AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1997
Registration Statement No. 33-12445
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ACTV, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4894 94-2907258
- --------------------------------------------------------------------------------
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
1270 Avenue of the Americas
New York, New York 10020
(212) 262-2570
--------------
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive offices)
WILLIAM C. SAMUELS
President
ACTV, INC.
1270 Avenue of the Americas
New York, New York 10020
(212) 262-2570
--------------
(Name, address, including zip code and telephone number,
including area code, of agent for service)
--------------
Copies To:
JAY M. KAPLOWITZ, ESQ.
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street
New York, New York 10022
(212) 752-9700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and from
time to time.
------------
If the securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [x]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
| <S> <C> <C> <C> <C>
| Title of Securities | Amount Being | Proposed Maximum Offering | Proposed Maximum | Amount of |
| To Be Registered | Registered(1) | Price Per Security(2) | Aggregate Offering | Registration Fee |
| | | | Price | |
- ------------------------------------------------------------------------------------------------------------------
| Common | 3,216,091 | 1.625 | 5,226,148 | 1,583.68 |
| Stock, par value | | | | |
| $.10 per share | | | | |
| | | | | |
| | | | | |
==================================================================================================================
| Total Registration | | | | 1,583.68 |
| Fee | | | | |
| | | | | |
==================================================================================================================
</TABLE>
(1) Pursuant to Rule 415, the Registration Statement relates to an
indeterminate number of shares of Common Stock which have either been
issued or are issuable upon the exercise of options, warrants, SARs and
upon the conversion of convertible preferred stock of two of the Company's
wholly-owned subsidiaries.
(2) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee, based upon the last reported sales price of the
Registrant's Common Stock of the same class as quoted by the National
Association of Securities Dealers Automated Quotation System on November
18, 1997.
* THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
ACTV, INC.
3,216,091 SHARES OF Common Stock
All of the shares of Common Stock (the "Security Holders' Shares"), par
value $.10 per share, of ACTV, Inc., a Delaware corporation (the "Company"),
offered hereby are being offered by the selling security holders named herein
under the caption "Selling Security Holders" (the "Selling Security Holders").
Such shares may be sold by the Selling Security Holders who have acquired or
will acquire such shares from the Company previously or will acquire such shares
(i) upon the exercise of currently exercisable options, warrants and pursuant to
SARs, or (ii) upon conversion of the 7% Convertible Preferred Stock of the
corporation. The Company will not receive any of the proceeds from sales of
Selling Security Holders' Shares, but will receive the exercise price upon the
exercise of the options or warrants described above. See "SELLING SECURITY
HOLDERS" and "PLAN OF DISTRIBUTION."
The Company has agreed with the Selling Security Holders to register the
Selling Security Holders' shares offered hereby. The Company has also agreed to
pay certain fees and expenses incident to such registration.
The Company's Common Stock ("Common Stock") is traded on the
over-the-counter market on the NASDAQ SmallCap Market ("NASDAQ") and on the
Boston Stock Exchange ("BSE"). On November 18, 1997, the last reported
sale price of the Common Stock on NASDAQ was $1 5/8.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD BE PURCHASED ONLY BY
PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 20, 1997
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The Security Holders' Shares that may be offered from time to time by
Selling Security Holders may be sold through ordinary brokerage transactions in
the over-the-counter market or on the Boston Stock Exchange, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices.
The Selling Security Holders each may be deemed to be "an underwriter", as
defined in the Securities Act of 1933 (the "Securities Act"). If any
broker-dealers are used by the Selling Security Holders, any commissions paid to
broker-dealers and, if broker-dealers purchase any shares of Common Stock as
principals, any profits received by such broker-dealers on the resales of the
shares of Common Stock may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Security Holders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the securities offered
by the Selling Security Holders will be borne by the Company. All brokerage
commissions, if any, attributable to the sale of the securities offered by the
Selling Security Holders will be borne by the Selling Security Holders. See
"SELLING SECURITY HOLDERS" and "PLAN OF DISTRIBUTION."
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any sale hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation.
Under the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations thereunder, any person engaged in a distribution of the securities
offered by this Prospectus may not simultaneously engage in market-making
activities with respect to shares of the Common Stock during the applicable
"cooling off" period (two or nine days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Security Holders will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation, Rule
10b-5, in connection with transactions in the securities, which provisions may
limit the timing of purchases and sales of the securities by the Selling
Security Holders.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission") a registration statement on Form S-3 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act, for the registration of the securities
offered by this Prospectus. This Prospectus does not contain all the information
set forth in the Registration Statement. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, which
may be inspected without charge at the principal office of the Commission, 450
Fifth Street, NW, Washington, DC, 20549, and copies of the material contained
therein may be obtained from the Commission upon payment of applicable copying
charges. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Company is subject to the reporting and other informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements, and other information with the Commission. Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC,
20549, and at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511, and at 7
World Trade Center, New York, New York, 10048. Copies of such materials can also
be obtained by written request to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549, at prescribed
rates, or via the Internet Web site (http://www.sec.gov) maintained by the
Commission.
The Common Stock is listed on NASDAQ and the BSE. The Company's periodic
reports, proxy statements, and other information can be inspected at NASDAQ and
the BSE at the offices of NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or
the offices of the BSE at 1 Boston Place, Boston, Massachusetts, 02108.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Registration Statement on Form S-1 (File No.
33-34618), which was declared effective on May 4, 1990.
(2) Annual Report on Form 10-K for year ended December 31, 1996
(3) Post-Effective Amendment No. 1 to The Company's Registration
Statement on Form S-1 (File No. 33-63879), which was declared effective on
March 20, 1996.
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(4) Quarterly Report on Form 10-Q for quarterly period ended March
31, 1997.
(5) Quarterly Report on Form 10-Q for quarterly period ended June
30, 1997.
(6)Quarterly Report on Form 10-Q for quarterly period ended
September 30, 1997.
(7)The Company's Proxy Statement for the year ended December 31,
1996.
In addition to the foregoing, all documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
prior to the filing of a post-effective amendment indicating that all of the
securities offered hereunder have been sold or deregistering all securities then
remaining unsold shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the oral or written request of such person, a
copy of any document incorporated in this Prospectus by reference, except
exhibits to such information, unless such exhibits are also expressly
incorporated by reference herein. Requests for such information should be
directed to ACTV, Inc., 1270 Avenue of the Americas, New York, New York 10020,
Attention: Secretary, telephone number (212) 262-2570.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus including the documents
incorporated herein by reference..
The Company
ACTV, Inc. ("Company") has developed proprietary technologies that
individualize television programming ("Individualized Programming").
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 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 a program enhanced with the Company's Individualized
Programming ("ACTV Program" or "ACTV 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.
A viewer of Individualized Programming chooses among the various options
and features offered by using a standard remote control with four keys
programmed for ACTV functionality. These keys allow access to the appropriate
path to be selected. 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 played;
"Goals-On-Demand," a compilation of all the scores in the contest; plus, the
viewer can call up in-depth statistics and instant replays, anytime. In game
shows, 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.
Additionally, Individualized Programming gives television advertisers
unique opportunities to target their message demographically. By asking the
viewer basic questions at the beginning of the program, the Individualized
Programming can recall this information during a commercial break and send the
viewer an appropriate advertisement. Alternatively, before a commercial break,
viewers can be asked the type of car for which they would like to see an
advertisement. 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,
offering premiums, additional information, or better targeted commercial
messages to each viewer.
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The Company's Individualized Programming is designed to work with both
single and multiple channels of 6MHz 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 in entertainment is to deploy its programming over the cable systems
that have upgraded their signal origination facilities (referred to in the
industry as "headends") for digital delivery. Operators of upgraded systems
will distribute the Company's Individualized Programming to viewers who have a
digital set-top terminal into which the Company's software application has been
downloaded. The Company is emphasizing digital delivery over analog primarily
because the channel capacity in digital transmission systems is greater and
because Individualized Programming can be integrated into digital systems with
no incremental hardware cost.
The Company, working with The Sarnoff Corporation ("Sarnoff"), a world
leader in the development of digital platforms, has written software to
intergrate the Company's Individualized Programming into digital television at
no incremental manufacturing cost for the set-top terminal. The Company is
incorporating its Individualized Programming into Next Level Systems, Inc.'s
("Next Level") 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. 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 consists of 10 owned-and-operated
regional sports networks, along with numerous affiliated systems across the
country. Launched on November 1, 1996, the network is the United States sports
telecasting arm of the worldwide sports alliance formed among News Corp.,
Liberty Media, and Tele-Communications Inc. In fall 1997, the network expanded
its reach to nearly 60 million subscribers with the launch of numerous
SportsChannel regional networks under the FOX Sports Net banner. 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 Southwest
region of the United States through Fox Sports Southwest. 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. 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 class sessions. In addition, the Company has
developed the first application of its planned Java-based software suite,
"eSchool," that permits 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, Inc. ("ACTV Entertainment"),
which will be primarily responsible for the Company's activities in the
entertainment market, The Texas Individualized Television Network, Inc., which
will operate the first regional network within the FOX Sports Net region in the
Southwest, and ACTV Net, Inc. ("ACTV Net"), which is responsible for the
Company's education business. See "The Company." Unless otherwise indicated or
the context otherwise requires, all references in this Prospectus to the Company
include the Company and its wholly-owned subsidiaries.
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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.
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RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, in connection
with investments in the Securities offered hereby. This Prospectus contains
certain forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus. An investment in the Securities
offered hereby involves a high degree of risk.
Operating Losses and Limited Revenues to Date.
The Company has operated at a loss through the date of this Prospectus.
The Company's net losses for the years ended December 31, 1996, 1995 and 1994
(the "1996 Fiscal Year", the "1995 Fiscal Year," and "1994 Fiscal Year"
respectively) were $8,800,481, $6,826,789, and $4,465,240, respectively. The
Company's net loss applicable to common shareholders for the nine-month period
ending September 30, 1997 was $5,167,623. The 1995 Fiscal Year includes an
extraordinary gain of $94,117. Through September 30, 1997, the Company had an
accumulated deficit of approximately $44.3 million. There can be no assurance
the Company will achieve profitability in the future.
To date, the Company has had limited revenues, including revenues of
$1,476,329 in the 1996 Fiscal Year, $1,311,860 in the 1995 Fiscal Year, and
$938,416 in the 1994 Fiscal Year. The Company's revenues for the nine-month
period ending September 30, 1997 were $1,534,295. There can be no assurance that
the Company will generate significant revenues in the future.
Unproven Business Strategy
The Company has not had significant sales of its Individualized
Programming. In the education market, the Company has made only a limited number
of sales of its distance learning and Internet products. While the Company's
planned commercialization of its Individualized Programming in conjunction with
FOX Sports Net is based on certain test marketing of the concept, the Company
has not yet introduced this product on a commercial basis. Therefore, the
Company's products should be viewed as newly introduced products, the demand
for, and market acceptance of which, are subject to a high degree of
uncertainty. With respect to sporting events, viewers will have the ability to
watch the identical program that the Company is delivering on another channel at
the same time that the Company is delivering its individualized version of that
programming. Consequently, viewers may not be willing to pay a premium to see
Individualized Programming where the programming is otherwise available to them
without additional charge. In addition, a lack of sustained interest in
Individualized Programming could cause the Company's Individualized Programming
to, assuming it becomes commercially popular, decline in popularity, which could
have a material adverse affect on the Company's operations and financial
condition. There can be no assurance as to the commercial success of
Individualized Programming, or of sufficient demand and market acceptance for
Individualized Programming to become profitable. See "Business."
Untested Digital Delivery.
Individualized Programming has operated only over analog cable television
systems and has not been tested over a digital cable television system. The
Company's business strategy initially is to launch mass distribution of its
Individualized Programming in a digital environment, concurrent with the major
cable
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systems operators' upgrade of their headends to digital transmission. The
Company is working closely with NextLevel, the primary manufacturer of digital
set-top boxes, and Sarnoff, a prominent research institute with whom the Company
has contracted to integrate its Individualized Programming software into digital
platforms. If the Company experiences difficulties or delays in deploying
Individualized Programming over digital systems, its results of operations and
financial condition may be materially and adversely affected.
Need for Additional Financing.
To date, the Company's capital requirements to develop the Individualized
Programming, produce programming, develop marketing approaches and strategic
alliances, and to cover costs of selling, general and administrative expenses,
have been significant, resulting in an accumulated deficit as of September 30,
1997 of approximately $44.3 million. To date, the Company has not generated
revenues sufficient to sustain its operations, and cannot generate such
revenues, if at all, without raising additional funds to implement its business
plan. The Company is currently planning to conduct a private placement in order
to fund the development of its regional sports network in Texas; however, it
does not yet have any agreement in place regarding such a private placement.
There can be no assurances that such a private placement will occur, or that its
proceeds will be sufficient to fund the development of the Company's regional
sports network or to fund the operations of the Company. Should the private
placement fail to occur, or should the proceeds prove to be insufficient to fund
operations, the Company would be required to seek additional financing. The
Company has no current arrangements with respect to, or sources of, additional
financing and there can be no assurance that additional financing will be
available to the Company on acceptable terms, or at all. Additional equity
financing may involve substantial dilution to the interests of the Company's
then existing stockholders. See "Use of Proceeds."
Timely Upgrade of Cable Headends for Digital Delivery
The Company's initial entertainment business strategy depends in large
part on the ability of major cable system operators to upgrade their systems for
digital programming and to deploy digital set-top boxes, and upon the
manufacturers of the set-top boxes to manufacture the boxes compatible with the
Company's downloadable software. In order to utilize Individualized Programming,
subscribers must have a digital television set-top box installed in their homes.
The timely deployment of digital television set-top boxes is entirely out of the
control of the Company, and there can be no assurance that a sufficient number
of potential subscribers will receive digital television set-top boxes in the
near future so as to enable the Company to deploy its Individualized Programming
in accordance with its business plan. Material delays in the upgrade of cable
headends or the deployment of digital television set-top boxes could have a
material effect on the Company's results of operations and financial condition.
See "Business-Industry Overview."
Dependence on Strategic Relationships.
The Company is dependent upon its relationship with Sarnoff in order to
integrate the operational capability of its Individualized Programming into the
various digital platforms, and upon NextLevel and other digital set-top box
manufacturers to sell such digital boxes to cable systems. The Company is also
dependent upon the cooperation of FOX Sports Net in connection with the
marketing of the Company's regional sports networks to cable systems. There can
be no assurance that these third parties will dedicate sufficient resources to
their respective relationships with the Company, or will perform their
obligations to the Company in a time frame that will allow the Company to
implement its current business plan. Their failure to do so could have a
material adverse effect on the Company's operations, or result in delays in the
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Company's ability to implement its business plan in a timely manner. See
"Business-Product Development" and "Business-Programming Relationship with FOX
Sports Net."
Technological Obsolescence.
The Company is engaged in a field characterized by extensive research
efforts and rapid, significant technological change, often resulting in product
obsolescence or short product life cycles. Accordingly, the Company's ability to
compete will depend in large part on its ability to introduce its Individualized
Programming in a timely manner, to continually enhance and improve its
Individualized Programming and to adapt to technological changes and advances in
the markets in which it competes. There can be no assurance that competitors
will not develop technologies or products that render the Company's
Individualized Programming obsolete or less marketable or that the Company will
be able to keep pace with the demands of an ever-changing marketplace. See
"Business-Competition" and Business - Research and Development."
Possible Shortage of Available Channels for In-Home Cable Applications.
In order for the Company's Individualized Programming to be delivered over
cable, DBS or wireless cable systems for the in-home entertainment market, it
must compete for channel space on cable, DBS and wireless cable systems, most of
which have limited available analog channel capacity. Although a simpler form of
individualization can be achieved by the Company's using one channel of analog
band-width, the more sophisticated applications of Individualized Programming
currently require three to four channels of analog band-width. The digital
technologies recently deployed and those currently under development would
enable the Company to use Individualized Programming's more advanced
applications within one 6MHz channel of band-width. The Company believes,
although there can be no assurance, that the cable, DBS and wireless cable
industry is, in general, moving in the direction of increasing channel capacity.
There is no assurance that cable, DBS and wireless operators will devote a
sufficient number of channels of band-width to the Company's Individualized
Programming in the future, even if cable, or DBS and wireless operators continue
to upgrade their headends for digital delivery. See "Business - Industry
Overview."
Patents and Proprietary Information.
The Company has obtained patents covering certain aspects of the
Individualized Programming and has patents pending with respect to other
developments or enhancements thereof. However, there can be no assurance (i)
that patents applied for will be granted, (ii) that the patents the Company owns
or has rights to or that may be granted or obtained by the Company in the future
will be enforceable or will provide the Company with meaningful protection from
competition, (iii) that any products developed by the Company will not infringe
any patent or rights of others, or (iv) that the Company will possess the
financial resources necessary to enforce any patent rights that it holds. See
"Business -- Patents, Applications and Proprietary Information."
The Company requires each of its employees, consultants and advisors to
execute a confidentiality and assignment of proprietary rights agreements 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. In addition, all
proprietary information is required to be
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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 of the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.
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 federal legislation enacted 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.
The Company is unable to predict the outcome of future federal legislation
or regulatory proposals or the impact of any current or future laws or
regulations on its operations. There can be no assurance that the Company will
be able to comply with any future laws or regulations that may be imposed on its
operations. See "Business-Government Regulation."
Dependence Upon Key Personnel.
The Company has been largely dependent upon the efforts of William C.
Samuels, its Chairman of the Board, President and Chief Executive Officer, David
Reese, its Executive Vice President, President of ACTV Entertainment and a
Director of the Company, and Bruce Crowley, its Executive Vice President,
President of ACTV Net, Inc. and a Director of the Company. The Company has
entered into five-year employment agreements with Mr. Samuels, Mr. Reese and Mr.
Crowley. The Company currently does not maintain "key employee" insurance on the
lives of Messrs. Samuels, Reese or Crowley and there can be no assurance that
such insurance would be available at an acceptable cost to the Company, should
it seek to acquire such insurance in the future.
In order to compete in a marketplace with rapidly changing and expanding
technology, the Company requires employees not only with extensive management
experience, but also with certain technical abilities to direct the Company's
continuing research and development efforts. While the Company believes that it
currently employs such personnel, and that other persons could be retained in
such capacities, there can be no assurance that if the Company were required to
replace such personnel, it could readily do so, or that, even if such qualified
replacements were retained, the development of the Company's business would not
be delayed. See "Business -- Product Development."
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Competition.
The Individualized Programming competes with many other forms of
entertainment and education content, many of which are significantly more
established, including the basic television industry, the movie industry, cable
television, programming services and other forms of entertainment.
In the entertainment market, the Company will compete with many other
companies who provide programming for the television industry and, in
particular, with companies that provide sports programming. Moreover, the
Company will compete in the markets in which its enhanced version of FOX Sports
Net is telecast with the simultaneous broadcast of the unenhanced version of the
same event. In addition, the Individualized Programming technology may compete
with other technologies described as interactive television, some of which may
be developed or promoted by companies with resources significantly greater than
the Company's.
In the education market, the Company competes with other providers of
distance learning products. Nearly all of the competitors of the Company have
greater financial, and other, resources than the Company. See "Competition."
Control by Officers, Directors and Principal Stockholders.
The Company's officers and directors own, of record, 3,906,969 outstanding
shares of Common Stock, assuming the exercise of all currently exercisable
options and including shares beneficially owned pursuant to voting trust
agreements. William C. Samuels, Chairman, President, Chief Executive Officer and
a director of the Company, pursuant to a voting agreement, has voting control of
the 2,341,334 shares of Common Stock owned of record by the Washington Post
Company. Consequently, Mr. Samuels has voting control over 3,420,517 shares of
Common Stock, or approximately 22% of the outstanding shares of Common Stock,
assuming issuance of 788,035 shares of Common Stock upon exercise of options.
Accordingly, Mr. Samuels could have substantial influence over the affairs of
the Company, including the election of directors.
Limited Trading Market for Common Stock; Possible Volatility of Securities
Prices; Possible Delisting of Common Stock.
The average number of shares of the Company's Common Stock traded on the
NASDAQ and Boston Stock Exchange has been limited. As a result, the ability of a
stockholder to sell his or her shares may be limited and the sale of a large
number of shares at any time may adversely affect the trading market to a
greater extent than would be the case if the shares were more actively traded.
The market price of the Company's securities may be highly volatile, as has been
the case with the securities of other companies engaged in high technology
research and development. Factors such as announcements by the Company or its
competitors concerning technological innovations, new commercial products or
procedures, proposed government regulations and developments or disputes
relating to patents or proprietary rights may have a significant impact on the
market price of the Company's securities. Such volatility may be increased as a
result of the limited trading market.
The Securities and Exchange Commission has recently approved new rules
imposing new standards for maintaining a listing on NASDAQ. For continued
listing, an issuer, among other things, must have $2,000,000 in net tangible
assets $1,000,000 in market value of securities in the public float and a
minimum
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bid price of $1.00 per share. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, its Common Stock may be delisted from the
NASDAQ. The BSE requires the Company to have total assets of at least $1,000,000
and total stockholder equity of $500,000 to maintain its listing. In such event,
trading, if any, would be conducted only in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delistings, an investor would likely find it more difficult
to dispose of, or to obtain quotations as to, the price of the Company's Common
Stock.
Rule 144 Sales
Of the shares of the Common Stock presently outstanding, approximately
3,882,552 million are "restricted securities" as that term is defined by Rule
144 promulgated under the Securities Act and in the future may be sold only in
compliance with Rule 144 or pursuant to registration under the Securities Act or
pursuant to another exemption therefrom. For so long as the Registration
Statement of which the this Prospectus is a part is current and effective, the
shares being offered may be sold without regard to the volume limitations,
described below, set forth in Rule 144. Generally, under Rule 144, each person
having held restricted securities for a period of one year may, every three
months, sell in ordinary brokerage transactions an amount of shares which does
not exceed the greater of one percent (1%) of the Company's then outstanding
shares of Common Stock, or the average weekly volume of trading of such shares
of Common Stock as reported during the preceding four calendar weeks. A person
who has not been an affiliate of the Company for at least the three months
immediately proceeding the sale and who has beneficially owned shares of the
Common Stock for at least three years is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. Of the restricted
shares, a substantial number have been held by non-affiliates of the Company for
more than three years or have been held by affiliates of the Company for more
than one year. Actual sales, or the prospect of sales by the present
stockholders of the Company or by future holders of restricted securities under
Rule 144, or otherwise, may, in the future, have a depressive effect upon the
price of the Company's shares of Common Stock in any market that may develop
therefor, and also could render difficult sales of the Company's securities
purchased by investors herein.
Penny Stock Regulation.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson it he transaction, and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject tot he penny stock rules. If the Company's securities
become subject to the penny stock
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rules, stockholders may find it more difficult to sell their securities.
Outstanding Options and Warrants.
As of the date of this Prospectus, the Company had granted options and
warrants to purchase an aggregate of 3,642,218 shares of Common Stock that had
not been exercised. Of the shares of Common Stock subject to these unexercised
options and warrants, 5,000 may be purchased for less than $1.00; 2,863,535 may
be purchased for between $1.00 and $1.99 per share; 434,183 may be purchased for
between $2.00 and $2.99 per share; 162,000 may be purchased for between $3.00
and $3.99 per share; 110,000 may be purchased for between $4.00 and $4.99 per
share; and 67,500 may be purchased for between $5.00 to $5.99 per share. To the
extent that the outstanding stock options and warrants are exercised, dilution
to the interests of the Company's stockholders will occur. Moreover, the terms
upon which the Company will be able to obtain additional equity capital may be
affected adversely, since the holders of the outstanding options and warrants
can be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in the outstanding options and warrants.
Effect of Conversion of Exchangeable Preferred Stock and Convertible Preferred
Stock.
In August 1996, one of the Company's wholly-owned subsidiaries conducted a
private placement in which it issued an aggregate of 400,000 shares of 5%
Convertible Preferred Stock at $25.00 per share and Placement Agent's Warrants
to purchase an aggregate of 36,000 shares of 5% Convertible Preferred Stock at
$25.00 per share. The 5% Convertible Preferred Stock is convertible into the
Common Stock of the Company based an a value per share of Common Stock of the
lower of (i) $1.10 or (ii) a 30.375% discount to the market price. For purposes
of this calculation, the 5% Convertible Preferred Stock is to be valued at its
liquidation value of $25.00 plus accrued dividends. Thus, the number of shares
issuable upon conversion is subject to adjustment. As of the date of this
Prospectus, approximately 317,000 shares of the 5% Convertible Preferred Stock
remain outstanding and such shares would be convertible into approximately 7.7
million shares of Common Stock if exchanged as of November 18, 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.
In November 1997, the Company issued 86,200 shares of convertible
preferred stock. This preferred stock, together with accrued dividends, shall be
convertible into Common Stock based upon a conversion rate of $1.50 per share of
Common Stock, and therefore, could result in the issuance of 1,436,667 shares of
Common Stock.
Common Stock holders will be diluted by these exchanges or conversions to
Common Stock. Additionally, since such shares of Common Stock will be registered
for sale in the marketplace, future offers to sell such shares could have a
potentially depressive effect upon the price of the Common Stock and render
difficult sales by the Company or by others of the Common Stock. See
"Description of Securities."
Possible Issuance of Preferred stock; Affiliate's Option to Acquire Voting
Control of Certain Subsidiaries; Anti-takeover Provisions.
The Company's Certificate of Incorporation permits its Board of Directors
to designate the terms
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of, and issue, up to 1,000,000 shares of Preferred Stock without further
stockholder approval. The issuance of shares of Preferred Stock by the Board of
Directors could adversely affect the rights of the holder of the Common Stock
by, among other things, establishing preferential dividends, liquidation rights
and voting power. As of the date of this Prospectus, 87,000 shares of Preferred
Stock have been issued. See "Description of Securities."
The Company has issued to William C. Samuels, its President and a
director, David Reese, its Executive Vice President and a director, Bruce
Crowley, its Executive Vice President, Christopher Cline, its Senior Vice
President, Chief Financial Officer and Secretary and three other employees,
options to acquire Class B Common Stock of certain material subsidiaries of the
Company. The ten year options vest commencing in July 1997 until January 1,
1999. In each case, the Class B Common Stock is identical to the Common Stock of
each such subsidiary that is owned by the Company, but has voting rights of 25
votes per share. If exercised, such options will result in the optionees' having
approximately 52% of the voting power of each subsidiary, increasing to in
excess of 75% as the options vest. As a result, should such options be exercised
as to any such subsidiary, the holders thereof would have the right to elect the
Board of Directors of such subsidiary and otherwise control its business and
affairs. The holders have also entered into an agreement as to the voting of
certain of such shares if issued.
The issuance of the Preferred stock, or the exercise by the holders of the
options to acquire the Class B Common Stock of such subsidiaries, either alone
or together, might render it more difficult, and therefore discourage, an
unsolicited takeover proposal such as a tender offer, proxy contest or removal
of incumbent management, even if such actions would be in the best interest of
the Company's stockholders. See "Management" and "Description of Securities."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Security
Holders' Shares offered hereby. All proceeds from the sale of the Security
Holders' Shares will be for the account of the Selling Security Holders
described herein. See "Selling Security Holders."
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BUSINESS
THE COMPANY
General
The Company operates directly and through wholly-owned subsidiaries. The
principal operating subsidiaries are ACTV Entertainment, Inc., ( "ACTV
Entertainment"), which is primarily responsible for the Company's focus in the
entertainment market, The Texas Individualized Television Network, Inc., which
will operate a regional network within the FOX Sports Net region in the
Southwest, and ACTV Net, Inc. ("ACTV Net"), which is responsible for the
Company's education business. Unless otherwise indicated or the context
otherwise requires, all references in this Prospectus to the Company include the
Company and its wholly-owned subsidiaries.
The Company has granted the appropriate operating subsidiaries exclusive,
perpetual, licenses to use the Company's proprietary software that
individualizes television programming ("Individualized Programming") within the
business area being operated by such subsidiary and have given the subsidiary
the right to sublicense such software. 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.
Certain Relationships with Subsidiaries
Consolidation of Educational Partnership into ACTV
In July 1992, ACTV Net (formerly ACTV Interactive, Inc.) entered into a
partnership agreement with Post-Newsweek Education, Inc., a wholly-owned
subsidiary of the Post Company, pursuant to which ACTV Interactive
("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 received a 51% interest
and ACTV Net received a 49% interest 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, as an equal
stockholder with a subsidiary of Le Groupe Videotron, Ltd. ("LGV"). 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
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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 Individualized Programming functionality for its Videoway service.
The modified license also allows LGV to produce Individualized Programming for
its own Videoway subscribers. LGV is not currently producing Individualized
Programming. ACTV has granted Cable and Wireless Communications, who bought
LGV's London cable systems, a royalty-free license through December 1998 to
continue to create and distribute ACTV programming to subscribers in conjunction
with the distribution of Videoway terminals.
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 ACTV Holdings, Inc.) 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 ACTV Holdings,
Inc.) 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 and three other employees 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. See "Management."
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BUSINESS
General
ACTV, Inc. ("Company") has developed proprietary technologies that
individualize television programming ("Individualized Programming").
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 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.
A viewer of Individualized Programming chooses among the various option
and features offered by using a standard remote control with four keys
programmed for ACTV functionality. 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 to see an instant replay. 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 played; "Goals-On-Demand," a compilation of all the scores in
the contest; plus, the viewer can call up in-depth statistics and instant
replays, anytime. In game shows, 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.
Additionally, Individualized Programming gives television advertisers
unique opportunities to target their message demographically. By asking the
viewer basic questions at the beginning of the program, the Individualized
Programming can recall this information during a commercial break and send the
viewer an appropriate advertisement. Alternatively, before a commercial break in
a sporting event, viewers are asked the 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, offering premiums, additional
information, or better targeted commercial messages to each viewer and could use
the remote control to answer the question being posed to the contestants.
The Company's Individualized Programming is designed to work with both
single and multiple channels of 6MHz 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 in entertainment is to deploy its programming over the digital cable
systems that have upgraded their signal origination facilities (referred to in
the industry as "headends") for digital delivery. Operators of upgraded systems
will distribute the Company's Individualized Programming to viewers who have a
digital set-top box into which the Company's software applications has been
downloaded. The Company is emphasizing digital delivery over analog primarily
because the channel capacity in digital transmission
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systems is greater and because Individualized Programming can be integrated into
digital systems with no incremental hardware cost.
The Company, working with the Sarnoff Corporation ("Sarnoff"), a world
leader in the development of digital platforms, has written software to
integrate the Company's Individualized Programming into digital television at no
incremental manufacturing cost for the set-top terminal. The Company, is
incorporating its Individualized Programming into Next Level Systems's ("Next
Level") 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 consists of 10 owned-and-operated regional sports networks, along with
numerous affiliated systems across the country. Launched on November 1, 1996,
the network is the United States sports telecasting arm of the worldwide sports
alliance formed among News Corp., Liberty Media, and Tele-Communications Inc. In
fall 1997, the network expanded its reach to nearly 60 million subscribers with
the launch of numerous SportsChannel regional networks under the FOX Sports Net
banner. 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. 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 class sessions. In addition, the Company has
developed 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 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, DBS and Wireless Cable Television Industry
Cable television was introduced in the early 1950's to provide television
signals to small or rural towns with little 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
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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 television system consists of two principal operating components:
one or more signal origination points called "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 to 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 and distribute their own
programming and other information services.
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 into the subscriber's home. In the past several years, many cable
operators have utilized 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
subscriptions from approximately 65% of total U.S. television households. Cable
systems typically offer 25 to 78 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. While allowing for the transmission of a greater
number of channels with better audio and video, it has also facilitated
different modes of distribution, such as satellite and wireless transmission.
In response to the recent success of the new digital DBS systems and to
the potential competition from wireless cable, which is also converting to
digital, cable operators have begun upgrading their headends. Once digital
transmission is available to a customer, a cable home needs only a digital
set-top terminal with ACTV software to receive Individualized Programming.
NextLevel has announced orders for approximately 4 million digital set-top boxes
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 6MHz 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
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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 other
necessary data streams (such as conditional access information). Each 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
(sometimes referred to herein as the "set-top box"), which receives the data
stream from each telecasting 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.
Digital satellite television has been one of the fastest selling consumer
electronics products in U.S. history. As of December 31, 1996, there were
approximately 4.4 million installed units nationwide. This installed base
represents a nearly 100% increase from the approximately 2.2 million units as of
the end of 1995 and more than eight times the approximately 500,000 units
installed as of the end of 1994. Most industry analysts agree that the market
for digital satellite products and services is growing and that there is
significant unsatisfied demand for high quality, reasonably priced television
programming. According to industry sources, there are approximately 98 million
television households in the U.S. and it is estimated that approximately 64
million cable subscriber pay an average of approximately $33 per month for
multichannel programming services. The potential market in the U.S. for DBS
video, audio and data programming services consist of (i) the approximately 8 to
11 million households that do not have access to cable televisions (not "passed
by cable"), (ii) the approximately 21 million households currently passed by
cable television systems with fewer than 40 channels of programming, (iii) other
existing cable subscribers who desire a greater variety of programming, improved
video and audio quality, better customer service and fewer transmission
interruptions, (iv) various commercial market applications, and (v) the
approximately 2.2 million C-band satellite subscribers who may desire to migrate
to digital service.
Other potential competitors to traditional cable television operators
include multi-channel multi-point distribution systems ("MMDS"), which deliver
programming services over microwave channels to subscribers with special
antennas, and other so-called "wireless cable" systems. According to Wireless
Cable Association International, there are currently an estimated 190 wireless
cable systems operating in the U.S., serving an estimated 950,000 subscribers,
mostly with limited channel, analog service. Wireless cable systems may provide
their customers with local programming, a potential advantage over existing
digital satellite television systems. It is expected 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, which
creates the potential for substantial interference from terrain, buildings and
foliage.
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Business Strategies
Target regions where the operation's headends are being upgraded to digital.
Individualized Programming in digital applications requires the system operator
to upgrade the headend to digital delivery and a digital converter box to be at
the subscriber's home in order to receive the Company's programming. The Company
has specifically targeted certain regions of the United States for marketing and
providing its Individualized Programming where the Company believes a greater
proportion of cable operators are upgrading their headends and have indicated
they will be offering digital converter boxes to their cable subscribers. The
Company plans to launch its first individualized regional network in the
Southwest.
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 whose cable systems are in the
Southwest to sign affiliate agreements to carry Individualized Programming and
to market it to their subscribers. The Company believes that its regional sports
programming will provide cable operators with a potentially significant source
of new revenues from a completely new and differentiated product offering that
is unavailable through DBS.
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 it to their subscribers, the Company's revenues and
penetration rates will increase. As consumers and cable operators understand
that 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) possibly offering Individualized Programming
free of charge for one month to potential new subscribers; (2) cross-promotional
activities with 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 programming. The
Company believes that sports will be the most popular programming genre for
attracting new subscribers to Individualized Programming. Therefore, it is the
Company's intention to keep programming costs low by primarily focusing on just
sports programming until operating results allow for additional programming such
as music, game shows, and other subjects to appeal to potential subscribers who
may have interest in these subjects and be less interested in sports
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
necessary to implement the Company's distance learning and Internet products,
the Company provides content development services.
Create joint ventures with customers to market the customer's content to other
users. The educational programming developed by customers using the Company's
education products in many instances has application for others. The Company
intends, jointly with customers who develop programs, to market such
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programs to other potential users.
Develop proprietary programming content. The Company believes that programming
content can be developed that will have application for many existing and
potential clients. The Company intends to develop such programming content
either entirely itself or by acquiring rights to existing education content and
subsequently adapting it for distance learning application.
Individualized Programming
General
The Company's process of creating Individualized 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 an ACTV 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.
The cost of the Company's 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 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 the Company's
Individualized Programming will allow distributors to offer their customers ACTV
Programs on a subscription basis. The regional 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.
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Examples of the Company's entertainment programming are:
Sports. Individualized sports will allow viewers to access elements that
enhance each game's regular coverage during the game. 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 played; "Goals-On-Demand," a compilation of all the scores in
the contest; plus in-depth statistics and instant replay, 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" -- 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 between 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 then
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, the 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, offering premiums, additional
information, or better targeted commercial messages to each viewer.
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 broadcast system that can deliver
pre-recorded individualized lessons or can integrate individualized segments
into live distance learning lessons. Students receive individualized responses
to their input made with a simple remote control. At the end of the lesson, the
system's memory component can recall each student's performance throughout the
lesson, giving the local facilitator a detailed accounting of the results.
Distance learning ("DL") networks typically involve a teacher at a central
telecasting 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
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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.
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 third year.
In 1995, the Company signed an agreement with NextLevel to allow
Individualized Programming for distance learning to be integrated with
NextLevel's DigiCipher(R) system. The new digital system will allow programming
networks to develop individualized programming and distribute it digitally to
their customers.
In early 1997, the Company began the development of the first applications
of its Java-based software suite, "eSchool", which permits an instructor to use
the Internet as an accompanying instructional tool during a video distance
learning session. (Java is a programming language developed for the Internet by
Sun Microsystems.) eSchool, which integrates Web content and a chat application
with educational video, effectively creates a "virtual" classroom. eSchool
software can be used for pre-recorded as well as live programming, while the
video can come from any source. The Company recorded its first eSchool sale in
mid-1997, through a $210,000 contract with the School District of Philadelphia.
Philadelphia Schools will use the eSchool online service to create and deliver
new instructional programs and for staff development.
In addition, 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. These products represented a majority of the Company's
revenue prior to the commercial introduction of the distance learning system but
are no longer a focus of the Company's marketing efforts. Education products are
marketed through both a direct and distributor sales force.
Programming Relationship with FOX Sports Net
In December 1996, 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. Sports programming for the trial was supplied to
the Company by FOX Sports West. 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.
FOX Sports Net is the domestic telecasting arm of the worldwide sports
alliance recently formed between News Corporation, Liberty Media and
TeleCommunications Inc. Fox Sports Net consists of 10 owned-and-operated
regional sports networks, along with numerous affiliated systems across the
country. Launched on November 1, 1996, the network is the United States sports
telecasting arm of the worldwide sports alliance formed among News Corp.,
Liberty Media, and Tele-Communications. In fall 1997, the network expanded its
reach to nearly 60 million subscribers with the launch of numerous SportsChannel
regional networks under the FOX Sports Net banner. 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 standard
programming tier.
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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. 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 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 regional individualized networks within the regions
served by FOX Sports Net, commencing in the region served by Fox Sports
Southwest. Current plans are for the launch of the first individualized network
in the late fourth quarter of 1997 or early in 1998. FOX Sports Southwest
distributes programming to 5.1 million households in Texas, Louisiana, Arkansas,
Oklahoma and nine New Mexico counties. The Company has also announced plans to
launch networks in the regions served by FOX Sports West, FOX Sports Northwest,
and the Sunshine Network, an affiliate in Florida. The planned regional
networks, like the recently completed trial, will feature FOX Sports Net
regional programming enhanced by the Company's Individualized Programming.
Subsequently, 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 product enhancement of the
Individualized Programming to be presented through its regional networks.
The Company has chosen these regions for deployment of Individualized
Programming because it is the Company's belief that these regions will be among
those targeted for the initial distribution of digital set-top boxes by cable
operators. The Company will direct its 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 buying digital set-top
boxes. Expansion could follow either in additional FOX Sports Net regions or in
other regional sports markets.
Production
Entertainment
ACTV Programs for entertainment are distributed within each region from a
master control facility, which includes the necessary equipment to both produce
and distribute Individualized Programming. The Company has built a master
control facility, which is located at the headquarters of FOX Sports Southwest
in Irving, Texas, to serve the Southwest region. The Company expects this
facility to be operational by the fourth quarter of 1997.
Education
The major components of the Company's DL television product are authoring
software, which
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permits the development of individualized education programming, and hardware
installed at the receiving site, which connects the student to the system. The
authoring software is designed to enable the teacher, using a standard personal
computer, video camera and other standard ancillary hardware to produce the
lessons to be telecast. The Company provides training and support in the use of
the authoring software, so that programming can be produced by the customer in
its own facilities.
eSchool consists of both instructor and student user software, authorizing
software, and database assessment software. In addition, the Company provides
Internet content development assistance and consulting to schools and
universities.
Product Development
Current Development
The Company's current research and development efforts are focused
primarily on digital application of its Individualized Programming and Internet
software for the education market. The Company entered into a collaborative
agreement in August 1995 with Sarnoff to investigate and develop digital
applications of its Individualized Programming. The Company, Sarnoff, and
NextLevel are completing the project to incorporate the Company's Individualized
Programming into NextLevel's new MPEG-2 digital set-top cable box. 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
software suite for the Internet is expected to be on-going throughout 1997 and
beyond.
Functionality
Individualized Programming allows a television set-top terminal to receive
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 set-top will make branch switches automatically, accumulate data,
recall information, create graphics and/or implement a pre-programmed set of
instructions.
In single-channel, analog (6MHz of band-width) applications,
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 6MHz of band-width. Sarnoff has written software that enables
the implementation of Individualized Programming into digital television
systems. Individualized Programming can be delivered through any digital video
system and received by a standard digital set-top terminal such as NextLevel's
DCT 1000. The Company's small software application can be installed during the
manufacturing process or can be later downloaded into each set-top terminal.
There is no additional memory or hardware necessary to upgrade a digital set-top
terminal to deliver the Company's Individualized Programming to subscribers.
Individualized Programming can be transmitted through any service
provider's channel, and Individualized Programming can even be broadcast under
the new digital television standard recently
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approved by the FCC. Individualized Programming uses one 6 MHZ channel with 64
OAM, or 8VSB modulation techniques providing adequate data rates to support the
Company's programming. The Individualized Programming is channel independent and
can be transmitted over any 6 MHZ channel using any practical modulation scheme.
The content will be created in each of the Company's regional production
facilities and then distributed to operators throughout the region via a number
of different delivery options. These options include 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 specific region. The Company will deliver to the 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 its customers. Utilizing 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 database management and a very small amount of local memory
in order to create millions of possible variations.
The Company's application software uses approximately 25 Kilobytes 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, RAM (Random Access Memory) up to 2KB. While the application
does not require any NVRAM (Non-Volatile RAM), up to 1KB of NVRAM for future
back channel applications is beneficial.
Individualized Programming seamlessly switches the user through multiple
channels of video and audio in response to the user's inputs throughout the
program. The switch may be delayed as long as the script writer chooses. The
seamless switch is accomplished by utilizing a sub set of the MPEG-2 syntax for
splicing. Individualized Programming switching is much simpler than creating a
seamless splice between two unrelated video streams because the video and
audio encoders are collocated.
The Company's Individualized Programming employs 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 2 Kilobytes/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.
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 the federal legislation enacted 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
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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.
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 NextLevel signed a non-exclusive,
royalty-free manufacturing agreement for NextLevel's MPEG-2 digital terminal.
Sarnoff is working with NextLevel to integrate Individualized Programming into
this digital terminal. The project is scheduled for completion in the fourth
quarter of 1997. In August 1997, NextLevel Systems, Inc. invested $1 million in
the Common Stock of the Company. The companies also agreed to jointly market the
Company's individualized television application that operates with NextLevel's
current generation digital systems and consumer set-top terminals.
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 LGV to other manufacturers that are
selected by the future distributors of Individualized Programming. ACTV does not
anticipate deploying its programming service with other digital set-top box
manufacturers until early 1999.
In the education market, the Company has entered into an arrangement with
NextLevel pursuant to which Individualized Programming for distance learning
will be integrated with NextLevel's DigiCipher system. The new digital system,
which combines the Company's Individualized Programming and NextLevel'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 was completed 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 effect on the business of the
Company.
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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 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 thirteen
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.
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 agreement 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. In addition, all
proprietary 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
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services. The Company's existing and potential competitors comprise a broad
range of entities engaged in communications and entertainment, including cable
programming providers, cable premium pay programming providers (such as HBO,
Cinemax etc.), premier multiplex pay channels under the digital format,
pay-per-view movies and special event offerings, 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. The Company may also experience
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.
In the education market, the Company competes with other providers of distance
learning products. Nearly all of the competitors of the Company have greater
financial, and other, resources than the Company.
Employees
At November 18, 1997, the Company employed 35 full-time employees. The
Company believes that its relationships with its employees are generally
satisfactory.
Property - Offices and Facilities
The Company 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. 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. In
addition, ACTV Entertainment leases a facility in Dallas of 2,972 square feet
for a monthly rent of approximately $5,950, pursuant to a lease that expires in
October 1998. The Company believes its current facilities are suitable and
adequate, and that they provide the productive capacity necessary for the
performance of the operations of the Company. None of the Company's properties
is leased from affiliated persons.
Legal Proceedings
There are no pending material legal proceedings to which the Company is a
party.
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SELLING SECURITY HOLDERS
All of the Security Holders' Shares to which this Prospectus relates may
be sold by Selling Security Holders who have acquired or will acquire such
shares from the Company previously or will acquire such shares (i) upon the
exercise of currently exercisable options, warrants and pursuant to SARs, or
(ii) upon conversion of the 7% Convertible Preferred Stock of the corporation.
The Company will not receive any of the proceeds from sales of such shares by
Selling Security Holders, but will receive the exercise price upon the exercise
of options or warrants by Selling Security Holders.
All costs, expenses and fees in connection with the registration of the
Security Holders' Shares will be borne by the Company. All brokerage
commissions, if any, attributable to the sale of Security Holders' Shares by
Selling Security Holders will be borne by such Selling Security Holders.
The Selling Security Holders are offering hereby a total of 3,216,091
shares of Common Stock. The following table sets forth the name of each person
who is a Selling Security Holder, the number of securities owned by each such
person at the time of this offering and the number of shares of Common Stock
such person will own after the completion of this offering. The following table
assumes the exercise of all options and warrants beneficially owned by each such
security holder.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
| | | | | | |
| | Beneficial | | | | |
| | Ownership | | | Beneficial | |
| | Prior to | | Shares Included in | Ownership After | |
| Name | Offering (1) | % | This Offering (2) | Offering | $ |
| ---- | ------------ | - | ----------------- | -------- | |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| <S> <C> <C> <C> <C> <C>
| NextLevel Systems, Inc. | 400,000 | 2.8% | 400,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Sarnoff Corporation | 100,000 | * | (3) 100,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Libra Investments, Inc. | 280,000 | 1.9% | (4) 30,000 | 250,000 | 1.7% |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Ravich Revocable Trust | 45,000 | * | (5) 45,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Charles Yamarone | 15,000 | * | (6) 15,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Robert Morrish | 10,000 | * | (6) 10,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| David Alworth | 100,000 | * | (7) 100,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Cindi Baker | 66,000 | * | (8) 16,000 | 50,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| James Crook | 125,294 | * | (8) 67,000 | 58.294 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Brent Imai | 70,000 | * | (8) 20,000 | 50,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Craig Ullman | 110,000 | * | (8) 60,000 | 50,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Banca del Gottardo | 1,916,667 | 12.0% | (9)1,666,667 | 250,000 | 1.7% |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Linda Baldomir | 12,000 | * | (6) 4,000 | 8,000 | |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Richard Barron | 50,000 | * | (6) 25,000 | 25,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Richard Carvalho | 10,000 | * | (6) 10,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Robert Cohen | 25,000 | * | (6) 25,000 | 0 | * |
- ---------------------------------------------------------------------------------------------------------------------------------
34
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------------------
| Emile Courreges | 12,500 | * | (6) 12,500 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| William Diggins | 25,000 | * | (6) 25,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Ed Downe | 50,000 | * | (6) 25,000 | 25,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Carl Duda | 25,000 | * | (6) 25,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| William Frank | 25,000 | * | (6)(10) 25,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Michael Freeman | 306,598 | 2.1% | (6) 100,000 | 206,598 | 1.4% |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Jeff Harrington | 15,000 | * | (6) 15,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Edward Hunt | 12,500 | * | (6) 12,500 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Lee Isgur | 25,000 | * | (6) 25,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Edward Pete | 15,000 | * | (6) 15,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Steven Mallios | 25,000 | * | (6) 25,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Dan Mahony | 39,000 | * | (6) 25,000 | 14,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Steven Schuster | 12,500 | * | (6)(11) 12,500 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Howard Squadron | 127,767 | * | (12) 50,000 | 77,767 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| William Magenau | 10,000 | * | (13) 10,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Comstar Computer | 37,000 | * | (14) 25,000 | 12,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Mark Hochberg | 46,500 | * | (15) 20,000 | 8,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Wayne Hochberg | 38,500 | * | (15) 20,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Sheila Kaplowitz | 50,000 | * | (16) 50,000 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| MWW Group | 11,592| *| 11,592 | 0 | *|
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Paul Daniels | 36,667 | * | (17) 26,667 | 10,000 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Robert S. Richardson Family Trust | 13,333 | * | (18) 13,333 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Leland Tate | 13,333 | * | (18) 13,333 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Richard Hughes | 13,333 | * | (18) 13,333 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Thomas Obradovich | 13,333 | * | (18) 13,333 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Jon D. Kostival | 13,333 | * | (18) 13,333 | 0 | * |
|------------------------------------|----------------|--------------|-----------------------|-------------------|--------------|
| Total | | | 3,216,091 | | |
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes (i) shares issuable upon exercise of all options, warrants and
Convertible Preferred Stock, based on current conversion prices and
formulas (some of which are subject to adjustment based on market
fluctuations) for which the underlying shares of Common Stock are being
offered hereby (ii) shares issuable upon exercise of all options, warrants
and Convertible Preferred Stock, based on current conversion prices and
formulas provided such securities are exercisable within the sixty days
35
<PAGE>
commencing on the date of the Prospectus and (iii) shares that have been
registered on previous registration statements but have not been sold as
of November 5, 1997.
(2) Gives effect to the sale of all the shares of Common Stock being offered
hereby.
(3) Consists of shares issuable upon exercise of options to purchase shares of
the Common Stock at $3.75 share.
(4) Jess Ravich, Chairman, Chief Executive Officer and principal shareholder
of Libra Investments, Inc. ("Libra") is a director of the Company. Mr.
Ravich disclaims any beneficial interest in the holdings of Libra, except
to the extent of his interest in Libra. Consists of shares issuable upon
exercise of warrants to purchase 30,000 shares of Common Stock at $1.50
per share.
(5) Jess Ravich, a trustee to the trust, is a director of the Company.
Consists of shares issuable upon exercise of warrants to purchase 45,000
shares of Common Stock at $1.50 per share.
(6) Consists of shares issuable upon exercise of warrants or options to
purchase Common Stock at a $1.50 per share.
(7) Consists of shares issuable upon exercise of warrants or options to
purchase 50,000 shares of Common Stock at a $1.50 per share and 50,000
shares issued pursuant to the exercise of stock appreciation rights.
(8) Consists of shares issued pursuant to the exercise of stock appreciation
rights.
(9) Included among the shares being registered are 1,333,333 shares issuable
upon the conversion of 80,000 shares of the Company's 7% Convertible
Preferred Stock. Also included among Beneficial Ownership Prior to
Offering are shares issuable upon exercise of warrants to purchase 250,000
shares of Common Stock at a purchase price of $2.50 per share, which are
not being registered in this Offering.
(10) Mr. Frank is a director of the Company.
(11) Mr. Schuster is a director of the Company.
(12) Mr. Squadron served as director of the Company until 1996. Consists of
shares issuable upon exercise of warrants to purchase 50,000 shares of
Common Stock at $2.00 per share.
(13) Consists of 10,000 shares issuable upon the conversion of 600 shares of
the Company's 7% Convertible Preferred Stock.
(14) Includes shares issuable upon the exercise of options to purchase 25,000
shares of Common Stock at $4.00 per share.
(15) Mark Hochberg and Wayne Hochberg each own 50% of Comstar Computer, which
beneficially owns 37,000 shares of Common Stock. Each of them disclaim
beneficial ownership of such shares except to the extent of their
ownership in Comstar Computer.
36
<PAGE>
(16) Ms. Kaplowitz is the wife of a partner at the firm of Gersten, Savage,
Kaplowitz & Fredericks, LLP, Company counsel.
(17) Consists of 26,667 shares issuable upon the conversion of 1,600 shares of
the Company's 7% Convertible Preferred Stock.
(18) Consists of 13,333 shares issuable upon the conversion of 800 shares of
the Company's 7% Convertible Preferred Stock.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The total authorized capital stock of the Company consists of 65,000,000
shares of Common Stock, par value $0.10 per share, and 1,000,000 shares of
Preferred Stock, par value $0.10 per share. The following descriptions of
capital stock are qualified in all respects by reference to the Restated
Certificate of Incorporation and By-Laws of the Company, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
COMMON STOCK
The holders of Common Stock will elect all directors and are entitled to
one vote for each share held of record. As of the date of this Prospectus,
14,434,612 shares of Common Stock were issued and outstanding. All shares of
Common Stock will participate equally in dividends, when and as declared by the
Board of Directors and in net assets on liquidation. The shares of Common Stock
will have no preference, conversion, exchange, preemptive or cumulative voting
rights.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
1,000,000 shares of Preferred Stock with designations, rights and preferences
determined from time to time by its board of directors. Accordingly, the
Company's Board of Directors is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion or other rights
that could adversely affect the rights of holders of the Common Stock. Except as
set forth below, the Company has no current plans to issue any shares of its
Preferred Stock, but there can be no assurance that it will not do so in the
future.
The Company has designated 120,000 shares of its Preferred Stock as Series
A 7% Convertible Preferred Stock ("Class A Stock"). In November 1997, the
Company issued 86,200 shares of the Class A Stock in exchange for consideration
equal to $25.00 per share. The Class A Stock has a liquidation preference $25.00
per share and pays a dividend, in cash or accumulated and pain in Common Stock
upon conversion, of 7% per annum. The Class A Stock is convertible into Common
Stock. The number of shares issued upon conversion are determined by dividing
the liquidation value of $25.00 plus accrued dividends by the conversion price
of $1.50 per common share.
OTHER DERIVATIVE SECURITIES
In August 1996, one of the Company's wholly-owned subsidiaries conducted a
private placement in which it issued an aggregate of 400,000 shares of 5%
Convertible Preferred Stock at $25.00 per share and Underwriter's Warrants to
purchase an aggregate of 36,000 shares of 5% Convertible Preferred Stock at
$25.00 per share. The 5% Convertible Preferred Stock is convertible into the
Common Stock of the Company based an a value per share of Common Stock of the
lower of (i) $1.10 or (ii) a 30.375% discount to the market price. For purposes
of this calculation, the 5% Convertible Preferred Stock is to be valued at its
liquidation value of $25.00 plus accrued dividends. Thus, the number of shares
issuable upon conversion is subject to adjustment. As of the date of this
Prospectus, approximately 317,000 shares of the 5% Convertible Preferred Stock
remain outstanding and such shares would be convertible into approximately 7.7
million shares of Common Stock if exchanged as of November 18, 1997. The Company
38
<PAGE>
believes that it is highly likely that the holders of the Convertible
Preferred Stock will elect to convert their stock into the Common Stock of the
Company. See "Risk Factors -- Effect of Convertible Preferred Stock; Adjustment
to Common Stock."
TRANSFER AGENT
The Company's transfer agent is Continental Stock Transfer & Trust
Company, New York, New York 10007.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be approximately 16,815,777
shares of Common Stock outstanding assuring exchange/conversion of all
derivative securities offered hereunder. Of these shares, the Shares being
registered hereby will be freely tradeable without restriction under the
Securities Act, for so long as this Prospectus is kept current by the Company.
An aggregate of approximately 800,000 shares of Common Stock held by existing
stockholders will be "restricted" shares as defined in Rule 144.
In general, under Rule 144 a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted shares of the Company for at
least two years, including any person who may be deemed to be an "affiliate" of
the Company (as the term "affiliate" is defined under the Securities Act), is
entitled to sell in normal brokerage transactions during the periods when
certain information regarding the Company is publicly available, within any
three-month period, an amount of shares that does not exceed the greater of (i)
the average weekly trading volume in the Company's shares during the four
calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. A
person who has not been an "affiliate" of the Company for the three months prior
to such sale and who has held restricted shares for at least three years would
be entitled to sell such shares without restriction. Most of such restricted
shares have been held by non-affiliates of the Company for more than three years
or by affiliates of the Company for more than two years. Actual sales, or the
prospect of sales by the present stockholders of the Company, or by future
holders of restricted securities under Rule 144, or otherwise, may, in the
future, have a depressive effect upon the price of the Company's shares of
Common Stock in any market that may develop therefor.
39
<PAGE>
PLAN OF DISTRIBUTION
Up to 994,500 of the Selling Security Holders' Shares may be sold by the
Selling Security Holders who have acquired such shares from the Company upon the
exercise of options and warrants. The Company will not receive any of the
proceeds from any sales by Selling Security Holders of the Security Holder
Shares, but will receive the exercise price upon the exercise of options and
warrants by the Security Holders. See "SELLING SECURITY HOLDERS."
The Selling Security Holders have advised the Company that the sale or
distribution of the Common Stock may be effected directly to purchasers by the
Selling Security Holders as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the Boston Stock Exchange, in
the NASDAQ SmallCap Market, or in the over-the-counter market, (ii) in
transactions otherwise than on any stock exchange or in the over-the-counter
market, or (iii) through the writing of options (whether such options are listed
on an options exchange or otherwise) on, or settlement of short sales of, the
Common Stock. Any of such transactions may be effected at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case a determined by the Selling Security Holder or by
agreement between the Selling Security Holder and underwriters, brokers, dealers
or agents or purchasers. If the Selling Security Holders effect such
transactions by selling Common Stock to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders or commissions from purchaser of Common Stock for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may be in excess of those
customary in the types of transactions involved). The Selling Security Holders
and any brokers, dealers or agents that participate in the distribution of the
Common Stock may be deemed to be underwriters, and any profit on the sale of
Common Stock by them and any discounts, concessions or commissions received by
any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act.
Because the Selling Security Holders may each be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
Selling Security Holders will be subject to prospectus delivery requirements
under the Securities Act. Furthermore, in the event of a "distribution" of its
shares, the Selling Security Holder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Rule 10b-6 under the Exchange Act
until its participation in that distribution is completed.
At the time of a particular offer of Security Holders' Shares is made by
or on behalf of any of the Selling Security Holders, to the extent such offer
constitutes a distribution under the Securities Act, a supplement to this
Prospectus will be distributed, which will set forth the type and number of
securities being offered by such Selling Security Holders and the terms of such
offering, including the name or names and addresses of any underwriters, dealers
or agents, the purchase price paid by any underwriter for securities purchased
from the Selling Security Holder and any discounts, commissions or concessions
allowed or reallowed or paid to dealers, and the proposed selling price to the
public.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Security Holders'
Shares. However, all brokerage commissions, if any, attributable to the sale of
such shares by holders thereof will be borne by such holders.
40
<PAGE>
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the
shares of Common Stock offered by the Company, are being passed upon for the
Company by Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street,
New York, New York 10022. Jay Kaplowitz, a partner in Gersten, Savage, Kaplowitz
& Fredericks, LLP, the Company's counsel owns options to purchase 25,000 shares
and Sheila Kaplowitz, the wife of Mr. Kaplowitz, owns 50,000 shares of the
Company's Common Stock.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Company's Annual
Report as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 on Form 10-K for the year ended December 31,
1996, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 with respect to the securities offered by this Prospectus. This Prospectus
omits certain information contained in the Registration Statement, as permitted
by the Rules and Regulations of the Commission. For further information,
reference is made to the Registration Statement, which may be obtained from the
Commission's principal facility at 450 Fifth Street, N.W., Washington, D.C.,
20549 upon payment of the Commission's charge for copying. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to are not complete. Where such contract or other document is an exhibit to the
Registration Statement, each such statement is deemed to be qualified and
amplified in all respects by the provision of the exhibit.
41
<PAGE>
No underwriter, dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer or solicitation to any person in any jurisdiction where
such offer or solicitation would be unlawful. Neither delivery of this
Prospectus nor any Common Stock sale hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
----
Available Information ........ 3 ACTV, INC.
Incorporation of Certain
Information by Reference .... 3 3,216,091 Shares of Common Stock
Risk Factors ................. 8
Use of Proceeds .............. 16 (1) 2,381,165 shares issuable by the
Business ..................... 17 Company upon the Exercise of Options,
Selling Security Holders ..... 34 Warrants, pursuant to SARs, upon the
Description of Capital Stock . 38 conversion of preferred stock.
Plan of Distribution ......... 40
Legal Matters ................ 41 (2) 834,926 shares offered by Selling
Experts ...................... 41 Security Holders
November __, 1997
42
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION.
SEC registration fee ...................................... $ 1,583.68
Fees and expenses of counsel .............................. 25,000.00*
Miscellaneous ............................................. 2,000.00*
Total ............................................ $28,583.68
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to paragraph "Twelfth" of the Restated Certificate of
Incorporation of the Registrant (Exhibit 3(i)), which contains a
provision, as permitted by Section 145 of the Delaware General Corporation
Law, which eliminates the personal liability of directors to the
Registrant and its stockholders for monetary damages for unintentional
breach of a director's fiduciary duty to the Registrant. This provision
does not permit any limitation on, or elimination of the liability of a
director for disloyalty to the Registrant or its stockholders, for failing
to acting good faith, for engaging in intentional misconduct or a knowing
violation of law, for obtaining an improper personal benefit or for paying
a dividend or approving a stock repurchase that was illegal under the
Delaware General Corporation Law.
The Restated Certificate of Incorporation and By-Laws of the Registrant
require the Registrant to indemnify directors and officers against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation (a "derivative action") if
they acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the Registrant, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in
the case of derivative actions, except that indemnification only extends
to expenses (including attorneys fees) incurred in connection with defense
or settlement of such an action. Moreover, the Delaware General
Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found
liable to the Company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) in connection with
the securities being registered, the Registrant will, unless in the
opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-1
<PAGE>
16. EXHIBITS
3.1 Certificate of Designation of the 7% Convertible Preferred Stock of
the Company
*5. Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (contained
in Exhibit 5)
* Previously Filed
17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or in the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer, or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Company will,
II-2
<PAGE>
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing a Post-Effective Amendment No. 1 to Registration on Form
S-3 and has duly caused this Post-Effective Amendment No. 1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 20 of November, 1997.
ACTV, INC.
By: /s/William C. Samuels
---------------------
William C. Samuels
Chairman of the Board, Chief
Executive Officer, President and
Director
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ William C. Samuels Chairman of the Board, Chief November 20, 1997
- ---------------------- Executive Officer, President and
William C. Samuels Director
/s/David Reese Executive Vice-President, November 20, 1997
- ---------------------- President--ACTV Entertainment, Inc.
David Reese and Director
/s/ Bruce Crowley Executive Vice-President, November 20, 1997
- ---------------------- President--ACTV Interactive, Inc.
Bruce Crowley and Director
/s/ Richard Hyman Director November 20, 1997
- ----------------------
Richard Hyman
/s/ William A. Frank Director November 20, 1997
- ----------------------
William A. Frank
/s/ Steven W. Schuster Director November 20, 1997
- ----------------------
Steen W. Schuster
/s/ Jess M. Ravich Director November 20, 1997
- ----------------------
Jess M. Ravich
/s/ Christopher C. Cline Vice President, Chief Financial November 20, 1997
- ------------------------ Officer and Secretary
Christopher C. Cline
II-4
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Designation of the 7% Convertible Preferred Stock of the
Company
5. Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (contained in
Exhibit 5)
II-5
CERTIFICATE OF DESIGNATION
OF
SERIES A 7% CONVERTIBLE PREFERRED STOCK
OF
ACTV, Inc.
Pursuant to Section 151 of the Delaware General Corporation Law, ACTV Inc.
(the "Corporation"), a corporation organized and existing under and by virtue of
the provisions of the Delaware General Corporation Law that pursuant to
authority conferred upon the Board of Directors of the Corporation (the "Board")
by the Certificate of Incorporation of the Corporation, the Board adopted the
following resolution authorizing the creation and issuance of a series of
120,000 shares of Series A 7% Convertible Preferred Stock, (the "Series A
Preferred Stock" or the "Series"), which resolution is as follows:
RESOLVED, that pursuant to authority expressly granted to and vested in the
Board of Directors by the Certificate of Incorporation, as amended, of the
Corporation, the Board hereby creates a series of 120,000 shares of Series A
Preferred Stock, of the Corporation and authorizes the issuance thereof, and
hereby fixes the designation thereof, and the voting powers, preferences and
relative, participating, optional and other special limitations or restrictions
thereon (in addition to the designations, preferences and relative,
participating and other special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Certificate of Incorporation, as amended,
of the Corporation, which are applicable to the preferred stock of all series,
if any) as follows:
1. Designation. The shares of the series shall be designated "Series A 7%
Convertible Preferred Stock" "Series A Preferred Stock," or the "Series"), and
the number of shares constituting the Series shall be 120,000.
2. Dividends. Holders of the Series A Preferred Stock (the "Holders") shall
be entitled to an annual cumulative dividend of seven percent (7%) of the
Liquidation Value of the Series A Preferred Stock, from the date of issuance and
compounded semi-annually. At the option of the Corporation, dividends will be
payable in cash semi-annually or accumulated and payable in kind in the common
stock of the Corporation upon conversion pursuant to Section 5 herein. Dividends
payable for any period less than a full year, will be computed on the basis of a
360 day year with equal months of 30 days.
3. Liquidation.
(a) Liquidation Preference. Upon any liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary, and after
provision for the
II-6
<PAGE>
payment of creditors, the Holders shall be entitled to be paid an amount equal
to $25.00 ("Liquidation Value") plus any unpaid dividends per share of Series A
Preferred Stock held, before any distribution or payment is made upon any shares
of the common stock of the Corporation (the "Common Stock") and any other series
of stock junior to the Series A Preferred Stock but subject to the prior
preferences of any series or class of stock of the Corporation senior to the
Series A Preferred Stock.
(b) Ratable Distribution. If upon any liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation to be
distributed among the Holders shall be insufficient to permit payment in full to
the Holders of such Series A Preferred Stock, then all remaining net assets of
the Corporation after the provision for the payment of the Corporation's debts
and distribution to any senior stockholders shall be distributed ratably in
proportion to the full amounts to which they would otherwise be entitled to
receive among the Holders.
(c) Corporate Changes. The sale, lease or exchange of all or
substantially all of the Corporation's assets or the merger or consolidation of
the Corporation which results in the holders of Common Stock of the Corporation
receiving in exchange for such common stock cash, notes, debentures or other
evidences of indebtedness or obligations to pay cash, or preferred stock of the
surviving entity which ranks on a parity with or senior to the Series A
Preferred Stock as to dividends or upon liquidation, dissolution or winding-up
shall be deemed to be a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this Section 3(c).
4. Voting Rights. Except as required under Delaware law, the Holders shall
not have any right or power to vote on any question or in any proceeding or to
be represented at or to receive notice of any proceeding or meeting of the
stockholders.
5. Conversion Rights. The Series A Preferred Stock shall be convertible
into the common stock of the Corporation ("Common Stock") immediately as
follows:
(a) Optional Conversion. Subject to and upon compliance with the
provisions of this section 5, a Holder shall have the right at such Holder=s
option at any time or from time to time, to convert any of such shares of Series
A Preferred Stock into fully paid and non-assessable shares of the Common Stock
of the Corporation at the then Conversion Rate (as hereinafter defined), plus
accrued and unpaid dividends upon the terms hereinafter set forth.
(b) Conversion Rate. Each share of Preferred
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<PAGE>
Stock is convertible into the number of shares of the Common Stock of
Corporation shall be calculated by dividing the liquidation preference plus any
accrued dividends by $1.50, subject to adjustment as set forth in Section 5(e)
hereof.
(c) Mechanics of Conversion. The Holder may exercise the conversion
right specified in subparagraph 5(a) by giving five (5) days written notice to
the Corporation, that the Holder elects to convert a stated number of shares of
Series A Preferred Stock into a stated number of shares of Common Stock, and by
surrendering the certificate or certificates representing the Series A Preferred
Stock so to be converted, duly endorsed to the Corporation or in blank, to the
Corporation at its principal office (or at such other office as the Corporation
may designate by written notice, postage prepaid, to all Holders) at any time
during its usual business hours on or before the Conversion Date (as defined
below), together with a statement of the name or names (with addresses) of the
person or persons in whose name the certificate or certificates for Common Stock
shall be issued.
(d) Redemption. At any time after August 31, 1999, the Corporation may
at its option redeem any or all of the Series A Preferred Stock at a price equal
to the liquidation preference plus any accrued dividends, provided that it has
notified the Purchaser or its assigns in writing of its intent to redeem at
least thirty (30) days prior to such redemption.
(e) Conversion Rate Adjustments. The Conversion Rate shall be subject to
adjustment from time to time as follows:
(1) Consolidation, Merger, Sale, Lease or Conveyance. In case of any
consolidation with or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another corporation
of the assets of the Corporation as an entirety or substantially as an entirety,
each share of Series A Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Series A Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance; and in
any such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holder of the shares of Series A
Preferred Stock shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock of other securities or
property thereafter deliverable on the conversion of the shares of Series A
Preferred Stock.
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(2) Stock Dividends, Subdivisions, Reclassification or Combinations. If the
Corporation shall (i) declare a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Rate in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the holder of any
shares of Series A Preferred Stock surrendered for conversion after such date
shall be entitled to receive the number of shares of Common Stock that he would
have owned or been entitled to receive had such Series A Preferred Stock been
converted immediately prior to such date. Successive adjustments in the
Conversion Rate shall be made whenever any event specified above shall occur.
(f) Approvals. If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series A Preferred Stock require registration
with or approval of any governmental authority under any Federal or state law
before such shares may be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If, and so long as,
any Common Stock into which the shares of Series A Preferred Stock are then
convertible is listed on any national securities exchange, the Corporation will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon conversion.
(g) Valid Issuance. All shares of Common Stock that may be issued upon
conversion of shares of Series A Preferred Stock will upon issuance be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof, and the Corporation shall take no
action that will cause a contrary result.
6. No Preemptive Rights. Except as provided herein, no holders of Series A
Preferred Stock, nor of the security convertible into, nor of any warrant,
option or right to purchase, subscribe for or otherwise acquire Series A
Preferred Stock, whether now or hereafter authorized, shall, as such holder,
have any preemptive right whatsoever to purchase, subscribe for or otherwise
acquire, stock of any class of the Corporation nor of any security convertible
into, nor of any warrant, option or right to purchase, subscribe for or
otherwise acquire, stock of any class of the Corporation, whether now or
hereafter authorized.
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<PAGE>
7. Exclusion of Other Rights. Except as may otherwise be required by law,
the shares of Series A Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than those
specifically set forth in this resolution (as such resolution may be amended
from time to time) and in the Corporation's Certificate of Incorporation. The
Shares of Series A Preferred Stock shall have no preemptive or subscription
rights.
8. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
9. Severability of Provisions. If any right, preference or limitation of
the Preferred Stock set forth in this Certificate (as such Certificate may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this Certificate (as so amended) that can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
10. Status of Reacquired Shares. Shares of Series A Preferred Stock that
have been issued and reacquired in any manner shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares of preferred stock issuable in series
undesignated as to series and may be redesignated and reissued.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name and on its behalf by its President and attested to this 11th
day of November 1997.
ACTV Inc.
By:/s/ Christopher Cline
----------------------------
Christopher Cline, Secretary
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EXHIBIT 5
[Gersten, Savage, Kaplowitz & Curtin, LLP Letterhead]
November 7, 1997
ACTV. Inc.
1270 Avenue of the Americas
New York, New York 10020
Gentlemen:
You have requested our opinion, as counsel for ACTV, Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-3 "the "Registration Statement" on Form S-3 (the "Registration
Statement"), under the Securities Act of 1933 (the "Act"), being filed by the
Company with the Securities and Exchange Commission.
The Registration Statement relates to an offering of 3,216,091 shares (the
"Selling Security Holders' Shares") of common stock (the "Offering"), per value
$ .10 (the "Common Stock"). Up to 2,381,165 of the Selling Security Holders'
Shares may be issued by the Company upon the exercise of options, warrants,
pursuant to SARs or upon conversion of convertible preferred stock. Up to
834,925 of the Security Holders' Shares may be sold by security holders who have
previously acquired such shares from the Company.
We have examined such records and documents and made such examination of law as
we have deemed relevant in connection with this opinion. It is our opinion that
when there has been compliance with the Act, the Selling Security Holders'
Shares, when issued, delivered, and paid for, will be fully paid, validly issued
and nonassessable.
No opinion is expressed herein as to any laws other than the State of New York,
of the United States and the corporate laws of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we
arre in the category of persons whose consent is required under Section 7 of the
Act and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Gersten, Savage, Kaplowitz & Curtin, LLP
GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
ACTV, Inc. on Form S-3 of our report dated February 27, 1997, appearing in the
Annual Report on Form 10-K of ACTV, Inc. for the year ended December 31, 1996,
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ Deloitte & Touche, LLP
New York, New York
November 20, 1997
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EXHIBIT 23.2
The consent of Gersten, Savage, Kaplowitz & Fredericks, LLP is
contained in Exhibit 5.
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