on the terms and conditions set forth
therein;
WHEREAS, the Investment Agreements and the certificates of
incorporation for the Subsidiaries contemplate that the Preferred Shares will be
exchangeable into shares ("Common Shares") of common stock, par value $0.10, of
ACTV ("Common Stock") pursuant to the terms and conditions set forth herein; and
WHEREAS, pursuant to the terms of, and in partial consideration
for, the Investors' agreement to enter into the Investment Agreements, ACTV has
agreed to provide the Investors with certain registration rights with respect to
the Common Shares as set forth in this Exchange Agreement;
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NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Investment Agreements and this Exchange Agreement, ACTV and the Investors agree
as follows:
1. Certain Definitions. As used in this Exchange Agreement, the
following terms shall have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to
such terms in the Investment Agreements.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) the Common Shares issued
to each Holder or its transferee or designee upon exchange of the Preferred
Shares or upon any stock split, stock dividend, recapitalization or similar
event with respect to such Common Shares; and (ii) any securities issued or
issuable to each Holder upon the exchange or conversion of any Preferred Shares
or Common Shares.
The terms "register", "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by
ACTV in connection with each Holder's registration rights under this Exchange
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for ACTV, blue sky fees and
expenses, reasonable fees and disbursements of counsel to Holders (using a
single counsel selected by a majority in interest of the Holders) for a "due
diligence" examination of ACTV and review of the Registration Statement and
related documents, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
ACTV, which shall be paid in any event by ACTV).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holders not included with "Registration
Expenses".
"Holder" and "Holders" shall include an Investor or the
Investors, respectively, and any transferee of the Preferred Shares or Common
Shares or Registrable Securities which have not been sold to the public to whom
the registration rights conferred by this Exchange Agreement have been
transferred in compliance with this Exchange Agreement.
"Registration Statement" shall have the meaning set forth in
Section 2(a) herein.
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"Regulation D" shall mean Regulation D as promulgated pursuant to
the Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933,
as amended.
2. Registration Requirements. ACTV shall use its diligent best
efforts to effect the registration of the Registrable Securities (including
without limitation the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as would permit or facilitate the sale or distribution
of all the Registrable Securities in the manner (including manner of sale) and
in all states reasonably requested by the Holder for purposes of maximizing the
proceeds realizable by the Holder from such sale or distribution. Such best
efforts by ACTV shall include without limitation the following:
(a) ACTV shall, as expeditiously as reasonably possible after
the Closing Date:
(i) Prepare and file a registration statement with the
Commission pursuant to Rule 415 under the Securities Act on Form S-3 under the
Securities Act (or in the event that ACTV is ineligible to use such form, such
other form as ACTV is eligible to use under the Securities Act) covering the
Registrable Securities ("Registration Statement"). Thereafter ACTV shall use its
best efforts to have such Registration Statement and other filings declared
effective. ACTV shall provide Holders reasonable opportunity to review any such
Registration Statement or amendment or supplement thereto prior to filing.
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such Registration Statement and notify the holders of the filing and
effectiveness of such Registration Statement and any amendments or supplements.
(iii) Furnish to each Holder such numbers of copies of a
current prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any documents
incorporated by reference therein and such other documents as such Holder may
reasonably require in order to facilitate the disposition of Registrable
Securities owned by such Holder.
(iv) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by each
Holder provided that ACTV shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
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(v) Notify each Holder immediately of the happening of any
event as a result of which the prospectus (including any supplements thereto or
thereof) included in such Registration Statement, as then in effect, includes an
untrue statement of material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(vi) Use its best efforts to list the Registrable Securities
covered by such Registration Statement with any securities exchange(s) and/or
markets on which the Common Stock is then listed and prepare and file any
required filings with the National Association of Securities Dealers, Inc. or
any exchange or market where the Common Shares are traded.
(b) (i) ACTV agrees that it shall file the Registration Statement
complying with the requirements of this Exchange Agreement within 90 days from
the Closing Date and shall cause such Registration Statement to become effective
by December 31, 1996. In the event that such Registration Statement has not been
declared effective by December 31, 1996, then ACTV shall pay to each Holder
liquidated damages in an amount equal to $0.75 per Preferred Share held by such
Holder for each 30-day period from and after December 31, 1996 that such
Registration Statement is not effective.
(ii) In the event that ACTV fails, refuses or is unable to
cause the Registrable Securities covered by the Registration Statement to be
listed with the securities exchange(s) and markets on which the Common Stock is
traded or at least the NASDAQ Small Capitalization Market at all times on or
after the Registration Statement is declared effective, then ACTV shall pay to
each Holder liquidated damages in an amount equal to $0.75 per Preferred Share
held by such Holder for each 30-day period from and after such failure, refusal
or inability to so list the Registrable Securities until the Registrable
Securities are so listed.
(iii) In the event any Holder's ability to sell Registrable
Securities under the Registration Statement is suspended for more than thirty
(30) days in the first instance or for more than ten (10) days for each
suspension thereafter ("Suspension Grace Period"), including without limitation
by reason of any suspension or stop order with respect to the Registration
Statement or the fact that an event has occurred as a result of which the
prospectus (including any supplements thereto) included in such Registration
Statement then in effect includes an untrue statement of material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
then ACTV shall pay to each Holder liquidated damages in an amount equal to
$0.75 per Preferred Share held by such Holder for each 30-day period from and
after the last day of the Suspension Grace Period until such suspension no
longer exists.
(iv) In the event that ACTV does not have a sufficient number
of Common Shares available to satisfy ACTV's obligations to any Holder upon
receipt of an Exchange Notice (as defined below) or is otherwise unable to issue
such Common Shares (including without limitation by reason of the limits
described in Section 11(n) below) in accordance with the terms of this Exchange
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Agreement upon receipt of an Exchange Notice, then ACTV shall pay to each Holder
liquidated damages in an amount equal to $0.75 per Preferred Share held by such
Holder for each 30-day period from and after the Exchange Date that ACTV fails
or refuses to issue Common Shares in accordance with the terms hereof.
(v) In the event that ACTV fails to authorize and reserve an
additional 20,000,000 shares of Common Stock for issuance upon exchange of
Preferred Shares by the sixtieth (60th) day following a Reserve Increase Event
(as defined below in Section 11.g), then ACTV shall pay to each Holder
liquidated damages in an amount equal to $0.75 per Preferred Share held by such
Holder for each 30-day period from and after such sixtieth (60th) day until such
additional shares are so authorized and reserved.
(vi) Each liquidated damages provision provided for in the
foregoing clauses (i) through (v) shall be in addition to each other liquidated
damages provision; provided, however, that in no event shall ACTV be obligated
to pay to any Holder liquidated damages in an amount greater than $0.75 per
Preferred Share held by such Holder for any 30-day period. All payments required
to be made in connection with the above liquidated damages provisions shall be
paid in cash by the tenth (10th) day of each calendar month (which payments
shall be pro rata on a per diem basis for any period of less than 30 days). In
the event that ACTV fails or refuses to pay such liquidated damages payments at
such time, then at any Holder's request and option, ACTV shall purchase the
Preferred Shares held by such Holder, within five (5) days of such request, at a
purchase price equal to the ACTV Premium Redemption Price (as defined in Section
11.m(2) below), provided that such Holder may revoke such request at any time
prior to receipt of such payment of such purchase price.
(vii) ACTV acknowledges that any failure, refusal or inability
by ACTV described in the foregoing clauses (i) through (v) will cause the
Holders to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Exchange Agreement a provision for liquidated damages. The parties acknowledge
and agree that the liquidated damages provisions set forth above represent the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The liquidated damages provided for above are in addition
to and not in lieu or limitation of any other rights the Holders may have at
law, in equity or under the terms of the Preferred Shares, the Investment
Agreements or this Exchange Agreement, including without limitation the right to
specific performance. Each Holder shall be entitled to specific performance of
any and all obligations of ACTV in connection with the registration rights of
the Holders hereunder. In the event of any of the circumstances described in the
foregoing clauses (i) through (v) above, then each of the ACTV Redemption
Commencement Date (as defined in Section 11.m below) and the Maximum Restrictive
Covenant Date (as defined in Section 11.j below) shall be moved back 1.5 days
for each day that any of the circumstances in clauses (i), (ii), (iii) (without
regard to the applicability of the Suspension Grace Period), (iv) or (v) exist.
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(c) If the Holder(s) intend to distribute the Registrable
Securities by means of an underwriting, the Holder shall so advise ACTV. Any
such underwriting may only be administered by investment bankers reasonably
satisfactory to ACTV.
(d) ACTV shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or underwriters, if any)
and take all such other reasonable actions reasonably requested by the Holders
in connection therewith in order to expedite or facilitate the disposition of
such Registrable Securities and in such connection, whether or not an
underwriting agreement is entered into and whether or not the Registrable
Securities are to be sold in an underwritten offering:
(i) make such representations and warranties to the Holders
and the underwriter or underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of counsel to
ACTV, dated the effective day (or in the case of an underwritten offering, dated
the date of delivery of any Registrable Securities sold pursuant thereto) of the
Registration Statement, which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Holders and the
underwriter(s), if any, and their counsel and covering, without limitation, such
matters as the due authorization and issuance of the securities being registered
and compliance with securities laws by ACTV in connection with the
authorization, issuance and registration thereof, addressed to the Holders and
each underwriter, if any;
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an underwritten
offering, at the time of delivery of any Registrable Securities sold pursuant
thereto), a "comfort" letter from ACTV's independent certified public
accountants addressed to the Holders and each underwriter, if any, stating that
such accountants are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations thereunder,
and otherwise in customary form and covering such financial and accounting
matters as are customarily covered by letters of the independent certified
public accountants delivered in connection with secondary offerings;
(iv) if an underwriting agreement is entered into, the same
shall include customary indemnification and contribution provisions and
procedures for secondary underwritten offerings; and
(v) ACTV shall deliver such documents and certificates as may
be reasonably requested by the Holders of the Registrable Securities being sold
or the managing underwriter or underwriters, if any, to evidence compliance with
clause (i) above and with any customary conditions contained in the underwriting
agreement, if any, or other agreement entered into by ACTV;
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the foregoing in this paragraph 2(d) shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
provided, however, the foregoing in paragraph 2(d) shall not be required on more
than two (2) occasions.
(e) ACTV shall make available for inspection by the Holders, a
representative or representatives of the Holders, any underwriter participating
in any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for such purposes, all SEC Documents (as defined below) filed
subsequent to the Closing, pertinent corporate documents and properties of ACTV,
and cause ACTV's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement.
(f) Subject to Section 2(b) above, ACTV may suspend the
effectiveness of any Registration Statement in the event, and for such period of
time as, such a suspension is required by the rules and regulations of the
Commission. ACTV will use its best efforts to cause such suspension to terminate
at the earliest possible date.
3. Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance with
registration pursuant to this Exchange Agreement shall be borne by ACTV, and all
Selling Expenses of a Holder shall be borne by such Holder.
4. Registration on Form S-3. ACTV shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms, or in the event that ACTV is ineligible to use such form, such form as
ACTV is eligible to use under the Securities Act.
5. Registration Period. In the case of the registration effected
by ACTV pursuant to this Exchange Agreement, ACTV will use its best efforts to
keep such registration effective until all the Holders have completed the sales
or distribution described in the Registration Statement relating thereto or, if
earlier, until such Registerable Securities may be sold under Rule 144(k)
(provided that ACTV's transfer agent has accepted an instruction from ACTV to
such effect).
6. Indemnification.
(a) ACTV Indemnity. ACTV will indemnify each Holder, each of
its officers, directors and partners, and each person controlling each Holder,
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Exchange Agreement, and each
underwriter, if any, and each person who controls, within the meaning of Section
15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such
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registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
ACTV of the Securities Act or any state securities law or in either case, any
rule or regulation thereunder applicable to ACTV and relating to action or
inaction required of ACTV in connection with any such registration,
qualification or compliance, and will reimburse each Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that ACTV will not be liable in any such case to a Holder to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to ACTV by such Holder or the underwriter (if any) therefor and stated
to be specifically for use therein. The indemnity agreement contained in this
Section 6(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of ACTV (which consent will not be unreasonably withheld).
(b) Holder Indemnity. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify ACTV, each of its directors, officers, partners, and each underwriter,
if any, of ACTV's securities covered by such a registration statement, each
person who controls ACTV or such underwriter within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, each other Holder
(if any), and each of their officers, directors and partners, and each person
controlling such other Holder(s) against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, and will reimburse ACTV and such other Holder(s) and their
directors, officers and partners, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to ACTV by such Holder and
stated to be specifically for use therein, and provided that the maximum amount
for which such Holder shall be liable under this indemnity shall not exceed the
net proceeds received by such Holder from the sale of the Registrable
Securities. The indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld).
(c) Procedure. Each party entitled to indemnification under
this Article (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
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any such claim in any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is materially and adversely
affected by such failure to provide notice. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
7. Contribution. If the indemnification provided for in Section 6
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between ACTV on the one hand and any Holder on the other, in such
proportion as is appropriate to reflect the relative fault of ACTV and of such
Holder in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of ACTV on the one hand and of any Holder on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by ACTV or by
such Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
ACTV and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any Holder, the net proceeds received by such Holder from the sale of
Registrable Securities or (ii) in the case of an
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underwriter, the total price at which the Registrable Securities purchased by it
and distributed to the public were offered to the public exceeds, in any such
case, the amount of any damages that such Holder or underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of 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.
8. Survival. The indemnity and contribution agreements contained
in Sections 6 and 7 and the representations and warranties of ACTV referred to
in Section 2(d)(i) shall remain operative and in full force and effect
regardless of (i) any termination of this Exchange Agreement or the Investment
Agreements or any underwriting agreement, (ii) any investigation made by or on
behalf of any Indemnified Party or by or on behalf of ACTV, and (iii) the
consummation of the sale or successive resales of the Registrable Securities.
9. Information by Holders. Each Holder shall furnish to ACTV such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as ACTV may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Exchange Agreement. The intended method or methods of
disposition and/or sale (Plan of Distribution) of such securities as so provided
by such Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of such Holder.
10. Board Positions. So long as any Preferred Stock is
outstanding ACTV shall use its best efforts to nominate and cause the election
of a person designated by the Placement Agent (as defined in the Investment
Agreements) to the Board of Directors of ACTV. In addition, if the Registration
Statement complying with the requirements of this Exchange Agreement has not
been declared effective by December 31, 1996, ACTV shall use its best efforts to
nominate and cause the election of a person designated by the holders of a
majority of the Preferred Stock then outstanding to the Board of Directors of
ACTV. ACTV represents, warrants and covenants that it has the authority and
ability to, and shall, increase the size of the Board of Directors of ACTV if
necessary to comply with the provisions of this paragraph.
11. Exchange Terms. On and after January 1, 1997, each Holder of
the Preferred Shares shall have the right at any time and from time to time, at
the option of such Holder, to exchange any or all Preferred Shares for such
number of fully paid, validly issued and nonassessable Common Shares, free and
clear of any liens, claims or encumbrances, as is determined by dividing (i) the
sum of $25 times the number of Preferred Shares being exchanged plus accrued and
unpaid dividends thereon (with dividends deemed accrued on a per diem basis
through the Exchange Date (as defined below) even if the Exchange Date is not at
the end of a calendar quarter) plus any liquidated damages owing to such Holder
on the Exchange Date, by (ii) the Exchange Price determined as hereinafter
provided in effect on the Exchange Date, on the following terms and conditions.
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a. Mechanics of Exchange. To exchange Preferred Shares into
Common Shares, the Holder shall give written notice ("Exchange Notice") to ACTV
in the form of Exhibit 11(a) hereto (which Exchange Notice may be given by
facsimile transmission) stating that such Holder elects to exchange the same and
shall state therein the number and type of shares to be exchanged and the name
or names in which such Holder wishes the certificate or certificates for Common
Shares to be issued (the date of such Exchange Notice shall be referred to
herein as the "Exchange Date"). Promptly thereafter the Holder shall surrender
the certificate or certificates representing the shares to be exchanged, duly
endorsed, at the office of ACTV or of any transfer agent for such shares. ACTV
shall, immediately upon receipt of such Exchange Notice, issue and deliver to or
upon the order of such Holder, against delivery of the certificates representing
the shares which have been exchanged, a certificate or certificates for the
number of Common Shares to which such Holder shall be entitled (with the number
of and denomination of such certificates designated by such Holder), and ACTV
shall cause Financing and/or Holdings, as the case may be, to immediately issue
and deliver to such Holder a certificate or certificates for the number of
Preferred Shares which such Holder has not yet elected to exchange hereunder but
which are evidenced in part by the certificate(s) delivered to ACTV in
connection with such Exchange Date; ACTV shall effect such issuance within three
(3) trading days (as defined in Section 11(b)(4) below) of the Exchange Date and
shall transmit the certificates by messenger or overnight delivery service to
reach the address designated by such Holder within three (3) trading days after
the receipt of such Exchange Notice ("T+3"). In the alternative to physical
delivery of certificates for Common Shares, if delivery of the Common Shares
pursuant to any exchange hereunder may be effectuated by electronic book-entry
through Depository Trust Company ("DTC"), then delivery of Common Shares
pursuant to such exchange shall be closed and settled on T+3 by book-entry
transfer through DTC, and the Common Shares in connection with such exchange
shall be deemed delivered by such book-entry transfer. In the case of such DTC
book-entry transfer no exchange shall be deemed complete until a book-entry
confirmation is received confirming that the applicable Common Shares have been
transferred to the account of such Holder or its nominee or designee, and the
exchange of the Preferred Shares for such Common Shares shall take place on the
same trading day and as simultaneously as practicable. The parties agree to
coordinate with DTC to accomplish this objective. The exchange pursuant to this
Section 11 shall be deemed to have been made immediately prior to the close of
business on the Exchange Date. The person or persons entitled to receive the
Common Shares issuable upon such exchange shall be treated for all purposes as
the record Holder or Holders of such Common Shares at the close of business on
the Exchange Date.
b. Determination of Exchange Price.
(1) At any date up to and including August 31, 1997, the
Exchange Price shall be equal to:
[1 - Applicable Percentage (as set forth below)] x Agreed Value (as defined
below).
The Agreed Value shall equal the lesser of: (x) the weighted-average (based upon
the number of shares sold) of the actual selling prices at which the Holder
giving an Exchange Notice shall have sold Common Shares during the three (3)
trading days immediately preceding the Exchange Date,
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but not less than the lowest trading price on the date of such trade as reported
by the principal market on which the Common Stock is traded; (y) the
weighted-average (based upon the number of shares sold) of the actual selling
prices at which the Holder giving an Exchange Notice shall have sold Common
Shares on the Exchange Date; or (z) the average of the daily means between the
low trading price of the Common Stock and the Closing Price of the Common Stock
for the three (3) consecutive trading days immediately preceding such date.
(2) The Applicable Percentage shall be as follows:
14.000% during January 1997
16.375% during February 1997
17.000% during March 1997
20.857% during April 1997
23.000% during May 1997
25.000% during June 1997
26.875% during July 1997
27.375% during August 1997
(3) On and after September 1, 1997, the Exchange Price
shall be the lesser of: (x) 69.625% of the average of the daily means between
the low trading price of the Common Stock and the closing price of the Common
Stock for all the trading days during the month of August 1997; (y) 69.625% of
the weighted-average (based upon the number of shares sold) of the actual
selling prices at which the Holder giving an Exchange Notice shall have sold
Common Shares on the Exchange Date; or (z) 69.625% of the average of the daily
means between the low trading price of the Common Stock and the Closing Price of
the Common Stock during the 3 trading days immediately preceding the Exchange
Date.
(4) The "low trading price" and the "Closing Price",
respectively, of the Common Stock on any day shall be (A) the lowest reported
sale price and the reported Closing Price (last sale price) of the Common Stock
on the New York Stock Exchange or the American Stock Exchange, or (B) if the
Common Stock is not listed on the New York Stock Exchange or the American Stock
Exchange, the lowest reported sale price and the reported Closing Price of the
Common Stock on the principal automated securities price quotation system on
which sale prices of the Common Stock are reported, or (C) if the Common Stock
is not listed on such stock exchanges and sale prices of the Common Stock are
not reported on an automated quotation system, the lowest bid price and the mean
of the final bid and asked prices for the Common Stock as reported by National
Quotation Bureau Incorporated if at least two securities dealers have inserted
both bid and asked quotations for the Common Stock on at least five of the ten
preceding trading days. If none of the foregoing provisions are applicable, the
"mean of the low trading price and the Closing Price" of the Common Stock on a
day will be the fair market value of the Common Stock on that day as determined
by a member firm of the New York Stock Exchange, Inc., selected in good faith by
the Board of Directors of ACTV and reasonably acceptable to the Holders. The
term "trading day" means (x) if the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, a day on which there is trading on the
such stock exchange, (y) if the Common Stock is
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not listed on either of such stock exchanges but sale prices of the Common Stock
are reported on an automated quotation system, a day on which trading is
reported on the principal automated quotation system on which sales of the
Common Stock are reported, or (z) if the foregoing provisions are inapplicable,
a day on which quotations are reported by National Quotation Bureau
Incorporated.
(5) In the event that during any period of consecutive
trading days provided for above, ACTV shall declare or pay any dividend on the
Common Stock payable in Common Stock or in rights to acquire Common Stock, or
shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, then the Exchange Price
shall be proportionately decreased or increased, as appropriate, to give effect
to such event.
c. Distributions. In the event ACTV shall at any time or from
time to time make or issue, or fix a record date for the determination of
Holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of ACTV or any of its direct or indirect subsidiaries
other than additional Common Shares, then in each such event, in addition to the
number of shares of Common Stock receivable upon exchange, provision shall be
made so that the Holders of Preferred Shares shall receive, upon the exchange
thereof, the securities of ACTV or such subsidiary which they would have
received had they been the owners on the date of such event of the number of
Common Shares issuable to them upon exchange.
d. Certificate for Exchange Price Adjustment. ACTV shall, upon
the written request at any time of any Holder of Preferred Shares, furnish or
cause to be furnished to such Holder a certificate prepared by ACTV setting
forth (i) any adjustments and readjustments of the Exchange Price pursuant to
this Section 11, and (ii) the number of other securities and the amount, if any,
of other property which at the time would be received upon the exchange of
Preferred Shares with respect to each share of Common Stock received upon such
exchange.
e. Notice of Record Date. In the event of any taking by ACTV of a
record of the Holders of any class of securities for the purpose of determining
the Holders thereof who are entitled to receive any dividend or other
distribution, any security or right convertible into or entitling the holder
thereof to receive additional Common Shares, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, ACTV shall mail to each
Holder of Preferred Shares at least 10 days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right and the amount and
character of such dividend, distribution, security or right.
f. Issue Taxes. ACTV shall pay any and all issue and other taxes,
excluding any income, franchise or similar taxes, that may be payable in respect
of any issue or delivery of Common Shares on exchange of Preferred Shares
pursuant hereto; provided, however, that ACTV shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any Holder in connection
with any such exchange.
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g. Reservation of Stock Issuable Upon Exchange. ACTV shall at all
times reserve and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the exchange of the Preferred
Shares, such number of its Common Shares as shall from time to time be
sufficient to effect the exchange of all outstanding Preferred Shares, and if at
any time the number of authorized but unissued Common Shares shall not be
sufficient to effect the exchange of all the then outstanding Preferred Shares,
ACTV will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued Common Shares to such number
of shares as shall be sufficient for such purpose, including without limitation
engaging in best efforts to obtain the requisite shareholder approval. Without
in any way limiting the foregoing, ACTV agrees to reserve and at all times keep
available not less than 15,000,000 authorized but unissued Common Shares for
such exchange so long as any Preferred Shares remain outstanding, and such
figure shall be appropriately and equitably adjusted for any stock split,
reverse split, stock dividend or reclassification of the Common Stock. So long
as any Preferred Shares remain outstanding, in the event that at any time the
Post Option (as defined in Section 14.l below) is exercised by Post (as defined
in Section 14.l below) or the Closing Price of the Common Stock as reported in
the Wall Street Journal for any ten (10) trading days after the Closing Date
(whether or not consecutive) is below $2.50 per share (subject to appropriate
and equitable adjustment for stock dividends, stock splits, reverse splits, and
combinations) ("Reserve Increase Event"), then within sixty (60) days following
such Reserve Increase Event, ACTV shall call and hold a shareholders meeting for
the purpose of, and solicit proxies to vote in favor of, increasing the number
of authorized shares of Common Stock by at least 20,000,000 shares, and at least
20,000,000 of such newly authorized but unissued shares shall be reserved and
kept available at all times for the purpose of effecting the exchange of the
Preferred Shares hereunder (in addition to any shares already reserved); such
20,000,000 figure shall be appropriately and equitably adjusted for any stock
splits, reverse splits, stock dividends, combinations or reclassifications of
the Common Stock. Such covenant requiring ACTV to hold a shareholders meeting
may be waived by a majority-in-interest of the holders of outstanding Preferred
Shares in a written waiver referring specifically to such shareholders meeting,
provided that any such waiver shall apply only to the extent specifically
expressed in such waiver and shall not apply to any Reserve Increase Event in
the future. ACTV shall file a Registration Statement with respect to such newly
reserved shares within five (5) days of such shareholders meeting and shall
cause such Registration Statement to become effective within sixty (60) days of
such shareholders meeting. All of the registration rights and remedies hereunder
shall apply to the registration of such newly reserved shares, including without
limitation the liquidated damages provisions contained in Section 2(b) hereof
(with such sixty (60) day deadline replacing "December 31, 1996" in Section
2(b)(i)). In the event any Holder at any time is unable to exchange any
Preferred Shares hereunder due to an insufficient number of Common Shares
available, then ACTV promptly shall, at the request of such Holder, purchase
such Preferred Shares which cannot be exchanged at a purchase price equal to the
ACTV Premium Redemption Price. In addition to the foregoing, in the event that
ACTV fails to authorize and reserve an additional 20,000,000 shares of Common
Stock for issuance upon exchange of Preferred Shares by the sixtieth (60th) day
following any Reserve Increase Event, then at any time thereafter at the request
of any Holder, ACTV shall promptly purchase from such Holder, at a purchase
price equal to the ACTV Premium Redemption Price, the number of Preferred Shares
equal to such Holder's pro rata share of the "Deficiency". The "Deficiency"
shall be equal to the number of Preferred Shares that would not
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be able to be exchanged for Common Shares, due to an insufficient amount of
Common Shares available, if all the outstanding Preferred Shares on such
sixtieth (60th) day were submitted for exchange hereunder at an Exchange Price
equal to 69.625% of the low trading price during such 60-day period. In addition
to and not in lieu of any of the foregoing for so long as any Preferred Shares
remain outstanding, upon the expiration of the Post Option, ACTV agree to
reserve and at all times keep available, as additional reserved authorized but
unissued Common Shares for exchange of Preferred Shares, 50% of the Common
Shares which are or become available following the expiration of the Post Option
(such figure to be appropriately and equitably adjusted for any stock splits,
reverse splits, stock dividends, combinations or reclassifications of the Common
Stock).
h. Fractional Shares. No fractional shares shall be issued upon
the exchange of any Preferred Shares. All Common Shares (including fractions
thereof) issuable upon exchange of more than one Preferred Share by a Holder
thereof shall be aggregated for purposes of determining whether the exchange
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the exchange would result in the issuance of a
fraction of a share of Common Stock, ACTV shall, in lieu of issuing any
fractional share, pay the Holder otherwise entitled to such fraction a sum in
cash equal to the fair market value of such fraction on the date of exchange (as
determined in good faith by the Board of Directors of ACTV).
i. Notices. Any notice required by the provisions of this Section
11 to be given to the Holders of shares of Preferred Shares shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each Holder of record at its address appearing on the books of ACTV.
j. Merger. In case of any reorganization or any reclassification
of the capital stock of ACTV or any consolidation or merger of ACTV with or into
any other corporation or corporations or a sale of all or substantially all of
the assets of ACTV to any other person, then, as part of such reorganization,
consolidation, merger or sale, provision shall be made so that each Preferred
Share shall thereafter be exchangeable into the number of shares of stock or
other securities or property (including cash) to which a Holder of the number of
Common Shares deliverable upon exchange of such Preferred Share would have been
entitled upon the record date of (or date of, if no record date is fixed) such
event and, in any case, appropriate adjustment (as determined in good faith by
the Board of Directors of ACTV and a majority in interest of the Holders) shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the Holders of the Preferred Shares, to
the end that the provisions set forth herein, including without limitation the
method for determination of the Exchange Price, shall thereafter be applicable,
as nearly as equivalent as is practicable, in relation to any shares of stock or
the securities or property (including cash) thereafter deliverable upon the
exchange of the Preferred Shares. Until the date ("Restrictive Covenant
Termination Date") which is the earlier of (1) November 1, 1997 (as adjusted
pursuant to Section 2(b)(vii) above, "Maximum Restrictive Covenant Date"), or
(ii) such date on which at least ninety percent (90%) of the Preferred Shares
have been exchanged for Common Shares, ACTV agrees that there shall be no such
reorganization, consolidation, merger or sale unless such appropriate adjustment
is agreed to in writing in advance
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by the Board of Directors of ACTV and a majority in interest of the holders of
outstanding Preferred Shares (which agreement will not be unreasonably
withheld).
k. Change in Control. If prior to January 1, 1997 there occurs
any corporate reorganization or any change of control transactions or series of
related transactions in which in excess of 50% of ACTV's Board of Directors
consists of directors not nominated by the prior Board of Directors of ACTV, or
in excess of 50% of ACTV's voting power is transferred through a merger,
consolidation, tender offer or similar transaction, then notwithstanding the
date restriction contained in the first paragraph of this Section 11, each
Holder shall have the right to exchange any or all of its Preferred Shares for
Common Shares at any time prior to January 1, 1997 in accordance with the terms
hereof at an Applicable Percentage equal to 14.000%. ACTV further agrees that it
shall not agree or consent to or enter into any transaction or series of
transactions as a result of which the Common Shares would cease to be publicly
traded unless agreed to in writing in advance by the Board of Directors of ACTV
and a majority in interest of the holders of Preferred Shares. So long as any
Preferred Shares remain outstanding, in the event ACTV desires to effect any of
the transactions described in this paragraph at any time (whether occurring
before or after January 1, 1997), the closing of such transaction shall be
conditioned upon the prior purchase by ACTV of, and payment for, at the request
of any Holder, all (or such portion requested by such Holder) of the outstanding
Preferred Shares held by such Holder at a purchase price equal the ACTV Premium
Redemption Price (as defined below). ACTV shall provide all Holders of Preferred
Shares with 30 days' prior notice of any such transaction, and such notice shall
be deemed an offer to purchase the Preferred Shares pursuant to the preceding
sentence.
l. Limitations on Holder's Right to Convert. Notwithstanding
anything to the contrary contained herein, at any time prior to delivery of a
ACTV Redemption Notice (as defined below) by ACTV, no Preferred Share may be
exchanged by a Holder to the extent that, after giving effect to Common Shares
to be issued pursuant to an Exchange Notice, the total number of Common Shares
deemed beneficially owned by such Holder (excluding shares that might otherwise
be deemed beneficially owned by reason of the exchange right herein), together
with all Common Shares deemed beneficially owned by the Holder's "affiliates" as
defined in Rule 144 of the Act, would exceed 4.9% of the total issued and
outstanding shares of the ACTV's Common Stock, provided that each Holder shall
have the right to waive this restriction, in whole or in part, immediately in
the case of a transaction of the type described in Section 11.k (whether or not
occurring prior to January 1, 1997), and in any other case upon 61 days prior
notice to ACTV. The delivery of an Exchange Notice by any Holder shall be deemed
a representation by such Holder that it is in compliance with this paragraph. A
transferee of the Preferred Shares shall not be bound by this provision unless
it expressly agrees to be so bound.
m. Optional Redemption by ACTV.
(1) Any or all of the Preferred Shares may be purchased by ACTV
from the Holders on a pro rata basis at any time beginning on the date (as
adjusted pursuant to Section 2(b)(vii) above, the "ACTV Redemption Commencement
Date") which is fourteen (14) months after the Closing Date on at least 30 days'
prior written notice ("ACTV Redemption Notice"), at a
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purchase price equal to the sum of $25 times the number of Preferred Shares
being purchased plus accrued and unpaid dividends thereon plus any liquidated
damages owing to such Holder on such purchase date ("ACTV Redemption Price");
provided, that ACTV may not exercise such right nor issue any ACTV Redemption
Notice unless (i) the average of the Closing Price of the Common Stock of ACTV
as reported in the Wall Street Journal for the 30 consecutive trading days prior
to the ACTV Redemption Notice shall exceed $9.00 per share (subject to
appropriate and equitable adjustment for stock dividends, stock splits, reverse
stock splits and combinations), and (ii) there exists an Effective Registration
(as defined in the Financing Investment Agreement) during such 30 consecutive
trading day period.
(2) Notwithstanding the foregoing paragraph (1) above, any or all
of the Preferred Shares may be purchased by ACTV from the Holders on a pro rata
basis prior to the ACTV Redemption Commencement Date by submitting an ACTV
Redemption Notice at least 30 days' prior to such purchase, at a purchase price
("ACTV Premium Redemption Price") equal to 1.43627 (i.e., 1 _ .69625) times the
ACTV Redemption Price.
(3) At least 30 days prior to the ACTV Redemption Date (as
hereinafter defined), the ACTV Redemption Notice shall be mailed, first class
postage prepaid, by ACTV to each Holder of record of the Preferred Shares, at
the address last shown on the records of ACTV for such Holder, notifying such
Holder of the purchase which is to be effected, specifying the percentage of
shares which is to be purchased from such Holder, the date of the purchase (the
"ACTV Redemption Date"), the place at which payment will be made (which is
subject to the Holder's approval) and calling upon each such Holder to surrender
to ACTV, in the manner and at the place designated, a certificate or
certificates representing the number of shares to be purchased calculated by
multiplying the specified percentage of shares to be purchased by the total
number of Preferred Shares held by such Holder. At any time prior to the ACTV
Redemption Date, any Holder of Preferred Shares may exchange any or all of its
Preferred Shares pursuant to an Exchange Notice in accordance with the terms
hereof.
Subject to the provisions of the following subsection (4), on
or after the ACTV Redemption Date, each Holder of Preferred Shares shall
surrender to ACTV the certificate or certificates representing the specified
percentage of Preferred Shares owned by such Holder as of such date, in the
manner and at the place designated in the ACTV Redemption Notice, and thereupon
the purchase price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are purchased, ACTV shall cause a new
certificate to be issued representing the unpurchased shares.
(4) If after an ACTV Redemption Notice is delivered, there does
not exist an Effective Registration at any time prior to or on the ACTV
Redemption Date, then no shares shall be purchased pursuant to this Section and
the ACTV Redemption Notice shall be deemed to be withdrawn. In such event, any
Exchange Notice given by a Holder of Preferred Shares after the ACTV Redemption
Notice was given shall be deemed to be withdrawn, and any certificates for
Preferred Shares which have been surrendered for exchange or redemption shall be
returned to the
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persons surrendering the same; provided, however, that if a Holder shall have
received shares of ACTV's Common Stock upon exchange of the Preferred Shares
after the ACTV Redemption Notice was given but before the ACTV Redemption Date,
such Holder may elect either to retain such Common Stock or rescind such
exchange by tendering such shares of Common Stock to ACTV.
(5) From and after the ACTV Redemption Date, unless there shall
have been a default in payment of the ACTV Redemption Price, all rights of the
Holders of Preferred Shares which have been purchased (except the right to
receive the ACTV Redemption Price upon surrender of the certificate or
certificates representing such Preferred Shares) shall cease with respect to
such Preferred Shares, and such Preferred Shares shall not thereafter be
transferred on the books of ACTV or be deemed to be outstanding for any purpose
whatsoever. If ACTV elects to purchase less than all of the Preferred Shares
outstanding on any ACTV Redemption Date, ACTV shall select shares so to be
redeemed as nearly as practicable pro-rata in such manner as the Board of
Directors may in good faith determine. The Preferred Shares not redeemed shall
remain outstanding and be entitled to all the rights and preferences provided to
outstanding Preferred Shares.
n. NASDAQ Limit on Stock Issuances. In the event that ACTV is
unable to issue any Common Shares upon exchange of Preferred Shares hereunder
due to the rules or regulations of any national securities exchange or the NASD
requiring shareholder approval for such issuance, including without limitation
Rule 4460(i)(1)(D) of the NASD, ACTV shall, at the request of any Holder
promptly following such determination, purchase such Preferred Shares of such
Holder which cannot be exchanged at a purchase price equal to the ACTV Premium
Redemption Price.
o. Replacement Certificates. The certificate(s) representing the
Common Shares held by any Investor (or then holder) may be exchanged by such
Investor (or such holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Common
Shares, as requested by such Investor (or such holder) upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
12. Representations and Warranties of ACTV. ACTV hereby makes the
following representations and warranties to each of the Investors:
a. Organization and Qualification. ACTV is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. ACTV does not have any direct
subsidiaries other than Financing and Holdings. ACTV has duly transferred all
shares of capital stock in ACTV's operating subsidiaries to Holdings. ACTV is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is material to such entity and other entities
controlling or controlled by such entity taken as a whole.
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b. Authorization; Enforcement. (i) ACTV has the requisite
corporate power and authority to enter into and perform this Exchange Agreement
and to issue the Preferred Shares in accordance with the terms hereof, (ii) the
execution and delivery of this Exchange Agreement by ACTV and the consummation
by it of the transactions contemplated hereby, including the issuance of the
Preferred Shares, have been duly authorized by all necessary corporate action,
and no further consent or authorization of ACTV or its Board of Directors or
stockholders is required, (iii) this Exchange Agreement has been duly executed
and delivered by ACTV, and (iv) this Exchange Agreement constitutes a valid and
binding obligation of ACTV enforceable against ACTV in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
c. Capitalization. The authorized capital stock of ACTV consists
of 35,000,000 shares of common stock and 1,000,000 shares of preferred stock;
there are 11,892,647 shares of common stock and no shares of preferred stock
issued and outstanding. All of the outstanding shares of ACTV's common stock
have been validly issued and are fully paid and nonassessable. No Common Shares
are entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
exchangeable or convertible into, any shares of capital stock of ACTV, or
contracts, commitments, understandings, or arrangements by which ACTV is or may
become bound to issue additional shares of capital stock of ACTV or options,
warrants, scrip, rights to subscribe to, or commitments to purchase or acquire,
any shares, or securities or rights convertible into shares, of capital stock of
ACTV (except as contemplated by this Exchange Agreement or disclosed in the SEC
Documents (as defined below), and except for options for approximately 427,500
shares of Common Stock and approximately 150,000 stock appreciation rights
issued to directors and/or management and/or outside third parties since
December 31, 1995. Attached hereto as Exhibit 12(c) is a true and correct copy
of ACTV's Certificate of Incorporation as in effect on the date hereof (the
"Charter"), and ACTV has furnished or made available to the Investors true and
correct copies of ACTV's By-Laws, as in effect on the date hereof (the
"By-Laws").
d. Issuance of Common Shares. The Common Shares issuable upon
exchange of the Preferred Shares pursuant to the Exchange Agreement are duly
authorized and reserved for issuance and, upon exchange in accordance with this
Exchange Agreement, will be validly issued, fully paid and non-assessable, free
and clear of any and all liens, claims and encumbrances, and listed on NASDAQ,
and the Holders shall be entitled to all rights and preferences accorded to a
holder of Common Shares.
e. No Conflicts. The execution, delivery and performance of this
Exchange Agreement by ACTV and the consummation by ACTV of the transactions
contemplated hereby do not and will not (i) result in a violation of ACTV's
Charter or By-Laws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any
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agreement, indenture, patent, patent license or instrument to which ACTV or any
of its subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to ACTV or any of
its subsidiaries or by which any property or asset of ACTV or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect); provided
that, for purposes of such representation as to Federal, state, local or foreign
law, rule or regulation, no representation is made herein with respect to any of
the same applicable solely to the Investors and not to ACTV. The business of
ACTV is not being conducted in violation of any law, ordinance or regulations of
any governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. ACTV is not
required under Federal, state or local law, rule or regulation in the United
States to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Exchange Agreement or issue
and sell the Preferred Shares in accordance with the terms hereof except for the
registration provisions provided herein, provided that, for purposes of the
representation made in this sentence, ACTV is assuming and relying upon the
accuracy of the relevant representations and agreements of the Investors herein.
f. SEC Documents; Financial Statements. The Common Stock of ACTV
is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and ACTV has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission ("SEC") pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by ACTV with the SEC (all of the foregoing
including filings incorporated by reference therein being referred to herein as
the "SEC Documents"). ACTV has delivered or made available to the Investors true
and complete copies of all SEC Documents (including, without limitation, proxy
information and solicitation materials and registration statements) filed with
the SEC since December 31, 1995 and all annual SEC Documents filed with the SEC
since December 31, 1994. ACTV has not provided to the Investor any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly by ACTV but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of ACTV included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may
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be condensed or summary statements) and fairly present in all material respects
the financial position of ACTV as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
g. Principal Exchange/Market. The principal market on which the
shares of Common Stock are currently traded is the NASDAQ Small Capitalization
Market, and the shares of Common Stock are listed on the Boston Stock Exchange.
h. No Material Adverse Change. Since March 31, 1996, the date
through which the most recent quarterly report of ACTV on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to
ACTV or its subsidiaries, except as otherwise disclosed or reflected in other
SEC Documents prepared through or as of a date subsequent to March 31, 1996.
i. No Undisclosed Liabilities. ACTV and its subsidiaries have no
liabilities or obligations not disclosed in the SEC Documents, other than those
incurred in the ordinary course of ACTV's or its subsidiaries' respective
businesses since March 31, 1996 or which, individually or in the aggregate, do
not or would not have a Material Adverse Effect on ACTV or its direct or
indirect subsidiaries.
j. No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to ACTV or its direct or
indirect subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by ACTV but which has not
been so publicly announced or disclosed.
k. No General Solicitation. Neither ACTV, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Libra Investments, Inc. ("Placement Agent")), has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Act) in connection with the offer or sale of the Common Shares.
l. No Integrated Offering. Neither ACTV, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Preferred Shares under the Act.
m. Form S-3. ACTV is eligible to file the Registration Statement
on Form S-3 under the Securities Act and rules promulgated thereunder, and Form
S-3 is permitted to be used for the transactions contemplated hereby under the
Securities Act and rules promulgated thereunder.
n. Intellectual Property. ACTV (and/or its wholly-owned
subsidiaries) owns or has an exclusive perpetual license to use all patents,
copyrights and trademarks ("Intellectual Property") which are necessary to
conduct the business of ACTV and its subsidiaries as it is now being conducted
or as proposed to be conducted as disclosed in the SEC Documents, such
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Intellectual Property is valid and enforceable and the use of such Intellectual
Property by ACTV and/or its subsidiaries does not infringe upon or conflict with
any rights of any third party and neither ACTV nor any of its subsidiaries has
received notice of any such infringement or conflict, and ACTV has no knowledge
of any infringement of its Intellectual Property by any third party.
o. Subsidiaries Use of ACTV Assets. To the extent any direct or
indirect subsidiary of ACTV uses or exploits or requires the use and/or
exploitation of any assets and/or accommodations of ACTV, including without
limitation any Intellectual Property, licenses, permits, office space, equipment
and the like, each such subsidiary has a valid and enforceable right and license
to use and exploit such assets and/or accommodations in perpetuity free of any
royalties, fees or charges (or if there any royalties, fees or charges they are
payable to Holdings and ACTV has no interest in same).
p. Standoff Commitments. ACTV has received binding assurances
from ACTV's executive officers and directors that none of them will sell any
Common Shares prior to the Restrictive Covenant Termination Date, except that
with the approval of the Chairman of the Board of ACTV, such executive officers
and directors in the aggregate may sell up to ten percent (10%) of their present
holdings of Common Shares (including Common Shares to be received in the future
upon the exercise of any presently held options, warrants, stock appreciation
rights or the like), and may sell amounts in excess of 10% with the approval of
a majority in interest of the holders of the outstanding Preferred Shares. ACTV
represents and warrants that such aggregate 10% amount is equal to approximately
260,000 Common Shares.
13. Representations and Warranties of the Investors. Each
Investor hereby makes the following representations and warranties to ACTV:
a. Organization and Qualification. Such Investor is duly
organized and existing in good standing under the laws of the place of its
organization.
b. Authorization; Enforcement. (i) Such Investor has the
requisite corporate power and authority to enter into and perform this Exchange
Agreement, (ii) the execution and delivery of this Exchange Agreement by such
Investor have been duly authorized by all necessary corporate action, and no
further consent or authorization of such Investor or its Board of Directors or
stockholders is required, (iii) this Exchange Agreement has been duly executed
and delivered by such Investor, and (iv) this Exchange Agreement constitutes a
valid and binding obligation of such Investor enforceable against such Investor
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
c. Sophisticated Investor. Such Investor is purchasing the
Preferred Shares for its own account and not with a view to distribution in
violation of any securities laws. Such Investor is an "accredited investor" as
defined in Rule 501 promulgated under the Securities Act. Such Investor has such
knowledge and experience in financial and business matters in general and
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investments in particular, so that such Investor is able to evaluate the merits
and risks of an investment in the Preferred Shares and to protect its own
interests in connection with such investment.
14. Covenants.
(a) Expenses. ACTV shall pay, at the Closing and promptly
upon receipt of any further invoices relating to same, all reasonable due
diligence fees and attorneys' fees and expenses (using a single counsel)
incurred by the Investors, up to a maximum amount of $85,000, in connection with
the preparation, negotiation, execution and delivery of this Exchange Agreement,
the Investment Agreements and the related agreements and documents and the
transactions contemplated hereunder and thereunder. Such amount may be paid, at
the Investors' option, by each Investor offsetting its pro rata share (based on
the amount of Holdings Preferred Shares purchased) of the estimated amount due
for such fees and expenses from the payment of the purchase price by such
Investor under the Holdings Investment Agreement. In the event such estimate is
ultimately less than the actual fees and expenses, Holdings or ACTV shall
promptly pay such deficiency upon receipt of an invoice regarding same, and in
the event such estimate is ultimately greater than the actual fees and expenses,
each Investor shall promptly pay to Holdings its pro rata share (based on the
amount of Holdings Preferred Shares purchased) of such overage upon a
determination regarding same. ACTV shall pay all fees and/or commissions payable
to the Placement Agent in connection with such transactions. The Placement
Agent's compensation includes a cash payment of $750,000 and the issuance to the
Placement Agent by Holdings of warrants to purchase 36,000 shares of Holdings 5%
Cumulative Exchangeable Preferred Stock (with 40% of such cash payment and such
warrants being paid and issued, respectively, at Closing, and the remaining 60%
of such cash payment and such warrants being paid and issued on the Release Date
(as defined in the Financing Investment Agreement)). All fees, charges and costs
of the escrow agent under the Escrow Agreement (as defined in the Financing
Investment Agreement) shall be paid for by Holdings and/or ACTV, and not by
Financing.
(b) Exchange Act Registration. ACTV will cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, and will not take any action or file any document (whether or
not permitted by Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under Exchange Act. Prior to and during the registration period as
set forth in Section 5 above, ACTV will take all action necessary to continue
the listing and trading of its Common Stock on the exchange(s) or markets where
the Common Shares are traded and will comply in all respects with ACTV's
reporting, filing and other obligations under the bylaws or rules of the NASD
and such exchange.
(c) Subsidiaries of ACTV. ACTV agrees that it shall not
create or enter into, and shall cause its subsidiaries not to create or enter
into, any new subsidiaries or joint ventures unless any ACTV enterprise
ownership of shares or interests in any such new subsidiaries is by Holdings or
a wholly-owned subsidiary of Holdings or such joint ventures are entered into by
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Holdings or a wholly-owned subsidiary of Holdings, and ACTV may not transfer, or
pledge or in any way encumber, its interest in Financing and Holdings, without
the consent of a majority in interest of the holders of outstanding Preferred
Shares. ACTV agrees to cause any capital stock issuances by Holdings or any of
its direct or indirect subsidiaries to be in a bona fide, arms-length
transaction with such issuances being in exchange for receipt of fair market
value consideration. ACTV shall not transfer any cash or assets to any direct or
indirect subsidiary, or any other entity in which ACTV or any of its direct or
indirect subsidiaries has an interest, to provide any financial or other support
for such subsidiary or other entity (whether by loan of otherwise) unless such
transfers of cash or assets are made to or through Holdings and such transfers
are made as a common stock capital contribution in Holdings.
(d) Legends. Prior to the Registration Statement being
declared effective, any Common Shares issues hereunder shall bear a legend in
the same form as the legend on the Preferred Shares pursuant to the Investment
Agreements. Upon such Registration Statement becoming effective, ACTV agrees to
promptly, but no later than 2 business days, issue new certificates representing
such Common Shares without such legend. Any Common Shares issued hereunder after
the Registration Statement has become effective shall be free and clear of any
legends, transfer restrictions and stop orders.
(e) Securities Compliance. ACTV shall notify the Commission
and NASD, in accordance with their requirements, of the transactions
contemplated by the Investment Agreements and this Exchange Agreement, and shall
take all other necessary action and proceedings as may be required and permitted
by applicable law, rule and regulation, for the legal and valid issuance of the
Preferred Shares and the Common Shares issuable upon exchange thereof to the
Investors or Holders pursuant to the terms of this Exchange Agreement.
(f) Intercompany Transactions. ACTV agrees that, on or prior
to the Closing, all ACTV accounts receivable relating to transactions between
ACTV and any direct or indirect subsidiaries of ACTV occurring prior to Closing,
all cash owned by ACTV and all of ACTV's interest in any subsidiary, joint
venture or investment, including without limitation ACTV's interest in ACTV
Interactive and all shares of capital stock in the Greenwich Entertainment
Group, Inc. ("Greenwich") owned by ACTV, shall be transferred to Holdings as a
capital contribution in exchange for common stock of Holdings, and ACTV shall
use its best efforts to transfer all options for capital stock in Greenwich
owned by ACTV to Holdings as a common stock capital contribution. Until the
Restrictive Covenant Termination Date, any monies or assets paid or transferred
from Holdings or any direct or indirect subsidiary of Holdings to ACTV, or from
Holdings to any direct or indirect subsidiary of Holdings, for any reason
whatsoever, shall be treated and deemed as a loan from Holdings or such
subsidiary to ACTV, or from Holdings to such subsidiary, as the case may be,
provided that Holdings may transfer up to $3,000,000 of the $6,000,000 in funds
received from Financing upon the Merger after the Release Date (as such terms
are defined in the Financing Investment Agreement), to The Los Angeles
Individualized Television Network, Inc., a wholly-owned subsidiary of Holdings
("LA Sub"), as an equity capital contribution by Holdings to LA Sub. So long as
any Preferred Shares remain outstanding, ACTV shall not issue or transfer any of
its shares of Common Stock to any direct or indirect subsidiary, provided,
however, that ACTV may
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issue up to 5,000,000 shares of Common Stock in the aggregate as an equity
contribution to any direct or indirect subsidiaries of Holdings, provided (1)
such shares may not consist of shares reserved for issuance upon exchange of
Preferred Shares hereunder or for issuance to any third party, and (2) no third
party shall be permitted to foreclose upon or otherwise exercise any security
interest or pledge rights with respect to such shares prior to the Restrictive
Covenant Termination Date. ACTV agrees that, on or prior to the Closing, it and
Holdings shall enter into the License Agreement in the form and substance
satisfactory to the Investors pursuant to which ACTV shall grant to Holdings a
perpetual worldwide exclusive royalty free license to use and exploit all of
ACTV's patents.
(g) Dividends. ACTV agrees that it shall not declare or pay
any dividends or make any distributions to any holder or holders of Common Stock
so long as any Preferred Shares are outstanding.
(h) No Senior Securities. Until the Restrictive Covenant
Termination Date, ACTV agrees that neither Holdings nor ACTV shall (i) create,
incur, assume, guarantee, secure or in any manner become liable in respect of
any indebtedness, other than the obligations specifically referred to herein to
the Holder, or permit any liens, claims or encumbrances to exist against ACTV or
Holdings or any of their assets, except for trade payables incurred in the
ordinary course of business consistent with past practices, or (ii) issue any
shares of its preferred stock or any securities convertible into its preferred
stock (except for warrants and preferred stock issuable upon exercise thereof
given to the Placement Agent as described in Section 14(a) above) without prior
written approval of such preferred stock (or convertible security) issuance by a
majority in interest of the holders of outstanding Preferred Shares.
(i) Merger of Financing and Holdings. ACTV agrees to cause
the Merger (as defined in the Investment Agreements) of Financing and Holdings
in accordance with the terms and conditions contained in and at the times
prescribed in the Investment Agreements. Upon the Merger all Holders of
Financing Preferred Shares shall have all the same rights and remedies under
this Agreement with respect to the Holdings Preferred Shares issued to such
Holders upon the Merger as if such shares were included as, and such shares
shall deemed, "Preferred Shares" herein.
(j) Notices. ACTV agrees to provide all holders of Preferred
Shares with copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to the holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such Common Stock holders.
(k) Dissolution of Holdings. To the extent ACTV owns any
interest in any subsidiaries other than Financing and Holdings, all of such
interest in such subsidiaries shall be owned by Holdings or a direct or indirect
subsidiary of Holdings so long as any Preferred Shares are outstanding. At such
time as there are no Preferred Shares outstanding, ACTV shall not be required to
continue the existence of Holdings.
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(l) Post Company. ACTV agrees that it shall not extend or
renew that certain option agreement between ACTV and the Washington Post Company
("Post") dated March 17, 1992 pursuant to which Post has an option to purchase
shares of Common Stock enabling it to own 51% of the outstanding shares of
Common Stock in accordance with the terms therein (as amended, the "Post
Option"), which Post Option expires March 17, 1997.
15. Transfer or Assignment. Except as otherwise provided herein,
this Exchange Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns. The rights granted to the Investors by
ACTV under this Exchange Agreement to cause ACTV to register Registrable
Securities may be transferred or assigned to a transferee or assignee of not
less than 4,000 Preferred Shares, and all other rights granted to the Investors
by ACTV hereunder may be transferred or assigned to any transferee or assignee
of any Preferred Shares (regardless of the number of Preferred Shares
transferred); provided that ACTV must be given written notice by the such
Investor at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; and provided further that the transferee or
assignee of such rights agrees to be bound by the registration and exchange
provisions of this Exchange Agreement.
16. Miscellaneous.
(a) Remedies. ACTV and the Investors acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Exchange Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Exchange Agreement and to enforce specifically the terms
and provisions hereof, this being in addition to any other remedy to which any
of them may be entitled by law or equity.
(b) Jurisdiction. ACTV (i) hereby irrevocably submits to the
jurisdiction of the United States District Court, the New York State courts and
other courts of the United States sitting in New York County, New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Exchange Agreement and (ii) hereby waives, and agrees not to assert in any such
suit action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. ACTV consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Exchange Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in
this paragraph shall affect or limit any right to serve process in any other
manner permitted by law.
(c) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated
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below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
to Financing: ACTV, Inc.
Attn: William Samuels
1270 Avenue of the Americas
New York, New York 10020
Fax: (212) 459-9548
with copies to: Wesley C. Fredericks, Jr., Esq.
Gersten Savage Kaplowitz & Curtin
575 Lexington Avenue, 27th Floor
New York, New York 10022
Fax: (212) 980-5192
to the Investors: To each Investor at the address and/or
fax number set forth on Schedule I of
this Exchange Agreement.
with copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Attn: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
(d) Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Exchange Agreement.
(e) Waivers. No waiver by any party of any default with
respect to any provision, condition or requirement of this Exchange Agreement
shall be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. The representations and warranties and
the agreements and covenants of ACTV and each Investor contained herein shall
survive the Closing.
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(f) Execution. This Exchange Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
(g) Publicity. ACTV agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
(h) Entire Agreement. This Exchange Agreement, together with
the Investment Agreements and the agreements and documents contemplated hereby
and thereby, contains the entire understanding and agreement of the parties, and
may not be modified or terminated except by a written agreement signed by both
parties.
(i) Governing Law; Consent of Jurisdiction. This Exchange
Agreement and the validity and performance of the terms hereof shall be governed
by and construed in accordance with the laws of the State of New York, except to
the extent that the law of Delaware regulates ACTV's issuance of securities.
(j) Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
(k) Titles. The titles used in this Exchange Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Exchange Agreement. For clarification purposes, the exchange
provisions contained in this Exchange Agreement are the "conversion" terms and
procedures referred to in the Certificate of Incorporation for each of Financing
and Holdings.
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IN WITNESS WHEREOF, the parties hereto have caused this Exchange
Agreement to be duly executed as of the date first above written.
ACTV:
ACTV, INC.
By:__________________________________
Name:
Its:
INVESTORS:
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Exhibit 10.2
[FINANCING]
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("Agreement") dated as of August
___, 1996 between ACTV Financing, Inc., a Delaware corporation ("Financing"),
and each entity listed as an investor on Schedule I attached to this Agreement
(each individually an "Investor" and collectively the "Investors").
W I T N E S S E T H:
WHEREAS, Financing is a wholly-owned subsidiary of ACTV, Inc. ("ACTV");
WHEREAS, Financing desires to sell and issue to the Investors, and the
Investors wish to purchase from Financing, an aggregate of 240,000 shares of
Financing's 5% Cumulative Convertible Preferred Stock having the rights,
designations and preferences set forth in the Certificate of Incorporation of
Financing (the "Charter") in the identical form and substance of Exhibit 2.1(c)
attached hereto (the "Preferred Shares"), on the terms and conditions set forth
herein;
WHEREAS, the Preferred Shares will be exchangeable into shares of common
stock, par value $0.10, of ACTV ("Common Shares") and the Investors will have
registration rights with respect to such Common Shares issuable upon exchange,
pursuant to the terms of that certain Registration Rights and Exchange Agreement
dated the date hereof entered into between ACTV and the Investors ("Exchange
Agreement"), and the Preferred Shares will be subject to certain rights of
redemption of ACTV and the Investors; and
WHEREAS, pursuant to the terms of that certain Preferred Stock
Investment Agreement ("Holdings Investment Agreement") dated as of the date
hereof entered into between the Investors and ACTV Holdings, Inc., a Delaware
corporation and wholly-owned subsidiary of ACTV ("Holdings"), the Investors have
agreed to purchase 160,000 shares of Holdings' 5% Cumulative Convertible
Preferred Stock (the "Holdings Preferred Shares") which will be exchangeable
into Common Shares and subject to registration rights pursuant to the Exchange
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
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Section 1.1 Purchase and Sale of Preferred Stock. Upon the following
terms and conditions, Financing shall issue and sell to each Investor severally,
and each Investor severally shall purchase from Financing, the number of
Preferred Shares indicated next to such Investor's name on Schedule I attached
hereto.
Section 1.2 Purchase Price. The purchase price for the Preferred Shares
(the "Purchase Price") shall be $25 per share.
Section 1.3 The Closing. (a) The closing of the purchase and sale of the
Preferred Shares (the "Closing"), shall take place at the offices of the
Investors' counsel, at 10:00 am., local time on the later of the following: (i)
the date on which the last to be fulfilled or waived of the conditions set forth
in Article IV hereof and applicable to the Closing shall be fulfilled or waived
in accordance herewith, or (ii) such other time and place and/or on such other
date as the Investors and Financing may agree. The date on which the Closing
occurs is referred to herein as the "Closing Date."
(b) On the Closing Date, Financing shall deliver to each Investor
certificates (with the number of and denomination of such certificates
designated by such Investor) representing the Preferred Shares purchased
hereunder by such Investor registered in the name of such Investor or deposit
such Preferred Shares into accounts designated by such Investor, and such
Investor shall deliver to Financing the Purchase Price for the number of
Preferred Shares purchased by such Investor hereunder by wire transfer in
immediately available funds to an escrow account ("Escrow Account") as
designated in writing in that certain Escrow Agreement between Financing and the
escrow agent named therein ("Escrow Agreement"). The Escrow Account shall be
maintained at a financial institution reasonably acceptable to the Investors and
shall be an interest bearing account, and the escrow agent shall be reasonably
acceptable to the Investors. The payment by each Investor of the Purchase Price
applicable to it to the Escrow Account shall constitute a payment delivered to
Financing in satisfaction of such Investor's obligation to pay the Purchase
Price hereunder, and the wire transfer by each Investor to the Escrow Account
shall be deemed to be one transfer from such Investor to Financing and another
transfer from Financing to the Escrow Account in connection with the funding of
the Offer (as defined in Section 3.2(c) below). In addition, each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of Financing. Financing
hereby makes the following representations and warranties to each of the
Investors:
(a) Organization and Qualification. Financing is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. Financing was duly
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organized on August 8, 1996 and did not engage and has not engaged in any
activities on or prior to or after such date other than its organization.
Financing does not have any subsidiaries. Financing is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "Material Adverse Effect" means any
adverse effect on the business, operations, properties, prospects, or financial
condition of the entity with respect to which such term is used and which is
material to such entity and other entities controlling or controlled by such
entity taken as a whole.
(b) Authorization; Enforcement. (i) Financing has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Preferred Shares in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by Financing and the consummation by it
of the transactions contemplated hereby, including the issuance of the Preferred
Shares, have been duly authorized by all necessary corporate action, and no
further consent or authorization of Financing or its Board of Directors or
stockholders is required, (iii) this Agreement has been duly executed and
delivered by Financing, and (iv) this Agreement constitutes a valid and binding
obligation of Financing enforceable against Financing in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of Financing consists
of 100 shares of common stock and 240,000 shares of preferred stock; there are
100 shares of common stock and no shares of preferred stock issued and
outstanding; and, upon issuance of the Preferred Shares in accordance with the
terms hereof there will be 100 shares of common stock and 240,000 shares of
preferred stock issued and outstanding. All of the outstanding shares of
Financing's common stock have been validly issued and are fully paid and
nonassessable and are owned by ACTV free and clear of any liens, claims or
encumbrances. No shares of common stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of Financing, or contracts, commitments, understandings, or arrangements
by which Financing is or may become bound to issue additional shares of capital
stock of Financing or options, warrants, scrip, rights to subscribe to, or
commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of Financing. The Charter attached
hereto as Exhibit 2.1(c) is true and correct as in effect on the date hereof,
and Financing has furnished or made available to the Investors true and correct
copies of Financing's by-laws, as in effect on the date hereof (the "By-Laws").
(d) Issuance of Preferred Shares. The issuance of the Preferred Shares
has been duly authorized and, when paid for or issued in accordance with the
terms hereof, the Preferred Shares shall be validly issued, fully paid and
non-assessable, free and clear of any liens, claims or encumbrances, and
entitled to the rights and preferences set forth in the Charter attached hereto.
The Common Shares issuable upon exchange of the Preferred Shares pursuant to the
Exchange Agreement will be duly authorized and reserved for issuance and, upon
exchange in accordance with
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the Exchange Agreement, will be validly issued, fully paid and non-assessable,
free and clear of all liens, claims and encumbrances, and the holders shall be
entitled to all rights and preferences accorded to a holder of Common Shares.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by Financing and the consummation by Financing of the transactions
contemplated hereby do not and will not (i) result in a violation of Financing's
or ACTV's charter or by-laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which Financing or
ACTV or any of its subsidiaries is a party, or result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to Financing or ACTV or any of its subsidiaries or by which any property or
asset of Financing or ACTV or any of its subsidiaries is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect); provided that, for purposes of such
representation as to Federal, state, local or foreign law, rule or regulation,
no representation is made herein with respect to any of the same applicable
solely to the Investors and not to Financing. The business of Financing and ACTV
is not being conducted in violation of any law, ordinance or regulations of any
governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. Neither Financing
nor ACTV is required under Federal, state or local law, rule or regulation in
the United States to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Preferred Shares in accordance with the terms hereof, provided
that, for purposes of the representation made in this sentence, Financing is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
(f) SEC Documents; Financial Statements. The Common Stock of ACTV is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and ACTV has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by ACTV with the SEC (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
Documents"). Financing has delivered or made available to the Investors true and
complete copies of all SEC Documents (including, without limitation, proxy
information and solicitation materials and registration statements) filed with
the SEC since December 31, 1995 and all annual SEC Documents filed with the SEC
since December 31, 1994. Financing has not provided to the Investor any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by ACTV but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC
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Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of ACTV included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of ACTV as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since March 31, 1996, the date through
which the most recent quarterly report of ACTV on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to Financing or ACTV
or its subsidiaries, except as otherwise disclosed or reflected in other SEC
Documents prepared through or as of a date subsequent to March 31, 1996.
(h) No Undisclosed Liabilities. Financing and ACTV and its subsidiaries
have no liabilities or obligations not disclosed in the SEC Documents, other
than those incurred in the ordinary course of ACTV's or its subsidiaries'
respective businesses since March 31, 1996 or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on ACTV or its
subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to Financing or ACTV or its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by ACTV but which has not been so publicly announced
or disclosed.
(j) No General Solicitation. Neither Financing, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Libra Investments, Inc. ("Placement Agent")), has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act of 1933, as amended (the"Act")) in connection with
the offer or sale of the Preferred Shares.
(k) No Integrated Offering. Neither Financing, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Preferred Shares under the Act.
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(l) Brokers. Financing has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any or all of the Investors relating to this Agreement or the transactions
contemplated hereby, except for amounts owing to the Placement Agent, which
amounts shall be paid by ACTV.
(m) ACTV Representations. All of the representations and warranties of
ACTV set forth in the Exchange Agreement are true and correct.
Section 2.2 Representations and Warranties of the Investors. Each
of the Investors, severally and not jointly, hereby makes the following
representations and warranties to Financing:
(a) Authorization; Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Preferred Shares being sold hereunder, (ii) the execution and
delivery of this Agreement by such Investor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Agreement constitutes a valid
and binding obligation of such Investor enforceable against the Investor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of the Investor's
organizational documents, or (ii) conflict with any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Investor. Such Investor is not required
to obtain any consent or authorization of any governmental agency in order for
it to perform its obligations under this Agreement.
(c) Investment Representation. Such Investor is purchasing the Preferred
Shares for its own account and not with a view to distribution in violation of
any securities laws. Such Investor has no present intention to sell the
Preferred Shares and such Investor has no present arrangement (whether or not
legally binding) to sell the Preferred Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold the Preferred Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares at any
time in accordance with Federal and state securities laws applicable to such
disposition.
(d) Accredited Investor. Such Investor is an "accredited investor" as
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general and investments in
particular, so that such Investor is able to evaluate the merits and risks of an
investment in the Preferred Shares and to protect its own interests in
connection with such investment. In addition (but without limiting the effect of
Financing's
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representations and warranties contained herein), such Investor has received
such information as it considers necessary or appropriate for deciding whether
to purchase the Preferred Shares pursuant hereto. Such Investor acknowledges
that no representation or warranty is made by the Placement Agent or any persons
representing the Placement Agent with respect to Financing or the sale of the
Preferred Shares.
(e) Rule 144. Such Investor understands that there is no public trading
market for the Preferred Shares, that none is expected to develop, and that the
Preferred Shares must be held indefinitely unless such Preferred Shares are
exchanged or registered under the Act or an exemption from registration is
available. Such Investor has been advised or is aware of the provisions of Rule
144 promulgated under the Act.
(f) Brokers. Such Investor has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by Financing relating to this Agreement or the transactions
contemplated hereby, except for amounts owing to the Placement Agent, which
amounts shall be paid by ACTV.
(g) Reliance by Financing. Such Investor understands that the Preferred
Shares are being offered and sold in reliance on a transactional exemption from
the registration requirements of Federal and state securities laws and that
Financing is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Investor set
forth herein in order to determine the applicability of such exemptions and the
suitability of such Investor to acquire the Preferred Shares.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing. Until three (3) years after all
Preferred Shares have been exchanged into Common Shares, Financing will use its
best efforts to cause ACTV to cause the Common Shares to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in all
respects with its reporting and filing obligations under the Exchange Act, to
comply with all requirements related to any registration statement filed
pursuant to the Exchange Agreement and to not take any action or file any
document (whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
ACTV's reporting and filing obligations under said acts, except as permitted
herein. Until three (3) years after all Preferred Shares have been exchanged
into Common Shares, Financing will use its best efforts to take all action
within its power to cause ACTV to continue the listing or trading of the Common
Shares on the NASDAQ Small Capitalization Market or National Market and the
Boston Stock Exchange and to comply in all respects with ACTV's reporting,
filing and other obligations under the bylaws or rules of the NASD and NASDAQ
and such exchange or other exchange where the Common Shares are traded.
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Section 3.2 Actions of Financing.
(a) Escrow. Upon Closing of the transactions contemplated hereby, the
$6,000,000 aggregate Purchase Price hereunder shall be deposited in the Escrow
Account, and such amount and all interest accruing thereon (collectively, the
"Escrow Funds") shall remain in escrow in the Escrow Account pursuant to the
terms of the Escrow Agreement until the fifth business day after the date
("Release Date") on which all of the following conditions exist: (i) the
Effective Registration (as defined below) has occurred and is continuing, (ii)
the Liberty Sports Contract (as defined below) has been executed and delivered
and is in full force and effect, (iii) the Merger (as defined below) has
occurred and is in effect, and (iv) the Investors have received an opinion of
counsel ("Release Opinion") reasonably acceptable to the Investors that the
conditions contained in clauses (i), (ii), and (iii) above have been satisfied.
"Effective Registration" shall mean that all registration obligations of ACTV
pursuant to the Exchange Agreement have been satisfied, such registration is not
subject to any suspension or stop order, the prospectus for the Common Shares
issuable upon exchange of the Preferred Shares is current and such Common Shares
are listed for trading on the NASDAQ Small Capitalization or National Market,
and none of Financing, Holdings or ACTV is subject to any bankruptcy, insolvency
or similar proceeding. The "Liberty Sports Contract" shall mean that certain
agreement to be entered into by ACTV and/or its subsidiaries and Liberty Sports,
Inc. ("LS") or its wholly-owned subsidiary Prime Sports West ("PSW") providing
for immediate commercial use on economically viable terms by ACTV and/or its
subsidiaries of substantially all major professional sports program content
carried by PSW for a term of at least 3 years in connection with the launch of
ACTV's premium regional network within the entire existing 4,200,000 subscriber
footprint of PSW. LS is to be rebranded "Fox Sports Net" and PSW is to be
rebranded "Fox Sports West."
(b) Merger. If the date on which both the Effective Registration has
occurred and is continuing and the Liberty Sports Contract has been executed and
delivered and is in full force and effect (the "Contingency Satisfaction Date")
occurs on or before December 31, 1996, then prior to the release of the Escrow
Funds (in addition to the Release Opinion) Financing shall be merged with and
into Holdings with each Preferred Share being exchanged for one Holdings
Preferred Share with the amount of any accrued and unpaid dividends on any
Preferred Shares constituting the amount of accrued and unpaid dividends under
the Holdings Preferred Shares received in such exchange as of the date of the
merger (the "Merger"). If the Contingency Satisfaction Date occurs after
December 31, 1996, then Financing shall cause the Merger to occur after (and not
before) the Offer Period (as defined below) expires. Notwithstanding any of the
foregoing, Financing agrees that Financing and Holdings shall effect the Merger
within five (5) business days of receiving a written request to so merge at any
time by all the then holders of outstanding Preferred Shares, regardless of
whether or when the Contingency Satisfaction Date occurs. Following the Merger,
the Investors (or the then holders of the Preferred Shares) shall have all the
same rights and remedies under the Exchange Agreement with respect to the
Holdings Preferred Shares issued upon the Merger as if such shares were included
as "Preferred Shares" therein.
(c) Mandatory Redemption Offer. In the event that the Contingency
Satisfaction Date does not occur by December 31, 1996, Financing shall offer
("Offer") to purchase, commencing January 1, 1997, outstanding Preferred Shares
owned by Investors (or the then holders of Preferred
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Shares) at a purchase price equal to $25 per Preferred Share plus any accrued
and unpaid dividends ("Redemption Price"), with the aggregate purchase price
under such Offer equal to the lesser of (i) the aggregate Redemption Price for
all outstanding Preferred Shares and (ii) the amount of Escrow Funds ("Escrowed
Amount"). If the aggregate Redemption Price for all outstanding Preferred Shares
is less than or equal to the Escrowed Amount, then the Offer shall be made
severally to each Investor (or the then holder of the Preferred Shares) for all
Preferred Shares owned by such Investor (or such holder). If the Escrowed Amount
is less than the aggregate Redemption Price for all outstanding Preferred
Shares, then Financing shall severally Offer to purchase from each Investor (or
such holder) on a pro rata basis (based on the number of Preferred Shares held
by such Investor or holder) as many Preferred Shares as can be purchased from
such Investor with a pro rata portion of the Escrowed Amount. The purchase price
for such Offer shall be paid out of the Escrow Funds (plus accrued interest
thereon) to each Investor within three (3) business days of any acceptance of
such Offer by any Investor (or holder), at which time such Preferred Shares
shall be deemed redeemed and such Investor(s) (or holder(s)) shall promptly
return any certificates representing same to Financing. The Escrow Agreement
shall provide that the escrow agent therein shall be required to disburse the
Escrow Funds to the Investors (or holders) selling their Preferred Shares
pursuant to the Offer. If at any time prior to January 1, 1997, Holdings or ACTV
or any subsidiary thereof becomes subject to any bankruptcy, insolvency or
similar proceeding, then Financing shall immediately make the Offer commencing
on the date of such event ("Bankruptcy Date"). Such Offer shall remain open with
respect to each Investor (or each such holder) for the period ("Offer Period")
commencing on January 1, 1997 (or earlier Bankruptcy Date) and terminating
thirty (30) days after such Investor receives written notice that the
Contingency Satisfaction Date has occurred, provided that such notice shall be
null and void (and the Offer Period shall continue to run) if at any time during
such 30-day period the Effective Registration cease to exist or the Liberty
Sports Contract is terminated. Each Investor (or such holder) severally may
accept such Offer in whole or in part at any time and from time to time during
the Offer Period. After the Offer Period terminates, any remaining Escrowed
Amount (other than funds remaining to be disbursed to Investors or holders
accepting the Offer) shall be transferred over to Holdings in connection with
the Merger. Any Preferred Shares owned by the Investors (or holders) after the
Offer Period shall be exchanged upon the Merger in accordance with Section
3.2(b) above. The Offer is hereby deemed made by Financing as of January 1, 1997
(or earlier Bankruptcy Date) in the event Financing fails or refuses to timely
make such Offer on such date.
(d) Restrictions. Prior to the Release Date, Financing shall not (i)
incur any liabilities or obligations of any kind, except to the Investors (or
holders of Preferred Shares) as set forth herein, (ii) declare any dividends or
make any distributions, (iii) enter into any material agreements, (iv) engage in
any business activity, (v) engage in any other activity except for the holding
of the $6,000,000 aggregate Purchase Price in escrow pursuant to the terms
hereof and in the Escrow Agreement except as contemplated herein, (v) permit any
liens to exist against Financing or any of its assets, (vi) file or permit to be
filed against it any proceedings under any bankruptcy or insolvency law or take
any actions related to insolvency, (vii) merge or consolidate with any other
entity or sell any assets or purchase any assets, (viii) change its capital
structure, (ix) amend its Charter or By-Laws or file any certificate of
designation, or (x) engage in any transactions with any affiliates or any third
parties, in each case without the affirmative vote of both a majority of the
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board of directors of Financing and of the holders of the Preferred Shares (with
each holder entitled to one vote for each Preferred Share owned).
Section 3.3 Certificates on Exchange. Upon any exchange by an Investor
(or then holder of Preferred Shares) of the Preferred Shares pursuant to the
Exchange Agreement, Financing shall issue and deliver to such Investor (or
holder) within 48 hours of the Exchange Date (as defined in the Exchange
Agreement) a new certificate or certificates for the number of Preferred Shares
which such Investor (or holder) has not yet elected to exchange but which are
evidenced in part by the certificate(s) submitted to ACTV in connection with
such exchange (with the number of and denomination of such new certificate(s)
designated by such Investor or holder).
Section 3.4 Replacement Certificates. The certificate(s) representing
the Preferred Shares held by any Investor (or then holder) may be exchanged by
such Investor (or such holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Preferred Shares, as requested by such Investor (or such holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of Financing to Sell
the Preferred Shares. The obligation hereunder of Financing to issue and/or sell
the Preferred Shares to the Investors is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
are for Financing's sole benefit and may be waived by Financing at any time in
its sole discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Investors. Each Investor shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
such Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Exchange Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Preferred Shares. The obligation hereunder of each Investor to
acquire and pay for the Preferred Shares is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth
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below. These conditions are for the Investors' sole benefit and may be waived by
the Investors at any time in their sole discretion.
(a) Accuracy of Financing's Representations and Warranties. The
representations and warranties of Financing shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by Financing. Financing shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
Financing at or prior to the Closing.
(c) NASDAQ. From the date hereof to the Closing Date, trading in ACTV's
Common Stock shall not have been suspended by the SEC or the NASDAQ Small
Capitalization Market, and trading in securities generally as reported by NASDAQ
shall not have been suspended or limited, and the Common Shares shall not have
been delisted from any exchange or market where they are currently listed.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Exchange Agreement.
(e) Opinion of Counsel. At the Closing the Investors shall have received
an opinion of counsel to Financing in form and substance satisfactory to the
Investors and such other opinions, certificates and documents as the Investors
or their counsel shall reasonably require incident to the Closing.
(f) Registration Rights and Exchange Agreement. ACTV and the Investors
shall have executed and delivered the Exchange Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.
(g) Escrow Agreement. Financing and the escrow agent named therein shall
have executed and delivered the Escrow Agreement in the form and substance
satisfactory to the Investors.
(h) License Agreement. ACTV and Holdings shall have executed and
delivered the License Agreement in the form and substance satisfactory to the
Investors pursuant to which ACTV shall grant to Holdings a perpetual worldwide
exclusive license to use and exploit all of ACTV's patents royalty free.
(i) Full Subscription. Each other Investor hereto shall have
consummated, or simultaneously with such Investor will consummate, the
transactions contemplated hereby at the Closing and the transactions
contemplated by the Holdings Investment Agreement at the Closing thereunder.
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(j) Adverse Changes. Since March 31, 1996, no event which had or is
likely to have a Material Adverse Effect on Financing or ACTV or any of its
subsidiaries shall have occurred.
(k) Officer's Certificate. Financing and ACTV shall have delivered to
the Investors a certificate in form and substance reasonably satisfactory to the
Investors, executed by an officer of Financing and ACTV, certifying as to
satisfaction of closing conditions, incumbency of signing officers, charter,
by-laws and authorizing resolutions of Financing and ACTV.
(l) Charter Filed. The Investors shall have received copies of the filed
Charter.
(m) Directors. The holders of the Preferred Shares shall have elected
two of the four individuals to the Board of Directors of Financing and such
individuals shall be serving on such Board.
ARTICLE V
LEGEND AND STOCK
Each certificate representing the Preferred Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
Financing agrees to reissue certificates representing the Preferred
Shares without the legend set forth above at such time as (i) the holder thereof
is permitted to dispose of such Preferred Shares pursuant to Rule 144(k) under
the Act, (ii) such Preferred Shares are sold to a purchaser or purchasers who
(in the opinion of counsel to the seller or such purchaser(s), in form and
substance reasonably satisfactory to Financing and its counsel) are able to
dispose of such shares publicly without registration under the Act, or (iii)
such Preferred Shares are registered under the Act.
ARTICLE VI
TERMINATION
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
Financing and the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of any Investor or
Financing at any time if the Closing shall not have been consummated by the
fifth business day following the date of this Agreement.
ARTICLE VII
MISCELLANEOUS
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Section 7.1 Stamp Taxes; Placement Agent and Escrow Agent Fees.
Financing shall use its best efforts to cause ACTV to pay all stamp and other
taxes and duties levied in connection with the issuance of the Preferred Shares
pursuant hereto and the Common Shares issued pursuant to the Exchange Agreement.
Holdings and/or ACTV shall be responsible for paying at the Closing the
compensation due to the Placement Agent in connection with the transactions
contemplated hereby and under the Holdings Investment Agreement and the Exchange
Agreement. The Placement Agent's compensation includes a cash payment of
$750,000 and the issuance to the Placement Agent by Holdings of warrants to
purchase 36,000 shares of Holdings 5% Cumulative Exchangeable Preferred Stock
(with 40% of such cash payment and such warrants being paid and issued,
respectively, at Closing, and the remaining 60% of such cash payment and such
warrants being issued and paid on the Release Date). All fees, charges and costs
of the escrow agent under the Escrow Agreement shall be paid for by Holdings
and/or ACTV, and not by Financing.
Section 7.2 Specific Enforcement; Consent to Jurisdiction.
(a) Financing and the Investors acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) Financing (i) hereby irrevocably submits to the jurisdiction of the
United States District Court, the New York State courts and other courts of the
United States sitting in New York County, New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Financing consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with
the Exchange Agreement and the agreements and documents executed in connection
herewith and therewith, contains the entire understanding of the parties with
respect to the matters covered hereby and thereby and, except as specifically
set forth herein or therein, neither Financing nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with
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correct answer back received), telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
to Financing: ACTV Financing, Inc.
Attn: William Samuels
1270 Avenue of the Americas
New York, New York 10020
Fax: (212) 459-9548
with copies to: Wesley C. Fredericks, Jr., Esq.
Gersten Savage Kaplowitz & Curtin
575 Lexington Avenue, 27th Floor
New York, New York 10022
Fax: (212) 980-5192
to the Investors: To each Investor at the address and/or fax
number set forth on Schedule I of this
Agreement.
with copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Attn: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Agreement.
Section 7.6 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
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Section 7.7 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. The parties hereto may amend this Agreement
without notice to or the consent of any third party. Financing may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of all Investors (which consent may be withheld for any reason in their
sole discretion). Any Investor may assign this Agreement or any rights or
obligations hereunder without the consent of Financing in connection with any
sale or transfer of the Preferred Shares held by such Investor.
Section 7.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of Financing and each Investor contained herein shall
survive the Closing.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. Financing agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
FINANCING:
ACTV FINANCING, INC.
By: __________________________
Name:
Its:
INVESTORS:
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Exhibit 10.3
[HOLDINGS]
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("Agreement") dated as of August
___, 1996 between ACTV Holdings, Inc., a Delaware corporation ("Holdings"), and
each entity listed as an investor on Schedule I attached to this Agreement (each
individually an "Investor" and collectively the "Investors").
W I T N E S S E T H:
WHEREAS, Holdings is a wholly-owned subsidiary of ACTV, Inc. ("ACTV");
WHEREAS, Holdings desires to sell and issue to the Investors, and the
Investors wish to purchase from Holdings, an aggregate of 160,000 shares of
Holdings' 5% Cumulative Convertible Preferred Stock having the rights,
designations and preferences set forth in the Certificate of Incorporation of
Holdings (the "Charter") in the identical form and substance of Exhibit 2.1(c)
attached hereto (the "Preferred Shares"), on the terms and conditions set forth
herein;
WHEREAS, the Preferred Shares will be exchangeable into shares of common
stock, par value $0.10, of ACTV ("Common Shares") and the Investors will have
registration rights with respect to such Common Shares issuable upon exchange,
pursuant to the terms of that certain Registration Rights and Exchange Agreement
dated the date hereof entered into between ACTV and the Investors ("Exchange
Agreement"), and the Preferred Shares will be subject to certain rights of
redemption of ACTV; and
WHEREAS, pursuant to the terms of that certain Preferred Stock
Investment Agreement ("Financing Investment Agreement") dated as of the date
hereof entered into between the Investors and ACTV Financing, Inc., a Delaware
corporation and wholly owned subsidiary of ACTV ("Financing"), the Investors
have agreed to purchase 240,000 shares of Financing's 5% Cumulative Convertible
Preferred Stock (the "Financing Preferred Shares") which will be exchangeable
into Common Shares and subject to registration rights pursuant to the Exchange
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
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Section 1.1 Purchase and Sale of Preferred Stock. Upon the following
terms and conditions, Holdings shall issue and sell to each Investor severally,
and each Investor severally shall purchase from Holdings, the number of
Preferred Shares indicated next to such Investor's name on Schedule I attached
hereto.
Section 1.2 Purchase Price. The purchase price for the Preferred Shares
(the "Purchase Price") shall be $25 per share.
Section 1.3 The Closing. (a) The closing of the purchase and sale of the
Preferred Shares (the "Closing"), shall take place at the offices of the
Investors' counsel, at 10:00 am., local time on the later of the following: (i)
the date on which the last to be fulfilled or waived of the conditions set forth
in Article IV hereof and applicable to the Closing shall be fulfilled or waived
in accordance herewith, or (ii) such other time and place and/or on such other
date as the Investors and Holdings may agree. The date on which the Closing
occurs is referred to herein as the "Closing Date."
(b) On the Closing Date, Holdings shall deliver to each Investor
certificates (with the number of and denomination of such certificates
designated by such Investor) representing the Preferred Shares purchased
hereunder by such Investor registered in the name of such Investor or deposit
such Preferred Shares into accounts designated by such Investor, and such
Investor shall deliver to Holdings the Purchase Price for the number of
Preferred Shares purchased by such Investor hereunder by wire transfer in
immediately available funds to an account designated in writing by Holdings. The
payment by each Investor of Purchase Price applicable to it to such account
shall constitute payments delivered to Holdings in satisfaction of such
Investor's obligation to pay the Purchase Price hereunder. In addition, each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of Holdings. Holdings hereby
makes the following representations and warranties to each of the Investors:
(a) Organization and Qualification. Holdings is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. Holdings was duly organized on
August 8, 1996 and did not engage in any activities prior to such date. Holdings
does not have any subsidiaries other than those listed on Schedule 2.1(a)
attached hereto. Holdings is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any adverse effect on
the business, operations, properties,
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prospects, or financial condition of the entity with respect to which such term
is used and which is material to such entity and other entities controlling or
controlled by such entity taken as a whole.
(b) Authorization; Enforcement. (i) Holdings has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Preferred Shares in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by Holdings and the consummation by it
of the transactions contemplated hereby, including the issuance of the Preferred
Shares, have been duly authorized by all necessary corporate action, and no
further consent or authorization of Holdings or its Board of Directors or
stockholders is required, (iii) this Agreement has been duly executed and
delivered by Holdings, and (iv) this Agreement constitutes a valid and binding
obligation of Holdings enforceable against Holdings in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of Holdings consists of
100 shares of common stock and 196,000 shares of preferred stock; there are 100
shares of common stock and no shares of preferred stock issued and outstanding;
and, upon issuance of the Preferred Shares in accordance with the terms hereof
there will be 100 shares of common stock and 160,000 shares of preferred stock
issued and outstanding. Holdings has reserved 36,000 shares of preferred stock
for issuance to the Placement Agent (as defined below) upon exercise of the
warrants issued to such Placement Agent as described in Section 7.1 hereof. All
of the outstanding shares of Holdings' common stock have been validly issued and
are fully paid and nonassessable and are owned by ACTV free and clear of any
liens, claims or encumbrances. No shares of common stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of Holdings, or contracts, commitments, understandings, or
arrangements by which Holdings is or may become bound to issue additional shares
of capital stock of Holdings or options, warrants, scrip, rights to subscribe
to, or commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of Holdings, except for the warrants
issued to the Placement Agent. The Charter attached hereto as Exhibit 2.1(c) is
true and correct as in effect on the date hereof, and Holdings has furnished or
made available to the Investors true and correct copies of Holdings' by-laws, as
in effect on the date hereof (the "By-Laws").
(d) Issuance of Preferred Shares. The issuance of the Preferred Shares
has been duly authorized and, when paid for or issued in accordance with the
terms hereof, the Preferred Shares shall be validly issued, fully paid and
non-assessable, free and clear of any liens, claims or encumbrances, and
entitled to the rights and preferences set forth in the Charter attached hereto.
The Common Shares issuable upon exchange of the Preferred Shares pursuant to the
Exchange Agreement will be duly authorized and reserved for issuance and, upon
exchange in accordance with the Exchange Agreement, will be validly issued,
fully paid and non-assessable, free and clear of all liens, claims and
encumbrances, and the holders shall be entitled to all rights and preferences
accorded to a holder of Common Shares.
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(e) No Conflicts. The execution, delivery and performance of this
Agreement by Holdings and the consummation by Holdings of the transactions
contemplated hereby do not and will not (i) result in a violation of Holdings'
or ACTV's charter or by-laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which Holdings or ACTV or any of their subsidiaries is a party, or result in
a violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to Holdings or ACTV or any of their subsidiaries or by
which any property or asset of Holdings or ACTV or any of their subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect); provided
that, for purposes of such representation as to Federal, state, local or foreign
law, rule or regulation, no representation is made herein with respect to any of
the same applicable solely to the Investors and not to Holdings. The business of
Holdings and ACTV and their subsidiaries is not being conducted in violation of
any law, ordinance or regulations of any governmental entity, except for
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. Neither Holdings nor ACTV is required under Federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or issue and sell the Preferred Shares
in accordance with the terms hereof, provided that, for purposes of the
representation made in this sentence, Holdings is assuming and relying upon the
accuracy of the relevant representations and agreements of the Investors herein.
(f) SEC Documents; Financial Statements. The Common Stock of ACTV is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and ACTV has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by ACTV with the SEC (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
Documents"). Holdings has delivered or made available to the Investors true and
complete copies of all SEC Documents (including, without limitation, proxy
information and solicitation materials and registration statements) filed with
the SEC since December 31, 1995 and all annual SEC Documents filed with the SEC
since December 31, 1994. Holdings has not provided to the Investor any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by ACTV but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of ACTV included in the SEC Documents
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comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of ACTV as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since March 31, 1996, the date through
which the most recent quarterly report of ACTV on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to Holdings or ACTV
or their subsidiaries, except as otherwise disclosed or reflected in other SEC
Documents prepared through or as of a date subsequent to March 31, 1996.
(h) No Undisclosed Liabilities. Holdings and ACTV and their subsidiaries
have no liabilities or obligations not disclosed in the SEC Documents, other
than those incurred in the ordinary course of ACTV's or their subsidiaries'
respective businesses since March 31, 1996 or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on ACTV or its
direct or indirect subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to Holdings or ACTV or their subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by ACTV but which has not been so publicly announced
or disclosed.
(j) No General Solicitation. Neither Holdings, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Libra Investments, Inc. ("Placement Agent")), has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act of 1933, as amended (the"Act")) in connection with
the offer or sale of the Preferred Shares.
(k) No Integrated Offering. Neither Holdings, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Preferred Shares
under the Act.
(l) Brokers. Holdings has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any or all of the Investors relating to this Agreement or the transactions
contemplated hereby, except for amounts owing to the Placement Agent, which
amounts shall be paid by ACTV.
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(m) ACTV Representations. All of the representations and warranties of
ACTV set forth in the Exchange Agreement are true and correct.
Section 2.2 Representations and Warranties of the Investors. Each
of the Investors, severally and not jointly, hereby makes the following
representations and warranties to Holdings:
(a) Authorization; Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Preferred Shares being sold hereunder, (ii) the execution and
delivery of this Agreement by such Investor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Agreement constitutes a valid
and binding obligation of such Investor enforceable against the Investor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of the Investor's
organizational documents, or (ii) conflict with any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Investor. Such Investor is not required
to obtain any consent or authorization of any governmental agency in order for
it to perform its obligations under this Agreement.
(c) Investment Representation. Such Investor is purchasing the
Preferred Shares for its own account and not with a view to distribution in
violation of any securities laws. Such Investor has no present intention to sell
the Preferred Shares and such Investor has no present arrangement (whether or
not legally binding) to sell the Preferred Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold the Preferred Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares at any
time in accordance with Federal and state securities laws applicable to such
disposition.
(d) Accredited Investor. Such Investor is an "accredited
investor" as defined in Rule 501 promulgated under the Act. The Investor has
such knowledge and experience in financial and business matters in general and
investments in particular, so that such Investor is able to evaluate the merits
and risks of an investment in the Preferred Shares and to protect its own
interests in connection with such investment. In addition (but without limiting
the effect of Holdings' representations and warranties contained herein), such
Investor has received such information as it considers necessary or appropriate
for deciding whether to purchase the Preferred Shares pursuant hereto. Such
Investor acknowledges that no representation or warranty is made by the
Placement Agent or any persons representing the Placement Agent with respect to
Holdings or the sale of the Preferred Shares.
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(e) Rule 144. Such Investor understands that there is no public
trading market for the Preferred Shares, that none is expected to develop, and
that the Preferred Shares must be held indefinitely unless such Preferred Shares
are exchanged or registered under the Act or an exemption from registration is
available. Such Investor has been advised or is aware of the provisions of Rule
144 promulgated under the Act.
(f) Brokers. Such Investor has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by Holdings relating to this Agreement or the transactions
contemplated hereby, except for amounts owing to the Placement Agent, which
amounts shall be paid by ACTV.
(g) Reliance by Holders. Such Investor understands that the
Preferred Shares are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that Holdings is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the Preferred Shares.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing. Until three (3) years after all
Preferred Shares have been exchanged into Common Shares, Holdings will use its
best efforts to cause ACTV to cause the Common Shares to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in all
respects with its reporting and filing obligations under the Exchange Act, to
comply with all requirements related to any registration statement filed
pursuant to the Exchange Agreement and to not take any action or file any
document (whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
ACTV's reporting and filing obligations under said acts, except as permitted
herein. Until three (3) years after all Preferred Shares have been exchanged
into Common Shares, Holdings will use its best efforts to take all action within
its power to cause ACTV to continue the listing or trading of the Common Shares
on the NASDAQ Small Capitalization Market or National Market and the Boston
Stock Exchange and to comply in all respects with ACTV's reporting, filing and
other obligations under the bylaws or rules of the NASD and NASDAQ and such
exchange or other exchange where the Common Shares are traded.
Section 3.2 Actions of Holdings.
(a) Escrow. The parties acknowledge that upon Closing of the
transactions contemplated by Financing Investment Agreement, the aggregate
purchase price thereunder will be deposited in a escrow account and will remain
in escrow until the date which is the fifth business day after the date
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("Release Date") on which all of the following conditions exist: (i) the
Effective Registration (as defined below) has occurred and is continuing, (ii)
the Liberty Sports Contract (as defined below) has been executed and delivered
and is in full force and effect, (iii) the Merger (as defined below) has
occurred and is in effect, and (iv) the Investors have received an opinion of
counsel ("Release Opinion") reasonably acceptable to the Investors that the
conditions contained in clauses (i), (ii), and (iii) above have been satisfied.
"Effective Registration" shall mean that all registration obligations of ACTV
pursuant to the Exchange Agreement shall have been satisfied, such registration
is not subject to any suspension or stop order, the prospectus for the Common
Shares issuable upon exchange of the Preferred Shares is current and such Common
Shares are listed for trading on the NASDAQ Small Capitalization or National
Market, and none of Financing, Holdings or ACTV is subject to any bankruptcy,
insolvency or similar proceeding. The "Liberty Sports Contract" shall mean that
certain agreement to be entered into by ACTV and/or its subsidiaries and Liberty
Sports, Inc. ("LS") or its wholly-owned subsidiary Prime Sports West ("PSW")
providing for immediate commercial use on economically viable terms by ACTV
and/or its subsidiaries of substantially all major professional sports program
content carried by PSW for a term of at least 3 years in connection with the
launch of ACTV's premium regional network within the entire existing 4,200,000
subscriber footprint of PSW. LS is to be rebranded "Fox Sports Net" and PSW is
to be rebranded "Fox Sports West."
(b) Merger. If the date on which both the Effective Registration has
occurred and is continuing and the Liberty Sports Contract has been executed and
delivered and is in full force and effect (the "Contingency Satisfaction Date")
occurs on or before December 31, 1996, then promptly following such date
Holdings agrees that Financing shall be merged with and into Holdings with each
Financing Preferred Share being exchanged for one Preferred Share of Holdings
with the amount of any accrued and unpaid dividends on any Financing Preferred
Shares constituting the amount of accrued and unpaid dividends on the Preferred
Shares of Holdings received in such exchange, as of the date of the merger (the
"Merger"). If the Contingency Satisfaction Date occurs after December 31, 1996,
then Holdings agrees to cause the Merger to occur promptly after (and not
before) the Offer Period (as defined in the Financing Investment Agreement)
expires. Notwithstanding any of the foregoing, Holdings agrees that Financing
and Holdings shall effect the Merger within five (5) business days of receiving
a written request to so merge at any time by all the then holders of outstanding
Preferred Shares, regardless of whether or when the Contingency Satisfaction
Date occurs. Following the Merger, the Investors (or the then holders of the
Preferred Shares) shall have all the same rights and remedies under the Exchange
Agreement with respect to the Preferred Shares issued upon the Merger as if such
shares were included as "Preferred Shares" therein.
Section 3.3 Intercompany Transactions. Holdings agrees that, on or prior
to the Closing, all ACTV accounts receivable relating to transactions between
ACTV and any direct or indirect subsidiaries of ACTV occurring prior to Closing,
all cash owned by ACTV, and all of ACTV's interest in any subsidiary, joint
venture or investment, including without limitation ACTV's interest in ACTV
Interactive and all shares of capital stock in the Greenwich Entertainment
Group, Inc. ("Greenwich") owned by ACTV, shall be transferred to Holdings as a
capital contribution in exchange for common stock of Holdings, and ACTV shall
use its best efforts to transfer all options for capital stock in Greenwich
owned by ACTV to Holdings as a common stock capital contribution.
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Until the Restrictive Covenant Termination Date (as defined in the Exchange
Agreement), any monies or assets paid or transferred from Holdings or any direct
or indirect subsidiary of Holdings to ACTV, or from Holdings to any direct or
indirect subsidiary of Holdings, for any reason whatsoever, shall be treated and
deemed as a loan from Holdings or such subsidiary to ACTV, or from Holdings to
such subsidiary, as the case may be, provided that Holdings may transfer up to
$3,000,000 of the $6,000,000 in funds received from Financing upon the Merger
after the Release Date to The Los Angeles Individualized Television Network,
Inc., a wholly-owned subsidiary of Holdings ("LA Sub"), as an equity capital
contribution by Holdings to LA Sub. Holdings agrees that, on or prior to the
Closing, ACTV and Holdings shall enter into the License Agreement in the form
and substance satisfactory to the Investors pursuant to which ACTV shall grant
to Holdings a perpetual worldwide exclusive royalty free license to use and
exploit all of ACTV's patents.
Section 3.4 Certificates on Exchange. Upon any exchange by an Investor
(or then holder of Preferred Shares) of the Preferred Shares pursuant to the
Exchange Agreement, Holdings shall issue and deliver to such Investor (or
holder) within 48 hours of the Exchange Date (as defined in the Exchange
Agreement) a new certificate or certificates for the number of Preferred Shares
which such Investor (or holder) has not yet elected to exchange but which are
evidenced in part by the certificate(s) submitted to ACTV in connection with
such exchange (with the number of and denomination of such new certificate(s)
designated by such Investor or holder).
Section 3.5 Replacement Certificates. The certificate(s) representing
the Preferred Shares held by any Investor (or then holder) may be exchanged by
such Investor (or such holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Preferred Shares, as requested by such Investor (or such holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
Section 3.6 No Senior Securities. Until the Restrictive Covenant
Termination Date (as defined in the Exchange Agreement), Holdings agrees that
neither Holdings nor ACTV shall (i) create, incur, assume, guarantee, secure or
in any manner become liable in respect of any indebtedness, other than the
obligations specifically referred to herein to the Investors or holders of
Preferred Shares, or permit any liens, claims or encumbrances to exist against
ACTV or Holdings or any of their assets, except for trade payables incurred in
the ordinary course of business consistent with past practices, and (ii) issue
any shares of its preferred stock or any securities convertible into its
preferred stock (except for warrants and preferred stock issuable upon exercise
thereof given to the Placement Agent as described in Section 7.1 above) without
prior written approval of such preferred stock (or convertible security)
issuance by a majority in interest of the holders of outstanding Preferred
Shares.
Section 3.7 Use of Proceeds. Holdings agrees that the proceeds received
by Holdings from the sale of the Preferred Shares hereunder and the funds
received by Holdings as a result of the Merger shall be used for developing the
chief markets of ACTV and its subsidiary companies in the areas of in-home
entertainment, education (with an emphasis on distance learning), site-based
entertainment and Internet applications as well as working capital and other
uses not inconsistent with the above.
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ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of Holdings to Sell
the Preferred Shares. The obligation hereunder of Holdings to issue and/or sell
the Preferred Shares to the Investors is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
are for Holdings' sole benefit and may be waived by Holdings at any time in its
sole discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Investors. Each Investor shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
such Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Exchange Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Preferred Shares. The obligation hereunder of each Investor to
acquire and pay for the Preferred Shares is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Investors' sole benefit and may be waived by the Investors at any
time in their sole discretion.
(a) Accuracy of Holdings' Representations and Warranties. The
representations and warranties of Holdings shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by Holdings. Holdings shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
Holdings at or prior to the Closing.
(c) NASDAQ. From the date hereof to the Closing Date, trading in ACTV's
Common Stock shall not have been suspended by the SEC or the NASDAQ Small
Capitalization Market, and trading in securities generally as reported by NASDAQ
shall not have been suspended or limited, and the Common Shares shall not have
been delisted from any exchange or market where they are currently listed.
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(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Exchange Agreement.
(e) Opinion of Counsel. At the Closing the Investors shall have received
an opinion of counsel to Holdings substantially in the form and substance
satisfactory to the Investors and such other opinions, certificates and
documents as the Investors or their counsel shall reasonably require incident to
the Closing.
(f) Registration Rights and Exchange Agreement. ACTV and the Investors
shall have executed and delivered the Exchange Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.
(g) Full Subscription. Each other Investor hereto shall have
consummated, or simultaneously with such Investor will consummate, the
transactions contemplated hereby at the Closing and the transactions
contemplated by the Financing Investment Agreement at the Closing thereunder.
(h) License Agreement. ACTV and Holdings shall have executed and
delivered the License Agreement in the form and substance satisfactory to the
Investors pursuant to which ACTV shall grant to Holdings a perpetual worldwide
exclusive royalty free license to use and exploit all of ACTV's patents.
(i) Adverse Changes. Since March 31, 1996, no event which had or is
likely to have a Material Adverse Effect on Holdings or ACTV or any of its
subsidiaries shall have occurred.
(j) Officer's Certificate. Holdings and ACTV shall have delivered to the
Investors a certificate in form and substance reasonably satisfactory to the
Investors, executed by an officer of Holdings and ACTV, certifying as to
satisfaction of closing conditions, incumbency of signing officers, charter,
by-laws and authorizing resolutions of Holdings and ACTV.
(k) Intercompany Transfers; Standoff Commitments. The Investors shall
have received (1) documentation satisfactory to the Investors evidencing the
completion of the intercompany transfers described in Section 3.3 above, and (2)
copies of the standoff commitments from executive officers and directors of ACTV
as set forth in Section 12.p of the Exchange Agreement.
ARTICLE V
LEGEND AND STOCK
Each certificate representing the Preferred Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form:
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
Holdings agrees to reissue certificates representing the Preferred
Shares without the legend set forth above at such time as (i) the holder thereof
is permitted to dispose of such Preferred Shares pursuant to Rule 144(k) under
the Act, (ii) such Preferred Shares are sold to a purchaser or purchasers who
(in the opinion of counsel to the seller or such purchaser(s), in form and
substance reasonably satisfactory to Holdings and its counsel) are able to
dispose of such shares publicly without registration under the Act, or (iii)
such Preferred Shares are registered under the Act.
ARTICLE VI
TERMINATION
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
Holdings and the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of any Investor or
Holdings at any time if the Closing shall not have been consummated by the fifth
business day following the date of this Agreement.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Holdings shall pay or use its best
efforts to cause ACTV to pay, at the Closing and promptly upon receipt of any
further invoices relating to same, all reasonable due diligence fees and
attorneys' fees and expenses (using a single counsel) incurred by the Investors,
up to a maximum amount of $85,000, in connection with the preparation,
negotiation, execution and delivery of this Agreement, the Financing Investment
Agreement, the Exchange Agreement, and the related agreements and documents and
the transactions contemplated hereunder and thereunder. Such amount may be paid,
at the Investors' option, by each Investor offsetting its pro rata share (based
on the amount of Preferred Shares purchased hereunder) of the estimated amount
due for such fees and expenses from the payment of the Purchase Price by such
Investor under this Agreement. In the event such estimate is ultimately less
than the actual fees and expenses, Holdings or ACTV shall promptly pay such
deficiency upon receipt of an invoice regarding same, and in the event such
estimate is ultimately greater than the actual fees and expenses, each Investor
shall promptly pay to ACTV its pro rata share (based on the amount of Preferred
Shares purchased hereunder) of such overage upon a determination regarding same.
To the extent the $85,000 maximum amount hereunder exceeds the actual fees and
expenses, such excess amount shall be used to reimburse the Holders for (or pay
for) any fees and expenses (including attorneys' fees and expenses) incurred by
the Holders in connection with their review and due diligence with respect to
the Registration Statement (as defined in the Exchange Agreement). Holdings
shall pay or use its best efforts to cause ACTV to pay all stamp and other taxes
and duties levied in connection with the issuance of the Preferred Shares
pursuant hereto and the Common Shares issued pursuant to the Exchange Agreement.
Holdings and/or ACTV shall be responsible for paying the compensation due
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to the Placement Agent in connection with the transactions contemplated hereby
and under the Financing Investment Agreement and the Exchange Agreement. The
Placement Agent's compensation includes a cash payment of $750,000 and the
issuance to the Placement Agent by Holdings of warrants to purchase 36,000
shares of Holdings' 5% Cumulative Exchangeable Preferred Stock (with 40% of such
cash payment and such warrants being paid and issued, respectively, at Closing,
and the remaining 60% of such cash payment and such warrants being paid and
issued on the Release Date). All fees, charges and costs of the escrow agent
under the Escrow Agreement (as defined in the Financing Investment Agreement)
shall be paid for by Holdings and/or ACTV, and not by Financing or the
Investors.
Section 7.2 Specific Enforcement; Consent to Jurisdiction.
(a) Holdings and the Investors acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) Holdings (i) hereby irrevocably submits to the jurisdiction of the
United States District Court, the New York State courts and other courts of the
United States sitting in New York County, New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Holdings consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with
the Exchange Agreement and the agreements and documents executed in connection
herewith and therewith, contains the entire understanding of the parties with
respect to the matters covered hereby and thereby and, except as specifically
set forth herein or therein, neither Holdings nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal
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business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
to Holdings: ACTV Holdings, Inc.
Attn: William Samuels
1270 Avenue of the Americas
New York, New York 10020
Fax: (212) 459-9548
with copies to: Wesley C. Fredericks, Jr., Esq.
Gersten Savage Kaplowitz & Curtin
575 Lexington Avenue, 27th Floor
New York, New York 10022
Fax: (212) 980-5192
to the Investors:
To each Investor at the address
and/or fax number set forth on
Schedule I of this Agreement.
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Attn: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Agreement.
Section 7.6 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.7 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
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Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. The parties hereto may amend this Agreement
without notice to or the consent of any third party. Holdings may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of all Investors (which consent may be withheld for any reason in their
sole discretion). Any Investor may assign this Agreement or any rights or
obligations hereunder without the consent of Holdings in connection with any
sale or transfer of the Preferred Shares held by such Investor.
Section 7.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of Holdings and each Investor contained herein shall
survive the Closing.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. Holdings agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
HOLDINGS:
ACTV HOLDINGS, INC.
By:__________________________
Name:
Its:
INVESTORS:
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Exhibit 11.1
ACTV, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
Nine Month Period Three Month Period
Ended September 30, Ended September 30,
1995 1996 1995 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 9,748,209 11,723,874 9,981,194 11,799,797
Common stock equivalents -- -- -- --
------------ ----------- ----------- -----------
Total 9,748,209 11,723,874 9,981,194 11,799,797
============ =========== =========== ===========
Net loss applicable to common
stock shareholders before
extraordinary gain $5,751,337 $5,878,805 $2,308,521 $1,825,786
Net loss applicable to common
stock shareholders after
extraordinary gain $5,657,220 $5,878,805 $2,308,521 $1,825,786
========================== ============ ============
Loss per common share before
extraordinary gain $.59 $.50 $.23 $.15
Loss per common share after
extraordinary gain $.58 $.50 $.23 $.15
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,021,321
<SECURITIES> 0
<RECEIVABLES> 353,575
<ALLOWANCES> 0
<INVENTORY> 190,113
<CURRENT-ASSETS> 9,831,566
<PP&E> 975,268
<DEPRECIATION> 216,509
<TOTAL-ASSETS> 14,358,163
<CURRENT-LIABILITIES> 7,724,982
<BONDS> 0
<COMMON> 1,178,711
0
3,600,601
<OTHER-SE> 1,853,869
<TOTAL-LIABILITY-AND-EQUITY> 14,358,163
<SALES> 1,093,127
<TOTAL-REVENUES> 1,105,816
<CGS> 480,321
<TOTAL-COSTS> 6,022,384
<OTHER-EXPENSES> 519,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,878,805)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,878,805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,878,805)
<EPS-PRIMARY> $.50
<EPS-DILUTED> $.50
</TABLE>
