UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
ACTV, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-2907258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
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(Address of principal executive offices) (Zip Code)
(212) 262-2570 (Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of exchange on which registered
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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
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of March 24, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on the NASDAQ Stock Market closing price
on March 24, 1997) was $20,128,518.
As of March 24, 1997, there were 11,838,734 shares of the registrant's common
stock outstanding.
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PART I
Item 1. BUSINESS
General
The corporate structure of ACTV, Inc. ("Company") is as follows: ACTV,
Inc. owns 100% of the common shares of ACTV Holdings, Inc. ("Holdings"), which
wholly owns (i) The Individualized Regional Sports Network, Inc. ("In Sports"),
(ii) ACTV Entertainment, Inc., (iii) ACTV Net, Inc., and (iv) four subsidiaries
that are currently inactive. In Sports, in turn, wholly owns The Texas
Individualized Television Network, Inc. and The Los Angeles Individualized
Television Network, Inc.
The Company and Holdings have granted the appropriate operating
subsidiaries exclusive, perpetual licenses to use the Company's proprietary
technologies that individualize television programming ("Individualized
Programming") within the business area being operated by such subsidiary and
have given the subsidiaries the right to sublicense it. Under the licenses, each
subsidiary will pay the Company a 5% royalty on net revenues if the subsidiary
is no longer majority owned by the Company, and a royalty of 5% of the net sales
of any sublicensee.
Unless otherwise indicated, all references in this Form 10-K to the
Company or ACTV include ACTV, Inc. and all of its subsidiaries.
This document includes certain forward looking statements about the
Company and its industry that are based on management's current expectations.
Actual results may differ materially as a result of any one or more of the risks
identified in the Company's filings under the Securities and Exchange Act of
1934.
Certain Relationships with Subsidiaries
Consolidation of Educational Partnership into ACTV
In July 1992, ACTV Net, Inc. (formerly ACTV Interactive, Inc.) ("ACTV
Net") entered into a partnership agreement with Post-Newsweek Education, Inc., a
wholly-owned subsidiary of the Post Company, pursuant to which ACTV Interactive
("Partnership") was formed as a Delaware general partnership, for the purpose of
selling products and services incorporating the Company's Individualized
Programming to the education market. The Post Company and ACTV Net received 51%
and 49% interests, respectively, in the Partnership. On March 11, 1994, the
Company purchased the Post Company's 51% interest in the Partnership for $4.5
million. The Company and the Post Company agreed to the amount of such
consideration after arms-length negotiations without receiving a valuation from
a disinterested third party.
Reorganization of ACTV Entertainment and the LGV Agreements
In March 1988, the Company formed ACTV Entertainment, Inc. ("ACTV
Entertainment") as an equal stockholder with a subsidiary of Le Groupe
Videotron, Ltee. of Montreal, Canada ("LGV"), Videotron Technologies Ltd. The
Company granted to ACTV Entertainment the exclusive right to use the Company's
Individualized Programming in the United States cable, DBS and broadcast
television markets.
In June 1993, LGV withdrew from its ownership in ACTV Entertainment, and
the Company became the sole shareholder of ACTV Entertainment under the terms of
an agreement with the subsidiary of LGV, which also settled all outstanding
legal disputes between the companies.
In connection with the settlement, LGV ceased paying royalties to the
Company. Simultaneously with the change in ownership of ACTV Entertainment, the
1987 LGV exclusive foreign license for Canada, Europe and the Soviet Union was
changed to a non-exclusive, royalty-free license to manufacture a set-top
terminal with compatible ACTV Programming functionality for its Videoway
service.
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The modified license also allows LGV to produce ACTV Programming for its
own Videoway subscribers. The license is subject to the condition that neither
LGV nor its sub-licensees receive any royalty or other fees with respect to
Individualized Programming, except for promotion and direct production expenses
paid by LGV. Any royalties from third parties will be paid to the Company. LGV
is not currently producing Individualized Programming, except in the London,
England cable systems that it recently sold.
Board Policy and Corporate Structure of Subsidiaries
The policy of the Company is and has been, as set forth in the prospectus
relating to its initial public offering in May 1990, "to license [the Company's]
technology and arrange joint ventures for its use in a number of different
industries." The Board of Directors has adopted a plan to take effect in the
event that an entity deemed not likely to further such policy or to act
inconsistently with the best interests of all the Company's shareholders seeks
to acquire or has acquired 20% or more of the Company. The text of the Board
resolution relating to this issue is as follows:
Resolved, that it being in the best interests of the Corporation and the
shareholders of the Corporation, the Board of Directors hereby approves and
adopts a plan that, in the event that the Board of Directors determines that an
acquirer has acquired, or seeks to acquire, 20% or more of the Corporation and
that such acquirer is not a suitable acquirer since such acquirer will not
further the Corporation's policy of acting as a broad licensor of the ACTV
Individualized Programming, or is otherwise likely to act inconsistently with
the best interests of all the Corporation's shareholders, the Board is
authorized to take all necessary action (including the hiring of an investment
banking firm), to offer, by invitation, non-exclusive licenses to use and
exploit ACTV Individualized Programming. The terms of such licenses may include
the payment of royalties consisting of a significant initial advance, minimum
annual payments and/or a percentage of annual net sales, and shall be consistent
with, and no less favorable than, the terms of existing licenses. The Board is
authorized, in its discretion, to employ an independent investment banking firm
for the purpose of evaluating the terms of such licenses. In the event that an
acquirer is identified and an auction is commenced, the Board reserves the right
to terminate the auction at any time prior to the Corporation's entering into
the non-exclusive license agreement."
The Board has authorized that each of the Company's direct and indirect
subsidiaries (except Holdings) have two classes of common stock and one class of
preferred stock. The second class of common stock, which is equivalent in the
number authorized to 20% of the total common stock authorized, carries
"super-voting" powers. It is the Board's policy that up to 20% of the equity of
the Company's direct and indirect subsidiaries (except Holdings) may be
allocated to executive officers, directors and employees of the Company and its
subsidiaries in consideration of services rendered and to reward and motivate
executives.
The foregoing may have anti-takeover effect and may be used to delay,
discourage or prevent a change in control of the Company.
Pursuant to such policy Messrs. Samuels, Reese, Crowley and Cline have
been granted options to purchase Class B Common Stock of certain of the
Company's subsidiaries; such common stock, if issued, will have majority voting
rights in such subsidiaries.
The Company
The Company's Individualized Programming significantly enhances the
quality of most genres of television programming by allowing the viewer to make
instant and seamless changes within the live or pre-recorded television
programming he or she is viewing. Individualized Programming appears to be a
standard TV program, but in fact is a multi-path broadcast of several elements
of programming
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material, such as instant replay, isolation cameras, statistical data, or
alternative story lines. There is no limit to the number of viewers who can
interact simultaneously with the Company's Individualized Programming. The chief
markets presently targeted by the Company for its Individualized Programming are
in-home entertainment, particularly, sports programming, and education, with an
emphasis in the education market on distance learning and Internet applications.
Individualized Programming is achieved by the viewer's using a remote
control that is similar to a standard remote control, but which contains four
extra function keys. These keys allow access to the appropriate path to be
selected. For example, in sports programming, a viewer could use the remote
control to select a display of statistical data, to isolate the camera on a
particular player or to see an instant replay. In game shows, the viewer could
use the remote control to answer the question being posed to the contestants; or
in a news broadcast, to select an in depth report on the news story. In the case
of live broadcasts, the Company's producer is actually determining which player
should be covered by the isolation camera and an announcer can be providing
commentary related to such player that is different than the live action
commentary. In prerecorded broadcasts, the various alternatives are pre-recorded
as part of the broadcast itself.
The Company's Individualized Programming is designed to work with both
single and multiple channels of 6 MHz band-width and with different modes of
transmission, including cable, direct broadcast satellite ("DBS"), wireless
cable, broadcast systems and distance learning networks. The Company's initial
emphasis is to deploy its programming over the digital cable and wireless
systems that have upgraded their signal origination facilities (referred to in
the industry as "headends"). The Company's Individualized Programming is able to
be broadcast over the cable operator's system and be received by the viewer who
has a digital set-top box into which the Company's software applications have
been downloaded.
The Company, working with the David Sarnoff Research Center ("Sarnoff"), a
world leader in the development of digital platforms, has developed an approach
to integrating the Company's Individualized Programming into digital television
set-top terminals, without an increase in the manufacturing costs of the
terminals. The Company is currently incorporating its Individualized Programming
into General Instrument Corporation's ("GI") MPEG-2 digital set-top terminal.
The Company is seeking to exploit the entertainment market, principally in
the U.S., through the launch of regionally based entertainment networks
("Regional Networks"). The Company's ability to develop differentiated,
high-quality branded programming in a digital entertainment environment is
initially based on its key strategic alliance with FOX Sports Net. FOX Sports
Net owns and operates eight regional sports affiliates in the United States,
which together provide more than 3,000 hours of live programming covering more
than 1,500 events each year. The Company has the rights to license FOX Sports
Net programming from each of FOX Sports Net's regional sports affiliates and to
offer enhanced FOX Sports Net programming to any distributor that carries the
corresponding regional FOX Sports Net channel. The Company intends initially to
enhance FOX Sports Net's professional and college sports programs with its
Individualized Programming in the West and Southwest regions of the United
States. The Fox Sports Net agreement extends through June 2003.
In the education market, the Company has developed analog and digital
Individualized Programming for distance learning that features return path
capabilities. The Company's distance learning system is a point-to-multi-point
broadcast system that can deliver pre-recorded individualized lessons as well as
integrate individualized lessons into live distance learning lessons. In
addition, the Company has begun development of the first application of its
planned Java-based software suite, "eSchool," that the Company expects will
permit an instructor to use the Internet as an accompanying instructional tool
during a live or pre-recorded video distance learning session.
The Company operates directly and through wholly-owned subsidiaries. The
principal subsidiaries are ACTV Entertainment, which will be primarily
responsible for the Company's focus in
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the entertainment market, two subsidiaries that will operate regional networks
within FOX Sports Net regions in Texas and Southern California, featuring
individualized FOX Sports Net regional programming, and ACTV Net, which is
responsible for the Company's education business.
The Company was incorporated under the laws of the State of Delaware on
July 24, 1989. The Company is the successor, by merger effective November 1,
1989, to ACTV, Inc., a California corporation, organized on July 11, 1983. The
Company's executive offices are located at 1270 Avenue of the Americas, New
York, New York 10020, telephone number (212) 262-2570.
Overview of the Cable and Wireless Cable Television Industries
Cable television was introduced in the early 1950's to provide television
signals to small or rural towns with few or no available off-air television
signals and to communities with reception difficulties caused by terrain
problems. Since that time, the cable television industry has added non-broadcast
programming, utilized improved technology to increase channel capacity and
expanded its service markets to include more densely populated areas and those
communities in which off-air reception is not problematic. Enhanced channel
capacity has increased the potential number of programming offerings available
to the subscriber and, consequently, increased the potential revenue available
per subscriber. State-of-the-art analog cable television systems are currently
capable of providing approximately 36 to 108 channels of programming.
Cable television systems offer customers various levels (or "tiers") of
basic cable service consisting of off-air television signals of local networks,
independent and educational stations, a limited number of television signals
from "superstations" originating from distant cities, various
satellite-delivered, non-broadcast channels and certain programming originated
locally by the cable systems. For an extra monthly charge, cable systems also
typically offer premium television services to their customers, consisting of
satellite-delivered channels generally providing feature films, live sports
events, concerts and other special entertainment features.
A cable televisions system consists of two principal operating components:
one or more signal origination points (headends), which receive television,
radio and data signals that are transmitted by means of off-air antennas,
microwave relay systems and satellite earth stations, and a signal distribution
system. Each headend includes a tower, antennae or other receiving equipment at
a location favorable for receiving broadcast signals and one or more earth
stations that receives signals transmitted by satellite. The headend facility
also houses the electronic equipment that amplifies, modifies and modulates the
signals, preparing them for passage over the system's network of cables. Cable
television systems may also originate their own programming and other
information services for distribution through the systems.
The signal distribution system consists of amplifiers and trunk lines,
which originate at the headend and carry the signal to various parts of the
system, smaller distribution cables and distribution amplifiers, which carry the
signal to the immediate vicinity of the subscriber and drop lines, which carry
the signal in to the subscriber's home. In the past several years, many cable
operators have used fiber optic (in place of co-axial cable) technology to
transmit signals through the primary trunk lines.
Cable television is currently available for purchase by more than 90% of
the approximately 98 million U.S. television households. The cable television
industry is an established provider of multichannel programming, with
approximately 65% of total U.S. television households subscribing. Cable systems
typically offer up to 80 channels of programming at an average monthly
subscription price of $33.
The development of digital transmission and compression technology has
resulted in both opportunities and additional competition for the traditional
cable television industry, allowing for the
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transmission of a greater number of channels with better audio and video but at
the same time facilitating different modes of transmission, such as satellite
and wireless transmission.
In response to these developments, over the past several years, cable
operators, with access to sufficient financial resources, have begun upgrading
their headends and other facilities to the digital platform. At the same time as
the cable operators have begun the migration to the digital platform, DBS and
wireless cable were being developed. Once digital delivery is available to a
cable home it needs only an appropriately configured digital set-top terminal to
receive Individualized Programming. GI has announced orders for approximately 4
million digital set-tops to date.
Digital satellite television services use communications satellites to
transmit multichannel video programming directly to consumers, who receive such
signals on home satellite dishes ("HSD"). With digital compression technology,
each frequency channel can be converted on average into five or more analog
channels of programming, thereby enabling the digital satellite service
operation to offer a broader variety of programming choices than analog
satellite systems and enabling subscribers of digital satellite services to
receive laser disc-quality picture and CD-quality sound from the satellite.
The operator of a digital satellite television service typically enters
into agreements with programmers, who deliver their programming content to the
digital satellite service operator via commercial satellite, fiber optics or
microwave transmissions. The digital satellite service operator generally
monitors such signals for quality, and may add promotional messages, public
service programming or other system-specific content. The signals are then
digitized, compressed, encrypted and combined with other programming and
necessary data streams (such as conditional access information) that share a
given transponder. Each transponder's signal is then uplinked, or transmitted,
to the transponder owned by the service operator on the service's satellite,
which receives and transmits the signal to HSDs configured to receive it.
In order to receive programming, a subscriber requires (i) a properly
installed HSD and related equipment, (ii) an integrated receiver/decoder (known
as the "set-top box" or "terminal"), which receives the data stream from each
broadcasting transponder, separates it into separate digital programming
signals, decrypts and decompresses those signals that the subscriber is
authorized to receive and converts such digital signals into analog radio
frequency signals, and (iii) a television set, to view and listen to the
programming contained in such analog signals.
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Wireless cable operators include multichannel, multi-point distribution
systems ("MMDS"), which deliver programming services over microwave channels to
subscribers with special antennas, and other so-called "wireless cable" systems.
The number of wireless cable systems is likely to grow, as virtually all markets
have been licensed or tentatively licensed, and developments in digital
compression technology will significantly increase the number of channels, as
well as the video and audio quality of wireless cable systems. Moreover,
wireless cable systems may provide their customers with local programming, a
potential advantage over existing digital satellite television systems. In 1995,
several large telephone companies acquired significant ownership in numerous
wireless cable companies. This infusion of money into the wireless cable
industry can be expected to accelerate its growth and its competitive impact.
However, while it is anticipated that most large wireless operators backed by
local telephone companies will upgrade to digital technology over the next
several years, such upgrades will require the installation of new digital
decoders in customers' homes and modifications to transmission facilities, at a
potentially significant cost. Wireless cable also generally requires direct line
of sight from the receiver to the transmitter tower, creating the potential for
substantial interference from terrain, buildings and foliage.
Business Strategies
For the in-home entertainment market, the Company's strategies are as follows:
Target regions where the operation's headends are being upgraded to digital.
Given its initial emphasis on digital deployment, the Company has specifically
targeted the West and Southwest regions of the United States for marketing and
providing its Individualized Programming; many significant cable operators in
these regions have upgraded their headends and have indicated that they will be
offering digital converter boxes to their subscribers.
Negotiate and sign affiliate agreements with cable operators to provide the
Individualized Programming to their subscribers. The Company is in preliminary
discussions with a number of cable operators with cable systems in the West and
Southwest to sign affiliate agreements to market and provide to their cable
subscribers the option of receiving the Individualized Programming. The Company
believes that its programming offerings will provide operators with a
potentially significant source of new revenues from a completely new and
differentiated product offering to its subscribers.
Through a focused marketing effort, educate both cable operators and potential
subscribers about the benefits of Individualized Programming. The Company
believes that, as cable operators become better educated about the benefits of
Individualized Programming and understand the additional revenues that can be
earned by providing these offerings to their subscribers, the Company's revenues
and penetration rates will increase. As consumers and cable operators understand
how the Company can provide a significantly better way of viewing a sporting
event or news program, the Company believes its penetration rates will grow. Key
marketing efforts will include: (1) offering the Company's Individualized
Programming free of charge for one month to potential new subscribers; (2)
cross-promotional activities with other programming content providers such as
FOX Sports Net ; (3) cross-promotional activities with cable operators and (4)
traditional print media, television advertising, and other marketing strategies.
Keep programming costs low during the Company's first few years of operation and
expand its penetration primarily through sports and news programming. The
Company believes that its enhanced sports and news programming content will be
the primary elements in attracting new subscribers to its Individualized
Programming. As such, it is the Company's intention to keep programming costs
low by primarily focusing on just sports and news programming until cash flow is
sufficient to allow for
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additional programming such as music, game shows, and other subjects to appeal
to potential subscribers who may be interested in such program types and less
interested in sports and news programming.
In the education market, the Company intends to implement the following
strategies:
Emphasize the collaborative development of program content. The target market
for the Company's education products includes schools, state and local agencies,
universities and private business. In addition to authoring the software and
hardware necessary to implement the Company's intranet and television product,
the Company provides content development services and services related to the
implementation of distance learning.
Create joint ventures with customers to market the customer's content to other
users. The education programs developed by customers using the Company's
Individualized Programming in many instances have application for others. The
Company intends to jointly market such programming to other potential users
along with the customer who has developed the Individualized Programming.
Develop proprietary content programming. The Company believes that it can
develop programming content that will have application for and marketability to
many potential customers. The Company intends to create such programming either
in its entirety, or by acquiring rights to existing education content and
adapting it to Individualized Programming.
Individualized Programming
General
The Company's process of creating individualized television
programming involves viewer selection from a multiple number of
frame-synchronized video, graphics, and/or audio signals delivered at one time.
Viewers see and/or hear only one of the signals at a given moment; the others
remain transparent. Each viewer interacts with the programming individually by
making selections or decisions using a traditional remote control. In response
to these keyed inputs, the Individualized Programming seamlessly switches from
one signal to another, giving each viewer his or her appropriate response. The
viewer cannot detect when such a switch takes place because it occurs with frame
accuracy.
The results appear seamless and uninterrupted - for the viewer the
programming is completely individualized. Although an individualized program and
its associated branches are taped in a normal linear fashion, the program, when
shown, has thousands of possible variations available for each viewer to
experience. The particular version seen is based on each viewer's individually
selected preferences and inputs. An unlimited number of independent viewers can
interact with a program simultaneously.
To develop Individualized Programming the Company generally seeks to form
joint ventures or licensing agreements with producers of standard linear shows
or with networks that have rights to such shows. Individualized Programming can
be created in a number of ways: enhancing existing programs that have been
produced in a standard linear format, adding "piggy-back" branch alternatives
during the shooting of ongoing shows, or creating entirely original productions
solely for use by the Company.
The cost of the Company original productions is higher than a linear
version of the same program of comparative length. However, production costs are
significantly lower than regular linear television shows when existing material
can be enhanced, or when productions are "piggy-backed." Production costs vary
significantly based upon the nature and type of programming to be produced. An
advantage of Individualized Programming is its higher repeatability, as compared
to standard
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programming, since an individualized program's cost can be amortized over a
greater number of showings.
Entertainment Programming
The Company's business plan is to develop regional television networks,
offered by traditional distributors of television programming, that will feature
traditional genres of programming. The differentiation afforded by
Individualized Programming will allow distributors to offer their customers the
Company's program's on a subscription basis. The regional individualized
television networks will provide distributors with the potential of significant
additional revenue, as well as an opportunity to differentiate their service
offerings and accelerate the deployment of digital set-tops.
Examples of the Company's entertainment programming are:
Sports. Individualized sports will enable viewers to access elements that
enhance each game's regular coverage during a live event. In hockey, for
example, the Company's Individualized Programming allows a viewer to select
features like "Hit Parade," a recap of the game's hardest checks; "Saving
Grace," a compilation of the game's best saves; "Star Cam," which provides an
isolated view of a featured player; "Goals-On-Demand," a compilation of all the
scores in the contest; plus in-depth Statistics and instant replay at anytime.
News. Individualized Programming allows the viewer to go deeper into the
news presented by the linear program. In the first section of an evening news
program, viewers can access more information about the story they are watching,
calling up "datapoints" or additional facts about the story presented. They can
also access maps, graphs, charts, or other enhancements to the linear story. As
the program continues, viewers can choose among the linear program, expanded
coverage of the day's top stories, or other kinds of news (international,
financial, etc.) in which they may have a particular interest.
Game Shows. Individualized Programming allows each viewer to actively
participate in the game. The viewer can decide which team to play on, enter
answers and receive individualized responses to his or her choices. The system's
memory keeps viewers informed of their performance throughout the program and
provides final results at the end of the show. Advertisers and sponsors can
offer promotional premiums to the viewers with the best scores.
Advertising. Individualized Programming gives television advertisers
unique opportunities to target their message demographically. By asking the
viewer basic questions at the beginning of the program, Individualized
Programming can recall this information during a commercial break and send the
viewer the appropriate advertisement. A second advantage for advertisers is the
concept of individualized commercials. For example, before a commercial break in
a sporting event, viewers are asked which type of car they would like to see:
sedan, pick-up truck, sport utility or luxury sedan. The Company's
Individualized Programming records this choice, then sends the requested
commercial to each viewer. This same choice can be recalled at a later
commercial break to provide additional information. Individualized Programming
stores the responses in the system memory and can trigger branches based on the
accumulated responses at the end of the program. Advertisers can use this
functionality of Individualized Programming to offer promotional premiums to
viewers based on their performance.
Education
The Company has developed, and is continuing the development of, new
two-way analog and digital programming technologies for distance learning. The
Company offers a point-to-multipoint
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broadcast system that can deliver pre-recorded individualized lessons or can
integrate individualized segments into live distance learning lessons. By using
a simple remote control, the student is able to alter program content to suit
specific needs and interests. Students receive individualized responses to their
input. Moreover, at the end of the lesson, the system's memory component can
recall each student's performance and give the local facilitator a detailed
progress report.
Distance learning ("DL") networks typically involve a teacher at a central
broadcasting site distributing a lesson to multiple remote classroom sites.
Individualized Programming tools allow the teacher to create questions or offer
choices relating to the lesson and pre-record individualized responses. At
selected points in the lesson, the DL teacher can initiate the questions and
interactions, with each student across the network receiving individualized
responses. In addition, Individualized Programming gives the teacher immediate
feedback on the classes' responses, allowing the teacher to pace the lesson
accordingly. Additionally, the Company's planned Java-based software suite,
"eSchool," (described below) will permit the integration of the Internet with
video distance learning.
The Company's distance learning system was commercially introduced with an
installation in Georgia beginning in late 1995. The Company's contract with
Georgia was recently extended and expanded for a second year. In addition, in
late 1996 the Company launched its first distance learning project in the state
of Texas. The Company will deliver its individualized educational programming
functionality to 37 Texas Workforce Commission ("TWC") sites, along with
proprietary software and training that will facilitate the creation of
Individualized Programming by TWC educators themselves.
In 1995, the Company signed an agreement with GI to allow Individualized
Programming for distance learning to be integrated with GI's DigiCipher(R)
system. The new digital system will allow programming networks to develop
Individualized Programming and distribute it digitally to their customers.
In 1997, the Company began the development of the first applications of
its planned Java-based software suite, "eSchool," which permits an instructor to
use the Internet as an accompanying instructional tool during a live video
distance learning session. (Java is a programming language developed for the
Internet by Sun Microsystems.) eSchool functionality, together with the
Company's distance learning technology, will work to create a "virtual"
classroom. eSchool software can be used for pre-recorded as well as live
programming; the video can come from any source. The Company expects to release
the first version of eSchool software to the market during the second quarter of
1997.
The Company has enhanced 127 educational television titles with its
Individualized Programming and has distributed the programs in the kindergarten
to 12th grade market. The programs focus on reading, math, and vocational
education. Sales of these products represented a majority of the Company's
revenue prior to the commercial introduction of the distance learning system.
Education products are marketed through both a direct and distributor sales
force. The Company produced the educational television titles jointly through
license agreements with Phoenix Learning Group, Bergwall Productions, Inc.,
Agency for Instructional Technology, AIMS Media, The Hasty Pudding Puppet Co.,
TakeOff, Video Educational Excellence and Turner Educational Services, Inc.
Programming Relationship with FOX Sports Net
Recently, the Company completed a successful, 18-month Individualized
Programming trial in greater Los Angeles. The Company's Individualized
Programming was delivered to 1,000 cable subscribers of the TCI of Ventura
County cable system. FOX Sports West supplied sports programming to the Company
for the trial. Viewers participating in the trial were able to individualize FOX
Sports West offerings such as L.A. Lakers basketball, L.A. Kings hockey, and
California Angels baseball.
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FOX Sports Net is the domestic telecasting arm of the worldwide sports
alliance recently formed between News Corporation, Liberty Media and
TeleCommunications Inc. The network consists of eight owned and operated
regional sports affiliates from coast to coast. Combined, FOX Sports Net's
regional sports networks provide more than 3,000 hours of live programming each
year, covering more than 1,500 events. The FOX Sports Net regional networks
offer their programming for distribution as a basic service - all homes served
by the distributor receive the service as part of the basic distributor fee.
In December 1996 the Company and FOX Sports Net entered into a master
programming agreement that extends through June 30, 2003 and covers all FOX
Sports Net programming. The agreement grants the Company the right to license
FOX Sports Net programming from each FOX Sports Net regional sports network and
rebroadcast an Individualized Programming version of the program in the
respective FOX Sports Net regional territory. The Company intends to enhance FOX
Sports Net's professional and college sports programs with its Individualized
Programming. Under terms of the agreement, the Company has the right to offer
enhanced FOX Sports Net programming to any distributor that carries the
corresponding regional FOX Sports Net channel. FOX Sports Net will receive a
share of subscriber fee and advertising revenue generated by the Company's
future individualized television networks located within FOX Sports Net regions.
Based on the success of the Individualized Programming trial in TCI's
Ventura County System, as well as the relationship with FOX Sports Net, the
Company plans to launch the Regional Networks within the regions served by FOX
Sports Southwest and FOX Sports West. Current plans are for the launch of the
Southwest Regional Network as early as the fourth quarter of 1997 and the West
Regional Network shortly thereafter. FOX Sports Southwest distributes
programming to 5.1 million households in Texas, Louisiana, Arkansas, Oklahoma
and nine New Mexico counties, while FOX Sports West serves 4.5 million
households in Southern California, Hawaii and Clark County, Nevada. The planned
Regional Networks, like the recently completed trial, will feature FOX Sports
Net regional programming enhanced by the Company's Individualized Programming.
Over time, the Company will produce other national programming and make such
programming available to the Regional Networks. The Company will be responsible
for the incremental content, transmission, delivery and master control costs
incurred in connection with the enhancement of the Individualized Programming to
be presented through its Regional Networks.
The Company has chosen the regions served by FOX Sports Southwest and FOX
Sports West because the Company believes these regions will be among those
targeted for the initial distribution of digital set-top boxes by cable
operators and wireless program providers. Furthermore, the Company will direct
initial marketing of the Regional Networks toward those cable operators in each
respective FOX Sports Net regional market who are upgrading their distribution
facilities to digital and who buy digital set-top boxes. Expansion could follow
either in additional FOX Sports Net regions or in other regional sports markets.
Production
Entertainment
The Company's entertainment programs are distributed to each region from a
master control facility, which includes the necessary equipment to both produce
and distribute Individualized Programming. The master control facility for
Southern California was constructed in 1995 at the offices of TCI of Ventura
County in Westlake Village, California. The Company has selected the facility
used by FOX Sports Southwest in Irving, Texas as the site of the master control
in that region. The Company expects this facility to be operational by the
fourth quarter of 1997.
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Education
The major components of the Company's intranet DL products are authoring
software, which customers use to develop their own individualized programs, and
hardware installed at the receiving site that connects students to the system.
The authoring software is designed to enable a teacher to produce lessons for
broadcast using a personal computer, video camera and other standard ancillary
hardware. The Company provides training and support in the use of the authoring
software, allowing the customer to produce individualized education content in
its own facilities..
Product Development
Current Development
The Company's current research and development efforts are focused
primarily on digital application of its Individualized Programming and
Java-based Internet software for the education market. The Company entered into
a collaborative agreement in August 1995 with Sarnoff to investigate and
potentially develop digital applications of its Individualized Programming.
Currently, the Company, Sarnoff, and GI are working together to incorporate the
Company's Individualized Programming into GIs new MPEG-2 digital set-top cable
box ("DCT 1000"). The Company is also in the process of expanding and further
refining its Individualized Programming to incorporate additional
functionalities that can be used in the digital cable platform. Research and
development of the Company's eSchool Java-based software suite for the Internet
is expected to be on-going throughout 1997 and beyond.
Functionality
The set-top terminal receives information from codes either embedded into
the video program material or delivered in a data packet. It thus maintains
"memory" on the progress of the viewer and provides automatic branching. At
appropriate times during the program, the CPU will make branch switches
automatically, accumulate data, recall information, create graphics and/or
implement a pre-programmed set of instructions.
In single channel analog (6 MHz of band-width) applications,
Individualized Programming can individualize audio and/or graphics, based on
multiple signals. When additional analog channels of band-width are available,
video can be individualized as well.
In digital systems, multiple video, audio and graphics can be
individualized in 6 MHz of band-width. Sarnoff has developed the Company's
digital applications that will enable the implementation of Individualized
Programming into the various developing digital television systems.
Individualized Programming can be delivered through any digital video system and
received by a standard digital set-top terminal such as GI's DCT 1000. The
Company's software application can be downloaded into each set-top terminal.
There is no additional memory or hardware necessary for upgrading a digital
set-top terminal to allow it to deliver the Company's Individualized Programming
to subscribers.
Individualized Programming can be transmitted through any service
provider's channel, and can even be broadcast under the new digital television
standard recently approved by the FCC. Individualized Programming uses one 6 MHz
channel with 64 QAM, or 8VSB modulation techniques providing adequate data rates
to support the Company's programming. It is channel independent and can be
transmitted over any 6 MHz channel using any practical modulation scheme. The
Company will create entertainment content at its regional production facilities
and then distribute throughout each region by means of several different
delivery options, including land lines and satellite. The distribution method
will be determined by the geographical nature of the region and the economic
viability of the different delivery techniques available in each region. The
Company will deliver to the
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service provider a complete MPEG-2 compatible transport stream containing all of
the necessary information for the application to run properly in its system.
The Company's signal is received at the cable operator's distribution
facility by an appropriate receiver. The service provider will simply have to
pass the signal through its CA (Conditional Access) system and send the signal
out to the customers. Using standard MPEG-2 compression techniques at a 4:1
compression ratio, the Company will provide its service through a single 6 MHz
channel. The Company does not require any back channel capability to support the
programming. Individualized Programming creates an individualized look and feel
by using relational data base management and a very small amount of local memory
in order to create millions of possible combinations.
The Company's application software requires approximately 25K bytes of
code space, either ROM (Read Only Memory), PROM (programmable read only memory)
or EEPROM (Electrical Erasable PROM). The application requires a small amount of
scratch pad memory, up to 2 KB of RAM (Random Access Memory). While the
Company's software does not require NVRAM (Non-volatile RAM), up to 1 KB of
NVRAM might be necessary for any future back channel applications.
Individualized Programming seamlessly switches the user through multiple
channels of video and audio in response to user inputs throughout the program.
The switch may be delayed as long as the script writer chooses. Seamless
switching is accomplished by using a subset of the MPEG-2 syntax for splicing.
With Individualized Programming, switching is simpler than creating a seamless
splice between two unrelated video streams, because it takes advantage of the
fact that the video and audio encoders are co-located.
The Company's Individualized Programming incorporates a command language
that is used to configure the set-top converter and control the information that
the user sees under specific conditions. The command language requires a small
amount of additional bandwidth in the channel and approximately 2K bytes/sec of
additional data must be sent in a digital system. When commands are received by
the application software running in the set-top converter, they are processed by
the software and the correct information is presented.
The Company first introduced its Individualized Programming applications
for entertainment outside the United States through a 1987 license with Le
Groupe Videotron, Ltd. ("LGV"), the second largest Canadian cable/broadcast
television company. The license was modified in June 1993. See "The Company"
Certain Relationships with Subsidiaries Reorganization of ACTV Entertainment and
LGV Agreements."
Government Regulation.
The Company believes that neither its present or future implementation of
its Individualized Programming is subject to any substantial government
regulation. However, the broadcast industry in general, and cable television,
DBS and wireless communication in particular are subject to substantial
government regulation.
Pursuant to an Act of Congress passed in 1992 (" 1992 Cable Act"), the
Federal Communications Commission ("FCC") substantially re-regulated the cable
television industry in various areas including rate regulation, competitive
access to programming, "must carry," and retransmission consent for broadcast
stations. These rules, among other things, restrict the extent to which a cable
system may profit from, or recover costs associated with, adding new program
channels, impose certain carriage requirements with respect to television
broadcast stations, limit exclusivity provisions in programming contracts and
require prior notice for channel additions, deletions and changes. The United
States Congress and the FCC also have under consideration, and may in the future
adopt new laws, regulations and policies regarding a wide variety of matters
which could, directly or indirectly, materially adversely affect the operations
of the Company.
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Set-Top Converters, Terminals, and Other Interactive Devices
The Company does not intend to manufacture set-top converters, terminals,
video servers, or other interactive devices. This equipment will be supplied to
the Company pursuant to agreements between the Company and equipment suppliers.
In April 1996, the Company and GI signed a non-exclusive, royalty-free
manufacturing agreement for GI's MPEG-2 digital terminal. Sarnoff is working
with GI to integrate Individualized Programming with this digital terminal. The
project is scheduled for completion in the second half of 1997. The Company also
has a non-exclusive, royalty-free manufacturing license with LGV that allows the
latter to incorporate the Company's Individualized Programming into its analog
set-top cable boxes. The Company intends to grant licensees similar to those
granted to GI and LGV to other manufacturers that are selected by the future
distributors of Individualized Programming.
In the education market, the Company has entered into an arrangement with
GI pursuant to which Individualized Programming for distance learning will be
integrated with GI's DigiCipher system. The new digital system, which combines
the Company's Individualized Programming and GI's DigiCipher System, will allow
programming networks to develop the Company's Individualized Programming and
distribute it digitally to their customers. The development of the new digital
distance learning system is scheduled for completion in the second quarter of
1997.
The Company has a non-exclusive agreement with KDI Precision Products,
Inc. ("KDI") to manufacture the Company's classroom and distance learning
systems that incorporate Individualized Programming. KDI sells the systems to
the Company at prices and in accordance with a delivery schedule agreed upon
from time to time. KDI also is a distributor of components such as television
monitors, VCRs, remote controls, printers and cabinets used in conjunction with
the systems. The agreement renews automatically for successive one-year terms
unless terminated by either party on six-months' written notice.
KDI is currently the only manufacturer of the classroom and distance
learning systems. The Company believes that KDI can produce sufficient systems
to meet the anticipated needs of the Company in the education marketplace. In
the event that KDI were unable to supply the systems, there can be no assurance
that the Company could produce sufficient systems or obtain sufficient systems
from another manufacturer at an acceptable price. The inability of the Company
to obtain systems would have a material adverse affect on the business of the
Company.
There can be no assurance that the Company will be successful in
developing additional manufacturing licenses.
Patents and Other Intellectual Property
The Company has sought to protect the proprietary features of its
Individualized Programming it employs through patents, copyrights,
confidentiality agreements, and trade secrets both in the United States and
overseas. As of the present time, the United States Patent and Trademark Office
has issued twelve patents, with six additional patents pending. The patents,
which deal with different aspects of Individualized Programming, expire at
various dates from 1998 to 2014.
Corresponding patents for some of the above U.S. patents have been granted
or are pending in Canada, Japan, Australia and the European Patent Office. When
a patent is granted by the European Patent Office, and upon the filing of
appropriate translations, protection will be available in the designated
European countries. The Company believes such patents will strengthen its
competitive position in the aforementioned countries.
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The inventors named on all of the patents issued have assigned to the
Company all right, title, and interest in and to the above U.S. patents and any
corresponding foreign patents or applications based thereon. In addition, Dr.
Michael Freeman, the principal inventor of Individualized Programming and a
current employee of the Company, has agreed to assign to the Company the rights
and title in and to all future patents and applications, and any corresponding
foreign patents or application relating to the Individualized Programming.
There can be no assurance that the patents held by the Company are
enforceable, particularly in view of the high cost of patent litigation, nor can
there be any assurance that the Company will derive any competitive advantages
therefrom. To the extent that patents are not issued for any other products
developed by the Company, the Company would be subject to more competition. The
issuance of patents may be insufficient to prevent competitors from essentially
duplicating the Company's products by designing around the patented aspects. In
addition, there can be no assurance that the Company's products will not
infringe on patents owned by others, licenses to which may not be available to
the Company, nor that competitors will not develop functionally similar products
outside the protection of any patents the Company has or may obtain.
The Company requires each of its employees, consultants and advisors to
execute a confidentiality and assignment of proprietary rights agreement upon
the commencement of employment or a consulting relationship with the Company.
These arrangements generally provide that all inventions, ideas, and
improvements made or conceived by the individual arising out of the employment
or consulting relationship shall be the exclusive property of the Company. This
information shall be kept confidential and not disclosed to third parties,
except by consent of the Company or in other specified circumstances. There can
be no assurance, however, that these agreements will provide effective
protection for the Company's proprietary information in the event of
unauthorized use or disclosure of such information.
Competition
The business of providing subscription and pay television programming is
highly competitive. The Company faces competition from numerous other companies
offering video, audio and data products and services. The Company's existing and
potential competitors comprise a broad range of companies engaged in
communications and entertainment, including cable programming providers, cable
premium pay programming providers (such as HBO, Cinema, etc.), premier multiplex
pay channels under the digital format, pay per view movies and special event
offering, television networks, home video products companies, as well as
companies developing new technologies and programming concepts. Many of the
Company's competitors have greater financial, marketing and programming
resources than the Company. The Company expects that quality, uniqueness and
variety of programming, quality of picture and service and cost will be the key
bases of competition, along with competition from other programming alternatives
that may provide new sources of revenue to cable operators.
At the present time, there are a number of different new television
technologies, often labeled as interactive television, that have been developed
or are under development by others that might be considered competitive with the
Company's Individualized Programming. These new technologies, in general, are
delivered via cable television, or through play-along devices that are attached
to the television set. To the best of the Company's knowledge, none of the
point-to-multi-point systems based on these technologies allows the viewer to
affect what is seen on the television in the same manner or to the extent of
Individualized Programming, which is unique in its approach and function.
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EMPLOYEES
At December 31, 1996, the Company employed 26 full-time employees. The Company
believes that its relationships with its employees are generally satisfactory.
Item 2. PROPERTY - OFFICES AND FACILITIES
The Company (including its subsidiaries) maintains its principal and
executive offices at Rockefeller Center, 1270 Avenue of the Americas, New York,
New York, where it leases approximately 8,000 square feet at a rent of
approximately $22,200 per month pursuant to a lease that expires in January
2001. The Company maintains an engineering staff and an editing studio at 1600
Broadway, New York, New York, where it leases approximately 2,500 square feet at
a rent of $3,450 per month, pursuant to a lease that expires in December 1999.
The lease agreement provides for cancellation by either party with no penalty
after December 31, 1996. In addition, the Company maintains offices at 9454
Wilshire Boulevard, Beverly Hills, California, which are leased on a
month-to-month basis for approximately $1,350 per month by The Los Angeles
Individualized Television Network, Inc. The Company believes it will require an
office in Texas and greater office space in Southern California, as well as
television master control facilities in each of these areas to effect the launch
and operation of its planned regional individualized networks in the respective
markets. The Company believes its current facilities are suitable and adequate,
and that they provide the productive capacity necessary for the performance of
the operations of the Company. None of the Company's properties is leased from
affiliated persons.
Item 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is a
party.
Item 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
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.
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
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
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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
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Automated Quotation System of
the National Association of Securities Dealers, Inc. ("NASDAQ") and the Boston
Stock Exchange under the symbols "IATV" and "IAT", respectively. The following
table sets forth the high and low sale prices for Common Stock as reported by
NASDAQ.
Common Stock
1996 Quarter High Low
--------------------
First 5 1/8 3 11/16
Second 4 9/16 3 1/2
Third 4 5/16 3 1/16
Fourth 3 27/32 2 11/16
1995 Quarter High Low
--------------------
First 6 5/8 3 3/8
Second 5 1/4 4
Third 5 3/4 3 7/16
Fourth 5 13/16 3 1/8
On March 24, 1997, there were approximately 280 holders of record of the
Company's 11,838,734 outstanding shares of Common Stock.
On March 24, 1997, the closing bid and asked prices of the Common Stock as
reported by NASDAQ were $2 5/32 and $2 3/8, respectively.
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The Company has not paid cash dividends since its organization. The Company
plans to use earnings, if any, to fund growth and does not anticipate the
declaration or the payment of cash dividends in the foreseeable future.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues (1) $532,596 $164,602 $938,416 $1,311,860 $1,476,329
Operating Expenses (1) 2,798,847 3,443,513 5,734,132 8,272,884 10,240,158
Equity in Net Loss of
ACTV Interactive (2) 187,781 506,303 143,500 -- --
Loss Before Extraordinary
Item (3) 2,778,085 4,156,955 5,122,010 6,920,906 8,800,481
Net Loss (3) 2,778,085 4,156,955 4,465,240 6,826,789 8,800,481
Weighted Average Shares
Outstanding 4,665,686 5,800,134 7,897,278 10,162,128 11,739,768
Loss Per Common Share Before
Extraordinary Item (3) 0.59 0.72 0.65 0.68 0.75
Net Loss Per Common
Share (3) 0.59 0.72 0.57 0.67 0.75
Balance Sheet Data: 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- --------
Working Capital (104,486) 2,263,225 1,503,703 2,397,027 5,093,859
Total Assets 3,146,503 5,920,720 7,733,314 8,551,128 11,692,624
Long Term Obligations 1,792,794 2,220,794 2,325,061 -- --
Stockholders' Equity (4) 1,006,314 1,910,603 3,972,543 6,893,853 9,201,068
Total Capitalization 2,799,108 4,131,397 6,297,604 6,893,853 9,201,068
</TABLE>
(1) For the period between July 15, 1992, and March 11, 1994, all education
sales and expenses were reported separately by the Company's 49%
affiliate, ACTV Interactive, and were not consolidated with the Company's
statements of operations. For the remainder of 1994, operational results
related to education were included with those of the Company, as a result
of the Company's March 11, 1994 purchase of the Post Company's 51%
interest in ACTV Interactive.
(2) The results of ACTV Interactive are accounted for under the equity method
of accounting for the years 1992 and 1993 and for the period January 1,
1994 to March 11, 1994.
(3) Includes for the year ended 12/31/94 an extraordinary gain of $656,770,
($.08 per share) related to the extinguishment of debt and equipment lease
obligations. Includes for the year ended 12/31/95 an extraordinary gain of
$94,117 ($.01 per share) related to the extinguishment of debt
obligations.
(4) No cash or non-cash dividends have been paid or granted and the Company
does not anticipate the declaration or payment of dividends in the
foreseeable future.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
To the extent that the information presented in this Form 10-K discusses
financial projections, information or expectations about the Company's products
or markets, or otherwise makes statements about future events, such statements
are forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made. These
include, among others, the successful and timely development and acceptance of
new products and markets and the availability of sufficient funding to effect
such product and/or market development.
ACTV, Inc. (the "Company") was organized to develop and market ACTV's
Individualized Programming, which permits each viewer to simultaneously
experience individualized television programming. Since its inception, the
Company has incurred operating losses approximating $39.2 million related
directly to the development and marketing of the ACTV's Individualized
Programming.
ACTV's Individualized Programming is designed to work with both single and
multiple channels of 6 MHz band-width and with different modes of transmission:
cable, direct broadcast satellite ("DBS"), wireless cable, broadcast systems and
distance learning networks. While it is compatible with one-way analog systems,
the Company's emphasis is on 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 chief markets presently targeted by the Company for ACTV's
Individualized Programming are in-home entertainment, education (with an
emphasis on distance learning and Internet applications) and site-based
entertainment. The Company seeks to exploit these markets, principally in the
U.S., through licensing its Individualized Programming, by creating joint
venture relationships, and by direct sales.
In December 1996 the Company and Fox Sports Net entered into a master
programming agreement that extends through June 30, 2003 and covers all Fox
Sports Net programming. The agreement grants the Company the right to license
Fox Sports Net programming from each Fox Sports Net regional sports network. The
Company intends to enhance Fox Sports Net's professional and college sports
programs with its Individualized Programming.
Under terms of the agreement, the Company has the right to offer enhanced
Fox Sports Net programming to any distributor that carries the corresponding
regional Fox Sports Net channel. In each region, the Company and Fox Sports Net
will work together to develop innovative sports programming, which will be the
basis for differentiated programming services offered by the Company. Fox Sports
Net will receive a share of subscriber fee and advertising revenue generated by
future ACTV individualized television networks located within Fox Sports Net
regions.
Fox Sports Net is the domestic telecasting arm of the worldwide sports
alliance recently formed between News Corporation, Liberty Media and
TeleCommunications Inc. The network consists of seven owned and operated
regional sports affiliates from coast to coast. Combined, Fox Sports' regional
cable networks provide more than 3,000 hours of live programming each year,
covering more than 1,200 events.
The Company recently completed a successful, 18-month individualized
regional network trial, which began in the Los Angeles area in May 1995. The
trial, which ran through the end of 1996,
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provided ACTV individualized programming to 1,000 cable subscribers in Ventura
and Los Angeles Counties. Sports and news programming for the trial were
supplied to ACTV by Fox Sports West and Cable News Network, Inc. ("CNN"),
respectively. The cable operator for the trial was TCI of Ventura County.
Viewers participating in the trial were able to individualize CNN's PrimeNews
program, as well as Fox Sports-West offerings such as L.A. Lakers basketball,
L.A. Kings hockey, and California Angels baseball.
Based on the success of the Los Angeles trial, the Company plans a
commercial launch of two individualized networks (the "Regional Networks") over
the next twelve months within Fox Sports regions in Texas and Southern
California. Fox Sports Southwest has 5.1 million homes in Texas, Louisiana,
Arkansas, Oklahoma and nine New Mexico counties, while Fox Sports West reaches
4.5 million subscribers in the region from Los Angeles to San Diego and Phoenix.
The planned Regional Networks, like the recently completed trial, will feature
individualized Fox Sports regional programming. The Company will produce other
national programming, such as news, and make such programming available to the
Regional Networks. The Company will be responsible for the incremental content,
transmission, delivery and master control costs incurred in connection with the
enhancement of the ACTV Programming to be presented through its Regional
Networks.
In March 1995, the Company formed The Los Angeles Individualized
Television Network, Inc., one of its wholly-owned operating subsidiaries, to
operate the Company's Southern California trial. This subsidiary will be
responsible for the launch and operation of planned the Southern California
regional network. Similarly, the Texas Individualized Television Network, Inc.,
another wholly-owned operating subsidiary of the Company, will launch and
operate the network projected for the Fox Sports Southwest region within the
same time frame.
The Company anticipates that its Regional Networks will offer premium
cable programming services that are advertiser-supported, with monthly
subscription prices comparable to other U.S. premium channels. Although the
Company's intention is to launch the Regional Networks over the next
twelve-month period, there is no assurance that it will secure the funding
necessary to effect such launches, or that other factors might not delay or
prohibit the successful implementation of the plan.
The Company will direct initial marketing of the Regional Networks toward
the cable operators in each respective Fox Sports Net regional market who are
buying digital set-top boxes. Expansion could follow in either additional Fox
Sports Net regions or in other regional sports markets. The Company has
established four new wholly-owned subsidiaries that would serve as operators of
additional regional individualized networks covering the San Francisco, Chicago,
New York, and Atlanta regions in the event that the Company decides to expand
and provide the individualized television programming to other regions across
the U.S. To date, the four new wholly-owned subsidiaries have not engaged in any
business activities. The recently complete trial, and the projected Regional
Network expansion, is part of the Company's plan to develop the entertainment
division of its business, which to date, does not generate any revenue for the
Company. There can be no assurance that the Regional Networks, even if launched,
will generate significant revenues for the Company.
In January 1995, the Company granted an exclusive license to Greenwich
Entertainment Group ("The Greenwich Group") for the use of its Individualized
Programming in the theater environment, specifically in shopping malls, museums
and entertainment centers. ACTV owns approximately 15% of The Greenwich Group's
common stock.
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 Individualized Programming in the United States DBS, cable, and
broadcast television markets.
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<PAGE>
In June 1993, LGV withdrew from its ownership in ACTV Entertainment, and
the Company became the sole shareholder of ACTV Entertainment under the terms of
an agreement with a subsidiary of LGV. While ACTV gained full ownership and
control of ACTV Entertainment in the settlement, it did agree to give up the
royalty income it was receiving from the analog set-top cable license with LGV
($3.00 per user per year). Simultaneously with the change in ownership of ACTV
Entertainment, the 1987 LGV exclusive foreign license for Canada, Europe and the
Soviet Union was changed to a non-exclusive, royalty-free license to manufacture
an analog set-top terminal with compatible ACTV Programming functionality for
its Videoway service.
The modified license also allows LGV to produce ACTV Programming itself
for its own Videoway subscribers. The license is subject to the condition that
neither LGV nor its sub-licensees receive any royalty or other fees with respect
to ACTV Programming, except for promotion and direct production expenses paid by
LGV. Any royalties from third parties will be paid exclusively to ACTV. LGV is
not currently producing ACTV Programming, except in the London, England cable
systems that it recently sold.
The Company continues to seek other licensees and joint venture partners
both in and outside the United States. The Company is and will continue to be
dependent upon the ability of licensees and joint venture partners to offer
products and services that are commercially viable, and to actively promote and
distribute its Individualized Programming.
There can be no assurance that the Company will be successful in reaching
agreements with licensees and joint venture partners, that the Company's
strategy of marketing its Individualized Programming through its licensees and
joint venture partners will be successful, or that the methods that its
licensees and joint venture partners choose to market the Individualized
Programming will be successful. Further, the Company may be adversely affected
by the financial and business considerations of its licensees and joint venture
partners. Future joint venture and license agreements may provide that the
licensees and joint venture partners will receive equity interest in the Company
and/or its subsidiaries.
In July 1992, the Company entered into an agreement with a subsidiary of
the Washington Post Company (the "Post Company") to form ACTV Interactive, a
partnership organized for the purpose of marketing products and services
incorporating Individualized Programming 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. The Company and
the Post Company agreed to the amount of such consideration after arms-length
negotiations without receiving a valuation from a disinterested third party.
For purposes of discussing the combined statements of the Company, its
subsidiaries, and ACTV Interactive, all intercompany items have been eliminated.
21
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1995 and December 31, 1996
During the year ended December 31, 1996 ("Fiscal 1996"), the Company's
revenues increased 13%, to $1,476,329, from $1,311,860 for the year ended
December 31, 1995 ("Fiscal 1995"). The increase was the result of significantly
higher education revenues from distance learning and the recognition of
production revenues in the more recent period (compared to no production
revenues in 1995), which more than offset a small decline in non-distance
learning education sales.
Cost of sales increased 94% in Fiscal 1996, to $647,488 , from $334,136 in
Fiscal 1995, and cost of sales as a percentage of sales revenue increased to 44%
in the more recent year, from 25% in 1995. The relatively higher cost of sales
in Fiscal 1996 was due to a greater proportion of total revenues generated from
lower margin equipment products and production services, as compared to Fiscal
1995's sales mix.
Total expenses excluding cost of sales and interest expense in Fiscal 1996
increased 21%, to $9,592,670, from $7,938,748 in the comparable period in 1995.
The increase was attributable to higher operating expenses (principally
resulting from the Company's regional individualized network trial in Southern
California), greater research and development expenditures, higher selling and
administrative expenses, and a valuation allowance of $274,325 for the full
amount of the Company's investment in The Greenwich Group. As a component of
Fiscal 1996 selling and administrative expenses the Company also reserved
$82,746 against license fee and production service receivables from The
Greenwich Group. The Greenwich Group has experienced difficulty in raising
sufficient capital to fund its operations and growth and has been unable to pay
the Company for its services and license.
In Fiscal 1996, direct expenses related to the entertainment and education
markets were approximately $2.5 million and $2.6 million, respectively.
Depreciation and amortization expense for Fiscal 1996, decreased 24%, to
$846,351, from $1,113,278 for Fiscal 1995. This decrease was due primarily to
the relatively higher depreciation expense incurred in Fiscal 1995 that related
to set-top converters purchased for the California trial.
The Company's interest expense for Fiscal 1996, decreased to zero,
compared to $98,392 in the prior year. The decrease was due to the repayment of
in full of the Company's debt obligations during 1995. Interest income for
Fiscal 1996 increased 15%, to $158,732, compared with $138,510 in Fiscal 1995.
The increase resulted from higher available average cash balances in the more
recent year.
For the year ended December 31, 1996, the Company accrued $195,384 for the
payment of dividends to holders of convertible preferred stock issued in August
1996 by one of its wholly-owned subsidiaries.
For Fiscal 1996, the Company's net loss applicable to common shareholders
was $8,800,481 or $.75 per share, an increase of 29% over the net loss of
$6,826,789 or $.67 per share, incurred in Fiscal 1995. Included in the Fiscal
1995 net loss is an extraordinary gain of $94,117, or $.01 per share as 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. The increase
in net loss was due to increased operating, selling and administrative expenses
and lower operating margins during the more recent year, as noted above.
22
<PAGE>
Comparison of the Years Ended December 31, 1994 and December 31, 1995
During the year ended December 31, 1995, the Company's revenues increased
40%, to $1,311,860, from $938,416 in the year ended December 31, 1994. The
increase was the result of higher sales to the education market and to the
Company's recognition in the more recent period of the sales of its education
subsidiary, ACTV Net, during the full year. Prior to the Company's purchase on
March 11, 1994 of the Washington Post's 51% interest in this subsidiary, in
which the Company previously owned the remaining 49% interest, the results of
ACTV Interactive were accounted for under the equity method of accounting. As a
result, the sales of ACTV Interactive during the period from January 1, 1994, to
March 11, 1994, were not included in the reported revenues of the Company.
Cost of sales in the year ended December 31, 1995, was $334,136, compared
to $296,839 in the year ended December 31, 1994. All cost of sales for both
years were related to education product sales. The Company's cost of sales as a
percentage of sales revenue decreased to 25% in 1995, as compared to 31% in
1994. The decrease during the more recent period was the result of
proportionately greater sales of programming, which carries a higher margin,
versus equipment.
Total expenses excluding cost of sales and interest expense in the year
ended December 31, 1995, increased 46%, to $7,938,748, from $5,437,293 in the
comparable period in 1994. A significant factor was the increase in stock
appreciation rights expense of over $1 million during the year ended December
31, 1995, due to a higher price of the Company's stock at year end, as well as
to certain exercises during 1995. The increase was due also to higher research
and development expenses, and to greater selling and administrative and
operating costs associated with the May 1995 launch of the Company's network
trial in Los Angeles. A third reason for the increase was the Company's
recognition in the more recent period, as explained above, of the expenses of
ACTV Interactive, which during a portion of 1994 were reported separately.
Direct expenses related to the entertainment market for the fiscal year
ended December 31, 1995 were approximately $1.4 million, and direct expenses
related to the education market for the fiscal year ended December 31, 1995 were
approximately $1.9 million.
Depreciation and amortization expense for the year ended December 31,
1995, increased 54%, to $1,113,278, from $798,559 for the year ended December
31, 1994. This increase was the result of the greater depreciation expense in
the more recent period relating to equipment used in the Los Angeles trial and
to patents. In addition, the Company's amortization of goodwill arising from the
purchase of the Washington Post's interest in ACTV Interactive was higher in
1995 due to its recognition for the full yearly period, as compared to its
recognition in 1994 for the period from March 11, 1994 to December 31, 1994.
The Company's interest expense for the year ended December 31, 1995,
decreased 57%, to $98,392, compared to $226,671 in the prior year's comparable
period. The decrease was due to the repayment of in full of the Company's debt
obligations during 1995. Interest income in the year ended December 31, 1995,
increased 216%, to $138,510, compared with $43,877 in the year ended December
31, 1994. The increase resulted from higher available cash balances in the more
recent period.
For the year ended December 31, 1995, the Company's net loss before
extraordinary items was $6,920,906, or $.68 per share, an increase of 35% over
the net loss of $5,122,010, or $.65 per share, incurred in the prior year's
comparable period. The Company recorded an extraordinary gain of $94,117 in the
year ended December 31, 1995 and $656,770 in the year ended December 31, 1994,
the result of the extinguishment of certain obligations for value that was less
than the amounts recorded on the Company's books for such obligations. Net loss
after the extraordinary gain for the year ended December 31, 1995, was
$6,826,789, or $.67 per share as compared to $4,465,240, or $.57 per
23
<PAGE>
share, for the year ended December 31, 1994. The increase in net loss was due to
principally to the increased operating, selling and administrative and stock
appreciation right expenses noted above during the more recent year.
Liquidity and Capital Resources
Since its inception, the Company (including its operating subsidiaries
ACTV Entertainment, ACTV Net, Inc., The Los Angeles Individualized Television
Network, Inc., and 3D Virtual, Inc.) has not generated revenues sufficient to
fund its operations, and has incurred operating losses. Through December 31,
1996, the Company had an accumulated deficit of approximately $39.2 million. The
Company's cash position on December 31, 1996, was $6,520,756 compared to
$3,531,782 on December 31, 1995.
During the year ended December 31, 1996, the Company used $7,560,486 in
cash for its operations, compared with $5,098,477 for the year ended December
31, 1995. The increase in the more recent year was due to higher operating and
selling and administrative expenses. The Company met its cash needs in the year
ended December 31, 1996 from the proceeds of a private placement of common stock
($1.9 million in net proceeds) and of convertible preferred stock issued by its
wholly-owned subsidiary ($9.1 million in net proceeds). The Company met its cash
needs in the year ended December 31, 1995, principally from the proceeds of a
series of sales of common stock to private investors throughout the first three
quarters of the year (aggregating $9.0 million in proceeds). During the year
ended December 31, 1995, the Company used cash of $2,247,469 to repay in full
both its short-term and long-term notes payable obligations.
With respect to investing activities in the year ended December 31, 1996,
the Company used cash of $444,189 related to the purchase of television
production equipment and office improvements. In the year ended December 31,
1995, the Company used cash of $575,323 related principally to equipment
purchases for the California trial referred to above.
ACTV Entertainment, ACTV Net and The Los Angeles Individualized
Television Network, Inc. and 3D Virtual, Inc. are dependent on advances from the
Company to meet their obligations.
During the year ended December 31, 1996, the Company advanced
approximately $1.2 million to ACTV Net and $2.4 million to The Los Angeles
Individualized Television Network, Inc. subsidiaries. Advances to other
subsidiaries were minimal during 1996.
Advances are based upon budgeted expenses and revenues for each respective
subsidiary. Adjustments are made during the course of the year based upon the
subsidiary's performance versus the projections made in the budget.
The Company's balance sheet as of December 31, 1996, also reflects the
accrual of expenses of $701,517 related to the Company's stock appreciation
rights plan. As compared to the Company's balance sheet as of December 31, 1995,
the Company's balance sheet as of December 31, 1996, reflects an increase of
$195,384 in preferred dividends payable, resulting from the issuance of $10
million principal value of convertible preferred stock during August 1996.
The Company believes that it may be required to expend approximately $1.5
to $2.0 million during 1997 to facilitate the completion of current research and
development projects, relating principally to firmware for digital set-top
converter boxes, upgraded software for its entertainment master control
facilities and Internet software applications.
Management of the Company believes that its current funds will enable the
Company to finance its operations at their present level for at least the next
twelve months. Such belief is based on assumptions that could prove to be
incorrect, in which case the Company may require additional
24
<PAGE>
financing during this period. Moreover, the Company believes that it will
require additional funds of $25 - $35 million to launch and operate the two
Regional Networks planned for the next twelve-month period. While the Company
has engaged an investment bank for assistance in securing such financing, the
Company has no commitments from lenders or investors at this time and there is
no assurance that it will be able to raise the necessary capital to effect such
launches.
The Company does not have any material contractual commitments for capital
expenditures.
Impact of Inflation
Inflation has not had any significant effect on the Company's operating
costs.
Statement of Financial Accounting Standards No. 121.
This statement, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," which is effective for fiscal years beginning after December 15,
1995, did not have a material impact on the consolidated financial statements of
the Company.
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123").
This statement, "Accounting for Stock-Based Compensation," is effective
for fiscal years beginning after December 15, 1995. The new standard defines a
fair value method of accounting for the issuance of stock options and other
equity instruments. Pursuant to SFAS No. 123 companies are encouraged, but not
required, to adopt the fair value method of employee stock-based transactions.
If the fair value method is not adopted for reporting purposes, the supplemental
pro forma disclosures are required of the effect of the fair value method on
operations and per share results. The Company has decided not to adopt the fair
value method in its financial statements and to present the supplemental pro
forma information.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 14 in this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Item 10. MANAGEMENT
Executive Officers and Directors
The Company intends to file with the Securities and Exchange Commission
within 120 days of the end of the fiscal year covered by this Report on Form
10-K a definitive proxy statement (the "Proxy Statement"), pursuant to
Regulation 14A pertaining to the Annual Meeting of Stockholders to be held in
May 1997. Information regarding directors and executive officers of the Company
will appear under the caption "Election of Directors" in the Proxy Statement and
is incorporated herein by reference.
25
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will appear under the caption "Ownership of Securities" in the Proxy
Statement and is incorporated herein by reference.
Item 13. CERTAIN TRANSACTIONS
Information regarding certain transactions will appear under the caption
"Certain Transactions" in the Proxy Statement and is incorporated herein by
reference.
PART IV
Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K:
(a)1. FINANCIAL STATEMENTS:
See the Consolidated Financial Statements beginning on Page F-1 hereafter, which
is incorporated by reference.
(a)2. FINANCIAL STATEMENT SCHEDULE
The following Financial Statement Schedule for the year ended December 31, 1996
is filed as part of this Annual Report. The Company had no activity reportable
on this schedule for the years ended December 31, 1995 and 1994.
Schedule II - Valuation and Qualifying Accounts and Reserves
Column B Column C Column D Column E
---------- ---------------------- ---------- --------
Balance at Charged to Charged to Balance
Beginning Costs and Other Deductions End
Description of Period Expenses Accounts -Describe of Period
Year ended
12/31/96:
Accounts
receivable $-- $82,746 $-- $-- $82,746
allowance for
doubtful accounts
Reserve for
investment losses $-- $274,325 $-- $-- $274,325
26
<PAGE>
(a)3. EXHIBITS (inapplicable items omitted):
3.1.a Restated Certificate of Incorporation of the Company.*
3.1.b Amendment to Certificate of Incorporation of the Company.**
3.2 By-Laws of the Company.*
9.1 Voting Agreement dated November 11, 1994, by and between William
C. Samuels and Michael J. Freeman.***
9.2 Voting Trust Agreement dated March 10, 1994 by and among William
C. Samuels, The Washington Post Company and ACTV, Inc.**
10.1 First Amendment to Lease, dated December January 13, 1997 by and
between the Registrant, as the Tenant, and Rockefeller Center
Properties, as the Landlord.
10.2 Form of 1989 Employee Incentive Stock Option Plan.*
10.3 Form of Amendment No. 1 to 1989 Employee Incentive Stock Option
Plan.*
10.4 Form of 1989 Employee Non-qualified Stock Option Plan.*
10.5 Form of Amendment No. 1 to 1989 Employee Non-qualified Stock
Option Plan.*
10.6 1986 Non-qualified Stock Option Plan.*
10.7 Form of 1986 Non-qualified Stock Option Agreement.*
10.8 1996 Non-qualified Stock Option Plan.
10.9 1992 Stock Appreciation Rights Plan.
10.10 1996 Stock Appreciation Rights Plan.
10.11 Employment Agreement dated August 1, 1995, as amended January 1,
1997 between the Company and William Samuels.
10.12 Employment Agreement dated August 1, 1995, as amended January 1,
1997 between the Company and David Reese.
10.13 Employment Agreement dated 15th day of December, 1995, as amended
January 1, 1997 between the Company and Bruce Crowley.
10.14 Master Programming License Agreement dated December 2, 1996, by
and between the Company and Liberty/Fox Sports, LLC.
10.15 Enhancement License Agreement dated December 4, 1996, by and
between the Company and Prime Ticket Networks, L.P., d/b/a Fox
Sports West.****
10.16 Enhancement License Agreement dated February 28, 1997, by and
between the Company and ARC Holding, Ltd., d/b/a Fox Sports
Southwest.****
10.17 Agreement dated march 30, 1995 between General Instrument
Corporation and the Company.***
10.18 Technical Services Agreement dated May 1995 between the David
Sarnoff Research Center, Inc. and the Company.***
10.19 Option Agreement dated December 4, 1995 between the David Sarnoff
Research Center and the Company.
10.20 Form of Option Agreement entered into by William Samuels, David
Reese, Bruce Crowley and Christopher Cline in connection with the
Series B Common Stock of ACTV Entertainment, Inc., ACTV Net, Inc.,
Los Angeles Individualized Regional Network, Inc. and Texas
Individualized Regional Network, Inc.
10.21(a) deleted
10.21(b) deleted
10.21(c) Option Agreement dated September 29, 1995 between the Company and
Richard H. Bennett.***
10.21(d) Assignment dated September 29, 1995 between the Company and
Richard H. Bennett.***
10.21(e) Stock Option Agreement, dated as of December 1, 1995, amended
March 24, 1997 by and between the Registrant and William C.
Samuels.
10.21(f) Stock Option Agreement, dated March 24, 1997, by and between the
Registrant and William C. Samuels.
27
<PAGE>
10.21(g) Stock Option Agreement, dated as of March 24, 1997, by and between
the Registrant and David Reese.
10.21(h) Stock Option Agreement, dated as of December 1, 1995, amended
March 24, 1997 by and between the Registrant and David Reese.
10.21(i) Stock Option Agreement, dated as of March 24, 1997, by and between
the Registrant and Bruce Crowley.
10.21(j) Stock Option Agreement, dated as of December 1, 1995, amended
March 24, 1997 by and between the Registrant and Bruce Crowley.
10.21(k) Stock Option Agreement, dated as of March 24, 1997, by and between
the Registrant and Christopher Cline.
10.22 Option Agreement, dated March 11, 1997, by and between the
Registrant and The Washington Post Company.
27 Financial Data Schedule
* Incorporated by reference from Form S-1 Registration Statement (File
No. 33-34618)
** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993.
*** Incorporated by reference from Form S-1 Registration Statement (File
No. 33-63879) which became effective on February 12, 1996.
**** Certain information contained in this exhibit has been omitted and
filed separately with the Commission along with an application for
non-disclosure of information pursuant to Rule 24b-2 of the Securities
Act of 1933, as amended.
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of ACTV, Inc.:
We have audited the accompanying consolidated balance sheets of ACTV, Inc. and
subsidiaries ("the Company") as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1996, 1995, and 1994. Our audits also included the
financial statement schedule listed in the index at Item 14 (a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995, and 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
February 27, 1997
New York, New York
F-1
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---------------- ---------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents....................... $3,531,782 $6,520,756
Accounts receivable-net......................... 349,291 410,193
Education equipment inventory................... 112,218 337,504
Other 61,011 316,962
---------------- ---------------
Total current assets....................... 4,054,302 7,585,415
---------------- ---------------
Property and equipment-net...................... 416,895 724,089
---------------- ---------------
Other Assets:
Video program inventory......................... 214,824 --
Patents and patents pending..................... 268,980 253,779
Goodwill 3,493,932 3,067,560
Other 102,195 61,781
---------------- ---------------
Total other assets......................... 4,079,931 3,383,120
---------------- ---------------
Total .............................. $8,551,128 $11,692,624
================ ===============
`
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses........... $1,090,392 $1,594,655
Deferred stock appreciation rights.............. 566,883 701,517
Preferred dividends payable..................... -- 195,384
---------------- ---------------
Total current liabilities.................. 1,657,275 2,491,556
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 December 31, 1996......... -- 9,115,664
Common stock, $.10 par value, 35,000,000
shares authorized: issued and outstand-
ing 11,396,419 at December 31, 1995,
11,787,106 at December 31, 1996......... 1,139,642 1,178,711
Additional paid-in capital...................... 36,686,742 38,272,205
Notes receivable from stock sales............... (567,500) (200,000)
Accumulated deficit............................. (30,365,031) (39,165,512)
---------------- ---------------
Total shareholders' equity................. 6,893,853 9,201,068
---------------- ---------------
Total................................. $8,551,128 $11,692,624
================ ===============
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1995 1996
--------- ---------- ----------
Revenues:
<S> <C> <C> <C>
Sales revenues.................................... $928,640 $1,311,130 $1,459,540
License fees from related party................... -- 730 16,789
Royalties from related party...................... 9,776 -- --
----------------- ----------------- -----------------
Total revenues................................ 938,416 1,311,860 1,476,329
Cost of Sales..................................... 296,839 334,136 647,488
----------------- ----------------- -----------------
Gross profit.................................. 641,577 977,724 828,841
Expenses:
Operating expenses................................ 890,871 1,260,134 1,955,601
Selling and administrative........................ 4,193,931 4,998,020 6,332,759
Depreciation and amortization..................... 446,092 686,906 419,979
Amortization of goodwill.......................... 343,467 426,372 426,372
Loss on investment................................ -- -- 274,325
Stock appreciation rights......................... (437,068) 567,316 183,634
----------------- ----------------- -----------------
Total expenses................................ 5,437,293 7,938,748 9,592,670
Interest (income).................................... (43,877) (138,510) (158,732)
Interest expense-- related parties................... 226,671 98,392 --
----------------- ----------------- -----------------
Interest expense (income) - net................... 182,794 (40,118) (158,732)
Loss before minority interest in equity
of investee and extraordinary gain................ 4,978,510 6,920,906 8,605,097
Interest in ACTV Interactive......................... (143,500) -- --
----------------- ----------------- -----------------
Net loss before extraordinary
gain................................................. 5,122,010 6,920,960 8,605,097
Gain on extinguishment of debt and equipment lease
obligations.......................................... 656,770 94,117 --
----------------- ----------------- -----------------
Net loss............................................. 4,465,240 6,826,789 8,605,097
Preferred stock dividend............................. -- -- 195,384
Loss applicable to common stock
shareholders......................................... $4,465,240 $6,826,789 $8,800,481
================= ================= =================
Loss per common share before
extraordinary gain................................... $.65 $.68 $.75
Loss per common share after
extraordinary gain................................... $.57 $.67 $.75
Weighted average number of common shares
outstanding. ........................................ 7,897,278 10,162,128 11,739,768
See Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Convertible Preferred Stock Additional
------------------------- ------------------------- Paid-In
Shares Amount Shares Amount Capital Deficit
---------- ----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances January 1, 1994 6,507,799 $650,780 -- -- $20,332,825 $(19,073,002)
Issuance of shares in connection
with financing 757,100 75,710 -- -- 2,892,628 --
Issuance of shares in connection
with exercise of stock options 818,317 81,832 -- -- 1,564,326 --
Issuance of shares in connection
with conversion of convertible
note 871,334 87,133 -- -- 1,508,051 --
Issuance of shares for services 65,000 6,500 311,000 --
Net loss -- -- -- -- -- (4,465,240)
---------- ---------- --------- ---------- ----------- -------------
Balances December 31, 1994 9,019,550 $901,955 -- -- $26,608,830 $ (23,538,242)
========== ========== ========= ========== =========== =============
Issuance of shares in connection
with financings 1,990,293 199,029 -- -- 8,730,627 --
Issuance of shares in connection
with exercise of stock options 308,247 30,825 -- -- 1,129,924 --
Issuance of shares for services 78,329 7,833 -- -- 217,361 --
Net loss -- -- -- -- -- (6,826,789)
---------- ---------- --------- ---------- ----------- -------------
Balances December 31, 1995 11,396,419 $1,139,642 -- -- $36,686,742 $ (30,365,031)
========== ========== ========= ========== =========== =============
Issuance of shares in connection
with financings 450,000 45,000 400,000 9,115,664 1,832,985
Issuance of shares for services 45,687 4,569 109,478
Reversal of option exercise (105,000) (10,500) (357,000)
Net loss -- -- -- -- -- (8,800,481)
---------- ---------- --------- ---------- ----------- -------------
Balances December 31, 1996 11,787,106 $1,178,711 400,000 $9,115,664 $38,272,205 $ (39,165,512)
========== ========== ========= ========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss applicable to common
shareholders................................... $4,465,240 $6,826,789 $8,605,097
---------- ---------- ----------
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization................... 789,558 1,220,873 846,354
Stock appreciation rights....................... (549,068) (183,309) 134,634
Gain on extinguishment of debt and equipment
lease obligations............................... (656,770) (94,717) --
Stock issued in lieu of cash
compensation............................... 250,000 563,430 114,047
Other 1,151 -- --
Loss on investment.............................. -- -- 274,325
Bad debt reserve................................ -- -- 82,746
Changes in assets and liabilities:
Accounts receivable............................. (48,917) (150,938) (143,648)
Education equipment inventory................... (13,183) 34,065 (225,286)
Other assets.................................... 31,765 80,552 (542,824)
Accounts payable and accrued expenses........... 404,733 165,023 504,263
Interest payable................................ 226,619 93,333 --
Loss from interest in ACTV Interactive.......... 143,500 -- --
---------- ---------- ----------
Net cash used in operating
activities................................. (3,885,852) (5,098,477) (7,560,486)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from exercise of warrants
and options..................................... 1,646,159 122,810 --
Proceeds from convertible preferred
stock issuance.................................. -- -- 9,115,664
Proceeds from equity financing.................. 2,968,338 8,951,859 1,877,985
Equipment lease repayment....................... (65,000) -- --
Discounted note prepayment...................... -- (101,458) --
Note repayment.................................. -- (2,247,469) --
Repayment pool principal repayment.............. (71,020) -- --
---------- ----------- ----------
Net cash provided by financing activities............. 4,478,477 6,725,742 10,993,649
Cash flows from investing activities:
Cash acquired in acquisition of remaining
interest in affiliate...................... 672,160 -- --
Cash paid for interest in affiliate............. (2,500,000) -- --
Investment in patents pending................... (142,122) -- --
Investment in property and equipment............ (1,686) (575,323) (444,189)
----------- ---------- ----------
Net cash used in investing activities................. (1,971,648) (575,323) (444,189)
----------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents ...................................... (1,379,023) (1,051,942) 2,988,974
Cash and cash equivalents,
beginning of period............................. 3,858,863 2,479,840 3,531,782
----------- ---------- ----------
Cash and cash equivalents,
end of period................................... 2,479,840 3,531,782 6,520,756
=========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
Supplemental disclosure of cash flow information: See Note 15
<PAGE>
ACTV, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization ACTV, Inc., incorporated July 8, 1983, and its subsidiaries (the
"Company" or "ACTV"), were organized to develop and market a proprietary
individualized television programming technology (the "Individualized
Programming"), which permits a viewer to experience instantly responsive
television. Since its inception, the Company has been engaged in the development
of Individualized Programming, the production of programs that use its
Individualized Programming ("ACTV Programming") and the marketing and sales of
the various products and services incorporating the Company's Individualized
Programming.
On July 14, 1992, the Company entered into an agreement with a subsidiary of The
Washington Post Company (the "Post Company") to form ACTV Interactive, a
partnership organized to sell products and services using the Company's
Individualized Programming to the education marketplace. The Company contributed
its applicable Individualized Programming and the subsidiary of the Post Company
contributed $2,500,000 in cash. As a result thereof, the Company recognized an
increase of $1,225,000 in its additional paid-in capital representing its pro
rata share in the equity of the joint venture. The Company owned, during 1993,
through its wholly owned subsidiary ACTV Net, Inc. ("ACTV Net"), formerly ACTV
Interactive, Inc., a 49% interest in ACTV Interactive, and accounted for its
investment under the equity method of accounting. Furthermore, under the terms
of a worldwide license, the Company received a 5% royalty on sales made by ACTV
Interactive.
On March 11, 1994, the Company purchased the Post Company's full 51% interest in
ACTV Interactive for $2.5 million in cash and a $2 million 8% note due December
31, 1996 (See Note 13). During 1995, in a series of payments, the Company repaid
in full this note and all accrued interest thereon. ACTV Net is currently
dependent on advances and/or loans from the Company.
Principles of Consolidation - The Company's consolidated financial statements
include the balances of its wholly-owned operating subsidiaries, ACTV
Entertainment, ACTV Net, The Los Angeles Individualized Television Network, Inc.
and 3D Virtual, Inc. In consolidation, all intercompany account balances are
eliminated.
Property and Equipment - Property and equipment are recorded at cost and
depreciated on the straight-line method over their estimated useful lives
(generally five years). Depreciation expense for the years ended December 31,
1994, 1995 and 1996 aggregated $6,207, $70,790 and 189,957, respectively.
Education Equipment - Education equipment consists of distance learning and
classroom terminals, videocassette recorders, television monitors and computer
printers that the Company holds in inventory. This inventory is carried on the
Company's books at the lower of cost or market.
Patents and Patents Pending - The cost of patents, which for patents issued
represents the consideration paid for the assignment of patent rights to the
Company by an employee and for patents pending represents legal costs related
directly to such patents pending, is being amortized on a straight-line basis
over the estimated economic lives of the respective patents (averaging 10
years), which is less than the statutory life of each patent. The balances at
December 31, 1995, and 1996, are net of accumulated amortization of $101,170 and
$116,371, respectively.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition - Sales are primarily recorded as products are shipped and
services are rendered, using the completed contract method of accounting.
Research and Development - Research and development costs, which represent
primarily refinements to the Programming Technology, were $465,740 for the year
ended December 31, 1994, $616,455 for the year ended December 31, 1995, and
$1,221,362 for the year ended December 31, 1996.
F-6
<PAGE>
Loss per Common Share - Loss per common share equals net loss divided by the
weighted average number of shares of Common Stock outstanding during the period.
The Company did not consider the effect of stock options and the Convertible
Preferred Stock upon the calculation of the loss per common share as it would be
anti-dilutive.
Reclassifications - Certain reclassifications have been made in the December 31,
1994, and 1995, financial statements to conform to the December 31, 1996,
presentation.
Intangibles - The excess of the purchase cost over the fair value of net assets
acquired in an acquisition (goodwill) is being amortized on a straight-line
basis over a period of 10 years. On a quarterly basis, the Company evaluates the
realizability of goodwill based upon the expected undiscounted cash flows of the
acquired business. Impairments, if any, will be recognized through a charge to
operation in the period in which the impairment is deemed to exist. Based on
such analysis, the Company does not believe that goodwill has been impaired.
Long-Lived Assets- In 1996, the Company adopted Statement of Financial Standard
No. 121, which requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no longer be
recoverable. Adoption of this statement did not have a material impact on the
Company.
2. NATURE OF OPERATIONS
ACTV generates revenues from the sale of individualized ACTV Programming that it
either owns, has licensed or that has been created by a third party under a
license from ACTV. Currently, the principal markets for the Company's products
are in-home entertainment and education (with an emphasis on distance learning
and Internet applications) within the United States and Canada. Education
programming and related equipment is sold to schools, colleges, and private
education networks. In-home entertainment programming will be sold to the end
user through cable television systems on a subscription basis, or through other
providers of television programming to home viewers, e.g., satellite, telephone
company fiber networks, etc. No single client accounted for more than 10% of the
Company's revenues during the year ended December 31, 1996, except for Georgia
Public Television, which accounted for approximately 11% and 17% of total
revenues in 1995 and 1996, respectively.
3. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1996 and the
reported amounts of revenues and expenses during the year ended December 31,
1996. Actual results could differ from these estimates.
4. PROPERTY AND EQUIPMENT - NET
Property and equipment - net at December 31, 1995, and 1996, consisted of the
following (at cost):
1995 1996
---- ----
Machinery and equipment $477,213 $636,845
Office furniture and fixtures 10,472 357,373
------ -------
Total 487,685 994,218
Less accumulated depreciation 70,790 270,129
------ -------
Total $416,895 $724,089
======== ========
F-7
<PAGE>
5. EXTRAORDINARY ITEM
On June 11, 1985, the Company entered into a Refinancing and Restructuring
Agreement (the "Plan") providing for the termination of prior agreements
relating to the formation of ACTV, Inc. The Plan also stated that any amounts
owing by the Company to related parties and other creditors at the date of the
agreement were the responsibility of the Company. Such amounts were to be
repayable solely from the "Repayment Pool", which was defined as ten percent of
"available cash flow" in excess of $1,000,000 generated by the Company in any
given calendar year. Available cash flow was defined as the excess of gross
revenues (excluding financing proceeds) over certain cash expenditures. During
1994, the Company, in separate transactions concluded with all holders of
Repayment Pool obligations, settled all outstanding liabilities related to the
Repayment Pool. Average consideration paid by the Company in such settlement
transactions was approximately 17% of face value. For the year ended December
31, 1994, the Company recognized an extraordinary gain of $620,898 related to
the Repayment Pool settlement transactions.
In addition, for the year ended December 31, 1994, the Company recognized an
extraordinary gain of $35,872 pursuant to an unrelated transaction.
6. FINANCING ACTIVITIES
During 1996, the Company raised approximately $11.0 million net from the
proceeds of a private placement of common stock ($1.9 million in net proceeds)
and of 5% convertible preferred stock (the "Convertible Preferred Stock") issued
by its wholly-owned subsidiary ($9.1 million in net proceeds). The Convertible
Preferred Stock is convertible into Common Stock of ACTV, Inc., beginning
January 1, 1997, at discounts to the market price of the Common Stock that
increase from 14% in January 1997 to a maximum of 30.375% in September 1997.
After September 1, 1997, holders of the Convertible Preferred Stock will be able
to use the lesser of (i) the then current market price of the Company's Common
Stock, or (ii) an average market price during the month of August 1997 as the
price to which the 30.375% discount is applied for conversions. In addition,
beginning in October 1997, the Company will have the right to redeem the
Convertible Preferred Stock at a price equal to $25 times the number of shares
being purchased, plus accrued and unpaid dividends (the "Redemption Price").
This right may be exercised by the Company only if the closing price of the
Company's Common Stock is above $9.00 for thirty consecutive trading days prior
to redemption. Notwithstanding the foregoing, any or all of the Convertible
Preferred Stock may be purchased by the Company from the holders at a price
equal to the Redemption Price times 1.43627 at any time prior to October 1997.
The Company believes that it is highly likely that the holders of the
Convertible Preferred Stock will elect to convert their stock into Common Stock
of the Company and, accordingly, has included the Convertible Preferred Stock in
its consolidated statement of shareholders' equity.
In March 1992, the Company issued to the Post Company $1,500,000 aggregate
principal amount of units represented by an 8% convertible note (the
"Convertible Note") and 720,000 shares of the Company's common stock (the
"Common Stock"). Also in March 1992, the Post Company acquired pursuant to an
option agreement (the "Option Agreement") an option to purchase up to 750,000
shares of Common Stock at either $2.00 or $2.50 per share, depending on the date
of exercise. Both the conversion of the Convertible Note and the exercise of the
option were dependent upon the occurrence of certain events. The Convertible
Note required that 25% of the outstanding balance be retired by March 17, 1994,
and the remaining outstanding balance be retired in three semi-annual
installments. The Company recorded the fair market value of the common shares
issued ($720,000) as original issue discount, and had been amortizing this
amount over the life of the Notes. The Convertible Note was secured by a
security interest as described in Note 13.
In connection with the Option Agreement, the Post Company also received the
right to purchase from the Company at a fair market exercise price to be
determined an amount of shares of Common Stock necessary to increase the Post
Company's percentage ownership of the total then outstanding shares of Common
Stock to 51%. Such right is exercisable through March 17, 1997, subject to
extension in certain circumstances. Until March 17, 1995, the Post Company
agreed not to acquire more than 40% of the Company unless certain events
occurred, such as a tender offer, a proxy contest, or the acquisition by a third
party of in excess of 15% of the Company's common stock, as set forth in a
standstill agreement between the Company and the Post Company.
In March 1994, the Post Company exercised its option to purchase 750,000 shares
at $2.00 per share, and converted the Convertible Note's principal, plus accrued
interest of $241,000, into 871,334 shares of the Common Stock.
F-8
<PAGE>
During 1995, the Company repaid in full principal and interest relating to a $2
million note issued in March 1994 pursuant to the Company's purchase of the Post
Company's 51% interest in ACTV Interactive. Upon repayment of this obligation,
the security interest described in Note 13 was canceled.
Management of the Company believes that its current funds will enable the
Company to finance its operations at their present level for at least the next
twelve months. Such belief is based on assumptions that could prove to be
incorrect, in which case the Company may require additional financing during
this period. Moreover, the Company believes that it will require additional
funds of $25 - $35 million to launch and operate the two Regional Networks
planned for the next twelve-month period. While the Company has engaged an
investment bank for assistance in securing such financing, the Company has no
commitments from lenders or investors at this time and there is no assurance
that it will be able to raise the necessary capital to effect such launches.
7. SHAREHOLDERS' EQUITY
At December 31, 1996, the Company had reserved shares of Common Stock for
issuance as follows:
1989 Qualified Stock Option Plan 59,000
1989 Non-Qualified Stock Option Plan 46,500
1996 Qualified Stock Option Plan 212,500
Options granted outside of formal plans 3,010,718
---------
Total 3,328,718
Preferred Stock At December 31, 1996, the Company was authorized to issue
1,000,000 shares of Preferred Stock, par value $0.10 per share, designated as
Series A Convertible Preferred Stock (666,667 shares) and Series B Convertible
Preferred Stock (333,333 shares). No shares of Preferred Stock are issued and
outstanding.
Convertible Preferred Stock At December 31, 1996, the Company's wholly-owned
subsidiary, ACTV Holdings, Inc. was authorized to issue 436,000 shares of
Convertible Preferred Stock, no par value, of which 400,000 shares were issued
and outstanding.
8. STOCK OPTIONS
During 1989, the Board of Directors approved an Employee Incentive Stock Option
Plan (the "Employee Plan"). The Employee Plan provides for the granting of up to
100,000 options to purchase Common Stock to key employees. The Employee Plan
stipulates that the option price be not less than fair market value on the date
of grant. Options granted will have an expiration date not to exceed ten years
from the date of grant. At December 31, 1996, 100,000 options had been granted
under this plan, of which 19,000 had been exercised and 22,000 had expired or
been canceled.
In addition, in August 1989, the Board of Directors approved a Non-Qualified
Stock Option Plan (the "Non-Qualified Plan"), to be administered by the Board or
a committee appointed by the Board. The Non-Qualified Plan provides for the
granting of up to 100,000 options to purchase shares of Common Stock to
employees, officers, directors, consultants and independent contractors. The
Non-Qualified Plan stipulates that the option price be not less than fair market
value at the date of grant, or such other price as the Board may determine.
Options granted under this Plan shall expire on a date determined by the
committee but in no event later than three months after the termination of
employment or retainer. At December 31, 1996, 100,000 options had been granted
under this plan, of which 31,500 had been exercised and 22,000 had expired or
been canceled.
During 1996, the Board of Directors approved the Company's 1996 Stock Option
Plan (the "1996 Option Plan"). The 1996 Option Plan provides for option grants
to employees and others who provide significant services to the Company. Under
the 1996 Option Plan, the Company is authorized to issue options for a total of
500,000 shares of Common Stock. As of December 31, 1996, the Company had issued
224,500 options under the plan.
At December 31, 1995, the Company also had outstanding options that were issued
to Directors, certain employees and consultants for the purchase of 2,526,582
shares of Common Stock that were not issued pursuant to a formal plan. The
prices of these options range from $1.03 to $5.50 per share; they have
expiration dates in the years 1996 through 2002.
F-9
<PAGE>
The options granted are not part of the Employee Incentive Stock Option Plan or
the Non-Qualified Stock Option Plan discussed above.
A summary of the status of the Company's stock options as of December 31, 1996,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Wgtd. Wgtd. Wgtd.
Avg. Avg. Avg.
1996 Exer 1995 Exer 1994 Exer
Shares Price Shares Price Shares Price
---------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 2,747,082 1,605,104 2,196,531
Options granted 887,500 $3.73 1,706,087 $3.41 327,500 $5.21
Options exercised 0 -- 141,833 $2.33 818,316 $2.01
Options terminated 305,864 $3.76 422,276 $5.27 100,611 $5.57
Outstanding at end
of period 3,328,718 $2.99 2,747,082 $3.27 1,605,104 $4.00
Options exercisable at end
of period 1,719,134 $3.19 1,091,083 $3.04 1,338,437 $3.75
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996
<TABLE>
<CAPTION>
Weighted Aver-
age Remaining Weighted Weighted
Number Contractual Aver- Aver-
Outstanding Life age Exercise Number age
Range of at Price Exercisable at Exercise
Exercise Prices 12/31/96 12/31/96 Price
- --------------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
0 to 1.50 22,000 1.8 Years $0.56 17,000 $0.73
1.51 to 3.75 2,839,218 4.9 Years $2.76 1,269,052 $2.77
3.76 to 5.625 467,500 1.0 Year $4.48 420,000 $4.52
</TABLE>
The weighted average fair value of options granted during 1995 and 1996 was
$1.69 and $1.21 per share, respectively, excluding the value of options granted
and terminated within the year. In the case of each issuance, options were
issued at an exercise price that was higher than the fair market value of the
Company's Common Stock on the date of grant. The Company applies Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock option and purchase plans. Accordingly, no compensation cost has been
recognized for option issuances. Had compensation cost for the Company's option
issuances been determined based on the fair value at the grant dates consistent
with the method of FASB Statement 123, the Company's net loss and loss per share
for the year ended December 31, 1995 and 1996 would have been increased to the
pro forma amounts indicated below:
Net loss to common shareholders 1995 1996
---- ----
As reported $6,826,789 $8,800,481
Pro forma $9,506,556 $9,685,735
Net loss per common share 1995 1996
---- ----
As reported $0.67 $0.75
Pro forma $0.94 $0.83
F-10
<PAGE>
The Company estimated the fair value of options issued during 1995 and 1996 on
the date of each grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used: no dividend yield, expected
volatility of 61.5% and a risk free interest rate of 6%.
9. STOCK APPRECIATION RIGHTS PLANS
The Company's 1992 Stock Appreciation Rights Plan (the "1992 SAR Plan") was
approved by the Company's stockholders in December 1992. Subject to adjustment
as set forth in the 1992 SAR Plan, the aggregate number of Stock Appreciation
Rights ("SARs") that may be granted shall not exceed 900,000.
The Company's 1996 Stock Appreciation Rights Plan (the "1996 SAR Plan") was
adopted by the Board of Directors in April 1996 and approved by the shareholders
in July 1996. Subject to adjustment as set forth in the 1996 SAR Plan, the
aggregate number of SARs that may be granted pursuant to the 1996 SAR Plan shall
not exceed 500,000; provided, however, that at no time shall there be more than
an aggregate of 900,000 outstanding, unexercised SARs granted pursuant to both
the 1996 SAR Plan and the 1992 SAR Plan. The 1996 SAR Plan imposes no limit on
the number of recipients to whom awards may be made.
Both the 1992 and 1996 SAR Plans are administered by the Stock Appreciation
Rights Committee (the "SAR Committee").
SARs may not be exercised until the six months from the date of grant. SARs
issued pursuant to the 1992 SAR Plan vest in five equal annual installments
beginning twelve months from the date of grant. SARs issued pursuant to the 1996
SAR Plan vest either in a lump sum or in such installments, which need not be
equal, as the Committee shall determine. If a holder of a SAR ceases to be an
employee, director or consultant of the Company or one of its subsidiaries or an
affiliate, other than by reason of the holder's death or disability, any SARs
that have not vested shall become void. Exercise of SARs also will be subject to
such further restrictions (including limits on the time of exercise) as may be
required to satisfy the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission and any other applicable law or regulation (including,
without limitation, federal and state securities laws and regulations). SARs are
not transferable except by will or under the laws of descent and distribution or
pursuant to a domestic relations order as defined in the Internal Revenue Code
of 1986, as amended..
Upon exercise of a SAR, the holder will receive for each share for which a SAR
is exercised, as determined by the SAR Committee in its discretion, (a) shares
of the Company's Common Stock, (b) cash, or (c) cash and shares of the Company's
Common Stock, equal to the difference between (i) the fair market value per
share of the Common Stock on the date of exercise of the SAR and (ii) the value
of a SAR, which amount shall be no less than the fair market value per share of
Common Stock on the date of grant of the SAR.
Under the Company's 1992 SAR Plan, as of December 31, 1996, the Company has
granted 683,000 outstanding SARs (with exercise prices of $1.50 or $2.69 per
share) to eleven employees. The SARs expire between 1998 and 2006. During 1996,
a total of 16,000 SARs were exercised. Under the Company's 1996 SAR Plan, as of
December 31, 1996, the Company has granted 214,000 outstanding SARs (with an
exercise price $2.69 per share) to eight employees.
10. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes".
Deferred income taxes reflect the net tax effects at an effective tax rate of
35.33% of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes,
F-11
<PAGE>
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax asset as of December
31, 1995, and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards $10,192,638 $13,365,772
Differences between book and tax basis of property 86,029 34,019
----------- -----------
10,278,667 13,399,791
Deferred tax liabilities:
Differences between book and tax basis of property (261,193) (106,819)
----------- -----------
10,017,474 13,292,972
Valuation Allowance (10,017,474) (13,292,972)
----------- -----------
Net deferred tax asset $ 0 $ 0
=========== ===========
</TABLE>
The increase in the valuation allowance for the year ended December 31, 1996,
was approximately $3.3 million. There was no provision or benefit for federal
income taxes as a result of the net operating loss in the current year.
At December 31, 1996, the Company has Federal net operating loss carryovers of
approximately $37.8 million. These carryovers may be subject to certain
limitations and will expire between the years 1998 and 2010.
11. COMMITMENTS
At December 31, 1995, future aggregate minimum lease commitments under
non-cancelable operating leases, which expire in 1999 and 2001, were
approximately $1,097,660. The leases contain customary escalation clauses, based
principally on real estate taxes. Rent expense related to these leases for the
years ended December 31, 1994, 1995 and 1996 aggregated $169,457, $176,264, and
$129,600 respectively. The Company has employment agreements with certain key
employees. These agreements extend for a period of a maximum of five years and
contain non-competition provisions which extend two years after termination of
employment with the Company. At December 31, 1996, the Company is committed to
expend a total of approximately $2.4 million under these agreements.
12. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and receivables.
The Company attempts to mitigate cash investment risks by placing such
investments in insured depository accounts and with financial institutions that
have high credit ratings. Concentrations of risk with respect to trade
receivables exist because of the relatively few companies or other organizations
(primarily educational or government bodies) with which the Company currently
does business. The Company attempts to limit these risks by closely monitoring
the credit of those to whom it is contemplating providing its products, and
continuing such credit monitoring activities and other collection activities
throughout the payment period. In certain instances, the Company further
minimizes concentrations of credit risks by requiring partial advance payments
for the products provided.
13. PURCHASE OF REMAINING INTEREST IN SUBSIDIARY
On March 11, 1994, the Company purchased the Post Company's full 51% interest in
ACTV Interactive for consideration of $4.5 million, consisting of $2.5 million
in cash at closing and a $2 million note due December 31, 1996, (the "New
Note"). The New Note accrued interest at 8%, and specified required prepayments
from net proceeds in excess of an aggregate $5 million received by the Company
in the event of subsequent debt or equity financing. The principal of the New
Note was secured by certain collateral pursuant to a security agreement, through
which the Post Company acquired (a) a security interest in and lien, second in
priority, with respect to the collateral as to which the Company has granted a
first priority security interest pursuant to the Termination Agreement and (b) a
security interest in and lien, first in priority, with respect to any existing
United States patents and pending applications. During 1995, the Company repaid
in full principal and interest relating to the New Note. Upon repayment of this
obligation, the security interest described above was canceled.
F-12
<PAGE>
14. INVESTMENT AND ADJUSTMENTS
In January 1995, the Company granted an exclusive license to Greenwich
Entertainment Group ("The Greenwich Group") for the use of its Individualized
Programming in the theater environment, specifically in shopping malls, museums
and entertainment centers. During 1996, ACTV invested $274,325 in The Greenwich
Group's common stock (approximately 15% of ownership interest).
The agreement with The Greenwich Group provides for the Company to receive an 8%
to 10% royalty of annual ticket sales per theater, dependent upon each theater's
volume. The Greenwich Group has one theater operating, and, at present, is not
constructing sufficient theaters to meet the minimum royalty required by the
ACTV license agreement. If the minimum royalty is not paid, the Company has the
right to cancel its license as to future theaters or to require the Greenwich
Group to issue to ACTV such number of The Greenwich Group shares of common stock
of equivalent value.
The Company has also performed executive production services for The Greenwich
Group on a fee basis. During 1996, the Company recorded license fee and
production service revenue from The Greenwich Group of $16,789 and $199,666,
respectively. At December 31, 1996, the Company had unpaid receivables pursuant
to such revenues of $82,746.
The Greenwich Group has experienced difficulty in raising sufficient capital to
fund its operations and growth and has been unable to pay the Company for its
services and license. Therefore, at December 31, 1996 the Company provided a
reserve for the full amount of the receivables outstanding of $82,746 and a
valuation allowance for its full investment in The Greenwich Group of $274,325.
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The consolidated balance sheet at December 31, 1995, reflects non-cash activity
during the year ended December 31, 1995, that relates to the acquisition of a
patent: a credit to shareholders' equity of $110,000 for options issued but not
yet vested at a price below the prevailing market price on the date of issuance.
In addition, the consolidated balance sheet at December 31, 1995, reflects
non-cash activity during the year ended December 31, 1995, relating to
non-recourse loans made by the Company to certain employees in August 1995 to
purchase the Company's Common Stock by exercising options: a debit to
shareholders' equity of $567,500. The due dates of the non-recourse loans
correspond with the respective expiration dates of the options exercised.
The consolidated balance sheet at December 31, 1996, reflects non-cash activity
during the year ended December 31, 1996, that relates to a reversal of certain
of the option exercises and resulting non-recourse loan transactions described
above: a credit to shareholders' equity of $367,500.
The Company made no cash payments of interest or income taxes during the years
ended December 31, 1995 and 1996.
F-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of New York
and State of New York on the 27th day of March 1997.
ACTV, Inc.
By: /s/William C. Samuels
---------------------
William C. Samuels
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William C. Samuels March 27, 1997
- ----------------------
William C. Samuels Chairman of the Board, Chief Executive
Officer, President and Director
/s/ David Reese March 27, 1997
- ---------------
David Reese Executive Vice President, President - ACTV
Entertainment, Inc., and Director
/s/ Bruce Crowley March 27, 1997
- -----------------
Bruce Crowley Executive Vice President, President - ACTV
Net, Inc., and Director
/s/ Christopher C. Cline March 27, 1997
- ------------------------
Christopher C. Cline Vice President, Chief Financial Officer and
Secretary
/s/ William Frank March 27, 1997
William A. Frank Director
/s/ Richard Hyman March 27, 1997
Richard Hyman Director
/s/ Jess Ravich March 27, 1997
Jess Ravich Director
/s/ Steven W. Schuster March 27, 1997
Steven W. Schuster Director
</TABLE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
ACTV, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
EXHIBITS
<PAGE>
EXHIBIT INDEX
3.1.a Restated Certificate of Incorporation of the Company.*
3.1.b Amendment to Certificate of Incorporation of the Company.**
3.2 By-Laws of the Company.*
9.1 Voting Agreement dated November 11, 1994, by and between William
C. Samuels and Michael J. Freeman.***
9.2 Voting Trust Agreement dated March 10, 1994 by and among William
C. Samuels, The Washington Post Company and ACTV, Inc.**
10.1 First Amendment to Lease, dated December January 13, 1997 by and
between the Registrant, as the Tenant, and Rockefeller Center
Properties, as the Landlord.
10.2 Form of 1989 Employee Incentive Stock Option Plan.*
10.3 Form of Amendment No. 1 to 1989 Employee Incentive Stock Option
Plan.*
10.4 Form of 1989 Employee Non-qualified Stock Option Plan.*
10.5 Form of Amendment No. 1 to 1989 Employee Non-qualified Stock
Option Plan.*
10.6 1986 Non-qualified Stock Option Plan.*
10.7 Form of 1986 Non-qualified Stock Option Agreement.*
10.8 1996 Non-qualified Stock Option Plan.
10.9 1992 Stock Appreciation Rights Plan.
10.10 1996 Stock Appreciation Rights Plan.
10.11 Employment Agreement dated August 1, 1995, as amended January 1,
1997 between the Company and William Samuels.
10.12 Employment Agreement dated August 1, 1995, as amended January 1,
1997 between the Company and David Reese.
10.13 Employment Agreement dated 15th day of December, 1995, as amended
January 1, 1997 between the Company and Bruce Crowley.
10.14 Master Programming License Agreement dated December 2, 1996, by
and between the Company and Liberty/Fox Sports, LLC.
10.15 Enhancement License Agreement dated December 4, 1996, by and
between the Company and Prime Ticket Networks, L.P., d/b/a Fox
Sports West.****
10.16 Enhancement License Agreement dated February 28, 1997, by and
between the Company and ARC Holding, Ltd., d/b/a Fox Sports
Southwest.****
10.17 Agreement dated march 30, 1995 between General Instrument
Corporation and the Company.***
10.18 Technical Services Agreement dated May 1995 between the David
Sarnoff Research Center, Inc. and the Company.***
10.19 Option Agreement dated December 4, 1995 between the David Sarnoff
Research Center and the Company.
10.20 Form of Option Agreement entered into by William Samuels, David
Reese, Bruce Crowley and Christopher Cline in connection with the
Series B Common Stock of ACTV Entertainment, Inc., ACTV Net, Inc.,
Los Angeles Individualized Regional Network, Inc. and Texas
Individualized Regional Network, Inc.
10.21(a) deleted
10.21(b) deleted
10.21(c) Option Agreement dated September 29, 1995 between the Company and
Richard H. Bennett.***
10.21(d) Assignment dated September 29, 1995 between the Company and
Richard H. Bennett.***
10.21(e) Stock Option Agreement, dated as of December 1, 1995, amended
March 24, 1997 by and between the Registrant and William C.
Samuels.
10.21(f) Stock Option Agreement, dated March 24, 1997, by and between the
Registrant and William C. Samuels.
<PAGE>
10.21(g) Stock Option Agreement, dated as of March 24, 1997, by and between
the Registrant and David Reese.
10.21(h) Stock Option Agreement, dated as of December 1, 1995, amended
March 24, 1997 by and between the Registrant and David Reese.
10.21(i) Stock Option Agreement, dated as of March 24, 1997, by and between
the Registrant and Bruce Crowley.
10.21(j) Stock Option Agreement, dated as of December 1, 1995, amended
March 24, 1997 by and between the Registrant and Bruce Crowley.
10.21(k) Stock Option Agreement, dated as of March 24, 1997, by and between
the Registrant and Christopher Cline.
10.22 Option Agreement, dated March 11, 1997, by and between the
Registrant and The Washington Post Company.
27 Financial Data Schedule
* Incorporated by reference from Form S-1 Registration Statement (File
No. 33-34618)
** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993.
*** Incorporated by reference from Form S-1 Registration Statement (File
No. 33-63879) which became effective on February 12, 1996.
**** Certain information contained in this exhibit has been omitted and
filed separately with the Commission along with an application for
non-disclosure of information pursuant to Rule 24b-2 of the Securities
Act of 1933, as amended.
This FIRST AMENDMENT TO LEASE, dated January 13, 1997 (this
"Amendment"), between RCPI Trust, having an office c/o Tishman Speyer
Properties, L.P., 45 Rockefeller Plaza, New York, New York 10111 ("Landlord"),
and ACTV, Inc., having an office at 1270 Avenue of the Americas, New York, New
York 10020 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord (as successor to Rockefeller Center
Properties) and Tenant executed and exchanged that certain Lease, dated January
23, 1996 (the "Original Lease"), covering a portion of the 24th Floor (the
"Premises") in the building located at 1270 Avenue of the Americas, New York,
New York (the "Building"), all as more particularly described in the Original
Lease; and
WHEREAS, Landlord and Tenant desire to modify the Original
Lease (I) to lease to Tenant certain additional space in the Building and (ii)
to otherwise modify the terms and conditions of the Original Lease as
hereinafter provided (the Original Lease, as modified by this Amendment, being
hereinafter referred to as the "Lease").
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree that the
Original Lease shall be modified as follows:
1. Capitalized Terms; Recitals; Definitions. All defined terms
used herein and not otherwise defined in this Amendment shall have the meanings
ascribed to them in the Lease. The recital clauses set forth above are
incorporated herein by reference.
2. Demise of Additional Premises, Term and Rent.
(a) Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, a portion of the 24th Floor of the Building substantially as
shown on Exhibit A annexed hereto and made a part hereof and designated as space
`C' (the Additional Premises") for a term to commence on the date upon which
landlord offers Tenant possession of the Premises with the Landlord's Work (as
defined in Paragraph 6 of this Agreement) substantially completed (subject to
Article Two of the Premises Commencement Date") and to end on January 31, 2001
(the Expiration Date") subject to the terms and conditions of the Lease, except
as otherwise expressly provided herein.
(b) The fixed rent payable under the Original Lease shall be
increased by $57,552.00 per annum during the period commending on the fixed rent
payable under the Original Lease shall be increased by $57,552.00 per annum
during the period commending on the Additional Premises Commencement Date and
ending on the day preceding the third anniversary of the Additional Premises
Commencement Date; and $61,040.00 per annum thereafter. Tenant hereby covenants
and agrees to pay said fixed rent as so increased and the additional rent
payable under the Original Lease, at the times and in the manner specified in
the Original Lease for the payment of fixed rent and additional rent.
Notwithstanding the foregoing, provided Tenant is not in default beyond any
applicable notice and grace period, the fixed rent payable with respect to the
Additional
<PAGE>
Premises shall be abated at the rate of $4,796.00 per month for the period
commencing on the Additional Premises Commencement Date and ending on the two
month anniversary of Additional Premises Commencement Date (the "Rent
Commencement Date"), which abatement shall be deemed an abatement of fixed rent
under Article One.
(c) Effective as of the Additional Premises Commencement Date,
the term "Premises" shall be deemed to include the Additional Premises except
that, (I) in applying the provisions of Article One of the Original Lease to the
Additional Premises, (a) "Premises" shall mean the Additional Premises only; and
(b) the "term commencement date" shall mean the Additional Premises Commencement
Date; and (ii) Articles Thirty, Thirty-one and Thirty-three of the Original
Lease shall not apply to the Additional Premises. Nothing contained in the
Amendment shall give to Tenant any option for the renewal or extension of the
term hereby granted with respect to the Additional Premises.
3. Article Two of the Original Lease shall be amended with
respect to the Additional Premises only as follows:
"Landlord shall not be liable for failure to deliver
possession of the Additional Premises on any specified date.
There shall be no postponement of the Additional Premises
Commencement Date for any Tenant Delay or Delay by Landlord in
the performance of minor details of construction or mechanical
adjustments which the Landlord is obligated to perform. The
foregoing shall constitute `an express provision to the
contrary' as such phrase is used in Section 223-a of the Real
Property Law of the State of New York and shall constitute a
waiver of Tenant's rights pursuant to such Section 223-a and
any other law of like import now or hereafter in force."
4. Broadcast Restrictions. Article Three of the Original
Lease is amended by adding the following paragraph as Section 3.6.:
"Landlord has entered into a Declaration of Covenants and
Restrictions with National Broadcasting Company, Inc., dated
as of July 17, 1996, a memorandum of which has been recorded
in the Office of the Register of the City of New York, New
York County (the "Declaration"), pursuant to which Landlord
agreed to include, in all leases, licenses and occupancy
agreements for space in the Center entered into from and after
the date of the Declaration, certain restrictions on the
ability of the tenants, licensees and other occupants under
such agreements to conduct, allow or permit certain broadcast
and related activities in the Center (the Restrictions"). A
copy of the Restrictions is attached to this Lease as Exhibit
B. Tenant agrees that it shall not take or fail to take, or
permit, cause or allow to be taken, any action, and shall not
enter into any arrangement, which would violate or cause a
violation of the Restrictions."
5. Effective on and after the Additional Premises Commencement
Date, Section 7.2.3. of the Original Lease shall be amended with respect to the
Additional Premises only, by deleting it in its entirety and substituting
therefor the following:
<PAGE>
"The term `Applicable Rental Rate' as used in this Article
shall mean $33.00 per annum during the period commencing on
the Additional Premises Commencement Date and ending on the
day preceding the third anniversary of the Additional Premises
Commencement Date; and $35.00 per annum thereafter."
6. Effective on and after the Additional Premises Commencement
Date, Section 24.3(I) of the Original Lease shall be amended by deleting the
date "December 1, 1996" where it appears therein and substituting therefor the
date "December 31, 1996".
7. Effective on and after the Additional Premises Commencement
Date, Article Twenty-six of the Original Lease shall be restated in its entirety
to read as follows:
26.1. Tenant shall deposit the amount of $120,181.25 (the
"Security Deposit") with Landlord upon the execution of this
Lease in cash as security for the faithful performance and
observance by Tenant of the terms, covenants and conditions of
this Lease, including the surrender of possession of the
Premises to Landlord as herein provided. Landlord confirms
that Tenant has previously deposited with Landlord the amount
of $52,181.25.
26.2. In lieu of a cash deposit, Tenant may deliver the
Security Deposit to Landlord in the form of a clean,
irrevocable, non-documentary and unconditional Letter of
Credit issued by and drawable upon any commercial bank, trust
company, national banking association or savings and loan
association with offices for banking purposes in the City of
New York the "Issuing Bank"), which has outstanding unsecured,
uninsured and unguaranteed indebtedness, or shall have issued
a letter of credit or other credit facility that constitutes
the primary security for any outstanding indebtedness (which
is otherwise uninsured and unguaranteed), that is then rated,
without regard to qualification of such rating by symbols such
as "+" or "-" or numerical notation, "Aa" or better by Moody's
Investors Service and "AA" or better by Standard & Poor's
Ratings Service, and has combined capital, surplus and
undivided profits of not less than $500,000,000. Such Letter
of Credit shall (a) name Landlord as beneficiary, (b) be in
the amount of the Security Deposit, (c) have a term of not
less than one year, (d) permit multiple drawings, (e) be fully
transferable by Landlord without the payment of any fees or
charges, and (f) otherwise be in form and content satisfactory
to Landlord; provided, however, that Landlord shall in no
event be obligated to accept a Letter of Credit for any amount
less than $25,000. If upon any transfer of the Letter of
Credit, any fees or charges shall be so imposed, then such
fees or charges shall be payable solely by Tenant and the
Letter of Credit shall so specify. The Letter of Credit shall
provide that it shall be deemed automatically renewed, without
amendment, for consecutive period of one year each thereafter
during the Term, unless the issuing Bank sends a
<PAGE>
notice (the "Non-Renewal Notice") to Landlord by certified
mail, return receipt requested, not less than 45 days next
preceding the then expiration date of the Letter of Credit,
stating that the Issuing Bank has elected not to renew the
Letter of Credit. Landlord shall have the right, upon
receipt of a Non-Renewal Notice, to draw the full amount of
the Letter of Credit, by sight draft on the Issuing Bank,
and shall thereafter hold or apply the cash proceeds of the
Letter of Credit pursuant to the terms of this Article
Twenty-six. The Issuing Bank shall agree with all drawers,
endorsers and bona fide holders that drafts drawn under and
in compliance with the terms of the Letter of Credit will be
duly honored upon presentation to the Issuing Bank at an
office location in Manhattan. The Letter of Credit shall be
subject in all respects to the Uniform Customs and Practice
for Documentary Credits (1993 revision), International
Chamber of Commerce Publication No. 500.
26.3. If Tenant defaults in the payment or performance of
any the terms, covenants or conditions of this Lease,
including the payment of Rent, Landlord may apply or retain
the whole or any part of the cash Security Deposit or may
apply or retain the whole or any part of the cash Security
Deposit or may notify the Issuing Bank and thereupon receive
all or a portion of the Security Deposit represented by the
Letter of Credit, and use, apply, or retain the whole or any
part of such proceeds, as the case may be, to the extent
required for the payment of any Rent or any other sum as to
which Tenant is in default, including (a) any sum which
Landlord may expend or may be required to expend by reason of
Tenant's default, and (b) any damages to which Landlord is
entitled pursuant to this Lease or applicable Requirements,
whether such damages accrues before or after summary
proceedings or other reentry by Landlord. If Landlord applies
or retains any part of the Security Deposit, Tenant, upon
demand, shall deposit with Landlord the amount so applied or
retained so that Landlord shall have the full Security Deposit
on hand at all times during the Term. If Tenant shall fully
and faithfully comply with all of the terms, covenants and
conditions of this Lease, the Security Deposit shall be
returned to Tenant after the expiration or earlier termination
of this Lease and after delivery of possession of the Premises
to Landlord in the manner required by this Lease. Tenant
expressly agrees that Tenant shall have no right to apply any
portion of the Security Deposit against any of Tenant's
obligations to pay Rent hereunder, and if Tenant shall seek to
so apply the Security Deposit, Tenant shall pay liquidated
damages to Landlord in a sum equal to two times the amount of
any such unpaid Rent.
<PAGE>
26.4. Upon a sale of the Building or the Land or a leasing
of the Building, or any financing of Landlord's interest
therein, Landlord shall have the right to transfer the cash
Security Deposit or the Letter of Credit, as applicable, to
the vendee, lessee or lender. With respect to the Letter of
Credit, within five days after notice from Landlord of such
sale, leasing or financing, Tenant, at its sole cost, shall
arrange for the transfer of the Letter of Credit to the new
landlord or lender, as designated by Landlord in the foregoing
notice, or to have the Letter of Credit reissued in the name
of the new landlord or lender. Tenant shall look solely to the
new landlord or lender for the return of such cash Security
Deposit or Letter of Credit, and the provisions of the Section
26.4. shall apply to every transfer or assignment made of the
Security Deposit to a new landlord. Tenant will not assign or
encumber, or attempt to assign or encumber, the cash Security
Deposit or Letter of Credit, and neither Landlord not its
successors or assigns shall be bound by any such actual or
attempted assignment or encumbrance.
26.5 If (i) no default with respect to Tenant's obligation to
pay Rent on a timely basis under the Lease has occurred during
the term and (ii) Tenant is not then in default in the due
keeping, observance or performance of any term or condition of
the Lease, then on and after the date which is the condition
of the Lease, then on and after the date which is the (a)
twelve month anniversary of the Rent Commencement Date, the
Security Deposit shall be $106,181.25; (b) eighteen month
anniversary of the Rent Commencement Date, the Security
Deposit shall be $92,181.25; and (c) thirty-six month
anniversary of the Rent Commencement Date, the Security
Deposit shall be $62,181.25. In event of any reduction of the
Security Deposit as hereinabove provided, Landlord shall
return to Tenant any amount held by Landlord in excess of the
Security Deposit."
8. Article Thirty-four of the Original Lease is hereby
deleted in its entirety.
9. Landlord's Work. Prior to the Additional Premises
Commencement Date, Landlord, at its sole cost and expense, shall construct a
doorway at a location to be mutually agreed upon by Landlord and Tenant (which
shall be of material, manufacture, design, quality, finish and color of the
standard adopted by Landlord for the Building) with respect to the Additional
Premises (the "Landlord's Work"). Landlord shall provide Tenant with five (5)
days prior Notice of the date upon which Landlord's Work shall be substantially
completed.
10. Tenant Allowance. Landlord agrees that (I) if Tenant is
not then in default under the Lease, (ii) upon receipt by it of evidence
satisfactory to it of the completion of painting and carpeting the Additional
Premises in a manner reasonably to Landlord, and (iii) upon the furnishing by
Tenant to Landlord of the evidence of the payment therefor by Tenant, Landlord
<PAGE>
shall reimburse to Tenant the lesser of (a) the payment of the actual cost of
such painting and carpeting, or (b) $5,467.00.
11. Brokerage
(a) Each of Landlord and Tenant represents and warrants to the
other that it has not dealt with any broker in connection with this Amendment
other than Tishman Speyer Properties, L.P. ("Broker") and that, to the best of
its knowledge, no other broker negotiated this Amendment or is entitled to any
fee or commission in connection herewith. The execution and delivery of this
Amendment by each party shall be conclusive evidence that each party has relied
upon the foregoing representations and warranties.
(b) Each of Landlord and Tenant shall indemnify, defend,
protect and hold the other party harmless from and against any and all losses,
liabilities, damages, claims, judgments, fines, suits, demands, costs, interest
and expenses of any kind or nature (including reasonable attorney's fees and
disbursements) incurred in connection with any claim, proceeding or judgment and
the defense thereof which the indemnified party may incur by reason of any claim
of or liability to any broker, finder or like agent (other than Broker) arising
out of any dealings claimed to have occurred between the indemnifying party and
the claimant in connection with this Amendment, or the above representation
being false. The provisions of this Paragraph 11 shall survive the expiration or
earlier termination of the term of this Amendment.
12. No Modification. Except as set forth herein, nothing
contained in this Amendment shall be deemed to amend or modify in any respect
the terms, provisions, or conditions of the Lease and such terms, provisions,
and conditions shall remain in full force and effect as modified hereby.
13. Representations. Landlord and Tenant each represents and
warrants to the other that as of the date hereof, (I) the Lease is in full force
and effect and (ii) no written notices default have been delivered by Landlord
or Tenant to the other party and remain outstanding.
14. Miscellaneous.
(a) This Amendment contains the entire understanding of the
parties with respect to the subject matter hereof.
(b) This Amendment shall be governed by the laws of the State
of New York without giving effect to conflict of laws principles thereof.
(c) This Amendment shall be binding upon and inure to the
benefit of Landlord and Tenant and their successors and permitted assigns.
(d) The captions, headings, and titles in this Amendment are
solely for convenience of reference and shall not affect its interpretation.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
day and year first above written.
RCPI TRUST
By Tishman Speyer Properties, L.P., its Agent
By______________________________________
Philip M. Waterman III
ACTV, INC.
By______________________________________
Vice President
ACTV, INC.
1996 STOCK OPTION PLAN
As adopted ________, 1996
<PAGE>
1. PURPOSE OF PLAN; ADMINISTRATION
1.1 Purpose.
The ACTV, Inc. 1996 Stock Option Plan (hereinafter, the "Plan") is
hereby established to grant to officers and other employees of ACTV, Inc.
("ACTV") or of its parents or subsidiaries (as defined in Sections 424(e) and
(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code")), if any (individually and collectively, the Company"), and to
non-employee consultants and advisors and other persons who may perform
significant services for or on behalf of the Company, a favorable opportunity to
acquire common stock, $.10 par value ("Common Stock"), of ACTV and, thereby, to
create an incentive for such persons to remain in the employ of or provide
services to the Company and to contribute to its success.
The Company may grant under the Plan both incentive stock options
within the meaning of Section 422 of the Code ("Incentive Stock Options") and
stock options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to "options,' shall include both incentive Stock Options and
Nonstatutory Options.
1.2 Administration.
The Plan shall be administered by the Board of Directors of ACTV (the
"Board"), if each member is a "disinterested person" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), or a
committee (the "Committee") of two or more directors, each of whom is a
disinterested person. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
A majority of the members of the Committee shall constitute a quorum
for the purposes of the Plan. Provided a quorum is present, the Committee may
take action by affirmative vote or consent of a majority of its members present
at a meeting. Meetings may be held telephonically as long as all members are
able to hear one another, and a member of the Committee shall be deemed to be
present for this purpose if he or she is in simultaneous communication by
telephone with the other members who are able to hear one another. In lieu of
action at a meeting, the Committee may act by written consent of a majority of
its members.
Subject to the express provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan and all Stock Option Agreements
(as defined in Section 3.4) entered into pursuant hereto and to define the terms
used therein, to prescribe, adopt, amend and rescind rules and regulations
relating to the administration of the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that
2
<PAGE>
the Committee may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper; and, provided, further, in its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan. Subject to the
express limitations of the Plan, the Committee shall designate the individuals
from among the class of persons eligible to participate as provided in Section
1.3 who shall receive options, whether an optionee will receive Incentive Stock
Options or Nonstatutory Options, or both, and the amount, price, restrictions
and all other terms and provisions of such options (which need not be
identical).
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All exchanges and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. No members of the Committee or Board
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.
1.3 Participation.
Officers and other employees of the Company shall be eligible for
selection to participate in the Plan upon approval by the Committee; provided,
however, that only "employees" (within the meaning of Section 3401(c) of the
Code) of the Company shall be eligible for the grant of Incentive Stock Options.
An individual who has been granted an option may, if otherwise eligible, be
granted additional options if the Committee shall so determine. No person is
eligible to participate in the Plan by matter of right; only those eligible
persons who are selected by the Committee in its discretion shall participate in
the Plan.
1.4 Stock Subject to the Plan.
Subject to adjustment as provided in Section 3.5, the stock to be
offered under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. The cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 500,000,
subject to adjustment as set forth in Section 3.5.
If any option granted hereunder shall expire or terminate for any
reason without having been fully exercised, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan. For purposes of
this Section 1.4, where the exercise price of options is paid by means of the
grantee's surrender of previously owned shares of Common Stock, only the net
number of additional shares issued and which remain outstanding in connection
with such
3
<PAGE>
exercise shall be deemed "issued" for purposes of the Plan.
2. STOCK OPTIONS
2.1 Option Price.
The exercise price of each incentive Stock option granted under the
Plan shall be determined by the Committee, but shall not be less than 100% of
the "Fair Market Value" (as defined below) of Common Stock on the date of grant.
If an Incentive Stock Option is granted to an employee who at the time such
option is granted owns (within the meaning of section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of capital stock of
the Company, the option exercise price shall be at least 110% of the Fair Market
Value of Common Stock on the date of grant. The exercise price of each
Nonstatutory Option also shall be determined by the Committee, but shall not be
less than 85% of the Fair Market Value of Common Stock on the date of grant. The
status of each option granted under the Plan as either an Incentive Stock Option
or a Nonstatutory Stock Option shall be determined by the Committee at the time
the Committee acts to grant the option, and shall be clearly identified as such
in the Stock Option Agreement relating thereto.
"Fair Market Value" for purposes of the Plan shall mean: (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on the day previous to such
date, or, if shares were not traded on the day previous to such date, then on
the next preceding trading day during which a sale occurred; or (ii) if Common
Stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, (1) the last sales price (if Common Stock is then listed on
the Nasdaq Stock Market) or (2) the mean between the closing representative bid
and asked price (in all other cases) for Common Stock on the day prior to such
date as reported by Nasdaq or such successor quotation system; or (iii) if there
is no listing or trading of Common Stock either on a national exchange or
over-the-counter, that price determined in good faith by the Committee to be the
fair value per share of Common Stock, based upon such evidence as it deems
necessary or advisable.
In the discretion of the Committee exercised at the time the option is
exercised, the exercise price of any option granted under the Plan shall be paid
in full in cash, by check or by the optionee's interest-bearing promissory note
(subject to any limitations of applicable state corporations law) delivered at
the time of exercise; provided, however, that subject to the timing requirements
of Section 2.7, in the discretion of the Committee and upon receipt of all
regulatory approvals, the person exercising the option may deliver as payment in
whole or in part of such exercise price certificates for Common Stock of the
Company (duly endorsed or with duly executed stock powers attached), which shall
be valued at its Fair Market Value on the day of exercise of the option, or
other property deemed appropriate by the Committee; and, provided further, that
subject to Section 422 of the Code so-called cashless exercises as permitted
under applicable rules and regulations of the Securities and Exchange Commission
and the Federal Reserve Board shall be permitted in the discretion of the
Committee. Without limiting the
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<PAGE>
Committee's discretion in this regard, consecutive book entry stock-for-stock
exercises of options (or "pyramiding") also are permitted in the Committee's
discretion.
Irrespective of the form of payment, the delivery of shares pursuant to
the exercise of an option shall be conditioned upon payment by the optionee to
the Company of amounts sufficient to enable the Company to pay all federal,
state, and local withholding taxes applicable, in the Company's judgment, to the
exercise. In the discretion of the Committee, such payment to the Company may be
effected through (i) the Company's withholding from the number of shares of
Common Stock that would otherwise be delivered to the optionee by the Company on
exercise of the option a number of shares of Common Stock equal in value (as
determined by the Fair Market Value of Common Stock on the date of exercise) to
the aggregate withholding taxes, (ii) payment by the optionee to the Company of
the aggregate withholding taxes in cash, (iii) withholding by the Company from
other amounts contemporaneously owed by the Company to the optionee, or (iv) any
combination of these three methods, as determined by the Committee in its
discretion.
2.2 Option Period.
(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 30
days following a Termination of Employment for any reason other than death or
disability or six months following a Termination of Employment for disability or
following an optionee's death.
(b) Outside Date for Exercise. Notwithstanding any provision of
this Section 2.2, in no event shall any option granted under the Plan be
exercised after the expiration date of such option set forth in the applicable
Stock Option Agreement.
2.3 Exercise of Options.
Each option granted under the Plan shall become exercisable and the
total number of shares subject thereto shall be purchasable, in a lump sum or in
such installments, which need not be equal, as the Committee shall determine;
provided, however, that each option shall become exercisable in full no later
than ten years after such option is granted, and each option shall become
exercisable as to at least 10% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted; and provided, further, that
if the holder of an option shall not in any given installment period purchase
all of the shares which such holder is entitled to purchase in such installment
period, such holder's right to purchase any shares not purchased in such
installment period shall continue until the expiration or sooner termination of
such holder's option. The Committee may, at any time after grant of the option
and from time to time, increase the number of shares purchasable in any
installment, subject to the total number of
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<PAGE>
shares subject to the option and the limitations set forth in Section 2.5. At
any time and from time to time prior to the time when any exercisable option or
exercisable portion thereof becomes unexercisable under the Plan or the
applicable Stock Option Agreement, such option
or portion thereof may be exercised in whole or in part; provided, however, that
the Committee may, by the terms of the option, require any partial exercise to
be with respect to a specified minimum number of shares. No option or
installment thereof shall be exercisable except with respect to whole shares.
Fractional share interests shall be disregarded, except that they may be
accumulated as provided above and except that if such a fractional share
interest constitutes the total shares of Common Stock remaining available for
purchase under an option at the time of exercise, the optionee shall be entitled
to receive on exercise a certified or bank cashier's check in an amount equal to
the Fair Market Value of such fractional share of stock.
2.4 Transferability of Options.
Except as the Committee may determine as aforesaid, an option granted
under the Plan shall, by its terms, be nontransferable by the optionee other
than by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined by the Code), and shall be exercisable
during the optionee's lifetime only by the optionee or by his or her guardian or
legal representative. More particularly, but without limiting the generality of
the immediately preceding sentence, an option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
the Plan and the applicable Stock Option Agreement, and any levy of any
attachment or similar process upon an option, shall be null and void, and
otherwise without effect, and the Committee may, in its sole discretion, upon
the happening of any such event, terminate such option forthwith.
2.5 Limitation on Exercise of Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined on the
date of grant) of the Common Stock with respect to which Incentive Stock Options
granted hereunder (together with all other Incentive Stock Option plans of the
Company) are exercisable for the first time by an optionee in any calendar year
under the Plan exceeds $100,000, such options granted hereunder shall be treated
as Nonstatutory Options to the extent required by Section 422 of the Code. The
rule set forth in the preceding sentence shall be applied by taking options into
account in the order in which they were granted.
2.6 Disqualifying Dispositions of Incentive Stock Options.
If Common Stock acquired upon exercise of any Incentive Stock Option is
disposed of in a disposition that, under Section 422 of the Code, disqualifies
the option holder from the application of Section 421(a) of the Code, the holder
of the Common Stock immediately before
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<PAGE>
the disposition shall comply with any requirements imposed by the Company in
order to enable the Company to secure the related income tax deduction to which
it is entitled in such event.
2.7 Certain Timing Requirements.
At the discretion of the Committee, shares of Common Stock issuable to
the optionee upon exercise of an option may be used to satisfy the option
exercise price or the tax withholding consequences of such exercise, in the case
of persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
optionee to use shares of Common Stock issuable to the optionee upon exercise of
the option to pay all or part of the option price or the withholding taxes made
at least six months prior to the payment of such option price or withholding
taxes.
2.8 No Effect on Employment.
Nothing in the Plan or in any Stock Option Agreement hereunder shall
confer upon any optionee any right to continue in the employ of the Company, any
Parent Corporation or any subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporation and its Subsidiaries,
which are hereby expressly reserved, to discharge any optionee at any time for
any reason whatsoever, with or without cause.
For purposes of the Plan, "Parent Corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if each
of the corporations other than the Company then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. For purposes of the Plan, "Subsidiary" shall
mean any corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3. OTHER PROVISIONS
3.1 Sick Leave and Leaves of Absence.
Unless otherwise provided in the Stock Option Agreement, and to the
extent permitted by Section 422 of the Code, an optionee's employment shall not
be deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Company if the period of any such leave does not exceed
a period approved by the Company, or, if longer, if the optionee's right to
reemployment by the Company is guaranteed either contractually or by statute. A
Stock Option Agreement may contain such additional or different provisions with
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<PAGE>
respect to leave of absence as the Committee may approve, either at the time of
grant of an option or at a later time.
3.2 Termination of Employment.
For purposes of the Plan "Termination of Employment," shall mean the
time when the employee-employer relationship between the optionee and the
Company, any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an optionee by
the Company, any Subsidiary or any Parent Corporation, (ii) at the discretion of
the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company, a Subsidiary or any Parent Corporation
with the former employee. Subject to Section 3.1, the Committee, in its absolute
discretion, shall determine the affect of all matters and questions relating to
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, a leave of absence or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that such leave of absence or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then-applicable regulations
and revenue rulings under said Section.
3.3 Issuance of Stock Certificates.
Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon exercise. Notwithstanding the foregoing, the Committee in its
discretion may require the Company to retain possession of any certificate
evidencing stock acquired upon exercise of an option which remains subject to
repurchase under the provisions of the Stock Option Agreement or any other
agreement signed by the optionee in order to facilitate such repurchase
provisions.
3.4 Terms and Conditions of Options.
Each option granted under the Plan shall be evidenced by a written
Stock Option Agreement ("Stock Option Agreement") between the option holder and
the Company providing that the option is subject to the terms and conditions of
the Plan and to such other terms and conditions not inconsistent therewith as
the Committee may deem appropriate in each case.
3.5 Adjustments Upon Changes in Capitalization; Merger and
Consolidation.
If the outstanding shares of Common Stock are changed into, or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse stock
8
<PAGE>
split, stock dividend, stock consolidation, stock combination, stock
reclassification or similar transaction, an appropriate adjustment shall be made
by the Committee in the number and kind of shares as to which options and
restricted stock may be granted. in the event of such a change or exchange,
other than for shares or securities of another corporation or by reason of
reorgani zation, the Committee shall also make a corresponding adjustment
changing the number or kind of shares and the exercise price per share allocated
to unexercised options or portions thereof,
which shall have been granted prior to any such change, shall likewise be made.
Any such adjustment, however, shall be made without change in the total price
applicable to the unexercised portion of the option but with a corresponding
adjustment in the price for each share (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices).
In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Common Stock, the Committee in its discretion shall make an
appropriate and equitable adjustment to the exercise prices of options then
outstanding under the Plan.
Where an adjustment under this Section 3.5 of the type described above
is made to an Incentive Stock Option, the adjustment will be made in a manner
which will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.
In connection with the dissolution or liquidation of ACTV or a partial
liquidation involving 50% or more of the assets of ACTV, a reorganization of
ACTV in which another entity is the survivor, a merger or reorganization of ACTV
under which more than 50% of the Common Stock outstanding prior to the merger or
reorganization is converted into cash or into another security, a sale of more
than 50% of the Company's assets, or a similar event that the Committee
determines, in its discretion, would materially alter the structure of ACTV or
its ownership, the Committee, upon 30 days prior written notice to the option
holders, may, in its discretion, do one or more of the following: (i) shorten
the period during which options are exercisable (provided they remain
exercisable for at least 30 days after the date the notice is given); (ii)
accelerate any vesting schedule to which an option is subject; (iii) arrange to
have the surviving or successor entity grant replacement options with
appropriate adjustments in the number and kind of securities and option prices,
or (iv) cancel options upon payment to the option holders in cash, with respect
to each option to the extent then exercisable (including any options as to which
the exercise has been accelerated as contemplated in clause (ii) above), of any
amount that is the equivalent of the Fair Market Value of the Common Stock (at
the effective time of the dissolution, liquidation, merger, reorganization, sale
or other event) or the fair market value of the option. In the case of a change
in corporate control, the Committee may, in considering the advisability or the
terms and conditions of any acceleration of the exercisability of any option
pursuant to this Section 3.5, take into account the penalties that may result
directly or indirectly from such acceleration to either the Company or the
option holder, or both, under Section 280G of the Code, and may decide to limit
such acceleration to the extent necessary to avoid or mitigate such penalties or
their effects.
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No fractional share of Common Stock shall be issued under the Plan on
account of any adjustment under this Section 3.5.
3.6 Rights of Participants and Beneficiaries.
The Company shall pay all amounts payable hereunder only to the option
holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall
not be liable for the debts, contracts or engagements of any optionee or his or
her beneficiaries, and rights to cash payments under the Plan may not be taken
in execution by attachment or garnishment, or by any other legal or equitable
proceeding while in the hands of the Company.
3.7 Government Regulations.
The Plan, and the grant and exercise of options and the issuance and
delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
3.8 Amendment and Termination.
The Board or the Committee may at any time suspend, amend or terminate
the Plan and may, with the consent of the option holder, make such modifications
of the terms and conditions of such option holder's option as it shall deem
advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option way be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.
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<PAGE>
3.9 Time of Grant And Exercise of Option.
An option shall be deemed to be exercised when the Secretary of the
Company receives written notice from an option holder of such exercise, payment
of the purchase price determined pursuant to Section 2.1 of the Plan and set
forth in the Stock Option Agreement, and all representations, indemnifications
and documents reasonably requested by the Committee.
3.10 Privileges of Stock Ownership; Non-Distributive Intent;
Reports to Option Holders.
A participant in the Plan shall not be entitled to the privilege of
stock ownership as to any shares of Common Stock not actually issued to the
optionee. Upon exercise of an option at a time when there is not in effect under
the Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.
The Company shall furnish to each optionee under the Plan the Company's
annual report and such other periodic reports, if any, as are disseminated by
the Company in the ordinary course to its stockholders.
3.11 Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued
upon exercise of an option granted under the Plan or to which such Common Stock
may be subject, the Committee may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends shall
make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by applicable laws or regulations. If any restriction with respect to
which a legend was placed on any certificate ceases to apply to Common Stock
represented by such certificate, the owner of the Common Stock represented by
such certificate may require the Company to cause the issuance of a new
certificate not bearing the legend.
Additionally, and not by way of limitation, the Committee may impose
such restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange upon which Common Stock is then traded.
3.12 Use of Proceeds.
Proceeds realized pursuant to the exercise of options under the Plan
shall constitute general funds of the Company.
3.13 Changes in Capital Structure; No Impediment to Corporate
Transactions.
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The existence of outstanding options under the Plan shall not affect
the Company's right to effect adjustments, recapitalizations, reorganizations or
other changes in its or any other corporation's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock, the
dissolution or liquidation of the Company's or any other corporation's assets or
business, or any other corporate act, whether similar to the events described
above or otherwise.
3.14 Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
stockholders of ACTV within twelve months after the date of the Board's initial
adoption of the Plan. Options may be granted but not exercised prior to
stockholder approval of the Plan. If any options are so granted and stockholder
approval shall not have been obtained within twelve months of the date of
adoption of this Plan by the Board of Directors, such options shall terminate
retroactively as of the date they were granted.
3.15 Termination.
The Plan shall terminate automatically as of the close of business on
the day preceding the tenth anniversary date of its adoption by the Board or
earlier as provided in Section 3.8. Unless otherwise provided herein, the
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination.
3.16 Effective Date of the Plan.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
* * *
1992 STOCK APPRECIATION RIGHTS PLAN
OF
ACTV, INC.
1. Purpose.
The purpose of this 1992 Stock Appreciation Rights Plan (the
"Plan") of ACTV, Inc., a Delaware corporation (the "Company"), is to secure for
the Company and its stockholders the benefits arising from participation in
stock appreciation by selected (a) employees of the Company or its subsidiaries,
affiliates, licensees or joint venture partners, (b) Directors or officers or
(c) consultants ("Participants") as the Board of Directors of the Company, or a
committee thereof constituted for the purpose, may from time to time determine.
This Plan will provide a means whereby such employees, Directors and consultants
may acquire the right to participate in the appreciation of the Common Stock of
the Company pursuant to "stock appreciation rights."
2. Administration.
2.1 This Plan shall be administrated by the Board of Directors
of the Company (the "Board of Directors") or by one or more committees of the
Board of Directors each consisting of two or more Directors of the Company to
whom administration of this Plan has been duly delegated (the "Committee");
provided, however, that with respect to the participation of Directors of the
Company, this Plan shall be administered by a Committee all of whose members are
"disinterested persons" as that term is defined in Rule 16b-3(c) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Any action of the Board of Directors or the Committee with
respect to administration of this Plan shall be taken by a majority vote or
written consent of its members.
2.2 Subject to the provisions of this Plan, the Board of
Directors or the Committee shall have authority (i) to construe and interpret
this Plan, (ii) to define the terms used therein, (iii) to prescribe, amend and
rescind rules and regulations relating to this Plan, (iv) to determine the
individuals to whom and the time or times at which stock appreciation rights
shall be granted, the number of shares to be subject to stock appreciation
rights, the Initial Value (as hereinafter defined) of a stock appreciation right
(subject to the limitations set forth in Section 6 hereof), the number of
installments, if any, in which each stock appreciation right may be exercised,
the commencement of the period during which each stock appreciation right may be
exercised and the duration of
<PAGE>
each stock appreciation right, (v) to approve and determine the duration of
leaves of absence which may be granted to Participants without constituting a
termination of their employment for the purposes of this Plan, and (vi) to make
all other determinations necessary or advisable for the administration of this
Plan. The Initial Value shall be the value as of the date of grant of the stock
appreciation rights, which value shall be no less than the fair market value of
a share of Common Stock determined as set forth in Paragraph 7. All
determinations and interpretations made by the Board of Directors or the
Committee shall be binding and conclusive on all Participants in this Plan and
their legal representatives and beneficiaries.
3. Shares Subject to this Plan.
Subject to adjustment as provided in Paragraph 14 hereof, the
aggregate number of stock appreciation rights that may be granted under this
Plan shall not exceed 900,000. If any stock appreciation rights granted under
this Plan should expire or terminate for any reason without having been
exercised in full, the unexercised stock appreciation rights shall again be
available to be granted under this Plan.
4. Eligibility and Participation.
4.1 All employees, officers, Directors, consultants of the
Company or any subsidiary corporation (as defined in Section 425(f) of the
Internal Revenue Code of 1986, as amended (the "Code")) or the Company's
affiliates, licensees or joint venture partners shall be eligible to receive
stock appreciation rights.
4.2 All stock appreciation rights granted under this Plan
shall be granted within ten years from March 13, 1992.
5. Duration of Stock Appreciation Rights.
Each stock appreciation right and all rights associated
therewith shall expire on such date as the Board of Directors or the Committee
may determine, but in no event earlier than five years or later than ten years
from the date on which the stock appreciation right is granted, and shall be
subject to earlier termination as provided herein.
<PAGE>
6. Terms and Conditions of Stock Appreciation Rights.
All stock appreciation rights shall be evidenced by a
Certificate of Grant (sometimes referred to herein as the "Certificate") in such
form as the Board of Directors or the Committee shall from time to time approve.
A grant of stock appreciation rights shall be subject to the following terms and
conditions:
6.1 Each stock appreciation right shall entitle a Participant
to an amount equal to the excess of the Exercise Value of one share of Common
Stock over the Initial Value of one share of Common Stock (the "Appreciation").
The Initial Value of each stock appreciation right shall be specified in the
Certificate of Grant. The Exercise Value of each stock appreciation right shall
be the fair market value of a share of Common Stock on the date the stock
appreciation right is exercised, determined as set forth in Paragraph 7. The
total Appreciation available to a Participant from the exercise of any stock
appreciation right shall be equal to the number of stock appreciation rights
exercised, multiplied by the Appreciation per stock appreciation right.
Participants acknowledge that a stock appreciation right is a method of
incentive compensation for key employees, Directors and consultants and does not
constitute an offering or sale of Common Stock to anyone.
6.2 The Appreciation available to a Participant upon exercise
of the Participant's stock appreciation rights shall be payable in cash or
Common Stock as determined by the Board of Directors or the Committee. If
payment is made in Common Stock of the Company, then the fair market value of
the Common Stock for purposes of calculating the number of shares of Common
Stock that shall be issued to pay the Appreciation shall be based upon the fair
market value of the Common Stock as determined in Paragraph 7 on the date of
exercise of the stock appreciation rights. If the total Appreciation is paid in
Common Stock, the total Appreciation will be reduced to the largest amount
divisible by the fair market value of one share of Common Stock. Appreciation
shall be paid as compensation and without interest by the Company as specified
in the Certificate of Grant.
6.3 A maximum of 900,000 stock appreciation rights may be
granted. Such stock appreciation rights shall have an Initial Value of no less
than the fair market value of a share of Common Stock as determined in Paragraph
7 as of the date of grant of the stock appreciation rights.
6.4 No stock appreciation right granted under this Plan shall
be exercisable if such exercise would involve a violation of any applicable law
or regulation (including without limitation, federal and state securities laws
and regulations). Each stock appreciation right shall be exercisable in such
<PAGE>
installments during the period prior to its expiration date as the Board of
Directors or the Committee shall determine; provided, however, that, unless
otherwise determined by the Board of Directors or the Committee, if a
Participant shall not in any given installment period exercise all of the stock
appreciation rights which the Participant is entitled to exercise in such
installment period, then the Participant's right to exercise any stock
appreciation rights not exercised in such installment period shall continue
until the expiration date or sooner termination of the Participant's stock
appreciation rights.
<PAGE>
7. Fair Market Value of Common Stock
The fair market value of a share of Common Stock
of the Company for purposes of this Plan shall be the closing price or last
trade price of a share as supplied by the National Association of Securities
Dealers through NASDAQ (or its successor in function) or, if such shares are
then traded on a principal stock exchange, by reference to the closing price of
a share on the principal stock exchange on which such shares are traded, in each
case as reported by The Wall Street Journal for the business day immediately
preceding the date on which the fair market value is determined (or, if for any
reason no such price is available, in such other manner as the Board of
Directors or the Committee may deem appropriate to reflect the then fair market
value thereof).
8. Exercise of a SAR.
A stock appreciation right may be exercised by the
Participants commencing six months after the date of grant, but in no event
earlier than May 1, 1994, by written notice to the Company specifying the extent
to which such stock appreciation right is to be exercised.
9. Withholding Tax.
<PAGE>
Upon the exercise of a stock appreciation right,
the Company shall have the right to require an employee Participant, and such
employee Participant by accepting the stock appreciation rights granted under
this Plan agrees, to pay the Company the amount of any taxes which the Company
may be required to withhold with respect thereto. In the event the Appreciation
is paid with Common Stock, then such employee Participant or other Participant
may elect to pay the amount of any taxes which the Company may be required to
withhold by delivering to the Company shares of the Company's Common Stock
having a fair market value determined in accordance with Paragraph 7 hereof
equal to the withholding tax obligation determined by the Company. Such shares
so delivered may be either shares withheld by the Company upon the exercise of
the stock appreciation rights or other shares. Such election may not be made by
those persons subject to the provisions of Section 16(b) of the Exchange Act
within six months of the date of grant of a stock appreciation right, except
that this limitation will not apply in the event of death or disability
occurring prior to the expiration of the six month period. The election, by
those persons subject to Section 16(B) of the Exchange Act, must be made either
(i) not later than six months less one day prior to the date as of which the
amount of tax to be withheld is determined (the "Tax Date"), or (ii) in the
ten-day window period provided in Rule 16b-3(e) of the General
Rules and Regulations under the Exchange Act, but in no event later than the Tax
Date.
10. Non-Transferability.
A stock appreciation right granted under this Plan
shall, by its terms, be non-transferable by the holder either voluntarily or by
operation of law, other than by will or the laws of descent and distribution,
and shall be exercisable during the holder's lifetime only by the holder,
regardless of any community property interest therein of the spouse of the
holder, or such spouse's successors in interest. If the spouse of the holder
shall have acquired a community property interest in a stock appreciation right,
the holder, or the holder's permitted successors in interest, may exercise the
stock appreciation rights on behalf of the spouse of the holder or such spouse's
successors in interest.
11. Holding of Stock After Exercise of Right.
<PAGE>
At the discretion of the Board of Directors or the
Committee, any stock appreciation right may provide that the Participant, by
accepting such stock appreciation rights, represents and agrees, for the
Participant and the Participant's permitted transferees that none of the shares
acquired upon exercise of a stock appreciation right will be acquired with a
view to any sale, transfer or distribution of said shares in violation of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, and the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a written and
signed representation) to that effect in form and substance satisfactory to the
Company, including an indemnification of the Company in the event of any
violation of the Securities Act by such person.
12. Registration Rights.
12.1 Piggyback Registration.
If, at any time after the date hereof, the Company
should propose to file a registration statement with the Securities and Exchange
Commission (the "SEC") under the Securities Act (other than in connection with a
merger or pursuant to Form S-8) it will give written notice by registered mail,
at least thirty (30) days prior to the filing of each such registration
statement, to the Participants. If any Participant notifies the Company within
twenty (20) days after receipt of any such notice of its desire to include any
of the shares of Common Stock in such proposed registration statement, the
Company shall afford such Participant the opportunity to have any of the shares
of Common Stock issued pursuant to this Plan registered pursuant to such
registration statement. Notwithstanding the provisions of this Paragraph 12.1,
the Company shall have the right at any time after it shall have given written
notice pursuant to this Paragraph 12.1 (irrespective of whether a written
request for inclusion of all or a portion of the shares of Common Stock shall
have been made) to elect not to file any such proposed registration statement,
or to withdraw the same after the filing but not prior to the effective date
thereof.
If an underwriter objects in writing to the
exercise of the above piggyback rights by the Participants and all other
shareholders of the Company seeking to exercise their respective piggyback
rights, on the basis that such inclusion will adversely affect the underwriter's
ability to market the securities included in the registration statement, such
objection would preclude inclusion of shares of Common Stock by the Participants
and all other shareholders of the Company and at the option of the Participants,
the Company will register all or part of such shares of Common Stock in its next
registration statement or the Participants shall have the right, exercisable by
written notice to the Company, to have the Company prepare and file with
<PAGE>
the SEC, a registration or offering statement on Form S-1 and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Participants, in order to comply
with the provisions of the Securities Act, so as to permit a public offering and
sale of all or a portion of the shares of Common Stock by the Participants. The
Participants may not provide such written notice until ninety (90) days from the
effective date of the registration statement for which the underwriter objected
to the inclusion of all or part of the Participants' shares of Common Stock
issued pursuant to this Plan. The Company will provide the Participants a copy
of the written objection received from the underwriter with respect to the
exercise of the Participants' piggyback rights.
12.2 Demand Registration.
In the event that Participants receive Common
Stock upon exercise of the Participants' stock appreciation rights pursuant to
Paragraph 12.1, such Participants shall have the right, subject to the
conditions se forth herein, to have the Company prepare and file with the SEC,
on one occasion after March 13, 1995, a registration or offering statement on
Form S-1 and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Participants
in order to comply with the provisions of the Securities Act, so as to permit a
public offering and sale of all of the shares of Common Stock by the
Participants.
If the Company shall receive at any time or
times a written request from one or more Participants requesting that the
Company file a registration statement under the Securities Act covering the
registration of an aggregate of a minimum of 75,000 shares of Common Stock owned
by such Participants and issued pursuant to this Plan, then the Company shall,
within 20 days of the receipt thereof, give written notice of such request to
all Participants and shall use its diligent best efforts to effect as soon as
practicable the registration under the Securities Act of all shares of Common
Stock which the Participants request to be registered within 20 days of the
receipt of such notice by the Company.
12.3 Covenants with Respect to Registration
In connection with any registration hereunder, the
Company and the Participants shall covenant and agree as follows:
(a) The Company shall pay all costs
(excluding fees and expenses of Participants' counsel and any underwriting or
selling fees, expenses or commissions), fees and expenses in connection with all
registration statements filed pursuant to Paragraph 12.1 and 12.2 hereof
including, without limitation, all registration fees, filing and NASD fees, the
Company's legal and accounting fees, printing expenses, blue sky
<PAGE>
fees and expenses.
(b) The Company will endeavor in good faith
in cooperation with the Participants to register the shares of Common Stock
included in a registration statement hereunder for offering and sale under the
securities or blue sky laws of such states as reasonably are requested by the
Participants, provided that the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(c) The Company shall use its best efforts
to file a registration statement within thirty (30) days of receipt of any
demand therefor, shall use its best efforts, including the filing with the SEC
of any necessary amendments or supplements to the registration statement to have
any registration statements declared and remain effective at the earliest
possible time and to cooperate in the sale of the shares so registered, and
shall furnish the Participants such number of prospectuses as shall reasonably
be requested. Prior to filing any registration statement described herein, the
Company will furnish to the Participants and their counsel the registration
statements and amendments and supplements thereto, and any prospectus forming a
part thereof, which documents shall be subject to the review and comment of each
Participant and its counsel to the extent such documents relate to the
Participants.
(d) The Company shall indemnify the
Participants against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever and including reasonable fees and expenses of
Participants' counsel) to which any of them may become subject
under the Securities Act, the Exchange Act or otherwise, arising from such
registration statement.
(e) The Participants shall indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever including reasonable fees and expenses of
Company's counsel) to which they may become subject under the Securities Act,
the Exchange Act or otherwise, arising from information furnished in writing by
or on behalf of the Participants, for specific inclusion in such registration
statement.
(f) The Participants shall give the Company
prompt notice of any such liability, claim or lawsuit which the Participants
contends is the subject matter of the Company's indemnification and the Company
thereupon shall be granted the
<PAGE>
right to take any and all necessary and proper action, at its sole cost and
expense, with respect to such liability, claim and lawsuit, including the right,
subject to the consent of the Participants, which consent shall not be
unreasonably withheld, to settle, compromise and dispose of such liability,
claim or lawsuit, excepting therefrom any and all proceedings or hearings before
any regulatory bodies and/or authorities.
The Company shall give to the Participants
prompt notice of any such liability, claim or lawsuit which the Company contends
is the subject matter of the Participants' indemnification and the Participants
thereupon shall be granted the right to a take any and all necessary and proper
action, at their sole cost and expense, with respect to such liability, claim
and lawsuit, including the right, subject to the consent of the Company, which
consent shall not be unreasonably withheld, to settle, compromise or dispose of
such liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) any person
entitled to indemnification under this Paragraph 12.3 makes claim for
indemnification pursuant hereto but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Paragraph 12.3 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
person in circumstances for which indemnification is provided under this
Paragraph 12.3, then, and in each such case, the Company and the Participants
shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after any contribution from others) in
such proportion taking into consideration the relative benefits received by each
party from the offering covered by the registration statement (taking into
account the portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning the matter with
respect to which the claim was assessed, the opportunity to correct and prevent
any statement or omission and other equitable considerations appropriate under
the circumstances; provided, however, that notwithstanding the above, in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within fifteen (15) days after receipt of
written notice of the commencement of any action, suit or proceeding, such party
will, if a claim for contribution in respect thereof is to be made against
another party (the "contributing party"), notify the contributing party of the
<PAGE>
commencement thereof, but the omission so to notify the contributing party will
not relieve it from any liability which it may have to any other party other
than for contribution hereunder. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party or his
or its representative of the commencement thereof within the aforesaid fifteen
(15) days, the contributing party will be entitled to participate therein with
the notifying party and any other contributing party similarly notified. Any
such contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The indemnification provisions contained in this Paragraph 12.3 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
The indemnification payments required by
this Paragraph 12.3 shall be made by periodic payments on the amount thereof
during the course of the investigation or defense, as and when the invoices
therefor are received, or expense, loss, damage or liability incurred.
(g) The Company shall furnish to the
Participants a signed counterpart, addressed to the Participants of (i) an
opinion of counsel to the Company, dated the effective date of a registration
statement filed pursuant to this Section 12 and (ii) a "cold comfort" letter
dated the effective date of such registration statement signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities. The Company shall also furnish to
the Participants copies of all written comments received from the SEC with
respect to such registration statement and all written responses of the Company
thereto.
<PAGE>
13. Termination of Employment.
13.1 If a holder of a stock appreciation right ceases to be
employed by the Company or one of its subsidiary corporations or affiliates (as
defined in Section 425(f) of the Code) or ceases to be a director or consultant
for any reason other than the holder's death or permanent disability (within the
meaning of Section 105(d)(4) of the Code), any of the holder's stock
appreciation rights that have not vested shall immediately become void and of no
further force or effect; provided, however, that if such cessation of employment
shall be due to the holder's voluntary resignation with the consent of the Board
of Directors of the Company or the Committee, expressed in the form of a written
resolution, or shall be due to the holder's retirement under the provisions of
any pension or retirement plan of the Company or such subsidiary, such stock
appreciation rights may be exercised to the extent exercisable on the date of
such cessation of employment.
13.2 A leave of absence approved in writing by the Board of
Directors or the Committee shall not be deemed a termination of employment for
the purposes of this Paragraph 13, but no stock appreciation rights may be
exercised during any such leave of absence, except during the first three months
thereof. Termination of employment or other relationship with the Company or one
of its subsidiary corporations or affiliates that qualifies the employee as a
Participant, by the holder of a stock appreciation right, will have the effect
specified in the Certificate of Grant as determined by the Board of Directors or
the Committee.
13.3. If a Participant shall die while he is an employee,
consultant or Director within three (3) months after the termination without
Cause of his employment or consulting arrangement or term as Director, any
outstanding stock appreciation right may be exercised to the extent exercisable
on the date of death, by the person(s) entitled to do so under the Participant's
will or, if the Participant shall have failed to make testamentary disposition
of such Participant's stock appreciation right or shall have died intestate, by
the Participant's legal representative(s), in either case at any time prior to
the expiration date of the Participant's stock appreciation right or within one
(1) year of the date of the Participant's death, whichever shall be the shorter
period, provided that Participants shall have been an employee or consultant for
a continuous period of at least six (6) months from the date of grant of the
Participant's stock appreciation rights.
<PAGE>
14. Vesting.
The holder's stock appreciation rights shall be
deemed to have vested as follows: one-fifth (20%) of the stock appreciation
rights granted to a Participant shall vest at the end of each twelve month
period following the grant of the stock appreciation rights.
15. Permanent Disability of Stock
Appreciation Right Holder.
The permanent disability of a holder of a stock
appreciation right will have the effect specified in the individual Certificate
of Grant as determined by the Board of Directors or the Committee.
16. Privileges of Stock Ownership.
No person entitled to exercise any stock
appreciation right granted under this Plan shall have any of the rights or
privileges of a stockholder of the Company in respect of any shares of Common
Stock issuable upon exercise of such stock appreciation right until certificates
representing such shares shall have been issued and delivered. No shares shall
be issued and delivered upon exercise of any stock appreciation right unless and
until, in the opinion of counsel for the Company, there shall have been full
compliance with any applicable registration requirements of the Securities Act,
any applicable listing requirements of any national securities exchange or
automated quotation system on which the Common Stock is then listed or quoted,
and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery.
17. Adjustments.
17.1 If the outstanding shares of the Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of stock appreciation rights which
may be granted under this Plan. A corresponding adjustment changing the number
or kind of stock appreciation rights allocated to unexercised options or
portions thereof, which shall have been granted prior to any such change, shall
likewise be made. Any such adjustment in the outstanding stock appreciation
rights shall be made without change in the aggregate Initial Value applicable to
the unexercised portion of the stock appreciation rights but with a
corresponding adjustment in the Initial Value for each share of Common Stock
covered by the stock appreciation right.
<PAGE>
17.2 Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property or more than eighty percent
of the then outstanding stock of the Company to another corporation, this Plan
shall terminate, and any stock appreciation rights theretofore granted hereunder
shall terminate.
17.3 Notwithstanding the foregoing, the Board of Directors or
the Committee may provide in writing in connection with such transaction for any
or all of the following alternatives (separately or in combinations): (i) for
the stock appreciation rights theretofore granted to become immediately
exercisable; (ii) for the assumption by the successor corporation of the stock
appreciation rights theretofore granted or the substitution by such corporation
for such stock appreciation rights of new stock appreciation rights covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or (iii)
for the continuance of this Plan by such successor corporation in which event
the Plan and the stock appreciation rights theretofore granted shall continue in
the manner and under the terms so provided.
17.4 Adjustments under this Paragraph 17 shall be made by the
Board of Directors or the Committee, whose determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding and conclusive.
18. Amendment and Termination of Plan.
18.1. The Board of Directors or the Committee may at any time
suspend or terminate this Plan. The Board of Directors or the Committee may also
at any time amend or revise the terms of this Plan, provided that no such
amendment or revision shall, unless appropriate stockholder approval of such
amendment or revision is obtained, (i) increase the maximum number of stock
appreciation rights, granted under this Plan, except as permitted under the
provisions of Paragraph 17 hereof, (ii) change the Initial Value set forth in
Paragraph 6 hereof, (iii) increase the maximum term of stock appreciation rights
provided for in Paragraph 5 hereof, or (iv) change the designation of persons
eligible to receive stock appreciation rights as provided in Paragraph 4 hereof.
18.2 No amendment, suspension or termination of this Plan
shall, without the consent of the holder, alter or impair any rights or
obligations under any stock appreciation right theretofore granted under this
Plan.
<PAGE>
19. Effective Date of Plan
This plan shall be deemed effective on March 13,
1992.
1996 STOCK APPRECIATION RIGHTS PLAN
OF
ACTV, INC.
1. Purpose.
The purpose of this 1996 Stock Appreciation Rights Plan (the
"Plan") of ACTV, Inc., a Delaware corporation (the "Company"), is to secure for
the Company and its stockholders the benefits arising from participation in
stock appreciation by selected (a) employees of the Company or its subsidiaries,
affiliates, licensees or joint venture partners, (b) Directors or officers or
(c) consultants (a, b and c are collectively referred to herein as the
"Participants") as the Board of Directors of the Company, or a committee thereof
constituted for the purpose, may from time to time determine. This Plan will
provide a means whereby such employees, Directors and consultants may acquire
the right to participate in the appreciation of the Common Stock of the Company
pursuant to "stock appreciation rights."
2. Administration.
2.1 This Plan shall be administrated by the Board of Directors
of the Company (the "Board of Directors") if each member is a "disinterested
person" as that term is defined in Rule 16b-3(c) of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or a committee (the "Committee") of two or more directors,
each of whom is a disinterested person. Any action of the Board of Directors or
the Committee with respect to administration of this Plan shall be taken by a
majority vote or written consent of its members.
2.2 Subject to the provisions of this Plan, the Board of
Directors or the Committee shall have authority (i) to construe and interpret
this Plan, (ii) to define the terms used therein, (iii) to prescribe, amend and
rescind rules and regulations relating to this Plan, (iv) to determine the
individuals to whom and the time or times at which stock appreciation rights
shall be granted, the number of shares to be subject to stock appreciation
rights, the Initial Value (as hereinafter defined) of a stock appreciation right
(subject to the limitations set forth in Section 6 hereof), the number of
installments, if any, in which each stock appreciation right may be exercised,
the commencement of the period during which each stock appreciation right may be
exercised and the duration of each stock appreciation right, (v) to approve and
determine the
<PAGE>
duration of leaves of absence which may be granted to Participants without
constituting a termination of their employment for the purposes of this Plan,
and (vi) to make all other determinations necessary or advisable for the
administration of this Plan. The Initial Value shall be the value as of the date
of grant of the stock appreciation rights, which value shall be no less than the
fair market value of a share of Common Stock determined as set forth in
Paragraph 7. All determinations and interpretations made by the Board of
Directors or the Committee shall be binding and conclusive on all Participants
in this Plan and their legal representatives and beneficiaries.
3. Shares Subject to this Plan.
Subject to adjustment as provided in Paragraph 17 hereof, the
aggregate number of stock appreciation rights that may be granted under this
Plan shall not exceed 500,000; provided, however, that at no time shall there be
more than an aggregate of 900,000 outstanding, unexercised SARs granted pursuant
to both this Plan and the Company's 1992 Stock Appreciation Rights Plan. If any
stock appreciation rights granted under this Plan should expire or terminate for
any reason without having been exercised in full, the unexercised stock
appreciation rights shall again be available to be granted under this Plan.
4. Eligibility and Participation.
4.1 All employees, officers, Directors, consultants of the
Company or any subsidiary corporation (as defined in Section 425(f) of the
Internal Revenue Code of 1986, as amended (the "Code")) or the Company's
affiliates, licensees or joint venture partners shall be eligible to receive
stock appreciation rights.
4.2 All stock appreciation rights granted under this Plan
shall be granted within ten years from April 19, 1996.
5. Duration of Stock Appreciation Rights.
Each stock appreciation right and all rights associated
therewith shall expire on such date as the Board of Directors or the Committee
may determine, but in no event earlier than five years or later than ten years
from the date on which the stock appreciation right is granted, and shall be
subject to earlier termination as provided herein.
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<PAGE>
6. Terms and Conditions of Stock Appreciation Rights.
All stock appreciation rights shall be evidenced by a
Certificate of Grant (sometimes referred to herein as the "Certificate") in such
form as the Board of Directors or the Committee shall from time to time approve.
A grant of stock appreciation rights shall be subject to the following terms and
conditions:
6.1 Each stock appreciation right shall entitle a Participant
to an amount equal to the excess of the Exercise Value (as defined below) of one
share of Common Stock over the Initial Value of one share of Common Stock (the
"Appreciation"). The Initial Value of each stock appreciation right shall be
specified in the Certificate of Grant. The Exercise Value of each stock
appreciation right shall be the fair market value of a share of Common Stock on
the date the stock appreciation right is exercised, determined as set forth in
Paragraph 7. The total Appreciation available to a Participant from the exercise
of any stock appreciation right shall be equal to the number of stock
appreciation rights exercised, multiplied by the Appreciation per stock
appreciation right. Participants acknowledge that a stock appreciation right is
a method of incentive compensation for key employees, Directors and consultants
and does not constitute an offering or sale of Common Stock to anyone.
6.2 The Appreciation available to a Participant upon exercise
of the Participant's stock appreciation rights shall be payable in cash or
Common Stock as determined by the Board of Directors or the Committee. If
payment is made in Common Stock of the Company, then the fair market value of
the Common Stock for purposes of calculating the number of shares of Common
Stock that shall be issued to pay the Appreciation shall be based upon the fair
market value of the Common Stock as determined in Paragraph 7 on the date of
exercise of the stock appreciation rights. If the total Appreciation is paid in
Common Stock, the total Appreciation will be reduced to the largest amount
divisible by the fair market value of one share of Common Stock. Appreciation
shall be paid as compensation and without interest by the Company as specified
in the Certificate of Grant.
6.3 A maximum of 500,000 stock appreciation rights may be
granted, subject to the restrictions contained in Paragraph 3. Such stock
appreciation rights shall have an Initial Value of no less than the fair market
value of a share of Common Stock as determined in Paragraph 7 as of the date of
grant of the stock appreciation rights.
6.4 No stock appreciation right granted under this
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<PAGE>
Plan shall be exercisable if such exercise would involve a violation of any
applicable law or regulation (including without limitation, federal and state
securities laws and regulations).
Each stock appreciation right shall be exercisable in such installments during
the period prior to its expiration date as the Board of Directors or the
Committee shall determine; provided, however, that, unless otherwise determined
by the Board of Directors or the Committee, if a Participant shall not in any
given installment period exercise all of the stock appreciation rights which the
Participant is entitled to exercise in such installment period, then the
Participant's right to exercise any stock appreciation rights not exercised in
such installment period shall continue until the expiration date or sooner
termination of the Participant's stock appreciation rights.
7. Fair Market Value of Common Stock
The fair market value of a share of Common Stock
of the Company for purposes of this Plan shall be the closing price or last
trade price of a share as supplied by the National Association of Securities
Dealers, Inc. through the Nasdaq Stock Market (or its successor in function) or,
if such shares are then traded on a principal stock exchange, by reference to
the closing price of a share on the principal stock exchange on which such
shares are traded, in each case as reported by The Wall Street Journal for the
business day immediately preceding the date on which the fair market value is
determined (or, if for any reason no such price is available, in such other
manner as the Board of Directors or the Committee may deem appropriate to
reflect the then fair market value thereof).
8. Exercise of a SAR.
A stock appreciation right may be exercised by the
Participants commencing six months after the date of grant, but in no event
earlier than January 1, 1997, by written notice to
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<PAGE>
the Company specifying the extent to which such stock appreciation right is to
be exercised.
9. Withholding Tax.
-5-
<PAGE>
Upon the exercise of a stock appreciation right,
the Company shall have the right to require an employee Participant, and such
employee Participant by accepting the stock appreciation rights granted under
this Plan agrees, to pay the Company the amount of any taxes which the Company
may be required to withhold with respect thereto. In the event the Appreciation
is paid with Common Stock, then such employee Participant or other Participant
may elect to pay the amount of any taxes which the Company may be required to
withhold by delivering to the Company shares of the Company's Common Stock
having a fair market value determined in accordance with Paragraph 7 hereof
equal to the withholding tax obligation determined by the Company. Such shares
so delivered may be either shares withheld by the Company upon the exercise of
the stock appreciation rights or other shares. Such election may not be made by
those persons subject to the provisions of Section 16(b) of the Exchange Act
within six months of the date of grant of a stock appreciation right, except
that this limitation will not apply in the event of death or disability
occurring prior to the expiration of the six month period. The election, by
those persons subject to Section 16(B) of the Exchange Act, must be made either
(i) not later than six months less one day prior to the date as of which the
amount of tax to be withheld is determined (the "Tax Date"), or (ii) in the
ten-day window period provided in Rule 16b-3(e) of the General Rules and
Regulations under the Exchange Act, but in no event later than the Tax Date.
10. Non-Transferability.
A stock appreciation right granted under this Plan
shall, by its terms, be non-transferable by the holder either voluntarily or by
operation of law, other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in the Code, and
shall be exercisable during the holder's lifetime only by the holder, regardless
of any community property interest therein of the spouse of the holder, or such
spouse's successors in interest. If the spouse of the holder shall have acquired
a community property interest in a stock appreciation right, the holder, or the
holder's permitted successors in interest, may exercise the stock appreciation
rights on behalf of the spouse of the holder or such spouse's successors in
interest.
11. Holding of Stock After Exercise of Right.
-6-
<PAGE>
At the discretion of the Board of Directors or the
Committee, any stock appreciation right may provide that the Participant, by
accepting such stock appreciation rights, represents and agrees, for the
Participant and the Participant's permitted transferees that none of the shares
acquired upon exercise of a stock appreciation right will be acquired with a
view to any sale, transfer or distribution of said shares in violation of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, and the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a written and
signed representation) to that effect in form and substance satisfactory to the
Company, including an indemnification of the Company in the event of any
violation of the Securities Act by such person.
12. Registration Rights.
12.1 Piggyback Registration.
If, at any time after the date hereof, the Company
should propose to file a registration statement with the Securities and Exchange
Commission (the "SEC") under the Securities Act (other than in connection with a
merger or pursuant to Form S-8) it will give written notice by registered mail,
at least thirty (30) days prior to the filing of each such registration
statement, to the Participants. If any Participant notifies the Company within
twenty (20) days after receipt of any such notice of its desire to include any
of the shares of Common Stock in such proposed registration statement, the
Company shall afford such Participant the opportunity to have any of the shares
of Common Stock issued pursuant to this Plan registered pursuant to such
registration statement. Notwithstanding the provisions of this Paragraph 12.1,
the Company shall have the right at any time after it shall have given written
notice pursuant to this Paragraph 12.1 (irrespective of whether a written
request for inclusion of all or a portion of the shares of Common Stock shall
have been made) to elect not to file any such proposed registration statement,
or to withdraw the same after the filing but not prior to the effective date
thereof.
If an underwriter objects in writing to the
exercise of the above piggyback rights by the Participants and all other
shareholders of the Company seeking to exercise their respective piggyback
rights, on the basis that such inclusion will adversely affect the underwriter's
ability to market the securities included in the registration statement, such
objection would preclude inclusion of shares of Common Stock by the Participants
and all other shareholders of the Company and at the
-7-
<PAGE>
option of the Participants, the Company will register all or part of such shares
of Common Stock in its next registration statement or the Participants shall
have the right, exercisable by written notice to the Company, to have the
Company prepare and file with the SEC, a registration or offering statement on
Form S-1 and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Participants,
in order to comply with the provisions of the Securities Act, so as to permit a
public offering and sale of all or a portion of the shares of Common Stock by
the Participants. The Participants may not provide such written notice until
ninety (90) days from the effective date of the registration statement for which
the underwriter objected to the inclusion of all or part of the Participants'
shares of Common Stock issued pursuant to this Plan. The Company will provide
the Participants a copy of the written objection received from the underwriter
with respect to the exercise of the Participants' piggyback rights.
12.2 Covenants with Respect to Registration
In connection with any registration hereunder, the
Company and the Participants shall covenant and agree as follows:
(a) The Company shall pay all costs, fees
and expenses (excluding fees and expenses of Participants' counsel and any
underwriting or selling fees, expenses or commissions), fees and expenses
(excluding fees and expenses of Participants' counsel and any underwriting or
selling fees, expenses or commissions) in connection with all registration
statements filed pursuant to Paragraph 12.1 hereof including, without
limitation, all registration fees, filing and NASD fees, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses.
(b) The Company will endeavor in good faith
in cooperation with the Participants to register the shares of Common Stock
included in a registration statement hereunder for offering and sale under the
securities or blue sky laws of such states as reasonably are requested by the
Participants, provided that the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(c) The Company shall use its best efforts
to file a registration statement within thirty (30) days of receipt of any
demand therefor, shall use its best efforts, including the filing with the SEC
of any necessary amendments or supplements to the registration statement to have
any registration statements declared and remain effective at the
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earliest possible time and to cooperate in the sale of the shares so registered,
and shall furnish the Participants such number of prospectuses as shall
reasonably be requested. Prior to filing any registration statement described
herein, the Company will furnish to the Participants and their counsel the
registration statements and amendments and supplements thereto, and any
prospectus forming a part thereof, which documents shall be subject to the
review and comment of each Participant and its counsel to the extent such
documents relate to the Participants.
(d) The Company shall indemnify the
Participants against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever and including reasonable fees and expenses of
Participants' counsel) to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, arising from such registration
statement.
(e) The Participants shall indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever including reasonable fees and expenses of
Company's counsel) to which they may become subject under the Securities Act,
the Exchange Act or otherwise, arising from information furnished in writing by
or on behalf of the Participants, for specific inclusion in such registration
statement.
(f) The Participants shall give the Company
prompt notice of any such liability, claim or lawsuit which the Participants
contends is the subject matter of the Company's indemnification and the Company
thereupon shall be granted the right to take any and all necessary and proper
action, at its sole cost and expense, with respect to such liability, claim and
lawsuit, including the right, subject to the consent of the Participants, which
consent shall not be unreasonably withheld, to settle, compromise and dispose of
such liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
The Company shall give to the Participants
prompt notice of any such liability, claim or lawsuit which the Company contends
is the subject matter of the Participants' indemnification and the Participants
thereupon shall be granted the right to a take any and all necessary and proper
action, at their sole cost and expense, with respect to such liability,
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<PAGE>
claim and lawsuit, including the right, subject to the consent of the Company,
which consent shall not be unreasonably withheld, to settle, compromise or
dispose of such liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities.
In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) any person
entitled to indemnification under this Paragraph 12.2 makes claim for
indemnification pursuant hereto but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Paragraph 12.2 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
person in circumstances for which indemnification is provided under this
Paragraph 12.2, then, and in each such case, the Company and the Participants
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after any contribution from others) in such
proportion taking into consideration the relative benefits received by each
party from the offering covered by the registration statement (taking into
account the portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning the matter with
respect to which the claim was assessed, the opportunity to correct and prevent
any statement or omission and other equitable considerations appropriate under
the circumstances; provided, however, that notwithstanding the above, in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within fifteen (15) days after receipt of
written notice of the commencement of any action, suit or proceeding, such party
will, if a claim for contribution in respect thereof is to be made against
another party (the "contributing party"), notify the contributing party of the
commencement thereof, but the omission so to notify the contributing party will
not relieve it from any liability which it may have to any other party other
than for contribution hereunder. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party or his
or its representative of the commencement thereof within the aforesaid fifteen
(15) days, the contributing party will be entitled to participate therein with
the notifying party and any other contributing party similarly notified. Any
such contributing party shall not be liable to any party seeking
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<PAGE>
contribution on account of any settlement of any claim, action or proceeding
effected by such party seeking contribution without the written consent of such
contributing party. The indemnification provisions contained in this Paragraph
12.2 are in addition to any other rights or remedies which either party hereto
may have with respect to the other or hereunder.
The indemnification payments required by
this Paragraph 12.2 shall be made by periodic payments on the amount thereof
during the course of the investigation or defense, as and when the invoices
therefor are received, or expense, loss, damage or liability incurred.
(g) The Company shall furnish to the
Participants a signed counterpart, addressed to the Participants of (i) an
opinion of counsel to the Company, dated the effective date of a registration
statement filed pursuant to this Section 12 and (ii) a "cold comfort" letter
dated the effective date of such registration statement signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities. The Company shall also furnish to
the Participants copies of all written comments received from the SEC with
respect to such registration statement and all written responses of the Company
thereto.
13. Termination of Employment.
13.1 If a holder of a stock appreciation right ceases to be
employed by, affiliated with or a joint venturer with the Company or one of its
subsidiary corporations or affiliates (as defined in Section 425(f) of the Code)
or ceases to be a director or consultant for any reason, then any of the
holder's stock appreciation rights that have not then vested shall immediately
become void and of no further force or effect and any of the holder's stock
appreciation rights that have vested prior to the cessation of employment,
affiliation with the Company or joint venture relationship with the Company must
be exercised within 365 days of such cessation of the employment, affiliation
with the Company or joint venture with the Company. If, at the end of such 365
day period, such vested SARs have not been exercised by the Participant, then
such vested stock appreciation rights shall become void and of no further force
and effect; provided, however, that if (i) such cessation of employment,
affiliation with the Company or joint venture with the Company shall be due
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to the holder's retirement under the provisions of any pension or retirement
plan of the Company or such subsidiary or (ii) if the Board of Directors of the
Company or the Committee consents (which shall be set forth in a written
resolution), such stock appreciation rights may be exercised to the extent and
for the term exercisable on the date of such cessation of employment,
affiliation or joint venture with the Company as set forth in the Plan and the
Certificate of Grant.
13.2 A leave of absence approved in writing by the Board of
Directors or the Committee shall not be deemed a termination of employment for
the purposes of this Paragraph 13, but no stock appreciation rights may be
exercised during any such leave of absence, except during the first three months
thereof.
13.3. If a Participant shall die while he is an employee,
consultant or Director or within three (3) months after the termination without
Cause of his employment or consulting arrangement or term as Director, any
outstanding stock appreciation right may be exercised to the extent exercisable
on the date of death, by the person(s) entitled to do so under the Participant's
will or, if the Participant shall have failed to make testamentary disposition
of such Participant's stock appreciation right or shall have died intestate, by
the Participant's legal representative(s), in either case at any time prior to
the expiration date of the Participant's stock appreciation right or within one
(1) year of the date of the Participant's death, whichever shall be the shorter
period, provided that Participants shall have been an employee or consultant for
a continuous period of at least six (6) months from the date of grant of the
Participant's stock appreciation rights.
14. Vesting.
The holder's stock appreciation rights shall be
deemed to have vested in a lump sum or in such installments, which need not be
equal, as the Committee shall determine.
15. Permanent Disability of Stock
Appreciation Right Holder.
The permanent disability of a holder of a stock
appreciation right will have the effect specified in the individual Certificate
of Grant as determined by the Board of Directors or the Committee.
16. Privileges of Stock Ownership.
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No person entitled to exercise any stock appreciation
right granted under this Plan shall have any of the rights or privileges of a
stockholder of the Company in respect of any shares of Common Stock issuable
upon exercise of such stock appreciation right until certificates representing
such shares shall have been issued and delivered. No shares shall be issued and
delivered upon exercise of any stock appreciation right unless and until, in the
opinion of counsel for the Company, there shall have been full compliance with
any applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange or automated quotation
system on which the Common Stock is then listed or quoted, and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery.
17. Adjustments.
17.1 If the outstanding shares of the Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of stock appreciation rights which
may be granted under this Plan. A corresponding adjustment changing the number
or kind of stock appreciation rights allocated to unexercised options or
portions thereof, which shall have been granted prior to any such change, shall
likewise be made. Any such adjustment in the outstanding stock appreciation
rights shall be made without change in the aggregate Initial Value applicable to
the unexercised portion of the stock appreciation rights but with a
corresponding adjustment in the Initial Value for each share of Common Stock
covered by the stock appreciation right.
17.2 Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property or more than eighty percent
of the then outstanding stock of the Company to another corporation, this Plan
shall terminate, and any stock appreciation rights theretofore granted hereunder
shall terminate.
17.3 Notwithstanding the foregoing, the Board of Directors or
the Committee may provide in writing in connection with such transaction for any
or all of the following alternatives (separately or in combinations): (i) for
the stock
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<PAGE>
appreciation rights theretofore granted to become immediately exercisable; (ii)
for the assumption by the successor corporation of the stock appreciation rights
theretofore granted or the substitution by such corporation for such stock
appreciation rights of new stock appreciation rights covering the stock of the
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; or (iii) for the
continuance of this Plan by such successor corporation in which event the Plan
and the stock appreciation rights theretofore granted shall continue in the
manner and under the terms so provided.
17.4 Adjustments under this Paragraph 17 shall be made by the
Board of Directors or the Committee, whose determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding and conclusive.
18. Amendment and Termination of Plan.
18.1. The Board of Directors or the Committee may at
any time suspend or terminate this Plan. The Board of Directors or the Committee
may also at any time amend or revise the terms of this Plan, provided that no
such amendment or revision shall, unless appropriate stockholder approval of
such amendment or revision is obtained, (A) materially increase the benefits
accruing, to participants under the Plan; (B) materially increase the number of
securities which may be issued under the Plan; or (C) materially modify the
requirements as to eligibility for participation in the Plan.
18.2 No amendment, suspension or termination of this Plan
shall, without the consent of the holder, alter or impair any rights or
obligations under any stock appreciation right theretofore granted under this
Plan.
19. Effective Date of Plan
This plan shall be deemed effective on April 19,
1996. The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any subsidiary or any parent
corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any subsidiary or any parent corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger,
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<PAGE>
consolidation or otherwise, of the business, stock or assets of
any corporation, partnership, firm or association.
15
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995,
and amended January 1, 1997, by and between ACTV, INC., a Delaware corporation,
having an office at 1270 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as "Employer") and WILLIAM C. SAMUELS, an individual
residing at 171 West 57th Street, #11C, New York, NY 10019 (hereinafter referred
to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ,
Employee as Chairman of the Board of Directors, President and Chief Executive
Officer of Employer; and
WHEREAS, Employee is willing to continue to be employed as the
Chairman of the Board of Directors, President and Chief Executive Officer of
Employer in the manner provided for herein, and to perform the duties of the
Chairman of the Board of Directors, President and Chief Executive Officer of
Employer upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. Employment of Chairman of the Board of Directors,
President and Chief Executive Officer.
Employer hereby employs Employee as Chairman of the Board of Directors,
President and Chief Executive Officer of Employer.
2. Term.
a. Subject to Section 10 below and further
subject to Section 2(b) below, the term of this Agreement shall commence on
August 1, 1995 and end on December 31, 2000. Each 12 month period from January 1
through December 31 during the term hereof shall be referred to as an "Annual
Period." During the term hereof, Employee shall devote substantially all of his
business time and efforts to Employer and its subsidiaries and affiliates.
b. Subject to Section 10 below, unless the
Board of Directors of the Company (the "Board") of Employer shall determine to
the contrary and shall so notify Employee in writing on or before the end of any
Annual Period, then at the end of each Annual Period, the term of this Agreement
shall be automatically extended for one (1) additional Annual Period to be added
at the end of the then current term of this Agreement.
<PAGE>
3. Duties. The Employee shall perform those functions
generally performed by persons of such title and position, shall attend all
meetings of the stockholders and the Board, shall perform any and all related
duties and shall have any and all powers as may be prescribed by resolution of
the Board, and shall be available to confer and consult with and advise the
officers and directors of Employer at such times that may be required by
Employer. Employee shall report directly and solely to the Board.
4. Compensation.
a. (i) Employee shall be paid a minimum of
$250,000 for each Annual Period, commencing January 1, 1997; provided, however,
that Employee's salary shall be increased annually at the beginning of each
Annual Period commencing January 1, 1998 by an amount equal to the amount of his
annual salary for the immediately preceding Annual Period times the percentage
increase in the CPIW (New York) then in effect as compared to the previous
period for which the CPIW (New York) is available. Employee shall be paid
periodically in accordance with the policies of the Employer during the term of
this Agreement, but not less than monthly.
(ii) Employee is eligible for semi-annual
bonuses, if any, which will be determined and paid in accordance with policies
set from time to time by the Board.
b. (i) In the event of a "Change of Control"
whereby
(A) A person (other than a person who is
an officer or a Director of Employer on the effective date hereof), including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes, or obtains the right to become, the beneficial owner of Employer
securities having 30% or more of the combined voting power of then outstanding
securities of the Employer that may be cast for the election of directors of the
Employer;
(B) At any time, a majority of the
Board-nominated slate of candidates for the Board is not elected;
(C) Employer consummates a merger in
which it is not the surviving entity;
(D) Substantially all Employer's assets
are sold; or
(E) Employer's stockholders approve the
dissolution or liquidation of Employer; then
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(ii) (A) All stock options,
warrants and stock appreciation rights ("Rights") granted by Employer to
Employee under any plan or otherwise prior to the effective date of the Change
of Control, shall become vested, accelerate and become immediately exercisable;
at an exercise price of 10(cent) per share if applicable, adjusted for any stock
splits and capital reorganizations having a similar effect, subsequent to the
effective date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
(B) Any outstanding principle
and interest on loans to Employee pursuant to Section 4.g.(ii), below, shall be
recalculated and reconstituted as if the exercise price of the Rights financed
thereby were, ab initio, 10(cent) per share.
(C) If upon said Change of
Control, Employee is not retained as Chief Executive Officer or substantially
similar position of Employer or the surviving entity, as applicable, under terms
and conditions substantially similar to those herein, then in addition, Employee
shall be eligible to receive a one-time bonus, equal on an after-tax basis to
two times his then current annual base salary. To effectuate this provision, the
bonus shall be "grossed-up" to include the amount necessary to reimburse
Employee for his federal, state and local income tax liability on the bonus and
on the "gross-up" at the respective effective marginal tax rates. In no event
shall this bonus exceed 2.7 times Employee's then current base salary. Said
bonus shall be paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its
health insurance program available to Employer's executive officers.
d. Employer shall maintain a life, accidental
death and dismemberment insurance policy on Employee for the benefit of a
beneficiary named by Employee in an amount not less than $750,000. Ownership of
the policy shall be assigned to Employee upon termination of Employee's
employment under this Agreement.
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<PAGE>
e.(i) A bonus plan shall be instituted for Employee
which shall take account of the efforts of Employee in generating value to
Employer's shareholders. Under said plan, Employee shall be entitled to an
annual bonus payable for each 12 month period commencing April 1, 1995 in cash
and/or unregistered securities of Employer, at the option of the Compensation
Committee of the Board, equal to 2% of the increase for said 12 month period in
the total market capitalization of Employer calculated upon the excess of the
total of the average daily closing bid (if applicable) price of each class of
Employer's shares for the last 90 days of the 12 month period, multiplied by the
number of shares of each class outstanding as reported by Employer's Certified
Public Accountants, (the "90 Day Average") over the Base, which shall be the
greater of $50,000,000 or the highest previous 90 Day Average against which a
bonus was paid under this bonus plan, if any. Should the Compensation Committee
elect hereunder to pay Employee in unregistered securities, said securities
shall be valued at 60% of the most recent 90 Day Average. Should Employer's
shares no longer be publicly traded, the current 90 Day Average shall be
determined by a 3 person panel, 1 person appointed each by Employer and Employee
and 1 appointed by the former 2. Employee shall be entitled to receive
compensation under this plan for five fiscal years following expiration or
termination of this employment contract, except that if Employee is terminated
for cause as defined in Section 10.a.(i) hereof or resigns other than for
reasons of disability, then said compensation shall continue for three fiscal
years.
(ii) Employee shall also be entitled to participate
pari passu in any other program established by Employer pursuant to which any
executive officers receive a share of the profits of Employer.
f. Employee shall have the right to participate in
any other employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer
expressly forbids it, all Rights which may become exercisable during the term
hereof shall be paid for in cash only if Employee so elects, otherwise they may
be paid for
(i) by the transfer by Employee to Employer of
so much of Employee's Rights which, when valued at the highest trading price of
the underlying securities of Employer during the previous six months, will
offset the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with
interest at the lowest rate, if any, required to be charged by any governmental
authority, to accrue and become due and payable with
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the principle, in an amount no greater than the exercise price, given by
Employee to Employer and secured solely by the shares of stock being paid for
thereby, which Note shall become due and payable at the earlier of the
expiration hereof or, on a pro rata basis, the sale by Employee of all or part
of the Rights or underlying stock which constitute security for the Note; or
(iii) by any combination of cash and (ii) or (iii),
above.
5. Board of Directors. Employer agrees that so long as this
Agreement is in effect, Employee will be nominated to the Board as part of
management's slate of Directors.
6. Expenses. Employee shall be reimbursed for all of his
actual out-of-pocket expenses incurred in the performance of his duties
hereunder, provided such expenses are acceptable to Employer, which approval
shall not be unreasonably withheld, for business related travel and
entertainment expenses, and that Employee shall submit to Employer reasonably
detailed receipts with respect thereto.
7. Vacation. Employee shall be entitled to receive four (4)
weeks paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
8. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
9. Covenant Not to Compete. Subject to, and limited by,
Section 11(b), Employee will not, at any time, anywhere in the world, during the
term of this Agreement, and for one (1) year thereafter, either directly or
indirectly, engage in, with or for any enterprise, institution, whether or not
for profit, business, or company, competitive with the business(as identified
herein) of Employer as such business may be conducted on the date thereof, as a
creditor, guarantor, or financial backer, stockholder, director, officer,
consultant,advisor, employee, member, inventor, producer, director, or otherwise
of or through any corporation, partnership, association, sole proprietorship or
other entity; provided,that an investment by Employee, his spouse or his
children is permitted if such investment is not more than four percent (4%) of
the total debt or equity capital of any such competitive enterprise or business
and
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<PAGE>
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the NASDAQ Stock Market. As used in this Agreement, the business of Employer
shall be deemed to include the development and implementation of individualized
television technology or programs.
10. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement
upon written notice for Cause. For purposes hereof, "Cause" shall mean (A)
engaging by the Employee in conduct that constitutes activity in competition
with Employer; (B) the conviction of Employee for the commission of a felony;
and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 10(a)(i), Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date Employee receives the notice from the Board) to
correct the acts or omissions so complained of. In no event shall alleged
incompetence of Employee in the performance of Employee's duties be deemed
grounds for termination for Cause.
(ii) Employer may terminate Employee's
employment under this Agreement if, as a result of any physical or mental
disability, Employee shall fail or be unable to perform his duties under this
Agreement for any consecutive period of 90 days during any twelve-month period.
If Employee's employment is terminated under this Section 10(a)(ii): (A) for the
first six months after termination, Employee shall be paid 100% of his full
compensation under Section 4(a) of this Agreement at the rate in effect on the
date of termination, and in each successive 12 month period thereafter Employee
shall be paid an amount equal to 67% of his compensation under Section 4(a) of
this agreement at the rate in effect on the date of termination; (B) Employer's
obligation to pay life insurance premiums on the policy referred to in Section
4(d) shall continue in effect until five years after the date of termination;
and (C) Employee shall continue to be entitled, insofar as is permitted under
applicable insurance policies or plans, to such general medical and employee
benefit plans (including profit sharing or pension plans) as Employee had been
entitled to on the date of termination. Any amounts payable by Employer to
Employee under this paragraph shall be reduced by the amount of any disability
payments payable by or pursuant to plans provided by Employer and actually paid
to Employee.
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(iii) This agreement automatically shall
terminate upon the death of Employee, except that Employee's estate shall be
entitled to receive any amount accrued under Section 4(a) and the pro-rata
amount payable under Section 4(e) for the period prior to Employee's death and
any other amount to which Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to
terminate his employment under this Agreement upon 30 days' notice to Employer
given within 90 days following the occurrence of any of the following events (A)
through (F) or within three years following the occurrence of event (G):
(A) Employee is not elected or
retained as Chairman of the Board of Directors, President and Chief Executive
Officer of Employer.
(B) Employer acts to materially
reduce Employee's duties and responsibilities hereunder. Employee's duties and
responsibilities shall not be deemed materially reduced for purposes hereof
solely by virtue of the fact that Employer is (or substantially all of its
assets are) sold to, or is combined with, another entity, provided that Employee
shall continue to have the same duties and responsibilities with respect to
Employer's interactive business, and Employee shall report directly to the chief
executive officer and/or board of directors of the entity (or individual) that
acquires Employer or its assets.
(C) Employer acts to change the
geographic location of the performance of Employee's duties from the New York
Metropolitan area. For purposes of this Agreement, the New York Metropolitan
area shall be deemed to be the area within 30 miles of midtown Manhattan.
(D) A Material Reduction (as
hereinafter defined) in Employee's rate of base compensation, or Employee's
other benefits. "Material Reduction" shall mean a ten percent (10%)
differential;
(E) A failure by Employer to
obtain the assumption of this Agreement by any successor;
(F) A material breach of this\
Agreement by Employer, which is not cured within thirty (30) days of written
notice of such breach by Employer;
(G) A Change of Control.
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(ii) Anything herein to the contrary
notwithstanding, Employee may terminate this Agreement upon thirty (30) days
written notice.
c. If Employer shall terminate Employee's
employment other than due to his death or disability or for Cause (as defined in
Section 10(a)(i) of this Agreement), or if Employee shall terminate this
Agreement under Section 10(b)(i), Employer's obligations under Section 4 shall
be absolute and unconditional and not subject to any offset or counterclaim and
Employee shall continue to be entitled to receive all amounts provided for by
Section 4 and all additional employee benefits under Section 4 regardless of the
amount of compensation he may earn with respect to any other employment he may
obtain.
11. Consequences of Breach by Employer;
Employment Termination
a. If this Agreement is terminated pursuant to
Section 10(b)(i) hereof, or if Employer shall terminate Employee's employment
under this Agreement in any way that is a breach of this Agreement by Employer,
the following shall apply:
(i) Employee shall receive as a bonus,
and in addition to his salary continuation pursuant to Section 10.c., above, a
cash payment equal to the Employee's total base salary as of the date of
termination hereunder for the remainder of the term plus an additional amount to
pay all federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination;
except that if this Agreement is terminated pursuant to Section 10(b)(i)(G),
then Employee shall not be entitled to receive a bonus under this Section
11.a.(i) but shall instead receive a lump-sum payout of Employee's total base
salary for the remainder of the term plus an additional amount to pay all
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination.
(ii) Employee shall be entitled to
payment of any previously declared bonus and additional compensation as provided
in Section 4(a), (b) and (e) above.
b. In the event of termination of Employee's
employment pursuant to Section 10(b)(i) of this Agreement, the provisions of
Section 9 shall not apply to Employee.
12. Remedies
Employer recognizes that because of Employee's
special talents, stature and opportunities in the interactive television
industry, and because of the special creative nature of
-8-
<PAGE>
and compensation practices of said industry and the material impact that
individual projects can have on an interactive television company's results of
operations, in the event of termination by Employer hereunder (except under
Section 10(a)(i) or (iii), or in the event of termination by Employee under
Section 10(b)(i) before the end of the agreed term, Company acknowledges and
agrees that the provisions of this Agreement regarding further payments of base
salary, bonuses and the exercisability of Rights constitute fair and reasonable
provisions for the consequences of such termination, do not constitute a
penalty, and such payments and benefits shall not be limited or reduced by
amounts' Employee might earn or be able to earn from any other employment or
ventures during the remainder of the agreed term of this Agreement.
13. Excise Tax. In the event that any payment or benefit
received or to be received by Employee in connection with a termination of his
employment with Employer would constitute a "parachute payment" within the
meaning of Code Section 280G or any similar or successor provision to 280G
and/or would be subject to any excise tax imposed by Code Section 4999 or any
similar or successor provision then Employer shall assume all liability for the
payment of any such tax and Employer shall immediately reimburse Employee on a
"grossed-up" basis for any income taxes attributable to Employee by reason of
such Employer payment and reimbursements.
14. Arbitration. Any controversies between Employer and
Employee involving the construction or application of any of the terms,
provisions or conditions of this Agreement, save and except for any breaches
arising out of Sections 8 and 9 hereof, shall on the written request of either
party served on the other be submitted to arbitration. Such arbitration shall
comply with and be governed by the rules of the American Arbitration
Association. An arbitration demand must be made within one (1) year of the date
on which the party demanding arbitration first had notice of the existence of
the claim to be arbitrated, or the right to arbitration along with such claim
shall be considered to have been waived. An arbitrator shall be selected
according to the procedures of the American Arbitration Association. The cost of
arbitration shall be born by the losing party or in such proportions as the
arbitrator shall decide. The arbitrator shall have no authority to add to,
subtract from or otherwise modify the provisions of this Agreement, or to award
punitive damages to either party.
15. Attorneys' Fees and Costs. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
-9-
<PAGE>
16. Entire Agreement; Survival. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated herein and supersedes, effective as of the date hereof any prior
agreement or understanding between Employer and Employee with respect to
Employee's employment by Employer. The unenforceability of any provision of this
Agreement shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed by the
Employee and the Employer, or any waiver, change, discharge or modification as
sought. Waiver of or failure to exercise any rights provided by this Agreement
and in any respect shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 8, 9,
10(a)(ii), 10(a)(iii), 10(c), 11, 12, 13, 14, 15, 18, 19 and 20 shall survive
the termination of this Agreement.
17. Assignment. This Agreement shall not be assigned to
other parties.
18. Governing Law. This Agreement and all the amendments
hereof, and waivers and consents with respect thereto shall be governed by the
internal laws of the state of New York, without regard to the conflicts of laws
principles thereof.
19. Notices. All notices, responses, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
return receipt requested; or
c. received by the addressee as sent be express
delivery service (receipt requested) in each case to the appropriate addresses,
telex numbers and telefax numbers as the party may designate to itself by notice
to the other parties:
(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: William C. Samuels
Telefax: (212) 459-9548
-10-
<PAGE>
Telephone: (212) 262-2570
Gersten, Savage, Kaplowitz & Curtin
575 Lexington Avenue
27th Floor
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
William C. Samuels
171 West 57th Street, 11C
New York, NY 10019
20. Severability of Agreement. Should any part of this
Agreement for any reason be declared invalid by a court of competent
jurisdiction, such decision shall not affect the validity of any remaining
portion, which remaining provisions shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portions of this Agreement without including any such
part, parts or portions which may, for any reason, be hereafter declared
invalid.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the day and year first above written.
ACTV, INC.
By:
CHRISTOPHER C. CLINE
Chief Financial officer
WILLIAM C. SAMUELS
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995,
and amended January 1, 1997, by and between ACTV, INC., a Delaware corporation,
having an office at 1270 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as "Employer") and DAVID REESE, an individual residing
at 30 Maclay Road, Montville, New Jersey 07045 (hereinafter referred to as
"Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ,
Employee as its Executive Vice President and President of ACTV Entertainment,
Inc.; and
WHEREAS, Employee is willing to continue to be employed as the
Executive Vice President of Employer and President of ACTV Entertainment, Inc.
in the manner provided for herein, and to perform the duties of the Executive
Vice President of Employer and President of ACTV Entertainment, Inc. upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. Employment of Executive Vice President of Employer and
President of ACTV Entertainment, Inc. Employer hereby employs Employee as its
Executive Vice President and as President of ACTV Entertainment, Inc.
2. Term. Subject to Section 9 below, the term of this
Agreement shall commence on August 1, 1995 and end on December 31, 2000. Each 12
month period from January 1 through December 31 during the term hereof shall be
referred to as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
3. Duties. The Employee shall perform any and all duties and
shall have any and all powers as may be prescribed by the President and Chief
Executive Officer and shall be available to confer and consult with and advise
the officers and directors of Employer at such times that may be required by
Employer. Employee shall report directly and solely to the President and Chief
Executive Officer or his designee.
<PAGE>
4. Compensation.
a. (i) Employee shall be paid a minimum of
$200,000 for each Annual Period, commencing January 1, 1997; provided, however,
that Employee's salary shall be increased annually at the beginning of each
Annual Period commencing January 1, 1998 by an amount equal to no less than the
amount of his annual salary for the immediately preceding Annual Period times
the percentage increase in the CPIW (New York) then in effect as compared to the
previous period for which the CPIW (New York) is available. Employee shall be
paid periodically in accordance with the policies of the Employer during the
term of this Agreement, but not less than monthly.
(ii) Employee is eligible for
semi-annual bonuses, if any, which will be determined and paid in accordance
with policies set from time to time by the Board.
b. (i) In the event of a "Change of Control"
whereby
(A) A person (other than a person who
is an officer or a Director of Employer on the effective date hereof), including
a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes, or obtains the right to become, the beneficial owner of Employer
securities having 30% or more of the combined voting power of then outstanding
securities of the Employer that may be cast for the election of directors of the
Employer;
(B) At any time, a majority of the
Board-nominated slate of candidates
for the Board is not elected;
(C) Employer consummates a merger in
which it is not the surviving
entity;
(D) Substantially all Employer's assets
are sold; or
(E) Employer's stockholders approve the
dissolution or liquidation of
Employer; then
(ii) (A) All stock options, warrants
and stock appreciation rights ("Rights") granted by Employer to Employee under
any plan or otherwise prior to the effective date of the Change of Control,
shall become vested, accelerate and become immediately exercisable; at an
exercise price of 10(cent) per share if applicable, adjusted for any stock
splits and capital reorganizations having a similar effect, subsequent to the
<PAGE>
effective date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
(B) Any outstanding principle
and interest on loans to Employee pursuant to Section 4.g.(ii), below, shall be
recalculated and reconstituted as if the exercise price of the Rights financed
thereby were, ab initio, 10(cent) per share.
(C) If upon said Change of
Control, (i) a new Chief Executive Officer of Employer is appointed and (ii)
Employee is not retained in his immediately prior position or a substantially
similar position with Employer or the surviving entity, as applicable, then in
addition, Employee shall be eligible to receive a one-time bonus, equal on an
after-tax basis to two times his then current annual base salary. To effectuate
this provision, the bonus shall be "grossed-up" to include the amount necessary
to reimburse Employee for his federal, state and local income tax liability on
the bonus and on the "gross-up" at the respective effective marginal tax rates.
In no event shall this bonus exceed 2.7 times Employee's then current base
salary. Said bonus shall be paid within thirty (30) days of the Change of
Control.
c. Employer shall include Employee in its
health insurance program available to Employer's executive officers.
d. Employer shall maintain a life, accidental
death and dismemberment insurance policy on Employee for the benefit of a
beneficiary named by Employee in an amount not less than $750,000. Ownership
of the policy shall be assigned to Employee upon termination of Employee's
employment under this Agreement.
e. Employee shall also be entitled to
participate pari passu in any other program established by Employer pursuant to
which any executive officers receive a share of the profits of Employer.
<PAGE>
f. Employee shall have the right to participate in
any other employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly
forbids it, all Rights which may become exercisable during the term hereof shall
be paid for in cash only if Employee so elects, otherwise they may be paid for.
(i) by the transfer by Employee to Employer of
so much of Employee's Rights which, when valued at the highest trading price of
the underlying securities of Employer during the previous six months, will
offset the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with
interest at the lowest rate, it any, required to be charged by any governmental
authority, to accrue and become due and payable with the principle, in an amount
no greater than the exercise price, given by Employee to Employer and secured
solely by the shares of stock being paid for thereby, which Note shall become
due and payable at the earlier of the expiration hereof or, on a pro rata basis,
the sale by Employee of all or part of the Rights or underlying stock which
constitute security for the Note; or
(iii) by any combination of cash and (ii) or (iii),
above.
5. Expenses. Employee shall be reimbursed for all of his
actual out-of-pocket expenses incurred in the performance of his duties
hereunder, provided such expenses are acceptable to Employer, which approval
shall not be unreasonably withheld, for business related travel and
entertainment expenses, and that Employee shall submit to Employer reasonably
detailed receipts with respect thereto.
6. Vacation. Employee shall be entitled to receive four (4)
weeks paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
<PAGE>
8. Covenant Not to Compete. Subject to, and limited by,
Section 10(b), Employee will not, at any time, anywhere in the world, during the
term of this Agreement, and for one (1) year thereafter, either directly or
indirectly, engage in, with or for any enterprise, institution, whether or not
for profit, business, or company, competitive with the business (as identified
herein) of Employer as such business may be conducted on the date thereof, as a
creditor, guarantor, or financial backer, stockholder, director, officer,
consultant, advisor, employee, member, inventor, producer, director, or
otherwise of or through any corporation, partnership, association, sole
proprietorship or other entity; provided, that an investment by Employee, his
spouse or his children is permitted if such investment is not more than four
percent (4%) of the total debt or equity capital of any such competitive
enterprise or business and further provided that said competitive enterprise or
business is a publicly held entity whose stock is listed and traded on a
national stock exchange or through the NASDAQ Stock Market. As used in this
Agreement, the business of Employer shall be deemed to include the development
and implementation of individualized television technology or programs.
9. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement
upon written notice for Cause. For purposes hereof, "Cause" shall mean (A)
engaging by the Employee in conduct that constitutes activity in competition
with Employer; (B) the conviction of Employee for the commission of a felony;
and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 9(a)(i), Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date Employee receives the notice from the Board) to
correct the acts or omissions so complained of.
(ii) Employer may terminate Employee's
employment under this Agreement if, as a result of any physical or mental
disability, Employee shall fail or be unable to perform his duties under this
Agreement for any consecutive period of 90 days during any twelve-month period.
If Employee's employment is terminated under this Section 9(a)(ii): (A) for the
first six months after termination, Employee shall be paid 100% of his full
compensation under Section 4(a) of this Agreement at the rate in
<PAGE>
effect on the date of termination, and in each successive 12 month period
thereafter Employee shall be paid an amount equal to 67% of his compensation
under Section 4(a) of this agreement at the rate in effect on the date of
termination; (B) Employer's obligation to pay life insurance premiums on the
policy referred to in Section 4(d) shall continue in effect until five years
after the date of termination; and (C) Employee shall continue to be entitled,
insofar as is permitted under applicable insurance policies or plans, to such
general medical and employee benefit plans (including profit sharing or pension
plans) as Employee had been entitled to on the date of termination. Any amounts
payable by Employer to Employee under this paragraph shall be reduced by the
amount of any disability payments payable by or pursuant to plans provided by
Employer and actually paid to Employee.
(iii) This agreement automatically shall
terminate upon the death of Employee, except that Employee's estate shall be
entitled to receive any amount accrued under Section 4(a) and the pro-rata
amount payable under Section 4(e) for the period prior to Employee's death and
any other amount to which Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to
terminate his employment under this Agreement upon 30 days' notice to Employer
given within 90 days following the occurrence of any of the following events (A)
through (D) or within three years following the occurrence of event (E):
(A) Employer acts to change the
geographic location of the performance of Employee's duties from the New York
Metropolitan area. For purposes of this Agreement, the New York Metropolitan
area shall be deemed to be the area within 30 miles of midtown Manhattan.
(B) A Material Reduction (as
hereinafter defined) in Employee's rate of base compensation, or Employee's
other benefits. "Material Reduction" shall mean a ten percent (10%)
differential;
(C) A failure by Employer to
obtain the assumption of this Agreement by any successor;
(D) A material breach of this
Agreement by Employer, which is not cured within thirty (30) days of written
notice of such breach by Employer;
(E) A Change of Control.
<PAGE>
(ii) Anything herein to the contrary
notwithstanding, Employee may terminate this Agreement upon thirty (30) days
written notice.
c. If Employer shall terminate Employee's
employment other than due to his death or disability or for Cause (as defined in
Section 9(a)(i) of this Agreement), or if Employee shall terminate this
Agreement under Section 9(b)(i), Employer's obligations under Section 4 shall be
absolute and unconditional and not subject to any offset or counterclaim and
Employee shall continue to be entitled to receive all amounts provided for by
Section 4 and all additional employee benefits under Section 4 regardless of the
amount of compensation he may earn with respect to any other employment he may
obtain.
10. Consequences of Breach by Employer;
Employment Termination
a. If this Agreement is terminated pursuant to
Section 9(b)(i) hereof, or if Employer shall terminate Employee's employment
under this Agreement in any way that is a breach of this Agreement by Employer,
the following shall apply:
(i) Employee shall receive as a bonus,
and in addition to his salary continuation pursuant to Section 9.c., above, a
cash payment equal to the Employee's total base salary as of the date of
termination hereunder for the remainder of the term plus an additional amount to
pay all federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination;
except that if this Agreement is terminated pursuant to Section 9.(b)(i)(E),
then Employee shall not be entitled to receive a bonus under this Section
10.a.(i) but shall instead receive a lump-sum payout of Employee's total base
salary for the remainder of the term plus an additional amount to pay all
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination.
(ii) Employee shall be entitled to
payment of any previously declared bonus and additional compensation as provided
in Section 4(a), (b) and (e) above.
b. In the event of termination of Employee's
employment pursuant to Section 9(b)(i) of this Agreement, the provisions of
Section 8 shall not apply to Employee.
11. Remedies
<PAGE>
Employer recognizes that because of Employee's
special talents, stature and opportunities in the interactive television
industry, and because of the special creative nature of and compensation
practices of said industry and the material impact that individual projects can
have on an interactive television company's results of operations, in the event
of termination by Employer hereunder (except under Section 9(a)(i) or (iii), or
in the event of termination by Employee under Section 9(b)(i) before the end of
the agreed term, Company acknowledges and agrees that the provisions of this
Agreement regarding further payments of base salary, bonuses and the
exercisability of Rights constitute fair and reasonable provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts' Employee might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement.
12. Excise Tax. In the event that any payment or benefit
received or to be received by Employee in connection with a termination of his
employment with Employer would constitute a "parachute payment" within the
meaning of Code Section 280G or any similar or successor provision to 280G
and/or would be subject to any excise tax imposed by Code Section 4999 or any
similar or successor provision then Employer shall assume all liability for the
payment of any such tax and Employer shall immediately reimburse Employee on a
"grossed-up" basis for any income taxes attributable to Employee by reason of
such Employer payment and reimbursements.
13. Arbitration. Any controversies between Employer and
Employee involving the construction or application of any of the terms,
provisions or conditions of this Agreement, save and except for any breaches
arising out of Sections 7 and 8 hereof, shall on the written request of either
party served on the other be submitted to arbitration. Such arbitration shall
comply with and be governed by the rules of the American Arbitration
Association. An arbitration demand must be made within one (1) year of the date
on which the party demanding arbitration first had notice of the existence of
the claim to be arbitrated, or the right to arbitration along with such claim
shall be considered to have been waived. An arbitrator shall be selected
according to the procedures of the American Arbitration Association. The cost of
arbitration shall be born by the losing party or in such proportions as the
arbitrator shall decide. The arbitrator shall have no authority to add to,
subtract from or otherwise modify the provisions of this Agreement, or to award
punitive damages to either party.
<PAGE>
14. Attorneys' Fees and Costs. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
15. Entire Agreement; Survival. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated herein and supersedes, effective as of the date hereof any prior
agreement or understanding between Employer and Employee with respect to
Employee's employment by Employer. The unenforceability of any provision of this
Agreement shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed by the
Employee and the Employer, or any waiver, change, discharge or modification as
sought. Waiver of or failure to exercise any rights provided by this Agreement
and in any respect shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8,
9(a)(ii), 9(a)(iii), 9(c), 10, 11, 12, 13, 14, 17, 18 and 19 shall survive the
termination of this Agreement.
16. Assignment. This Agreement shall not be assigned to
other parties.
17. Governing Law. This Agreement and all the amendments
hereof, and waivers and consents with respect thereto shall be governed by the
internal laws of the state of New York, without regard to the conflicts of laws
principles thereof.
18. Notices. All notices, responses, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
return receipt requested; or
c. received by the addressee as sent be express
delivery service (receipt requested) in each case to the appropriate addresses,
telex numbers and telefax numbers as the party may designate to itself by notice
to the other parties:
(i) if to the Employer:
<PAGE>
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: William C. Samuels
Telefax: (212) 459-9548
Telephone: (212) 262-2570
Gersten, Savage, Kaplowitz & Curtin
575 Lexington Avenue
27th Floor
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
David Reese
30 Maclay Road
Montville, New Jersey 07045
19. Severability of Agreement. Should any part of this
Agreement for any reason be declared invalid by a court of competent
jurisdiction, such decision shall not affect the validity of any remaining
portion, which remaining provisions shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portions of this Agreement without including any such
part, parts or portions which may, for any reason, be hereafter declared
invalid.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the day and year first above written.
ACTV, INC.
By: __________________________________
WILLIAM C. SAMUELS
President
DAVID REESE
ACTV, INC.
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 15th day of December, 1995, and amended January
1, 1997 by and between ACTV, INC., a Delaware corporation, having an office at
1270 Avenue of the Americas, New York, New York 10020 (the "Employer") and Bruce
Crowley, an individual residing at 257 West 17th Street, New York, New York
10011 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employer desires to employ the Employee as Executive Vice
President and President, ACTV Net, Inc.; and
WHEREAS, the Employee is willing to be employed as Executive Vice President
and President of ACTV Interactive, Inc. in the manner provided for herein, and
to perform the duties of the Employer upon the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth it is agreed as follows:
1. Employment of Employee. The Employer hereby employs the Employee as
Executive Vice President and President of ACTV, Net, Inc. During the term
hereof, the Employee shall devote all of his business time and efforts to the
Employer.
2. Duties. The Employee shall serve Employer and shall perform such
services and duties and have such powers as may be prescribed by the President
and Chief Executive Officer. The Employee shall report to the President and
Chief Executive Officer of the Company.
3. Compensation.
a. (i) The Employee shall initially be paid a salary at the rate of
$200,000 per year, less applicable withholding taxes and other payroll
deductions required by law, payable in accordance with Employer's customary
payroll practices.
(ii) The Employee is eligible for semi-annual bonuses, if any,
which will be determined and paid in accordance with policies set from time to
time by the Board.
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is
an officer or a Director of Employer on the effective date hereof),
<PAGE>
including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes, or obtains the right to become, the beneficial
owner of Employer securities having 30% or more of the combined voting power of
then outstanding securities of the Employer that may be cast for the election of
directors of the Employer;
(B) At any time, a majority of the
Board-nominated slate of candidates for the Board is not elected;
(C) Employer consummates a merger in
which it is not the surviving entity;
(D) Substantially all Employer's assets
are sold; or
(E) Employer's stockholders approve the
dissolution or liquidation of Employer; then
(ii) (A) All stock options, warrants
and stock appreciation rights ("Rights") granted by the Employer to Employee
under any plan or otherwise prior to the effective date of the Change of
Control, shall become vested, accelerate and become immediately exercisable; at
any exercise price of 10 cents per share if applicable, adjusted for any stock
splits and capital reorganizations having a similar effect, subsequent to the
effective date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
(B) Any outstanding principal
and interest on loans to Employee pursuant to Section 4.g.(ii), below, shall be
recalculated and reconstituted as if the exercise price of the Rights financed
thereby were, ab initio, 10 cents per share.
(C) If upon said Change of
Control, (i) a new Chief Executive Officer of Employer is appointed and (ii)
Employee is not retained in his immediately prior position or a substantially
similar position with Employer or the surviving entity, as applicable, then in
addition, Employee shall be eligible to receive a one-time bonus, equal on an
after-tax
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<PAGE>
basis to his then current annual base salary. To effectuate this provision, the
bonus shall be "grossed-up" to include the amount necessary to reimburse
Employee for his federal, state, and local income tax liability on the bonus and
on the "gross-up" at the respective effective marginal tax rates. Said bonus
shall be paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health
insurance program available to Employer's executive officers.
d. Employee shall also be entitled to participate pari
passu in any other program established by Employer pursuant to which any
executive officers receive a share of the profits of Employer.
e. Employee shall have the right to participate in any
other employee benefit plans established by Employer.
f. Unless a pre-existing plan of Employer expressly
forbids it, all Rights which may become exercisable during the term hereof shall
be paid for in cash only if Employee so elects, otherwise they may be paid for.
(i) by the transfer by Employee to
Employer of so much of Employee's Rights which, when valued at the highest
trading price of the underlying securities of Employer during the previous six
months, will offset the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with
interest at the lowest rate, if any, required to be charged by any governmental
authority, to accrue and become due and payable with the principle, in an amount
no greater than the exercise price, given by Employee to Employer and secured
solely by the shares of stock being paid for thereby, which Note shall become
due and payable at the earlier of the expiration hereof, or on a pro rata basis,
the sale by Employee of all or part of the Rights or underlying stock which
constitute security for the Note; or
(iii) by any combination of cash and (ii)
or (iii), above.
4. Termination.
a. For Cause. Employer may terminate this Agreement upon written
notice for Cause. For purposes hereof, "Cause" shall mean (A) engaging by the
Employee in conduct that constitutes activity in competition with Employer; (B)
the conviction of Employee for the commission of a felony; and/or (C) the
habitual abuse of alcohol or controlled substances. Notwithstanding anything to
the contrary in this Section 9(a)(i), Employer may not terminate Employee's
employment under this Agreement for Cause unless Employee shall have first
received
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<PAGE>
notice from the Board advising Employee of the specific acts or omissions
alleged to constitute Cause, and such acts or omissions continue after Employee
shall have had a reasonable opportunity (at least 10 days from the date Employee
receives the notice from the Board) to correct the acts or omissions so
complained of.
b. Without Cause. The Employer may terminate this Agreement without
cause with no notice to Employee. In the event that Employee is terminated
without cause, Employer shall pay Employee severance pay equal to thirteen
weeks, six months after August 1, 1996, and one year after August 1, 1998. If
the employee resigns, no severance pay shall be payable to Employee.
c. Other. This Agreement automatically shall terminate upon the
death of the Employee, except that the Employee's estate shall be entitled to
receive any amount accrued under paragraph 4 (a) for the period prior to the
Employee's death and any other amount to which the Employee was entitled to the
time of his death.
5. Expenses. The Employee shall be reimbursed for all reasonable,
actual out-of-pocket expenses incurred in the performance of the Employee's
duties hereunder, provided such expenses are acceptable to the Employer, and
that the Employee shall submit to the Employer detailed, bi-weekly expense
reports and receipts with respect thereto. All air travel shall be by coach
except for international and west coast travel which shall be by business class.
6. Vacation. The Employee shall be entitled to receive three weeks
paid vacation time during each year of employment on dates to be agreed upon
between the Employer and the Employee.
7. Confidentiality. At no time shall the Employee disclose to
anyone any confidential or secret information (not already constituting
information available to the public) of the Employer and/or its affiliates
concerning (a) internal affairs or proprietary business operations of the
Employer and/ or its affiliates or (b) any trade secrets, new product
developments, patents, programs or programming, especially unique processes or
methods. The Employee acknowledges that he has previously executed a
confidentiality/non-disclosure agreement with Employer and that such agreement
is binding and still in effect and covers any of Employee's work for or related
to the Employer and/or its affiliates.
8. Covenant Not to Compete. The Employee will not, at any time,
anywhere in the world, during the term of this Agreement, and for one (1) year
thereafter, either directly or indirectly, engage in, with or for any
enterprise, institution, business, or company, whether or not for profit, which
is competitive with the business of the Employer and/or its
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affiliates as such business may be conducted on the date thereof, as a
creditor, guarantor, or financial backer, stockholder, director, officer,
consultant, advisor, employee, member, inventor producer, director, or otherwise
of or through any corporation, partnership, association, sole proprietorship or
other entity. However the ownership of, by the Employee, his spouse of his
children, of not more than four percent (4%) of the total debt or equity capital
or any such competitive enterprise or business, where the stock is listed on a
national securities exchange or on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), shall not be deemed in
violation of the covenants contained in this paragraph. As used in this
Agreement, the business of the Employer and/or its affiliates shall be deemed to
include the development and implementation of interactive television technology
or programs directly competitive with ACTV.
Nothing herein is meant to restrict the employee from working
in the general education or distance learning business as long as such
employment is not competitive to the interactive television programming business
of the company.
9. Proprietary Rights - Ownership of Inventions. The Employee
acknowledges that in the event the Employee creates or invents any products or
technology or improves any existing products or technology of the Employer
and/or its affiliates during the term of this Agreement, all patents or other
proprietary rights shall be the exclusive property of the Employer and/or its
affiliates. Employee agrees to execute any documents required to confirm the
Employer's and/or its affiliates' ownership of all rights in and to any
inventions of the Employee made during the term of this Agreement. The Employee
agrees not to challenge the Employer's and/or its affiliates' ownership of any
such invention or the validity of any of the Employer's and/or its affiliates'
patents or other rights relating to such inventions. The Employee acknowledges
that he has previously executed a confidentiality/non-disclosure agreement with
the Employer and that he has read and understood section 2 "Right to Inventions"
of such agreement that such agreement and section are binding and still in
effect and upon any of Employee's work related to or for the Employer and/or its
affiliates.
10. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the employment contemplated herein and
supersedes any prior agreement or understanding between the Employer and the
Employee with respect to the Employee's employment by the Employer. The
unenforceability of any provision of this Agreement shall not effect the
enforceability of any other provision. This agreement may not be amended,
modified or changed in any way except by an agreement in writing signed by the
Employee and the Employer. Waiver of or failure to exercise any rights provided
by this
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Agreement and in any respect shall not be deemed a waiver of any further or
future rights.
11. Assignment. This Agreement shall not be assigned to other
parties, except that the Employer shall be able to assign the Agreement to a
Subsidiary or affiliate.
12. Indemnification. If employee is named in litigation for acts
committed during employment that are not grossly negligent, then the employer
shall indemnify employee for all expenses of employee in defending himself.
13. Arbitration. All demands, disputes and misunderstandings
between parties hereto arising out of this Agreement shall be submitted to and
determined by arbitration in the City of New York. If the parties to a dispute
arising out of this Agreement are unable to agree on an arbitrator within ten
(10) days after any party shall have given written notice to the other that it
desires to submit any issue to arbitration, then the American Arbitration
Association shall be designated by any party to appoint an arbitrator to
arbitrate the matter under its rules. Any decision by the arbitrator shall be in
writing and shall set forth findings of fact.
14. Governing Law. This Agreement and all the amendments hereof,
and waivers and consents with respect thereto shall be governed by the internal
laws of the state of New York, without regard to the conflict of laws principles
thereof.
15. Notices. All notices, responses, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been given
when
a. delivered by hand;
b. sent by telecopier, (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested; or
c. received by the addressee as sent by express delivery
service (receipt requested) in each case to the appropriate addresses or
telecopier numbers as the party may designate to itself by notice to the other
parties:
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(i) if to the Employer:
ACTV Inc.
1270 Avenue of the Americas
New York, NY 10020
Attn: William C. Samuels
Telecopier: (212) 459-9548
Telephone: (212) 262-2570
With a copy to:
Gersten, Savage, Kaplowitz, Fredericks
& Curtin
101 East 52nd Street
New York, NY 10022
Attention: Jay M. Kaplowitz, Esq.
Telecopier: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
Bruce Crowley
257 West 17th Street, Apt. 4C
New York, NY 10011
Telecopier: (212) 807-8205
Telephone: (212) 807-7545
With a copy to:
Agins, Dolgin, Siegel & Bernstein
342 Madison Avenue
Suite 1220
New York, NY 10173
Attention: Richard C. Agins, Esq.
Telecopier: (212) 599-1281
Telephone: (212) 986-6166
<PAGE>
IN WITNESS WHEREOF, THE UNDERSIGNED HAVE EXECUTED THIS
AGREEMENT THE DAY AND YEAR FIRST ABOVE WRITTEN.
ACTV, INC.
By: ________________________________
WILLIAM C. SAMUELS
President and CEO
--------------------------------
BRUCE CROWLEY
MASTER PROGRAMMING LICENSE AGREEMENT
BETWEEN
ACTV, INC. AND LIBERTY/FOX U.S. SPORTS, L.L.C.
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Selection of Affiliated RSNs ..................................... 2
2. Terms of Enhancement License ..................................... 2
3. Term ............................................................. 5
4. Programming ...................................................... 5
(a) RSN Programming ............................................. 5
(b) Licensor's Programming Commitment ........................... 5
(c) Programming Notification .................................... 7
5. ACTV's Commitment ................................................ 8
6. Payment .......................................................... 10
(a) License Fees ................................................. 10
(b) Payment Dates ................................................ 10
7. Receipt and Transmission of Signal ............................... 11
8. Advertising ...................................................... 12
9. Termination by Licensor .......................................... 12
10. Termination by ACTV .............................................. 14
11. Non-Agency ....................................................... 16
12. Representations of Liberty ....................................... 16
13. Representations of Licensors ..................................... 17
14. Representations of ACTV .......................................... 18
15. Indemnification .................................................. 19
16. Records of ACTV .................................................. 20
17. Notices .......................................................... 22
18. Preemptions ...................................................... 23
19. Regulations ...................................................... 23
20. Reservations ..................................................... 24
21. Taxes ............................................................ 25
22. Assignment ....................................................... 25
23. Amendments and Waivers ........................................... 26
24. Logos ............................................................ 26
25. Force Majeure .................................................... 27
26. No Personal Liability ............................................ 27
27. Governing Law and Interpretation ................................. 28
28. Confidentiality .................................................. 29
29. League Mandated Provisions ....................................... 30
30. Entire Agreement ................................................. 30
EXHIBITS
Form of Enhancement License Agreement ............................... Exhibit A
Definitions ......................................................... Exhibit B
<PAGE>
MASTER PROGRAMMING LICENSE AGREEMENT
THIS MASTER PROGRAMMING LICENSE AGREEMENT (this
"Master Agreement") is made effective as of , 1996 by and between Liberty/Fox
U.S. Sports, L.L.C., a limited liability company formed under the laws of the
State of Delaware, ("Liberty"), and ACTV, INC., a corporation formed under the
laws of the State of Delaware ("ACTV").
RECITALS
A. Liberty owns and/or has significant ownership interests in
several regional sports television networks (the "Affiliated RSNs") which
produce and/or distribute primarily sports-related television programs primarily
delivered to the viewing public by nonbroadcast video distributors;
B. ACTV is in the business of Enhancing television programming
through the use of patented programming technology by creating viewer-selectable
alternative video, audio and graphics streams which are integrated into existing
television programming and desires to obtain a limited non-exclusive license
from certain of Liberty's Affiliated RSNs to Enhance and Distribute certain of
the RSN Programming, all on the terms and conditions set forth hereinafter;
C. ACTV intends to request such licenses from certain of such
Affiliated RSNs in connection with its initial commercial launch, and the
parties wish to agree upon a framework for such initial licenses and for
additional licenses from other Affiliated RSNs commencing at such times as may
be agreed upon by the parties.
NOW, THEREFORE, in consideration of the premises, mutual
covenants and
<PAGE>
agreements herein set forth, Liberty and ACTV hereby covenant and agree as
follows:
1. Selection of Affiliated RSNs.
The parties to this Master Agreement agree to consult
and confer from time to time regarding the selection of the Affiliated RSNs'
Basic Regional Services to serve as the basis for packages of Enhanced
Programming ("Enhanced Regional Packages") to be produced and distributed by
ACTV in accordance with this Master Agreement. At such time as ACTV determines
it would like to produce and distribute an Enhanced Regional Package based on an
Affiliated RSN's Basic Regional Service, it shall notify such Affiliated RSN
that it wishes to negotiate an Enhancement License pursuant to this Master
Agreement, and if ACTV and such Affiliated RSN are able to reach agreement as to
the Territory, License Fees, Programming Commitment, Enhancement Commitment and
License Term (all as hereinafter defined) and any other necessary terms of such
Enhancement License, then ACTV and such Affiliated RSN (hereinafter, the
"Licensor") shall execute an Enhancement License Agreement in substantially the
form attached hereto as Exhibit A, incorporating by reference the terms of the
Enhancement License specified in this Master Agreement and specifying the other
elements of such Enhancement License agreed upon by such parties.
2. Terms of Enhancement License.
Each Enhancement License between a Licensor and ACTV
shall grant to ACTV a limited, non-exclusive license to Enhance such of the
Licensor's RSN Programs as are permitted to be Enhanced under the applicable
agreements between such Licensor (or ACTV) and the appropriate team, league,
conference, association or other entity from which Licensor has obtained the
right to telecast the RSN Program in question (the "Rights Source") and to
distribute
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<PAGE>
the Enhanced Regional Package which is based on such Licensor's Basic Regional
Service in accordance with and subject to the terms specified herein and in the
Enhancement License Agreement. By its execution of each Enhancement License
Agreement, ACTV agrees to use its best efforts to Distribute the Enhanced
Regional Package in question as widely as possible during the License Term of
the relevant Enhancement License and to offer to distribute the Enhanced
Regional Package to all of the Licensor's Basic Regional Service Distributors in
a nondiscriminatory manner. As used herein, the term "Enhance" shall mean
creating Enhanced Programming which is based on the Licensor's RSN Programming
and Enhanced Advertising through the use of ACTV's patented proprietary
programming technology by creating viewer-selectable alternative video, audio
and graphics streams which are integrated into the RSN Program being Enhanced.
The license granted to ACTV to Enhance and Distribute the Licensor's RSN
Programming shall be subject to an applicable limitations or prohibitions under
any Rights Restrictions and any reasonable restrictions requested by Licensor.
The Enhanced Regional Package must be distributed over a separate channel or
channels from the Basic Regional Service, and ACTV shall have no right to affect
or interfere with the Basic Regional Service or its delivery to the Licensor's
Basic Regional Service Customers (other than to offer to such Basic Regional
Service Customers the option of viewing the Enhanced version of an individual
RSN Program) in any manner whatsoever, with or without the concurrence of any
Basic Regional Service Distributor of the Licensor's Basic Regional Service.
Each Basic Regional Service Customer receiving the Enhanced Regional Package
must at all times be able to choose, as one of the alternative video streams
constituting the Enhanced Program, the original version of the RSN Program on
which such Enhanced Program is based. As used herein, the term "Distribute"
shall mean the granting of
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<PAGE>
licenses to the Licensor's Basic Regional Service Distributors to exhibit and
Distribute the Enhanced Regional Package for viewing by Basic Regional Service
Customers of the Licensor within the Territory in accordance with the terms
specified in this Master Agreement and the Enhancement License Agreement. Any
Distribution shall be limited to the Licensor's Basic Regional Service
Distributors and shall be further limited to distribution via the same
television distribution facilities (but on a separate channel or channels) over
which each Basic Regional Service Distributor distributes such Licensor's Basic
Regional Service under authorization from the Licensor. All such Distribution
licenses by ACTV shall by their terms be limited to Distribution of the Enhanced
Regional Package and the individual Enhanced Programs within the same Territory
within which, during the same term during which, at the same time as (i.e.,
simultaneously), over the same distribution facilities over which and to the
same Basic Regional Service Customers to whom the Basic Regional Service
Distributor licensed by the Licensor distributes the corresponding Basic
Regional Service and corresponding individual RSN Programs under authority from
the Licensor. ACTV shall not Distribute or otherwise make available any RSN
Program or any Enhanced Program which is based on any RSN Program to any Basic
Regional Service Distributor or Basic Regional Service Customer or any other
party at any time when such Basic Regional Service Distributor, Basic Regional
Service Customer or other party is not authorized to receive or distribute, as
the case may be, such RSN Program. For purposes of this Master Agreement, the
"Basic Regional Services" of a Licensor shall mean, as to each portion of the
territory throughout which such Licensor makes available for distribution by
nonbroadcast programming distributors a required uniform programming lineup,
(collectively the "Territory"), that mix of programming made available to its
Basic Regional Service Distributors. The Licensor's
4
<PAGE>
"Basic Regional Service Customers" shall mean those viewers of the Basic
Regional Service who receive the Basic Regional Service under authority from the
Licensor.
3. Term.
The term of this Master Agreement (the "Term") shall
commence on the date of execution hereof and shall continue until June 30, 2003,
unless earlier terminated as set forth herein.
4. Programming.
(a) RSN Programming.
"RSN Program(s)" and "RSN Programming" shall
mean the television program(s) and programming provided to
Licensor's Basic Regional Service Distributors by Licensor as
a part of its Basic Regional for distribution by such Basic
Regional Service Distributors in the respective portions of
the Territory.
(b) Licensor's Programming Commitment.
Each Licensor and ACTV shall specify in the
respective Enhancement License Agreement the minimum required
programming (the Licensor's "Programming Commitment") which
such Licensor shall commit to make available as part of the
RSN Programming which may be Enhanced by ACTV during each
Year or other period of the License Term, in those areas
where the Enhancement and Distribution of such programming
is not restricted, preempted, prohibited or otherwise not
allowed under any applicable Rights Restrictions and the
adjustment to the License Fee
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<PAGE>
if such Licensor fails to make available for Enhancement any
element or elements of its Programming Commitment. Unless
otherwise provided in the Enhancement License Agreement, any
such period for which the Programming Commitment for the
designated item or class of programming is specified and
shall be applied retroactively to the License Fees due for
each Year or other specified period, with any excess License
Fees paid by ACTV on account of such adjustment to be
refunded within 30 days after the end of such Year or other
period. A Licensor shall not be required to incur any rights
fees or other costs which are specifically required to
secure the right to authorize the Enhancement of any RSN
Programming. However, a Licensor and ACTV may agree that
such Licensor should incur such costs and be reimbursed out
of the Enhanced Advertising Revenue generated with respect
to the Enhanced Regional Package which is based on such
Licensor's Basic Regional Service in accordance with the
provisions of Section 8 of this Master Agreement.
Notwithstanding anything in this Master Agreement to the
contrary, Licensor's Programming Commitment shall be
adjusted appropriately in the case of any Year which is less
than twelve (12) calendar months. No Licensor shall have any
obligation to acquire the right to authorize the Enhancement
of any RSN Programming or the Distribution of any resulting
Enhanced
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<PAGE>
Programming if ACTV does not agree to allow the Licensor to
be reimbursed for such costs out of the net incremental
revenues from Enhanced Advertising in accordance with the
provisions of Section 8 of this Master Agreement, in which
case there shall be no adjustment to the License Fees on
account of such Licensor's failure to meet its Programming
Commitment with respect to the affected RSN Programming. If
a Licensor determines that it does not wish to incur such
costs, it shall have no obligation to do so, but if the
affected RSN Programming was part of the Licensor's
Programming Commitment, ACTV shall be entitled to any
adjustment to the License Fees specified in the Enhancement
License Agreement for such Licensor's failure to meet its
Programming Commitment on account of the affected RSN
Programming not being available for Enhancement by ACTV for
inclusion in the Enhanced Regional Package.
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<PAGE>
(c) Programming Notification.
Each Licensor shall use its best reasonable
efforts to provide ACTV with a schedule of each calendar
month's RSN Programming at least sixty (60) days prior to each
such calendar month, or as soon as reasonably practicable
after the Licensor's scheduling of each of the RSN Programs to
be included therein. Each Licensor shall use its best
reasonable efforts to notify ACTV of any changes, additions or
deletions in or to the schedule as promptly as practicable
(such notice to ACTV to be transmitted by telephone or
telecopy if transmitted subsequent to the 10th business day of
the calendar month preceding the respective RSN Program); and
a Licensor shall incur no additional liability or obligation
by reason of any such change, addition, deletion or failure to
notify ACTV thereof if such Licensor has used its best
reasonable efforts to so notify ACTV.
5. ACTV's Commitments.
(a) The option to view an Enhanced version of
any RSN Program which ACTV has Enhanced shall be presented to all Basic Regional
Service Customers who subscribe to receive the Enhanced Regional Package in
question by means of a special indicator which appears as an unobtrusive graphic
superimposed on the image of the Basic Regional Service as displayed on the
Basic Regional Service Customer's television screen. The option shall be
exercisable by the Basic Regional Service Customer by pressing a button on the
ACTV remote which will cause the
8
<PAGE>
viewer's receiver to shift automatically to the channel receiving the Enhanced
Regional Package. At the conclusion of any Enhanced Program which is based on
one of Licensor's RSN Programs, the viewer's television receiver shall be
automatically returned to the channel carrying the Licensor's Basic Regional
Service.
(b) ACTV (commencing promptly after the date
hereof) shall use its and shall require its distributors to use their best
reasonable efforts to publicize, promote and market the Enhanced Regional
Package to such distributor's subscribers and to the general public within the
Territory. ACTV shall not, without the Licensor's prior consent, authorize or
cause any RSN Programming or any portion thereof made available to it hereunder
or any Enhanced Programming which is based thereon to be taped, recorded,
duplicated, telecast, exhibited or otherwise distributed or used for any purpose
other than for the production of the Enhanced Programming and its Distribution
by ACTV in accordance with the relevant Enhancement License Agreement and this
Master Agreement except for up to three (3) minutes of any RSN Program utilized
by ACTV for the purpose of promoting the Enhanced Regional Package to the extent
not restricted under any applicable Rights Restrictions.
(c) ACTV hereby covenants and agrees that,
unless ACTV and Licensor agree otherwise in the Enhancement License Agreement,
ACTV will Enhance and include in the Enhanced Regional Package each of
Licensor's RSN Programs which is a professional event. ACTV and Licensor may
agree in the Enhancement License Agreement to specify additional RSN Programming
that ACTV will be required to Enhance and include in the Enhanced Regional
Package or to specify RSN Programs which are professional events that ACTV will
not be required to Enhance and include in the Enhanced Regional Package.
9
<PAGE>
(d) ACTV hereby covenants and warrants that it
shall not exhibit, distribute or Enhance for distribution anywhere within the
Territory any sport programming other than the Licensor's RSN Programming if
such programming either (i) involves a team based within, or event taking place
within, the Territory unless such programming is distributed by ACTV only to
persons who are authorized to receive such programming in an unenhanced form as
part of a nationally distributed broadcast, telecast or cablecast or (ii) is
based on programming distributed within any portion of the Territory other than
as part of a nationally distributed broadcast, telecast or cablecast.
6. Payment.
(a) License Fees.
As consideration for each Enhancement
License granted under an Enhancement License Agreement, ACTV shall pay the
Licensor for each month during the License Term, commencing with the month
during which the first Enhanced Program is Distributed by ACTV, the amount
specified in the Enhancement License Agreement (the "License Fee") based on the
Number of Subscribers for such month.
(b) Payment Dates.
Each payment required to be made by ACTV to
a Licensor for any month pursuant to Section 6(a) hereinabove shall be paid by
ACTV to such Licensor on or before the last day of the immediately following
month; except that in the event of termination of any Enhancement License
Agreement, payment shall be made on or before the last day of the first complete
calendar month occurring after the termination of the Enhancement License. ACTV
shall have no right to make any deduction from or offset against any amounts due
under this Master
10
<PAGE>
Agreement or any Enhancement License Agreement for any reason. In the event that
ACTV does not make any payment due under any Enhancement License Agreement
within fifteen (15) days following the due date of such payment, then ACTV shall
be liable to the appropriate Licensor for and pay interest charges on such
delinquent amount(s) at the rate of 1.5% per month compounded monthly or the
maximum rate of interest permitted by law, whichever is less, commencing with
the due date and ending upon payment of such delinquent amount and accrued
interest.
7. Receipt and Transmission of Signal.
ACTV shall arrange for the broadcast quality
transmission, at ACTV's cost, of each Licensor's Basic Regional Service by means
of a digital land line connection provided by a commercial carrier from such
Licensor's master control facilities (or such other location as may be specified
in the Enhancement License Agreement) to ACTV's designated production facility.
Each Licensor will cooperate in the installation of any such land line
connection and shall insure that the Basic Regional Service is delivered to the
appropriate connection throughout the License Term. ACTV, at its own expense,
shall pay for all incremental production costs as they relate to the Enhancement
of the RSN Programming in order to create the Enhanced Regional Package and the
creation of Enhanced Advertising, and ACTV shall cause the Basic Regional
Service to be received and the Enhanced Regional Package to be Distributed in
accordance with all applicable local, state and federal laws. Each Licensor and
ACTV shall each use their respective best reasonable efforts to maintain at all
times a level of signal transmission quality comparable to the current level of
quality of the Affiliated RSN's signal transmissions to their Basic Regional
Service Distributors.
8. Advertising.
With the written permission of the appropriate
Licensor and the affected
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<PAGE>
advertiser, ACTV shall have the right, at its sole cost and expense, in any
Enhanced Program, to Enhance any commercial advertisement (or substitute an
alternative Enhanced Advertisement in the place of any commercial advertisement)
included in the RSN Program on which such Enhanced Program was based. ACTV shall
pay to each Licensor out of the gross revenue net of agency commissions derived
from such Enhancement (the "Enhanced Advertising Revenue") any amounts which
ACTV and such Licensor have agreed should be paid by such Licensor to secure the
right to Enhance any of its RSN Programming. ACTV also shall pay to such
Licensor one-half (1/2) and shall retain for its own account the other one-half
(1/2) of the Enhanced Advertising Revenue generated with respect to the Enhanced
Regional Package which is based on such Licensor's Basic Regional Service (net
of any amounts paid to such Licensor pursuant to the immediately preceding
sentence to reimburse it for agreed upon costs of securing the right to Enhance
any of its RSN Programming). Any such Enhancement or substitute Enhanced
Advertising shall be limited to running entirely within the same time slot as
the original unenhanced version of such advertisement. ACTV shall work with each
Licensor's advertising sales department to jointly market Enhanced
Advertisements to such Licensor's advertising clients. ACTV and each Licensor
shall work together in order to maximize the revenue potential of Enhanced
Advertising.
9. Termination by Licensor.
The rights (including the Enhancement License)
granted by a Licensor under an Enhancement License Agreement and this Master
Agreement may, at such Licensor's option, upon written notice to ACTV, be
terminated by such Licensor at any time after any of the following occurrences:
(a) An assignment by ACTV for the benefit of
creditors, a filing by
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<PAGE>
ACTV of a voluntary petition in bankruptcy, a filing of a petition
against or an adjudication of ACTV under any bankruptcy or insolvency
law not discharged within 45 days, or an appointment of a receiver for
all or any portion of ACTV's property not discharged within 30 days;
(b) Any breach by ACTV of any payment or other
monetary covenant or obligation hereunder, which breach is not cured
within 15 days after ACTV's receipt of written notice thereof from the
Licensor;
(c) Any intentional breach by ACTV of any
covenant or obligation hereunder to refrain from exhibiting or
distributing any specified programming or advertising in any particular
locale; or
(d) Any breach by ACTV of any material
representation, warranty, covenant or obligation hereunder or under the
Enhancement License Agreement with such Licensor (other than any
covenant or obligation referred to in Sections 9(b) or 9(c) which is
not cured within 30 days after written notice thereof to ACTV; provided
that if ACTV is unable to cure such breach because of the nature of
such breach, the Licensor may not terminate such Enhancement License
Agreement if (i) within 30 days after such notice to ACTV, ACTV has
taken reasonable steps to prevent a recurrence of such breach and such
breach does not give rise to continuing damages to such Licensor, or
(ii) such breach is caused by any reason beyond ACTV's reasonable
control.
Nothing in this Section 9 shall be deemed to limit
any cause of action or recourse (except as herein otherwise expressly provided
with respect to the termination hereof) which Liberty or any Licensor may have
against ACTV, whether in common law, in equity, by
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<PAGE>
statute or otherwise, for any breach by ACTV of any warranty, covenant or
obligation of ACTV hereunder or under any Enhancement License Agreement or any
misrepresentation by ACTV hereunder or under any Enhancement License Agreement.
10. Termination by ACTV.
Any Enhancement License Agreement may, at ACTV's
option, upon written notice to the Licensor, be terminated by ACTV at any time
after any one of the following occurrences:
(a) An assignment by such Licensor for the benefit of
creditors, a filing by such Licensor of a voluntary petition in
bankruptcy, a filing of a petition against or an adjudication of such
Licensor under any bankruptcy or insolvency law not discharged within
45 days, or an appointment of a receiver for all or any portion of such
Licensor's property not discharged within 30 days; or
(b) Any breach by such Licensor of any material
representation, warranty, covenant or obligation which is not cured
within 30 days after written notice thereof to such Licensor; provided
that if such Licensor is unable to cure such breach because of the
nature of such breach, ACTV may not terminate such Enhancement License
Agreement if: (i) within 30 days after such notice to such Licensor,
such Licensor has taken reasonable steps to prevent a recurrence of
such breach and such breach does not give rise to continuing damages
to ACTV, or (ii) such breach is caused by any reason beyond such
Licensor's reasonable control.
Nothing in this Section 10 shall be deemed to limit
any cause of action or recourse (except as herein otherwise expressly provided
with respect to the termination hereof)
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<PAGE>
which ACTV may have against Liberty or any Licensor, whether in common law, in
equity, by statute or otherwise, for any breach of any warranty, covenant or
obligation of Liberty hereunder or of a Licensor under an Enhancement License
Agreement or hereunder or any misrepresentation by Liberty hereunder or by a
Licensor under an Enhancement License Agreement, provided that neither Liberty
nor any Licensor shall have any liability for any consequential damages, Liberty
shall have no liability for any breach or misrepresentation by any Licensor and
no Licensor shall have any liability for any breach or misrepresentation by
Liberty or any other Licensor.
Notwithstanding the above, the above right of
termination and the adjustment to the License Fees specified in the applicable
Enhancement License Agreement shall be ACTV's sole rights of recourse against a
Licensor if, during any Year or other specified period of the applicable License
Term such Licensor fails to provide the RSN Programming required pursuant to
such Licensor's Programming Commitment, provided such Licensor has made
available to ACTV for Enhancement and Distribution all of such Licensor's RSN
Programming, limited only by applicable Rights Restrictions. Neither Liberty nor
any Licensor shall have any further obligation or liability to ACTV as a result
of such failure or termination. In the event of any such failure, then at any
time during the 60-day period immediately following such Year or other specified
period for which such failure shall have occurred, ACTV may terminate such
Enhancement License Agreement upon notice to such Licensor, and such Enhancement
License Agreement shall terminate 60 days after the date of such notice.
11. Non-Agency.
No general partner, limited partner, shareholder,
member, director, officer, employee, agent, servant or independent contractor of
any party to this Master Agreement or any
15
<PAGE>
Enhancement License or its subsidiaries or affiliates shall at any time be
deemed by reason of anything contained in this Master Agreement or any
Enhancement License Agreement (or the performance thereof) to be an employee,
servant or agent of any other such party for any purpose whatsoever, and such
party shall use its best reasonable efforts to prevent any such
misrepresentation. This Master Agreement and the Enhancement License Agreements
are not intended, nor shall they be deemed, to create a partnership or joint
venture by or between or among ACTV and Liberty and/or any Licensor.
12. Representations of Liberty.
Liberty represents and warrants as follows:
(a) It is a limited liability company formed under
the laws of the State of Delaware and is empowered to grant the rights
and privileges granted hereunder, and this Master Agreement has been
duly executed by it and constitutes a valid and enforceable obligation
of it; and
(b) It has not made nor will it make any
contractual or other commitments which will or may prevent, impair or
hinder its full performance of this Master Agreement.
13. Representations of Licensors.
By its execution of an Enhancement License Agreement
pursuant to this Master Agreement, each Licensor shall be deemed to have
represented and warranted as follows:
(a) It is a corporation or other entity (as indicated
on the Enhancement License Agreement) duly formed under the laws of the
state of its formation indicated on the Enhancement License Agreement
and is empowered to grant the rights, Enhancement
16
<PAGE>
License and privileges granted by it under the Enhancement License
Agreement and this Master Agreement, and the Enhancement License
Agreement has been duly executed by it and constitutes a valid and
enforceable obligation of it;
(b) Except for applicable Rights Restrictions and, to
the extent disclosed to ACTV prior to the execution of the Enhancement
License Agreement, other preexisting contractual restrictions, such
Licensor has not made nor will it make any contractual or other
commitments which will or may prevent, impair or hinder its full
performance of its obligations under the Enhancement License Agreement
and this Master Agreement.
(c) The RSN Programming furnished to ACTV by it under
the Enhancement License will not violate the right of privacy or
publicity of or constitute a libel or slander against or violate or
infringe upon any trademark,
trade name, patent, copyright or any literary, artistic, dramatic,
music or other right of any person, corporation, partnership, trust,
association or other entity (each individually a "Person").
By its execution of an Enhancement License Agreement
pursuant to this Master Agreement, each Licensor shall be deemed to have further
represented and warranted that each of the foregoing representations and
warranties set forth in this Section 13 shall be true and correct in all
respects on and as of each and every date during and throughout the License Term
as though made on and as of such date(s).
14. Representations of ACTV.
ACTV represents and warrants that:
(a) It is a corporation duly incorporated, validly
existing and in good
17
<PAGE>
standing in the State of Delaware; it is empowered to enter into and
perform this Master Agreement and any Enhancement License Agreements
it may enter into; it will not provide and will not authorize any other
person, entity or organization to provide the Enhanced Regional Package
or any Enhanced Programming to any Person at any point outside the
Territory or to anyone other than a Basic Regional Service Customer or
other than in accordance with the Enhancement License without written
authorization by Licensor; and this Master Agreement has been, and any
Enhancement License Agreements it may enter into will have been, duly
executed by ACTV, and this Master Agreement constitutes (and any such
Enhancement License Agreement will constitute) a valid and enforceable
obligation of it;
(b) It has not made nor will it make any
contractual or other commitment which will or may prevent, impair or
hinder its full performance of this Master Agreement or any Enhancement
License Agreement it may enter into;
(c) It will not provide the Enhanced Regional Package
in any fashion to any Person without a charge or fee therefor to such
Person, except to those Persons to whom it is standard in the industry
to provide such service without a charge or fee (i.e., ACTV employees),
or to those Persons that ACTV deems appropriate in order to promote the
Enhanced Regional Package.
(d) All Enhanced Programming and Enhanced
Advertising Distributed by it will be Distributed in accordance with
the terms of this Master Agreement and the Enhancement License;
(e) Any programming (including, without limitation,
any Enhanced
18
<PAGE>
Advertising) provided and/or inserted in any Enhanced Regional
Package by ACTV or any of its sublicensees, the Enhancement of
any RSN Programming and the Distribution of each Enhanced Regional
Package will not violate the right of privacy or publicity of or
constitute a libel or slander against or violate or infringe upon any
trademark, trade name, patent, copyright or any literary, artistic,
dramatic, music or other right of any Person (including, without
limitation, any Rights Restriction).
ACTV further represents and warrants that each of the
foregoing representations and warranties set forth in this Section 14 shall be
true and correct in all respects on and as of each and every date during and
throughout the Term of this Master Agreement and any License Term as though made
on and as of such date(s).
15. Indemnification.
Each Licensor shall indemnify ACTV against and hold
it harmless from any claim, liability, loss or damage caused by or arising out
of the exhibition in accordance with the terms of this Master Agreement and the
applicable Enhancement License Agreement of any RSN Programming furnished to
ACTV by such Licensor pursuant to the applicable Enhancement License Agreement
and this Master Agreement which claim, liability, loss or damage is based on the
content of such RSN Programming as supplied by such Licensor. ACTV shall
indemnify Liberty and each Licensor against and hold them harmless from any
claim, liability, loss or damage caused by or arising out of the Enhancement of
any RSN Programming or any Distribution or other distribution or exhibition of
an Enhanced Regional Package or any programming (including, without limitation,
any Enhanced Advertising) provided or inserted in the Enhanced Regional Package
by ACTV or any of its sublicensees. Termination of this Master Agreement or any
19
<PAGE>
Enhancement License shall not affect any continuing obligation of any of such
parties as an indemnitor hereunder. Upon written request of an indemnitee, the
indemnitor shall assume the defense of any claim, demand or action against such
indemnitee and will, upon request by the indemnitee, allow the indemnitee to
participate in the defense thereof Settlement by the indemnitee without the
indemnitor's prior written consent shall release the indemnitor from the
indemnity as to the claim, demand or action so settled.
16. Records of ACTV.
ACTV shall furnish to each Licensor, together with
its monthly payment to such Licensor, a statement certified by its Chief
Executive Officer or Chief Financial Officer which provides the calculation
which determined the payment to be made by ACTV to such Licensor for said month,
in addition to the number of ACTV's Subscribers to the Enhanced Regional Package
in question and all other parameters upon which such calculation was based and a
separate certified statement that all RSN Programming, including all
advertising, on which any Enhanced Programming included in the Enhanced Regional
Package by ACTV was based has been Distributed by ACTV in accordance with the
terms of the applicable Enhancement License Agreement and this Master Agreement.
ACTV shall keep, maintain and preserve complete and accurate
records and accounts, including all invoices, correspondence, ledgers, and
financial and other records pertaining to each Enhancement License Agreement
including, for each month, the "Number of Subscribers" as such term is defined
in Exhibit B. ACTV agrees that such records and accounts shall be available for
inspection, audit and copying at any time or times during and for a period of
one year after the end of the calendar year during which such record or account
was made, during reasonable business
20
<PAGE>
hours, by Licensor or its representatives.
Each Licensor shall maintain and preserve the confidentiality
of all of ACTV's records and accounts (and any and all copies thereof made by
such Licensor or its representatives) and shall use such records and accounts
(and copies thereof solely for purposes of monitoring and enforcing ACTV's
performance of the applicable Enhancement License Agreement; provided that
nothing herein shall be deemed to waive or restrict any right which any Licensor
may at any time have to use any of such records, accounts and/or copies in any
legal proceeding relating to the applicable Enhancement License Agreement. The
exercise by a Licensor, in whole or in part, at any time or times of the right
to audit and copy records and accounts or of any right granted herein or in any
applicable Enhancement License Agreement, or the acceptance by a Licensor of any
statement or payment tendered by or on behalf of ACTV, shall be without
prejudice to any rights or remedies of such Licensor and shall not preclude such
Licensor from thereafter disputing the accuracy or acceptability of any such
statement or payment.
17. Notices.
All notices, requests, demands, directions and other
communications provided for hereunder or under any applicable Enhancement
License Agreement shall (except as otherwise provided in Section 4(c)
hereinabove) be in writing and shall be deemed duly given on the earlier of
actual receipt by the parties specified below or 5 days after being mailed (by
registered or certified mail, postage prepaid) addressed as specified in the
applicable Enhancement License Agreement, with copies as follows:
If to Licensor: Mr. Robert L. Thompson
Fox Sports Net
44 Cook Street, Suite 600
21
<PAGE>
Denver, Colorado 80206
and Julian K. Quattlebaum, 111, Esq.
Fox Sports West
10000 Santa Monica Boulevard
Suite 200
Los Angeles, California 90067
If to ACTV: President
ACTV, Inc.
1270 Avenue of the Americas
Rockefeller Center, Suite 2401
New York, New York 10020
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party in the manner set forth in this Section
17.
18. Preemptions.
ACTV expressly acknowledges and agrees that ACTV will
not be permitted to Enhance and Distribute and no Licensor shall be obligated to
provide to ACTV for Enhancement or inclusion in an Enhanced Regional Package any
RSN Program of which Licensor's telecast, ACTV's Enhancement or ACTV's
Distribution of an Enhanced version is otherwise restricted, preempted,
prohibited or otherwise not allowed in any part of the relevant Territory
pursuant to the applicable rules or regulations of and/or applicable agreements
with any Rights Source ("Rights Restrictions"), and the provision, Enhancement,
Distribution and exhibition of the Enhanced Programming and the Enhanced
Regional Packages shall be subject to and limited by all such Rights
Restrictions, provided that, in the case of any Rights Restriction contained in
an agreement to which a Licensor is a party, such agreement shall have been
entered into by such Licensor in good faith. In the case of any such
restriction, preemption or prohibition, ACTV's Enhancement Commitment shall be
inapplicable to any RSN Programs which are so restricted, preempted or
22
<PAGE>
prohibited.
19. Regulations.
The obligations of ACTV and each Licensor under the
Enhancement License Agreements and this Master Agreement are subject to all
applicable Federal, State and local laws, rules and regulations (including,
without limitations the Communications Act of 1934, as amended, and the rules
and regulations of the Federal Communications Commission, and/or of any other
governmental body or agency).
20. Reservations.
Except as expressly provided herein, all rights in
and to the Basic Regional Services and the RSN Programming and its content are
reserved to Liberty and/or the respective Licensors and may be exercised and
exploited by Liberty and/or such Licensors in all respects concurrently herewith
and during the Term hereof and all License Terms freely and without limitation
or restriction, both within and without the Territory. ACTV acknowledges that
ACTV's use of the Licensors' RSN Programming and trademarks will reflect on the
Licensors and Liberty and that therefore Liberty and the Licensors retain the
right to approve and control the manner in which their respective RSN
Programming and trademarks are used in the processes of Enhancement and
Distribution. Without in any way limiting the foregoing, ACTV acknowledges that
the names, trade names and trademarks "Fox", "Fox Sports" and any other names,
trade names and/or trademarks used by Liberty and/or any Licensor from time to
time in connection therewith, are, as between ACTV on the one hand and Liberty
and the Licensors on the other, the exclusive property of Liberty and/or the
Licensors and that ACTV has not and will not acquire any proprietary rights
therein by reason of this Master Agreement, any Enhancement License
23
<PAGE>
Agreement or otherwise. ACTV will not use "Fox", "Fox Sports" or any other name,
trade name or trademark used by Liberty or any Licensor from time to time in any
corporate name or trade name of ACTV, or otherwise use or assert a claim for any
interest therein, except that ACTV may utilize or refer to the aforementioned
names and marks of Liberty and the Licensors in accordance with Section 24 of
this Master Agreement and such additional instructions as may be issued by
Liberty or the appropriate Licensor to ACTV from time to time. Similarly,
Liberty acknowledges and each Licensor shall be deemed to have acknowledged that
the name, trade name and trademark "ACTV" and any other names, trade names
and/or trademarks used by ACTV from time to time in connection therewith, are
the exclusive property of ACTV and that Liberty and the Licensors have not and
will not acquire any proprietary rights therein by reason of this Master
Agreement, any Enhancement License Agreement or otherwise. Neither Liberty nor
any of the Licensors will use "ACTV" or any other name, trade name or trademark
used by ACTV from time to time in any corporate name or trade name of Liberty or
any Licensor, or otherwise use or assert a claim for any interest therein,
except that Liberty and the Licensors may utilize or refer to the aforementioned
names and marks of ACTV in accordance with such instructions as may be issued by
ACTV to Liberty and the Licensors from time to time.
21. Taxes.
ACTV shall save and hold Liberty and each Licensor
forever harmless from all taxes, franchise fees and any other charges now or
hereafter imposed upon ACTV or based upon the Enhancement, rental, license,
Distribution, exhibition, possession or use by ACTV of the RSN Programming, any
Basic Regional Service, any Enhanced Programming or any Enhanced Regional
Package or any part thereof.
24
<PAGE>
22. Assignment.
All of the terms and provisions of this Master
Agreement, the Enhancement Licenses and the Enhancement License Agreements shall
be binding upon and inure to the benefit of the parties thereto and, subject to
the following sentence, their respective transferees, successors and assigns.
This Master Agreement, the Enhancement Licenses and the Enhancement License
Agreements may not be assigned by ACTV to any party other than a majority-owned
subsidiary of ACTV without the written consent of Liberty and any affected
Licensors.
23. Amendments and Waivers.
Neither this Master Agreement nor any Enhancement
License Agreement may be amended or modified in any respect except by a written
instrument executed by the parties hereto or thereto. No officer, employee or
representative of Liberty, any Licensor or ACTV has any authority to make any
representation or promise not contained in this Master Agreement, and neither
Liberty nor ACTV has executed this Master Agreement, and neither ACTV nor any
Licensor shall be deemed to waive entered into any Enhancement License Agreement
in reliance upon any such representation or promise. No failure on the part of
Liberty, any Licensor or ACTV to exercise, no delay in exercising, and no course
of dealing with respect to any right or remedy hereunder or under any
Enhancement License Agreement shall operate as a waiver thereof nor shall any
single or partial exercise of any such right or remedy (including, without
limitation, any termination of this Master Agreement or any Enhancement License)
preclude any other or further exercise thereof or the exercise of any other
right or remedy (the remedies provided herein being cumulative and not exclusive
of any remedies provided by law).
24. Logos.
25
<PAGE>
Subject to Liberty's and the Licensors' rights to
control the manner in which their logos and trademarks are used and the quality
of the reproductions thereof used by ACTV, ACTV shall publicize, promote,
prominently display and exhibit the logos and trademarks of each Licensor's
Basic Regional Service in ACTV's promotional materials and advertising where
appropriate, as determined by ACTV.
25. Force Majuere.
Neither Liberty, any Licensor nor ACTV shall have any
claims against any of the others for failure to provide the Licensor's Basic
Regional Service or any RSN Programming or to Distribute the Enhanced Regional
Package or any Enhanced Programming, as the case may be, if such failure is due
to any act of God, accident, fire, lock-out, strike or other labor dispute, riot
or civil commotion, failure of technical facilities, act of public enemy,
enactment, rule, order or act of governmental authority, failure of electrical
power or other cause beyond ACTV's or the relevant Licensor's control. The
obligation of ACTV to make payment under any Enhancement License Agreement or
any section of this Master Agreement shall not be reduced except as otherwise
provided in the Enhancement License Agreement. In the event of any such failure
of a Licensor to furnish the Basic Regional Service signal or in the event of
any technical failure beyond ACTV's control, neither Liberty, such Licensor nor
ACTV shall incur any obligation or liability under this Master Agreement or any
Enhancement License Agreement by reason of such event. The affected party shall
notify the other party, within two weeks of said suspension, of its intentions
with respect to resuming performance, and the other party may tern-terminate
this Master Agreement if performance is not resumed within 90 days following
said failure by notice within 15 days following such 90- day period.
26
<PAGE>
26. No Personal Liability.
Notwithstanding anything contained in this Master
Agreement or any Enhancement License Agreement to the contrary, it is expressly
understood and agreed by the parties to this Master Agreement and shall be
deemed to have been agreed by each Licensor that each and every representation,
undertaking and agreement made in this Master Agreement or any Enhancement
License Agreement on the part of any party to any of such agreements was not
made nor intended to be made as a personal representation, undertaking or
agreement on the part of any incorporator, stockholder, member, director,
officer, employee and/or partner, past, present or future, of any of such
parties, and no personal liability is assumed by, nor shall any recourse at any
time be asserted or enforced against, any such incorporator, stockholder,
member, director, officer, employee and/or partner, past, present or future, of
any of such parties, all of which recourse, whether in common law, in equity, by
statute or otherwise, is hereby forever waived and released.
27. Governing Law and Interpretation.
THIS MASTER AGREEMENT AND EACH ENHANCEMENT LICENSE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PROVISIONS
THEREOF. Unless otherwise specified, all references in this Master Agreement to
an "Exhibit" shall be interpreted as a reference to the specified Exhibit
attached to this Master Agreement, all of which are hereby incorporated herein
by reference. All capitalized terms used in this Master Agreement which are not
otherwise defined in this Master Agreement shall have the meanings assigned to
them in Exhibit B attached to this Master Agreement unless another meaning is
clearly indicated by the
27
<PAGE>
context. The section headings used herein and in any Enhancement License
Agreement have been inserted for convenience of reference only and shall not be
considered in interpreting either of such agreements. Whenever required by the
context hereof, the singular shall include the plural and vice versa, and any
reference to any particular gender shall include such others as may be
appropriate. Any provision of this Master Agreement or any Enhancement License
Agreement which shall be invalid or unenforceable in any jurisdiction shall be
severable herefrom or therefrom as to such jurisdiction and shall not affect the
validity or enforceability of any other provision hereof or thereof in such
jurisdiction or the validity and enforceability of such provision in any other
jurisdiction.
28. Confidentially.
ACTV agrees not to disclose to any third party (other
than its employees and professional advisors in their capacities as such), any
information with respect to the terms and provisions of this Master Agreement or
any Enhancement License Agreement, except: (a) to the extent necessary to comply
with law or the valid order of a court of competent jurisdiction, in which event
ACTV shall so notify Liberty and the appropriate Licensor as promptly as
practicable (and, if possible, prior to making such disclosure) and shall seek
confidential treatment of such information; (b) as part of its normal reporting
or review procedure to its parent company, its auditors and its attorneys
provided, however, that such parent company, auditors and attorneys agree to be
bound by the provisions of this Section 28; (c) in order to perform its
obligations or enforce its rights under this Master Agreement or such
Enhancement License Agreement; and (d) with the prior written consent of Liberty
and any affected Licensor, which consent will not be unreasonably withheld.
28
<PAGE>
29. League Mandated Provisions.
The following provision shall be deemed incorporated
in each of the Enhancement License Agreements:
The copyright in and to any National Basketball Association
("NBA") game telecast authorized by this contract belongs
exclusively to the NBA and no use of any portion of any game
telecast may be made without the express authorization of the
NBA. This contract is subject to (i) the Constitution, By-Laws
and all other rules and regulations of the NBA as they
presently exist and as they may from time to time be amended,
and (ii) the terms of any existing or future contracts entered
into by the NBA, the NBA Market Extension Partnership, or NBA
Properties, Inc. for the telecast (by any mode) of basketball
games.
30. Entire Agreement.
This Master Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings relating to the
subject matter hereof
IN WITNESS WHEREOF, Licensor and ACTV have caused this Master
Agreement to be duly executed as of the date first above written.
ACTV, INC. LIBERTY/FOX U.S. SPORTS, L.L.C.
By: _________________________ By: __________________________
David Reese Executive Vice President
President
Date: Date:
29
Certain information contained in this exhibit has been omitted and filed
separately with the Commission along with an application for Non-disclosure of
Information pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
<PAGE>
ENHANCEMENT LICENSE AGREEMENT
THIS ENHANCEMENT LICENSE AGREEMENT (this "License Agreement") is made
and entered into by and between Prime Ticket Networks, L.P., a limited
partnership formed under the laws of the State of California, d/b/a "Fox Sports
West" ("Licensor") and ACTV, Inc., a corporation formed under the laws of the
State of Delaware ("ACTV") to be effective as of the 3rd day of December 1996
pursuant to that certain Master Programming License Agreement dated December 2,
1996 between ACTV and Liberty/Fox U.S. Sports, L.L.C. (the "Master Agreement").
1. Grant of Enhancement License. Licensor hereby grants to
ACTV a non-exclusive Enhancement License (all capitalized ten-terms used in this
License Agreement which are not otherwise defined in this License Agreement
shall have the meanings assigned to them in the Master Agreement) to Enhance and
Distribute Licensor's RSN Programming in accordance with and subject to the
terms of the Master Agreement, the terms and provisions of which are hereby
incorporated in this License Agreement in their entirety as though restated
herein.
2. Territory. The Territory covered by the Enhancement License
granted hereby shall be as set forth on Schedule I attached to this License
Agreement.
3. License Term. The License Term of the Enhancement License
granted hereby shall be from December 3, 1996 to December 31, 2001. ACTV agrees
to negotiate in good faith with Licensor during the 60-day period commencing 90
days prior to the end of the License Term or any extension thereof with respect
to an extension of this Enhancement License, and ACTV agrees that it will not,
during or prior to the end of such period, negotiate or entertain any offers
from any other party regarding any Enhancement or distribution of any sports
programming which would violate the terms of this Enhancement License if done
during the License Term.
<PAGE>
4. Licensor's Programming Commitment. Licensor agrees, during
the License Term, to make available to ACTV for Enhancement and inclusion in the
Enhanced Regional Package at least the RSN Programming specified on Schedule 2
attached to this License Agreement and agrees that the License Fees specified in
Section 6 of this License Agreement shall be subject to the reductions specified
on such Schedule 2 if Licensor falls to meet such Programming Commitment.
5. ACTV's Enhancement Commitment. ACTV agrees that its
Enhancement Commitment to Enhance and Distribute as part of the Enhanced
Regional Package will extend, throughout the License Term, to all of the
Licensor's RSN Programming which consists of professional sporting events (other
than those specifically excluded on Schedule 3 attached to this License
Agreement) and to all other RSN Programming specified on such Schedule 3.
6. License Fees. As partial consideration for the Enhancement
License granted hereby, ACTV shall pay Licensor for each month during the
License Tenn, commencing with the month during which the first Enhanced Program
is Distributed by ACTV, the following:
(A) Until such time as the Number of Subscribers for any
month exceeds [XXXXXXX]:
(1) the product of $[XXXXXXX] multiplied by the
lesser of (a) the Number of Subscribers for
the month for which payment is being computed
or (b) [XXXXXXX], plus
(2) the product of $[XXXXXXX] multiplied by the
excess, if any, of the Number of Subscribers
for the month for which payment is being
computed over [XXXXXXX]
(B) For the first month for which the Number of
Subscribers exceeds
<PAGE>
[XXXXXXX] and for each month during the License Term
thereafter:
(1) the product of $[XXXXXXX] multiplied by the
lesser of (a) the Number of Subscribers for
the month for which payment is being computed
or (b) [XXXXXXX], plus
(2) the product of $[XXXXXXX] multiplied by the
excess, if any, of the Number of Subscribers
for the month for which payment is being
computed over [XXXXXXX].
7. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
8. Addresses for Notices. All notices, requests, demands,
directions and other communications relating to this License Agreement, the
Enhancement License granted hereby or the Master Agreement shall be addressed as
follows:
<PAGE>
If to Licensor: General Manager
Fox Sports West
10000 Santa Monica Blvd.
Los Angeles, CA 90067
With a copy to: Legal Department
Fox Sports West
10000 Santa Monica Blvd.
Los Angeles, CA 90067
If to ACTV: President
ACTV, Inc.
1270 Avenue of the Americas
Rockefeller Center, Suite 2401
New York, New York 10020
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party in the manner set forth in Section 17 of
the Master Agreement.
9. Ratings. ACTV represents and warranties that the
viewers of the Enhanced Package will be included among Licensor's viewers by the
appropriate ratings service (such as, for example Nielson) for purposes of
computing Licensor's viewership ratings.
10. Entire Agreement. This License Agreement and the
Master Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof, and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof.
<PAGE>
IN MATTER WHEREOF, Licensor and ACTV have caused the License
Agreement to be duly executed as of the date first above written.
ACTV, Inc.
Prime Ticket Network, L.P.
By: /s/ David Reese By: /s/
-------------------------- ---------------------------
President General Manager
Date: 12/4/96 Date: 12/4/96
<PAGE>
SCHEDULE 1
to Enhancement License Agreement between
ACTV, Inc. and Prime Ticket Networks, L.P.
The Territory shall be that portion of the State of California which is south of
the northern boundaries of Monterey, San Benito, Fresno and Inyo Counties, plus
the State of Hawaii and Clark County, Nevada.
<PAGE>
SCHEDULE 2
to Enhancement License Agreement between
ACTV, Inc. and Prime Ticket Networks, L.P.
Licensor agrees that it will make available to ACTV for Enhancement and
inclusion in the Enhanced Regional Package all of Licensor's RSN Programming,
limited only by applicable Rights Restrictions. If for any year during the
License Term ACTV nevertheless is unable, for lack of sufficient rights to such
events, to Enhance and Distribute at least 100 professional events out of
Licensor's RSN Programming, the monthly License Fees for such year shall be
adjusted to the product of $[XXXXXXX] (or such greater amount as may be
specified under Section 7 of this License Agreement) multiplied by the Number of
Subscribers for the month for which payment is being computed.
<PAGE>
SCHEDULE 3
to Enhancement License Agreement between
ACTV, Inc. and Prime Ticket Networks, L.P.
If at any time during the License Term Licensor requests that ACTV Enhance and
Distribute as part of the Enhanced Regional Package any of Licensor's RSN
Programming, ACTV agrees to give such request serious consideration and to
negotiate in good faith with Licensor regarding such request.
enh-2.doc December 4, 1996
EXHIBIT 10.16
Certain information contained in this exhibit has been omitted and filed
separately with the Commission along with an application for Non-disclosure of
Information pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
<PAGE>
ENHANCEMENT LICENSE AGREEMENT
THIS ENHANCEMENT LICENSE AGREEMENT (this "License Agreement")
is made and entered into by and between ARC Holding, Ltd., a limited partnership
formed under the laws of the State of Texas, d/b/a "Fox Sports Southwest"
("Licensor") and ACTV, Inc., a corporation formed under the laws of the State of
Delaware ("ACTV") to be effective as of the 28th day of February 1997 pursuant
to that certain Master Programming License Agreement dated December 2, 1996
between ACTV and Liberty/Fox U.S. Sports, L.L.C. (the "Master Agreement").
1. Grant of Enhancement License. Licensor hereby grants to
ACTV a non-exclusive Enhancement License (all capitalized terms used in this
License Agreement which are not otherwise defined in this License Agreement
shall have the meanings assigned to them in the Master Agreement) to Enhance and
Distribute Licensor's RSN Programming in accordance with and subject to the
terms of the Master Agreement, the terms and provisions of which are hereby
incorporated in this License Agreement in their entirety as though restated
herein.
2. Territory. The Territory covered by the Enhancement
License granted hereby shall be as set forth on Schedule I attached to this
License Agreement.
3. License Term. The License Term of the Enhancement License
granted hereby shall be from January 31, 1997 to December 31, 2001. ACTV agrees
to negotiate in good faith with Licensor during the 60-day period commencing
90 days prior to the end of the License Term or any extension thereof with
respect to an extension of this Enhancement License, and ACTV agrees that it
will not, during- or prior to the end of such period, negotiate or entertain any
<PAGE>
offers from any other party regarding any Enhancement or distribution of any
sports programming which would violate the terms of this Enhancement License if
done during the License Term.
4. Licensor's Prop-Programming Commitment. Licensor agrees,
during the License Term, to make available to ACTV for Enhancement and inclusion
in the Enhanced Regional Package at least the RSN Programming specified on
Schedule 2 attached to this License Agreement and agrees that the License Fees
specified in Section 6 of this License Agreement shall be subject to the
reductions specified on such Schedule 2 if Licensor fails to meet such
Programming, Commitment.
5. ACTV's Enhancement Commitment. ACTV agrees that its
Enhancement Commitment to Enhance and Distribute as part of the Enhanced
Regional Package will extend, throughout the License Term, to all of the
Licensor's RSN Programming which consists of professional sporting events (other
than those specifically excluded on Schedule 3 attached to this License
Agreement) and to all other RSN Programming specified on such Schedule
6. License Fees. As partial consideration for the Enhancement
License granted hereby, ACTV shall pay Licensor for each month during the
License Term, commencing with the month during which the first Enhanced Program
is Distributed by ACTV, the following:
(A) Until such time as the Number of Subscribers for any month
exceeds [XXXXXXX]:
(1) $[XXXXXX] multiplied by the lesser of (a)
the Number of Subscribers for the month for
which payment is being computed or
(b) [XXXXXXX], plus
(2) $[XXXXXXX] multiplied by the lesser of (a)
the excess, if any, of
<PAGE>
the Number of Subscribers for the month for
which payment is being computed over
[XXXXXXX], or (b) [XXXXXXX], plus
(3) $[XXXXXXX] multiplied by the lesser of (a)
the excess, if any of the Number of
Subscribers for the month for which payment
is being computed over [XXXXXXX], or (c)
[XXXXXXX].
(B) For the first month for which the Number of
Subscribers exceeds 300,000 and for each month during
the License Term thereafter:
(1) $[XXXXXXX] multiplied by the lesser of (a)
the Number of Subscribers for the month for
which payment is being computed or (b)
[XXXXXXX], plus
(2) $[XXXXXXX] multiplied by the excess, if any,
of the Number of Subscribers for the month
for which payment is being, computed over
[XXXXXXX].
7.[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX.]
8. Addresses for Notices. All notices, requests, demands,
directions and other
<PAGE>
communications relating to this License Agreement, the Enhancement License
granted hereby or the Master Agreement shall be addressed as follows:
If to Licensor: General Manager
Fox Sports Southwest
100 East Royal Lane
Irving, Texas 75039
With a copy to: Legal Department
Fox Sports Southwest
100 East Royal Lane
Irving, Texas 75039
If to ACTV: President
ACTV
1270 Avenue of the Americas
Rockefeller Center, Suite 2401
New York, New York 10020
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party in the manner set forth in Section 17 of
the Master Agreement.
9. Ratings. ACTV represents and warrants that the
viewers of the Enhanced Regional Package will be included among Licensor's
viewers by the appropriate ratings service (such as, for example Nielsen) for
purposes of computing Licensor's viewership ratings.
10. Entire Agreement. This License Agreement and the
Master Agreement set forth the entire a-agreement and understanding of the
parties relating- to the subject matter hereof, and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof.
11. Coordination of Advertising Sales Efforts. Notwithstanding
anything in the Master Agreement to the contrary, to ensure a cohesive sales
efforts and to avoid advertisers' and ad sales personnel's confusion, ACTV may
only make sales calls for advertising, sales for Enhanced Advertising in
Licensor's Enhanced RSN Programming in conjunction with or, with respect to each
<PAGE>
such sales call, with the prior approval of, Licensor.
12. Coordination of Affiliate Sales Efforts.
(A) Notwithstanding anything in the Master Agreement to the
contrary, ACTV will keep Licensor fully apprised of, and will allow
Licensor reasonable input to and will seriously consider in good faith
Licensor's input to, ACTV's efforts to enter into licenses, and the
terms of such licenses, with Licensor's Basic Regional Service
Distributors for distribution of the Enhanced Regional Package. Without
limiting the Generality of the prior sentence, ACTV will keep Licensor
fully apprised of (i) ACTV's suggested retail rate and ACTV's wholesale
rate for the Enhanced Regional Package-e, subject, however, to an
nondisclosure requirements in ACTV's agreement with Licensor's Basic
Regional Service Distributors, which non-disclosure requirements ACTV
will use it good faith best efforts to ensure do not prohibit
disclosure of such information to Licensor, (ii) the other Enhanced
programming packaged with the Enhanced Regional Package, and (iii)
ACTV's sales visits to Basic Regional Service Distributors' offices
within the Territory.
(B) Notwithstanding anything in the Master Agreement to the
contrary, absent Licensor prior written consent, ACTV may only license
the Enhanced Regional Package to those of Licensor's Basic Regional
Service Distributors who at all relevant times are carrying the Basic
Regional Service on the each applicable system's basic tier or expanded
basic tier.
(C) ACTV must not in its dealings with any of Licensor's Basic
Regional Service Distributors adversely interfere with Licensor's
relationship with such Distributors, including without limitation
urging any Distributor to seek a rate reduction from, or different
level carriage from, Licensor for Licensor's Basic Regional Service.
<PAGE>
IN WITNESS WHEREOF, Licensor and ACTV have caused this License
Agreement to be duly, executed as of the date first above written.
ACTV, INC. Fox Sports Southwest
By: /s/ David Reese By: /s/ Jon Heidtke
David Reese, President Jon Heidtke, General Manager
Date: 2/28/97 Date: 2/28/97
<PAGE>
SCHEDULE I
to Enhancement License Agreement between
ACTV, Inc. and Fox Sports Southwest
The Territory shall be the States of Texas, Arkansas, Louisiana, and Oklahoma,
and the following counties in the State of New Mexico: Lea, Eddy, Roosevelt,
Curry, Chavez, DeBaca, Dona Ana, Quay and Union.
<PAGE>
SCHEDULE 2
to Enhancement License Agreement between
ACTV, Inc. and Fox Sports Southwest
Licensor agrees that it will make available to ACTV for Enhancement and
inclusion in the Enhanced Regional Package all of Licensor's RSN Programming-,
limited only by applicable Rights Restrictions. If for any year during the
License Term ACTV nevertheless is unable, for lack of sufficient rights to such
events, to Enhance and Distribute at least 100 professional events out of
Licensor's RSN Programming- to substantially all of the State of Texas, unless
such number of professional events is not available in any year due to a strike,
lockout or similar league or team labor problem, the monthly License Fees for
such year shall be adjusted to the product of $[XXXXXXX] (or such greater amount
as may be specified under Section 7 of this License Agreement) multiplied by the
Number of Subscribers for the month for which payment is being computed.
Notwithstanding that there is a reduction in the geographic area within the
State of Texas to which Licensor is permitted to distribute NHL Dallas Stars
events due to another NHL team being, awarded a franchise in the Territory, all
Stars games included in Licensor's RSN Programming will nonetheless be counted
toward the 100 professional events.
<PAGE>
SCHEDULE 3
to Enhancement License Agreement between
ACTV, Inc. and Fox Sports Southwest
Commencing with the 1998 NCAA football season, ACTV agrees to Enhance and
distribute, each week during the NCAA football season, as part of the Enhanced
Regional Package at least one Big VII regular season football game carried as
part of Licensor's RSN Programming. So long as it can do so without incurring
any material out-of-pocket expenses, Licensor will use commercially reasonable
efforts to assist ACTV in obtaining the rights to distribute those Enhanced
football games in areas within the United States outside of the Territory, so
long as ACTV has obtained the right to distribute the Basic Regional Service of
all Affiliated RSNs whose Basic Regional Service territories cover that area. In
addition, if at any time during the License Term Licensor requests that ACTV
Enhance and Distribute as part of the Enhanced Regional Package any other of
Licensor's RSN Programming (i.e., Licensor's RSN Programming that ACTV otherwise
is not required to Enhance under this Agreement), ACTV agrees to give such
request serious consideration and to negotiate in good faith with Licensor
regarding such request.
OPTION AGREEMENT
OPTION AGREEMENT dated December 4, 1995, between ACTV, Inc., a
Delaware corporation (the "Corporation") and David Sarnoff Research Center, Inc.
(the "Company").
The Corporation desires to grant to the Company the right and
option to purchase up to 100,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledge, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5 hereof, the Corporation
hereby grants to the Company an option (the "Option") to purchase from the
Corporation 100,000 Option Shares, at a purchase price of $3.75 per Option Share
(the "Option Price"). The Company's right and option to purchase 33,333 Option
Shares shall vest on December 4, 1996; 33,333 Option Shares shall vest on
December 4, 1997; and 33,334 Option Shares shall vest on December 4, 1998, so
long as the Company is retained by the Corporation. Said right shall be
cumulative so that as of December 4, 1998, the Company shall have the fully
vested right to purchase 100,000 Option Shares. In the event that the Company's
Consulting Agreement with the Corporation terminates prior to December 4th of
any year, the Company shall have the right or option to purchase the pro rata
part of the installment of Option Shares based on the number of months fully
completed. With respect to the Option, the "Option Period" shall commence on the
date hereof and terminate on December 4, 2000.
b. The Option may be exercised by the Company by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Company's intention to exercise the Option, the date on which the
Company proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Company, the Company shall be obligated to purchase that number of Option Shares
to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares
acquired pursuant to the terms of this Option Agreement shall be made on the
Closing Date at the offices of the Corporation. Delivery of the Stock
certificate of other instrument registered in the name of the Company,
evidencing the Option Shares being purchased on the Closing Date, shall be made
by the Corporation to the Company of this Option on
<PAGE>
the Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The
Company hereby represents and warrants to the Corporation that in the event the
Company acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Company understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities ACT"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Company
would have been entitled if the Company had held shares of Common Stock issuable
upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, immediately following the record date
fixed for the determination of holders of shares of Common Stock entitled to
receive such stock dividend, subdivision or
2
<PAGE>
split-up, the Option Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon the exercise hereof shall be increased
in proportion to such increase in outstanding shares.
(2) If, at any time during the Option
Period, the number of shares of Common Stock outstanding is decreased by a
combination of outstanding shares of Common Stock, then, immediately following
the record date for such combination, the Option Price shall be appropriately
increased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be decreased in proportion to such decrease in outstanding
shares.
SECTION 5. Termination of the Options.
Termination of Options in General. The Option granted
hereby shall terminate and the Option shall no longer be exercisable after
December 4, 2000, or three months after the date of termination of the
Consulting Agreement.
SECTION 6. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 7. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chairman and CEO
With a copy to:
Gersten, Savage, Kaplowitz & Curtin
575 Lexington Avenue
New York, New York 10022
Attention: Jay M. Kaplowitz, Esquire
3
<PAGE>
If to the Company, to:
David Sarnoff Research Center
201 Washington Road
Princeton, NJ 08543
Attention: Dr. Curtis R. Carlson, Executive Vice President
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 8. Governing Law. This Agreement shall be governed by,
and construed in accordance with the laws of the State of New York.
SECTION 9. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement.
SECTION 10. Amendments and Modifications. This Agreement, or
any provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:____________________________
William C. Samuels
Chairman and
Chief Executive Officer
4
OPTION AGREEMENT
OPTION AGREEMENT, dated as of March 14, 1997, between, _____, a
Delaware corporation (the "Corporation") and _______ (the "Holder").
WHEREAS, the Corporation desires to grant to the Holder, the right
and option to purchase shares (the "Option Shares") of Class B Common Stock,
$.01 par value per share (the "Class B Stock"), of the Corporation, on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. The Corporation hereby grants to the Holder an option (the
"Option") to purchase from the Corporation ______ Option Shares, at a purchase
price of $_____ per Option Share (the "Option Price"). The Holder's right and
option to purchase the Option Shares shall vest, subject to subsection 1(d) and
5(c), as follows: (i) _____ Option Shares vest on July 1, 1997; (ii) _____ vest
on January 1, 1998; (iii) _____ Option Shares vest on July 1, 1998, and (iv)
_____ Option Shares vest on January 1, 1999 (each an "Installment") at the
Option Price, so long as the Holder is employed by the Corporation. Said right
shall be cumulative. With respect to each Installment, the "Option Period" shall
commence on the date said Installment vests and terminate on March 14, 2007.
b. Except as limited by Section 5, an Installment may be
exercised, in whole or part, by the Holder by delivery to the Corporation, at
any time during the Option Period, of a written notice (the "Option Notice"),
which Option Notice shall state the Holder's intention to exercise the Option,
the date on which the Holder proposes to purchase the Option Shares (the
"Closing Date") and the number of Option Shares to be purchased on the Closing
Date, which Closing Date shall be no later than 30 days nor earlier than 10 days
following the date of the Option Notice. Upon receipt by the Corporation of an
Option Notice from the Holder, the Holder shall be obligated to purchase that
number of Option Shares to be purchased on the Closing Date set forth in the
Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to
the terms of this Option Agreement shall be made on the Closing Date at the
offices of the Corporation. Delivery of the stock certificate or other
instrument registered in the name of the Holder, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to
<PAGE>
the Holder on the Closing Date against the delivery to the Corporation of a
certified or bank check in the full amount of the aggregate purchase price
therefor.
d. Should ACTV, Inc. ("ACTV") undergo a Change in Control, as
defined below, or should another corporation which can exercise control over the
Corporation sell or attempt to sell all or substantially all of the assets of
said Corporation, or should more than 50% of its voting power be acquired by a
party which is not affiliated with or controlled by ACTV, then all of the
Holder_s rights to exercise the Option for all the Option Shares shall be
accelerated so that the Installments to purchase all Option Shares shall be
fully vested at the time of said event and the exercise price shall reduce to
$.10 per share. A Change in Control shall be the occurrence of any one of the
following events:
(i) A person (other than a person who is an officer
or a Director of ACTV on the effective date hereof), including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or
obtains the right to become, the beneficial owner of ACTV_s securities having
30% or more of the combined voting power of then outstanding securities of ACTV
that may be cast for the election of directors of ACTV;
(ii) At any time, a majority of the Board-nominated
slate of candidates for the Board of ACTV is not elected;
(iii) ACTV consummates a merger in which it is not
the surviving entity;
(iv) Substantially all ACTV's assets are sold; or
(v) ACTV's stockholders approve the dissolution or
liquidation of ACTV.
SECTION 2. Representations and Warranties of The Holder. The Holder
hereby represents and warrants to the Corporation that in the event the Holder
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Holder understands the Option Shares will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), and that they must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or the transaction is exempt from registration. The certificate
or certificates representing any Option Shares shall bear the following
restrictive legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
<PAGE>
ACT"), AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933; OR (ii)
TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR SIMILAR
RULE UNDER THE SECURITIES ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION
SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAN
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE. IN ADDITION, THIS CERTIFICATE OF STOCK AND THE SHARES
REPRESENTED HEREBY ARE HELD SUBJECT TO THE TERMS AND CONDITIONS
CONTAINED IN AN AGREEMENT BY AND AMONG THE SHAREHOLDERS OF THE
CORPORATION AND THE CORPORATION DATED AS OF MARCH 6, 1997, AND
ALL AMENDMENTS THERETO, AND MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH THE TERMS AND PROVISIONS THEREOF. A COPY OF SUCH
AGREEMENT WILL BE FURNISHED BY THE CORPORATION UPON REQUEST."
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time
during the Option Period, there shall be any capital reorganization,
reclassification of the Common Stock (the term "Common Stock" shall mean the
Company_s Class A Common Stock and/or the Class B Stock) (other than a change in
par value or from par value to no par value or from no par value to par value or
as a result of a stock dividend or subdivision, split-up or combination of
shares), the consolidation or merger of the Corporation with or into another
corporation or of the sale of all or substantially all the properties and assets
of the Corporation as an entirety to any other corporation or person, the
unexercised and fully vested portion of this Option shall, after such
reorganization, reclassification, consolidation, merger or sale, be exercisable
for the kind and number of shares of stock or other securities or property of
the Corporation or of the corporation resulting from such consolidation or
surviving such merger or to which such properties and assets shall have been
sold to which the Holder would have been entitled if the Holder had held shares
of Class B Stock issuable upon the exercise hereof immediately prior to such
reorganization, reclassification, consolidation, merger or sale. The provisions
of this Section 3 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during
the Option Period shall be cumulative as to all prior dates of calculation and
shall be adjusted for any stock dividend, subdivision, split-up or combination
of Common Stock.
b. The Option Price shall be subject to adjustment from
time to time as follows:
<PAGE>
If, at any time during the Option Period, the number of shares of
Common Stock outstanding is altered by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up or combination of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares of Common Stock, entitled to receive such subdivision or
split-up or combination, the Option Price shall be appropriately increased or
decreased and the number of shares of Common Stock issuable upon the exercise
hereof shall be increased or decreased, pursuant to the formula set forth in
Section 4.c.
c. Upon each adjustment of the Option Price pursuant to the
provisions of this Section 4, the number of shares of Common Stock issuable upon
the exercise hereof shall be adjusted to the nearest full share of Common Stock
by multiplying a number equal to the Option Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Option Price.
d. Should additional shares of Class A Common Stock, $.01 par
value, over and above the 4,000,000 shares presently authorized, be issued after
the effective date of this Option Agreement, then the number of shares issuable
upon exercise of this Option shall be increased by the same percentage that the
total number of issued Class A Common Stock has been increased.
e. The Corporation will use its best efforts to amend its
certificate of incorporation to authorize additional Class B Stock should the
number of shares of Class B Stock issuable upon exercise of the Option be
increased in accordance with the terms of this agreement.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to
subsection 5(b), the Option granted hereby shall terminate and the Option
shall no longer be exercisable after March 14, 2007.
b. Option Rights Upon Death, Disability, Resignation. If a
Holder dies or becomes disabled while employed by the Corporation, ACTV, Inc. or
any affiliate or subsidiary of ACTV, Inc. (collectively, the "ACTV Group"), or
resigns from employment with the ACTV Group prior to his complete exercise of
the Option, the Holder (or his heirs) may exercise his Option at any time during
the option period, to the extent that the Holder was entitled to exercise the
Option at the date such event, and the Class B Stock underlying the Option shall
convert into Class A Stock on the second anniversary of the occurrence of such
death, disability or resignation.
<PAGE>
SECTION 6. Termination of Employment. In the event that the Holder
is terminated from employment with the ACTV Group for any reason during the
Option Period, then (i) all Options granted to the Holder hereunder shall become
vested and immediately exercisable at an exercise price of $.10 per share
adjusted for any stock splits and capital reorganizations having a similar
effect, subsequent to the effective date hereof, (ii) all Options may be
exercised at any time during the Option Period and (iii) anything herein to the
contrary notwithstanding, the Shares underlying the Options, whether exercised
prior or subsequent to the termination shall not convert to Class A Stock except
as set forth in the applicable Shareholder Agreement.
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, approved
assigns and approved transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Corporation:
-------------------
1270 Avenue of the Americas
New York, NY 10020
Attention: President
If to the Holder, to:
-------------------
-------------------
-------------------
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed
by, and construed in accordance with the laws of the State of Delaware.
<PAGE>
SECTION 10. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement.
SECTION 11. Amendments and Modifications. This Agreement, or
any provision hereof, may not be amended, changed or modified without the
prior written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
----------------------
By:
AGREED TO AND ACCEPTED BY
HOLDER:
Signature
Print Name
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, amended March 24,
1997, between ACTV, Inc., a Delaware corporation (the "Corporation") and
William C. Samuels (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 525,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 525,000 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares shall vest annually commencing January 1, 1997 until January 1, 1999,
with respect to installments of 175,000 Option Shares at the Option Price, so
long as the Employee is employed by the Corporation. Said right shall be
cumulative so that as of January 1, 1999, Optionee shall have the fully vested
right to purchase 525,000 Option Shares. In the event that the Employee's
employment with the Corporation terminates prior to January 1 of any year, the
Employee shall not have the right or option to purchase any part of the
installment of 175,000 Option Shares that would have otherwise vested on such
January 1. With respect to the Option, the "Option Period" shall commence on the
date hereof and terminate on December 31, 2003.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
holder of this Option on the
<PAGE>
Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock
b. If, at any time during the first 36 months of the
Option Period, the Corporation issues any previously unissued Common Stock as
the result of any financing, acquisition, joint venture or other business
transaction, then, during such period the number of shares subject to the Option
shall be adjusted such that the holder thereof shall have the right to exercise
the Option for the same percentage of the issued and outstanding Common Stock of
the Corporation after
2
<PAGE>
giving effect to such transaction (including the future conversion or exercise
of any option or warrants issued in such transaction during the term of the
Option, but converted thereafter) as he held options for immediately prior to
such transaction.
c. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is decreased by a combination
of outstanding shares of Common Stock, then, immediately following the record
date for such combination, the Option Price shall be appropriately increased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to
subsections (b) - (d) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2003 or one year after the date of termination of employment, except in the case
of retirement, death or disability.
b. Option Rights Upon Disability. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, in its discretion, may allow the Option to be fully exercised, to
the extent that the Employee was entitled to exercise the Option at the date of
his disability.
c. Death of the Optionee. In the event that an
Employee shall die while he is an employee of the Corporation (or within one (1)
year after the termination of such employment) and prior to his complete
exercise of the Option, the Option may be exercised in whole or in part only:
(i) by the Employee's estate or on behalf of such person or persons to whom the
Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option, or within one year after the date of death, whichever is earlier.
3
<PAGE>
SECTION 6. Piggyback Registration.
a. If, at any time commencing January 1, 1997 and
expiring December 31, 2003, the Corporation proposes to register any of its
securities under the Securities Act (other than in connection with a merger or
pursuant to Form S-8 or other comparable Form) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of such
registration statement, to the Employee of its intention to do so. If the
Employee notifies the Corporation within ten (10) days after receipt of any such
notice of his desire to include any Option Shares, owned by him (on a fully
vested basis) in such proposed registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement; provided that (i) such inclusion does not pose any significant legal
problem and (ii) if such registration statement is filed pursuant to an
underwritten public offering, the underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6,
the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
4
<PAGE>
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: David Reese, Executive Vice President
With a copy to:
Jay M. Kaplowitz, Esquire
Gersten, Savage, Kaplowitz, Fredericks & Curtin
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
William C. Samuels
171 West 57th Street
New York, New York 10019
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed
by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement.
5
<PAGE>
SECTION 11. Amendments and Modifications. This Agreement, or
any provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the termination
provisions set forth in Section 1 hereof, the Option shall terminate and the
Option shall no longer be exercisable on December 31, 2003.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
David Reese
Executive Vice President
OPTION AGREEMENT
OPTION AGREEMENT dated March 24, 1997 between ACTV, Inc., a
Delaware corporation (the "Corporation") and William C. Samuels (the
"Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 613,035 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 613,035 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares are fully vested. With respect to the Option, the "Option Period" shall
commence on the date hereof and terminate on December 31, 2002.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
holder of this Option on the Closing Date against the delivery to the
Corporation of a check in the full amount of the aggregate purchase price
therefor.
SECTION 2. Representations and Warranties of The Holder.
The Employee hereby represents and warrants to the Corporation that in the event
the Employee acquires any Option Shares, such Option Shares will be acquired for
his own account, for investment and not with a view to the distribution thereof.
The Employee understands that except as set forth in Section 6 hereof, the
Option
<PAGE>
Shares will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4 (2) thereof and that they must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or the
transaction is exempt from registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is decreased by a combination
of outstanding shares of Common Stock, then, immediately following the record
date for such combination, the Option Price shall be appropriately increased so
that the number of
2
<PAGE>
shares of Common Stock issuable upon the exercise hereof shall be decreased in
proportion to such decrease in outstanding shares.
(3) If, at any time between August 1, 1989
and August 1, 1993 the Corporation issues any previously unissued Common Stock
as a result of any financing, acquisition, joint venture or other business
transaction, then, during such period the number of shares subject to 120,000 of
the Option shall be adjusted such that the holder thereof shall have the right
to exercise the Option for the same percentage of the issued and outstanding
Common Stock of the Corporation after giving effect to such transaction
(including the future conversion or exercise of any option or warrants issued in
such transaction during the term of the Option, but converted thereafter) as he
held options for immediately prior to such transaction.
SECTION 5. Termination of the Options.
a. Termination of Options in General. The Option
granted hereby shall terminate and the Option shall no longer be exercisable
after December 31, 2002.
b. Death of the Optinee. In the event that an
Employee shall die prior to his complete exercise of the Option, the Option may
be exercised in whole or in part only by the Employee's estate or on behalf of
such person or persons to whom the Employee's rights pass under his Will or by
the laws of descent and distribution.
SECTION 6. Piggyback Registration.
a. If, at any time the Corporation proposes to
register any of its securities under the Securities Act (other than in
connection with a merger or pursuant to Form S-8 or other comparable Form) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of such registration statement, to the Employee of its intention to
do so. If the Employee notifies the Corporation within ten (10) days after
receipt of any such notice of his desire to include any Option Shares, owned by
him (on a fully vested basis) in such proposed registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement; provided that (i) such inclusion does not
pose any significant legal problem and (ii) if such registration statement is
filed pursuant to an underwritten public offering, the underwriter approves such
inclusion.
b. Notwithstanding the provisions of this Section
6, the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the
3
<PAGE>
effective date thereof.
c. Employee will cooperate with the Corporation
in all respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Corporation and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Option Shares. In addition, Employee will comply with all
applicable provisions of state and federal securities laws, including rule 10b-6
and will not, during the course of a distribution, purchase any of the
securities being distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Wesley C. Fredericks
Gersten, Savage, Kaplowitz, Fredericks & Curtin
4
<PAGE>
101 East 52 Street
New York, New York 10022
If to the Employee, to:
William C. Samuels
171 West 57th Street
New York, New York 10019
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be
governed by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement, specifically the option agreements
dated August 1, 1989 and December 31, 1994.
SECTION 11. Amendments and Modifications. This
Agreement, or any provision hereof, may not be amended, changed or modified
without the prior written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the termination
provisions set forth in Section 1 hereof, the Option shall terminate and the
Option shall no longer be exercisable on December 31, 2002.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By: ----------------------
Christopher Cline
OPTION AGREEMENT
OPTION AGREEMENT dated March 24, 1997 between ACTV, Inc., a
Delaware corporation (the "Corporation") and David Reese (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 89,683 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 89,683 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares are fully vested, so long as the Employee is employed by the Corporation.
With respect to the Option, the "Option Period" shall commence on the date
hereof and terminate on December 31, 2002.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares
acquired pursuant to the terms of this Option Agreement shall be made on the
Closing Date at the offices of the Corporation. Delivery of the Stock
certificate or other instrument registered in the name of the Employee,
evidencing the Option Shares being purchased on the Closing Date, shall be made
by the Corporation to the holder of this Option on the Closing Date against the
delivery to the Corporation of a check in the full amount of the aggregate
purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof.
<PAGE>
The Employee understands that except as set forth in Section 6 hereof, the
Option Shares will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4 (2) thereof and that they must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or the
transaction is exempt from registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option
Period, the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option
Period, the number of shares of Common Stock outstanding is decreased by a
combination of outstanding
2
<PAGE>
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. The Option
granted hereby shall terminate and the Option shall no longer be exercisable
after December 31, 2002.
b. Death of the Optinee. In the event that an
Employee shall die prior to his complete exercise of the Option, the Option may
be exercised in whole or in part only by the Employee's estate or on behalf of
such person or persons to whom the Employee's rights pass under his Will or by
the laws of descent and distribution.
SECTION 6. Piggyback Registration.
a. If at any time commencing the Corporation
proposes to register any of its securities under the Securities Act (other than
in connection with a merger or pursuant to Form S-8 or other comparable Form) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of such registration statement, to the Employee of its intention to
do so. If the Employee notifies the Corporation within ten (10) days after
receipt of any such notice of his desire to include any Option Shares, owned by
him (on a fully vested basis) in such proposed registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement; provided that (i) such inclusion does not
pose any significant legal problem and (ii) if such registration statement is
filed pursuant to an underwritten public offering, the underwriter approves such
inclusion.
b. Notwithstanding the provisions of this Section
6, the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation
in all respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Corporation and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Option Shares. In addition, Employee will comply with all
applicable provisions of state and federal securities laws, including rule 10b-6
and will not, during the course of a
3
<PAGE>
distribution, purchase any of the securities being distributed.
d. All expenses incurred in any registration
of the Option Shares under this Agreement shall be paid by the Corporation,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Corporation, expenses of any audits to which the Corporation
shall agree or which shall be necessary to comply with governmental requirements
in connection with any such registration, all registration and filing fees for
the Option Shares under federal and state securities laws, and expenses of
complying with the securities or blue sky laws of any jurisdictions; provided,
however, the Corporation shall not be liable for (a) any discounts or
commissions to any underwriter; (b) any stock transfer taxes incurred with
respect to Option Shares sold in the offering or (c) the fees and expenses of
counsel for Employee, provided that the Corporation will pay, the costs and
expenses of Employee's counsel when the Corporation's counsel is representing
all selling security holders.
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Wesley C. Fredericks
Gersten, Savage, Kaplowitz, Fredericks & Curtin
101 East 52 Street
New York, New York 10022
If to the Employee, to:
David Reese
30 Maclay Road
Montville, New Jersey 07045
4
<PAGE>
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be
governed by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement, specifically the option agreements
dated March 1, 1989 and October 31, 1994.
SECTION 11. Amendments and Modifications. This Agreement,
or any provision hereof, may not be amended, changed or modified without the
prior written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the termination
provisions set forth in Section 1 hereof, the Option shall terminate and the
Option shall no longer be exercisable on December 31, 2002.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By: ---------------------------
William C. Samuels
Chief Executive Officer
5
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, amended March 24,
1997, between ACTV, Inc., a Delaware corporation (the "Corporation") and David
Reese (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 330,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 330,000 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares shall vest annually commencing January 1, 1997 until January 1, 1999,
with respect to installments of 110,000 Option Shares at the Option Price, so
long as the Employee is employed by the Corporation. Said right shall be
cumulative so that as of January 1, 1999, Optionee shall have the fully vested
right to purchase 330,000 Option Shares. In the event that the Employee's
employment with the Corporation terminates prior to January 1 of any year, the
Employee shall not have the right or option to purchase any part of the
installment of 110,000 Option Shares that would have otherwise vested on such
January 1. With respect to the Option, the "Option Period" shall commence on the
date hereof and terminate on December 31, 2003.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
holder of this Option on the
<PAGE>
Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. If, at any time during the first 36 months of the
Option Period, the Corporation issues any previously unissued Common Stock as
the result of any financing, acquisition, joint venture or other business
transaction, then, during such period the number of shares subject to the Option
shall be adjusted such that the holder thereof shall have the right to exercise
the Option for the same percentage of the issued and outstanding Common Stock of
the Corporation after giving effect to such transaction (including the future
conversion or exercise of any
2
<PAGE>
option or warrants issued in such transaction during the term of the Option, but
converted thereafter) as he held options for immediately prior to such
transaction.
c. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is decreased by a combination
of outstanding shares of Common Stock, then, immediately following the record
date for such combination, the Option Price shall be appropriately increased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to
subsections (b) - (d) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2003 or one year after the date of termination of employment, except in the case
of retirement, death or disability.
b. Option Rights Upon Disability. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, in its discretion, may allow the Option to be fully exercised, to
the extent that the Employee was entitled to exercise the Option at the date of
his disability.
c. Death of the Optionee. In the event that an
Employee shall die while he is an employee of the Corporation (or within one (1)
year after the termination of such employment) and prior to his complete
exercise of the Option, the Option may be exercised in whole or in part only:
(i) by the Employee's estate or on behalf of such person or persons to whom the
Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option, or within one year after the date of death, whichever is earlier.
3
<PAGE>
SECTION 6. Piggyback Registration.
a. If, at any time commencing January 1, 1997 and
expiring December 31, 2003, the Corporation proposes to register any of its
securities under the Securities Act (other than in connection with a merger or
pursuant to Form S-8 or other comparable Form) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of such
registration statement, to the Employee of its intention to do so. If the
Employee notifies the Corporation within ten (10) days after receipt of any such
notice of his desire to include any Option Shares, owned by him (on a fully
vested basis) in such proposed registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement; provided that (i) such inclusion does not pose any significant legal
problem and (ii) if such registration statement is filed pursuant to an
underwritten public offering, the underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6,
the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
4
<PAGE>
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Jay M. Kaplowitz, Esquire
Gersten, Savage, Kaplowitz, Fredericks & Curtin
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
David Reese
30 Maclay Road
Montville, New Jersey 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be
governed by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement.
5
<PAGE>
SECTION 11. Amendments and Modifications. This Agreement,
or any provision hereof, may not be amended, changed or modified without the
prior written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the termination
provisions set forth in Section 1 hereof, the Option shall terminate and the
Option shall no longer be exercisable on December 31, 2003.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
William C. Samuels
Chief Executive Officer
7
OPTION AGREEMENT
OPTION AGREEMENT dated March 24, 1997 between ACTV, Inc., a
Delaware corporation (the "Corporation") and Bruce Crowley (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 100,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 100,000 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase 67,300 Option
Shares are fully vested and 33,000 shall vest on July 1, 1997, so long as the
Employee is employed by the Corporation. Said right shall be cumulative so that
as of July 1, 1997, Optionee shall have the fully vested right to purchase
100,000 Option Shares. In the event that the Employee's employment with the
Corporation terminates prior July 1, 1997, the Employee shall not have the right
or option to purchase any part of the installment of Option Shares that would
have otherwise vested on such July 1. With respect to the Option, the "Option
Period" shall commence on the date hereof and terminate on December 31, 2002.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares
acquired pursuant to the terms of this Option Agreement shall be made on the
Closing Date at the offices of the Corporation. Delivery of the Stock
certificate or other instrument registered in the name of the Employee,
evidencing the Option Shares being purchased on the Closing Date, shall be made
by the Corporation to the holder of this Option on the Closing Date against the
delivery to the Corporation of a check in the full amount of the aggregate
purchase price therefor.
<PAGE>
SECTION 2. Representations and Warranties of The Holder. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is exempt from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in
2
<PAGE>
proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is decreased by a combination
of outstanding shares of Common Stock, then, immediately following the record
date for such combination, the Option Price shall be appropriately increased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to
subsections (b) - (d) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2002 or one year after the date of termination of employment, except in the case
of retirement, death or disability.
b. Option Rights Upon Disability. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, in its discretion, may allow the Option to be fully exercised, to
the extent that the Employee was entitled to exercise the Option at the date of
his disability.
c. Death of the Optinee. In the event that an
Employee shall die while he is an employee of the Corporation (or within three
(3) months after the termination of such employment) and prior to his complete
exercise of the Option, the Option may be exercised in whole or in part only:
(i) by the Employee's estate or on behalf of such person or persons to whom the
Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option, or within one year after the date of death, whichever is earlier.
SECTION 6. Piggyback Registration.
a. If, at any time commencing the Corporation
proposes to register any of its securities under the Securities Act (other than
in connection with a merger or pursuant to Form S-8 or other comparable Form) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of such registration statement, to the Employee of its intention to
do so. If the Employee notifies the Corporation within ten (10) days after
receipt of any such notice of his desire to include any Option Shares, owned by
him (on a fully vested basis) in such proposed registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement; provided that (i)
3
<PAGE>
such inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section
6, the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation
in all respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Corporation and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Option Shares. In addition, Employee will comply with all
applicable provisions of state and federal securities laws, including rule 10b-6
and will not, during the course of a distribution, purchase any of the
securities being distributed.
d. All expenses incurred in any registration
of the Option Shares under this Agreement shall be paid by the Corporation,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Corporation, expenses of any audits to which the Corporation
shall agree or which shall be necessary to comply with governmental requirements
in connection with any such registration, all registration and filing fees for
the Option Shares under federal and state securities laws, and expenses of
complying with the securities or blue sky laws of any jurisdictions; provided,
however, the Corporation shall not be liable for (a) any discounts or
commissions to any underwriter; (b) any stock transfer taxes incurred with
respect to Option Shares sold in the offering or (c) the fees and expenses of
counsel for Employee, provided that the Corporation will pay, the costs and
expenses of Employee's counsel when the Corporation's counsel is representing
all selling security holders.
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
4
<PAGE>
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Wesley C. Fredericks
Gersten, Savage, Kaplowitz, Fredericks & Curtin
101 East 52 Street
New York, New York 10022
If to the Employee, to:
Bruce J. Crowley
257 West 17th Street, Apt. 4C
New York, New York 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be
governed by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains
the entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement. specifically the option agreement
dated July 1, 1994.
SECTION 11. Amendments and Modifications. This Agreement,
or any provision hereof, may not be amended, changed or modified without the
prior written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the termination
provisions set forth in Section 1 hereof, the Option shall terminate and the
Option shall no longer be exercisable on December 31, 2002.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
5
<PAGE>
By: -------------------------
William C. Samuels
Chief Executive Officer
6
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, amended March 24,
1997 between ACTV, Inc., a Delaware corporation (the "Corporation") and Bruce
Crowley (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 201,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 201,000 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares shall vest annually commencing January 1, 1997 until January 1, 1999,
with respect to installments of 67,000 Option Shares at the Option Price, so
long as the Employee is employed by the Corporation. Said right shall be
cumulative so that as of January 1, 1999, Optionee shall have the fully vested
right to purchase 201,000 Option Shares. In the event that the Employee's
employment with the Corporation terminates prior to January 1 of any year, the
Employee shall not have the right or option to purchase any part of the
installment of 67,000 Option Shares that would have otherwise vested on such
January 1. With respect to the Option, the "Option Period" shall commence on the
date hereof and terminate on December 31, 2003.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
holder of this Option on the
<PAGE>
Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. If, at any time during the first 36 months of the
Option Period, the Corporation issues any previously unissued Common Stock as
the result of any financing, acquisition, joint venture or other business
transaction, then, during such period the number of shares subject to the Option
shall be adjusted such that the holder thereof shall have the right to exercise
the Option for the same percentage of the issued and outstanding Common Stock of
the Corporation after
2
<PAGE>
giving effect to such transaction (including the future conversion or exercise
of any option or warrants issued in such transaction during the term of the
Option, but converted thereafter) as he held options for immediately prior to
such transaction.
c. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is decreased by a combination
of outstanding shares of Common Stock, then, immediately following the record
date for such combination, the Option Price shall be appropriately increased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to
subsections (b) - (d) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2003 or one year after the date of termination of employment, except in the case
of retirement, death or disability.
b. Option Rights Upon Disability. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, in its discretion, may allow the Option to be fully exercised, to
the extent that the Employee was entitled to exercise the Option at the date of
his disability.
c. Death of the Optionee. In the event that an
Employee shall die while he is an employee of the Corporation (or within one (1)
year after the termination of such employment) and prior to his complete
exercise of the Option, the Option may be exercised in whole or in part only:
(i) by the Employee's estate or on behalf of such person or persons to whom the
Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option, or within one year after the date of death, whichever is earlier.
3
<PAGE>
SECTION 6. Piggyback Registration.
a. If, at any time commencing January 1, 1997 and
expiring December 31, 2003, the Corporation proposes to register any of its
securities under the Securities Act (other than in connection with a merger or
pursuant to Form S-8 or other comparable Form) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of such
registration statement, to the Employee of its intention to do so. If the
Employee notifies the Corporation within ten (10) days after receipt of any such
notice of his desire to include any Option Shares, owned by him (on a fully
vested basis) in such proposed registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement; provided that (i) such inclusion does not pose any significant legal
problem and (ii) if such registration statement is filed pursuant to an
underwritten public offering, the underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6,
the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing
4
<PAGE>
all selling security holders.
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Jay M. Kaplowitz, Esquire
Gersten, Savage, Kaplowitz, Fredericks & Curtin
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
Bruce Crowley
257 West 17th Street, Apt. 4C
New York, New York 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be
governed by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains
the entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
5
<PAGE>
commitments, representations and agreement.
SECTION 11. Amendments and Modifications. This
Agreement, or any provision hereof, may not be amended, changed or modified
without the prior written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the
termination provisions set forth in Section 1 hereof, the Option shall terminate
and the Option shall no longer be exercisable on December 31, 2003.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By: -------------------------
William C. Samuels
Chief Executive Officer
6
OPTION AGREEMENT
OPTION AGREEMENT dated March 24, 1997 between ACTV,
Inc., a Delaware corporation (the "Corporation") and Christopher C. Cline (the
"Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 50,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 12 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 50,000 Option Shares, at a purchase price of $2.10 per Option Share
(the "Option Price"). The Employee's right and option to purchase 33,332 Option
Shares shall vest immediately; 8,333 of the Option Shares shall vest August 15,
1997 and 8,334 shall vest August 15, 1998, so long as the Employee is employed
by the Corporation. Said right shall be cumulative so that as of August 15,
1998, Optionee shall have the fully vested right to purchase 50,000 Option
Shares. In the event that the Employee's employment with the Corporation
terminates prior to August 15 of any year, the Employee shall not have the right
or option to purchase any part of the installment of Option Shares that would
have otherwise vested on such August 15. With respect to the Option, the "Option
Period" shall commence on the date hereof and terminate on December 31, 2002.
<PAGE>
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
holder of this Option on the Closing Date against the delivery to the
Corporation of a check in the full amount of the aggregate purchase price
therefor.
SECTION 2. Representations and Warranties of The Holder. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is exempt from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
2
<PAGE>
a. The number of Option Shares subject to this
Option during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, immediately following the record date fixed for
the determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period,
the number of shares of Common Stock outstanding is decreased by a combination
of outstanding shares of Common Stock, then, immediately following the record
date for such combination, the Option Price shall be appropriately increased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to
subsections (b) - (d) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2002 or one year after the date of termination of employment, except in the case
of retirement, death or disability.
b. Option Rights Upon Disability. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, in its discretion, may allow the Option to be fully exercised, to
the extent that the Employee was entitled to exercise the Option at the date of
his disability.
3
<PAGE>
c. Death of the Optinee. In the event that an
Employee shall die while he is an employee of the Corporation (or within three
(3) months after the termination of such employment) and prior to his complete
exercise of the Option, the Option may be exercised in whole or in part only:
(i) by the Employee's estate or on behalf of such person or persons to whom the
Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option, or within one year after the date of death, whichever is earlier.
SECTION 6. Piggyback Registration.
a. If at any time commencing the Corporation
proposes to register any of its securities under the Securities Act (other than
in connection with a merger or pursuant to Form S-8 or other comparable Form) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of such registration statement, to the Employee of its intention to
do so. If the Employee notifies the Corporation within ten (10) days after
receipt of any such notice of his desire to include any Option Shares, owned by
him (on a fully vested basis) in such proposed registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement; provided that (i) such inclusion does not
pose any significant legal problem and (ii) if such registration statement is
filed pursuant to an underwritten public offering, the underwriter approves such
inclusion.
b. Notwithstanding the provisions of this Section
6, the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation
in all respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Corporation and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Option Shares. In addition, Employee will comply with all
applicable provisions of state and federal securities laws,
4
<PAGE>
including rule 10b-6 and will not, during the course of a distribution, purchase
any of the securities being distributed.
d. All expenses incurred in any registration
of the Option Shares under this Agreement shall be paid by the Corporation,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Corporation, expenses of any audits to which the Corporation
shall agree or which shall be necessary to comply with governmental requirements
in connection with any such registration, all registration and filing fees for
the Option Shares under federal and state securities laws, and expenses of
complying with the securities or blue sky laws of any jurisdictions; provided,
however, the Corporation shall not be liable for (a) any discounts or
commissions to any underwriter; (b) any stock transfer taxes incurred with
respect to Option Shares sold in the offering or (c) the fees and expenses of
counsel for Employee, provided that the Corporation will pay, the costs and
expenses of Employee's counsel when the Corporation's counsel is representing
all selling security holders.
SECTION 7. Transfer of Option; Successors And Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Wesley C. Fredericks
Gersten, Savage, Kaplowitz, Fredericks & Curtin
101 East 52 Street
5
<PAGE>
New York, New York 10022
If to the Employee, to:
Christopher C. Cline
176 West 87th Street
New York, New York 10024
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed
by, and construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreement, specifically the option agreements
dated October 29, 1994 and August 15, 1995.
SECTION 11. Amendments and Modifications. This Agreement, or
any provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
SECTION 12. Termination. In addition to the termination
provisions set forth in Section 1 hereof, the Option shall terminate and the
Option shall no longer be exercisable on December 31, 2002
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
6
<PAGE>
By: -------------------------
William C. Samuels
President
OPTION AGREEMENT
OPTION AGREEMENT, made this 11th day of March 1997, by and between The
Washington Post Company ("Optionor"), a corporation having its principal place
of business at 1150 15th Street, NW, Washington, D.C., and ACTV, Inc.
("Optionee"), a corporation having its principal place of business at 1270
Avenue of the Americas, New York, N.Y.
WHEREAS, Optionor currently owns 2,341,334 shares of Common Stock of
Optionee; and
WHEREAS, Optionee desires to obtain from Optionor and Optionor desires
to provide to Optionee the Option to obtain from Optionor up to 1 million shares
of Common Stock of Optionee owned by Optionor.
NOW, THEREFORE, in consideration of the recitals and the mutual
promises set forth below, the parties hereby agree as follows:
1. Grant of Option. In accordance with the terms and conditions of this
Option Agreement, Optionor hereby grants to Optionee an option to purchase up to
an aggregate of 1 million shares of Common Stock of Optionee owned by Optionor
("Option Shares"). In the event of any change in the number of issued and
outstanding Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, conversion, exchange of shares or other change in
the corporate or capital structure of Optionee, the number of shares subject to
the Option and the purchase price shall be adjusted appropriately. The
adjustment shall be such as to put the parties in the same position as if the
Option had been fully exercised immediately prior to the event occasioning the
adjustment.
This Option may be revoked by the Optionor at any time during the term
of this Option Agreement if the number of issued and outstanding shares of
Common Stock of Optionee is 23,000,000 or more.
2. Exercise of Option. Optionee may exercise the Option in whole or in
part, at any time or from time to time prior to the Expiation Date (as
hereinafter defined), by written notice (which shall be irrevocable and
unconditional) to the Optionor specifying (i) the number of shares it will
purchase, (ii) the amount of cash to be delivered to the Optionor pursuant to
paragraph 3 hereof, and (iii) the date for the closing ("Closing"), which shall
in no event be later than 10 business days after Optionee has exercised the
Option. In no event may the Option be exercised after March 31, 1999; such date
of expiration is hereinafter referred to as the "Expiration Date."
3. Price. If the Option is exercised on or prior to the close of
business on March 31, 1998, the Optionee may purchase Option Shares at an option
exercise price of $4.00 per share. If the Option is exercised on or after April
1, 1998 through the close of business on March 31, 1999, the Optionee may
purchase Option Shares at an option exercise price of $5.00 per share. At each
Closing, (a) against delivery of the Option Shares to be purchased, Optionee
shall pay to Optionor the aggregate purchase price for the Option Shares being
purchased at such Closing by delivery to Optionor by wire transfer of same day
funds in such amount to an account designated by Optionor, and (b) Optionor
shall deliver to Optionee a certificate or certificates representing the number
of Option Shares so purchased, free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever. At any such Closing, Optionee
shall deliver (x) a letter addressed to Optionor representing that the Option
Shares so acquired will not be offered for sale or otherwise disposed of in
violation of the Securities Act of 1933, as amended,
<PAGE>
and (y) a legal opinion addressed to Optionee from Optionee's counsel, which
counsel shall be satisfactory to Optionor, stating that such purchase is legal
and valid and in accordance with law.
4. Consideration. This Option is granted in consideration for
Optionee's payment to Optionor of the sum of Two Hundred Fifty Thousand Dollars
($250,000) in two equal installments, the first installment to be paid upon
execution by the parties of this Option Agreement and the second installment to
be paid on January 2, 1998.
5. Automatic Termination Upon Expiration. If Optionee fails to make the
payment on January 2, 1998, specified in Section 4 hereof or fails to exercise
this Option in accordance with its terms and prior to the Expiration Date, then
this Option Agreement and the rights of Optionee hereunder shall automatically
and immediately terminate without notice on such January 2, 1998 or March 31,
1999, respectively. In the event that this Option is not exercised by Optionee,
all sums paid to Optionor by Optionee shall be retained by Optionor in
consideration of the grant of this Option.
6. Representations of Optionor. Optionor hereby represents and warrants
to Optionee that (i) Optionor has full corporate power and authority to execute,
deliver and perform its obligations hereunder and the Option Agreement is the
legal, valid and binding agreement of Optionor, enforceable in accordance with
its terms; and (ii) Optionor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
requisite corporate power to enter into and perform this Option Agreement.
7. Representations of Optionee. Optionee hereby represents and warrants
to Optionor that (i) Optionee has full corporate power and authority to execute,
deliver and perform its obligations hereunder and this Option Agreement is the
legal, valid and binding agreement of Optionee, enforceable in accordance with
its terms and that each purchase of shares under this Option Agreement will be
duly authorized by Optionee, will be legal and valid in accordance with law and
not in violation of or inconsistent with any provision of the Certificate of
Incorporation or By-laws of Optionee, in each case as amended, or any contract
or other commitment applicable to Optionee; and (ii) Optionee is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to enter into and
perform this Option Agreement.
8. Expenses. The parties hereto shall pay their own expenses incurred
in connection with this agreement.
9. Assignment. Neither Optionor nor Optionee may assign, transfer,
encumber or otherwise convey their rights hereunder and/or this Option Agreement
without the prior written consent of the other party, which consent shall not be
unreasonably withheld.
10. Governing Law. This Option Agreement shall be subject to and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in that State without regard to its conflict
of law rules.
11. Notices. Any notice to be given hereunder by either party to the
other shall be given in writing and delivered either in person or by prepaid
overnight express service to the respective addresses noted above, or such new
address as one shall provide the other, in writing.
12. Severability. In the event that any term or provision of this
Option Agreement is determined to be void, unenforceable, or contrary to law,
the remainder of
<PAGE>
this Option Agreement shall continue in full force and effect, provided that
such continuation would not diminish the benefits of this Option Agreement for
either party.
13. Binding Effect. This Option Agreement shall bind and benefit the
parties and their respective officers, directors, agents, personal
representatives, authorized assigns, and authorized successors in interest.
However, no right or obligation herein may be assigned or delegated by a party,
either directly or indirectly by transfer of control, without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
14. Entire Agreement. This Option Agreement constitutes the entire
agreement between the parties governing this transaction . No prior agreement or
representation, whether verbal or written, shall have any force or effect. This
Option Agreement may be modified, superseded or canceled only in writing signed
by both parties.
15. Effect of Headings. The descriptive headings contained herein are
for convenience only and shall not affect in any way the meaning or
interpretation of this Option Agreement.
16. Counterparts. This Option Agreement may be signed in counterparts,
with the signatures on each counterpart having the same legal effect as if all
signatures appeared on the same instrument.
ACCORDINGLY, the parties hereby witness and execute this Option
Agreement on the date first written above.
OPTIONOR OPTIONEE
By_____________________ By________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854152
<NAME> ACTV Financial Data Schedule
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,520,756
<SECURITIES> 0
<RECEIVABLES> 410,193
<ALLOWANCES> 0
<INVENTORY> 337,504
<CURRENT-ASSETS> 7,585,415
<PP&E> 994,218
<DEPRECIATION> 270,129
<TOTAL-ASSETS> 11,692,624
<CURRENT-LIABILITIES> 2,491,556
<BONDS> 0
1,178,711
0
<COMMON> 0
<OTHER-SE> 8,022,357
<TOTAL-LIABILITY-AND-EQUITY> 11,692,624
<SALES> 1,459,540
<TOTAL-REVENUES> 1,476,329
<CGS> 647,488
<TOTAL-COSTS> 8,288,360
<OTHER-EXPENSES> 1,304,310
<LOSS-PROVISION> 357,071
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,800,481)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,800,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,800,481)
<EPS-PRIMARY> $.75
<EPS-DILUTED> $.75
</TABLE>
