UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
ACTV, Inc.
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(Exact name of registrant as specified in its charter)
Delaware __94-2907258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
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(Address of principal executive offices) (Zip Code)
(212) 217-1600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, Par Value $0.10 Boston Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 16, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on The Nasdaq Stock Market closing price
on March 16, 1999) was $193,327,255.
As of March 16, 1999, there were 33,217,184 shares of the registrant's common
stock outstanding.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-
looking statements include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying assumptions and other
statements which are other than statements of historical facts. These statements
are subject to uncertainties and risks including, but not limited to, product
and service demand and acceptance, changes in technology, economic conditions,
the impact of competition and pricing, government regulation, and other risks
defined in this document and in statements filed from time to time with the
Securities and Exchange Commission. All such forward-looking statements are
expressly qualified by these cautionary statements and any other cautionary
statements which may accompany the forward-looking statements. In addition,
ACTV, Inc. disclaims any obligations to update any forward-looking statements to
reflect events of circumstances after the date hereof.
INTRODUCTORY NOTE
The term "Company" used herein refers to ACTV, Inc. and its
subsidiaries, ACTV Entertainment, Inc. and HyperTV Networks, Inc.
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PART I
Item 1. BUSINESS
General
ACTV, Inc. has developed patented and proprietary technologies, which we
call Individualized Television and HyperTV(TM), that allow content providers to
create unique interactive programming for digital television and for
television/Internet convergence applications. Convergence is a term commonly
used to describe the merging of television programming with content provided
through the Internet. This merging of the two media can occur on the same
display device, like a computer screen, or on separate television and computer
monitors that are near one another.
Our individualized programming software technology provides the tools
needed to create and view live or pre-recorded television programming that
individualizes what the viewer sees and hears. The proprietary software can
remember every choice the viewer keys in with his TV remote control, allowing
the television to literally respond to each viewer with tailored programming and
advertising content. HyperTV(TM) software technologies enable the simultaneous
delivery of complementary video and Internet URL's directly to television
viewers and/or personal computer users. URL, which is short for uniform resource
locator, is the address of an Internet web site.
We conduct our Individualized Television and HyperTV(TM) operations
through wholly-owned subsidiaries, ACTV Entertainment, Inc. and HyperTV
Networks, Inc., respectively. ACTV Entertainment, Inc., in turn, wholly owns The
Texas Individualized Television Network, Inc.
ACTV, Inc. has granted ACTV Entertainment, Inc. an exclusive, perpetual
license to use certain patented and proprietary technologies for Individualized
Television in the United States and has granted HyperTV Networks, Inc. an
exclusive, perpetual license to use certain patented and proprietary
technologies for HyperTV(TM) worldwide. Under the licenses, each subsidiary will
pay ACTV, Inc. royalties on net revenues if the subsidiary is no longer majority
owned by ACTV.
Unless otherwise indicated, all references in this Form 10-K to ACTV or
the "Company" include ACTV, Inc. and all of its subsidiaries.
This document includes certain forward looking statements about ACTV and
its industry that are based on management's current expectations. Actual results
may differ materially as a result of any one or more of the risks identified in
the ACTV's filings under the Securities Exchange Act of 1934.
Board Policy of ACTV, Inc; Corporate Structure of Subsidiaries
Our policy is and has been, as set forth in the prospectus relating to
its initial public offering in May 1990, "to license ACTV's technology and
arrange joint ventures for its use in a number of different industries." Our
board of directors has previously adopted, and has reaffirmed in 1999, a plan to
take effect in the event that an entity deemed likely not to further such policy
or to act inconsistently with the best interests of all our shareholders seeks
to acquire or has acquired 20% or more of our common stock. The text of the
board resolution is the following:
"Resolved, that it being in the best interests of ACTV, Inc. and its
shareholders, the board of directors hereby approves and adopts a plan that, in
the event that majority of the board of directors determines that an acquirer
has acquired, or seeks to acquire 20% or more of ACTV, Inc. and that such
acquirer is not a suitable acquirer in the opinion of the majority of the board
of directors since such acquirer will not further our policy of acting as a
broad licensor and joint venturer of our proprietary and patented technologies,
or is otherwise likely to act inconsistently with the best interests of all of
our shareholders, the board is authorized to take all necessary action to offer,
by
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invitation, stock, joint ventures or licenses to use and exploit ACTV's
proprietary and patented technologies. The board is authorized, in its
discretion, to employ an independent investment banking firm for the purpose of
evaluating various business alternatives."
Our board of directors has authorized that each of ACTV, Inc.'s direct
and indirect subsidiaries have two classes of common stock and one class of
preferred stock. The second class of common stock, designated as "class B common
stock," which is equivalent in the number authorized to 20% of the total common
stock authorized. Each share of class B common stock has 25 votes, compared to
one vote for each share of our first class of common stock. In this report,
whenever we refer to "our common stock" or "ACTV's common stock," unless
otherwise indicated it will mean our first class of common stock. It is the
board's policy that class B common stock may be allocated to executive officers,
directors and employees of ACTV, Inc. and its subsidiaries in consideration of
services rendered and to reward and motivate executives.
Certain employees, including Messrs. Samuels, Reese, Crowley and Cline,
have been granted options to purchase class B common stock, at fair value as of
the date of grant, of certain of ACTV Inc.'s subsidiaries; such common stock, if
issued, will have majority voting rights in such subsidiaries. No class B common
stock has been issued to date.
Both the board of directors' policy noted above and the voting power of
our class B common stock may have anti-takeover effect and may be used to delay,
discourage or prevent a change in control of ACTV, Inc.
ACTV was incorporated under the laws of the State of Delaware on July
24, 1989. ACTV is the successor, by merger effective November 1, 1989, to ACTV,
Inc., a California corporation, organized on July 11, 1983. ACTV's executive
offices are located at 1270 Avenue of the Americas, New York, New York 10020,
telephone number (212) 217-1600.
The Company
We use patented and proprietary software technologies to create unique,
programming for digital television and for television/Internet convergence
applications. We call the applications Individualized Television and
HyperTV(TM), respectively.
Individualized Television enables viewers to switch seamlessly and
instantly among multiple, real-time feeds of live or pre-recorded video, audio
and data. Individualized Television is a multi-path telecast of several elements
of programming material, such as instant replay on demand, isolation cameras,
statistical data, and/or additional features. There is no limit to the number of
viewers who can interact simultaneously with a program enhanced by our
individualized television programming capabilities. All the viewer needs at home
to receive individualized television programming is a standard digital set-top
box and remote control.
HyperTV(TM) is a patented process for the delivery of Internet web
information that relates to and enhances a simultaneous videocast. HyperTV(TM)
software uses the Java programming language, which was developed by Sun
Microsystems. HyperTV(TM) allows for the merger of video programming with the
vast information resources of the Internet, whether for the benefit of
television users in the home or for students in educational settings. In March
1999 we announced the introduction of HyperTV(TM). Previously, in mid-1997 we
had launched the first application of HyperTV(TM) for the education market,
called eSchool Online(TM). eSchool Online(TM) uses HyperTV(TM) technology that
integrates streamed educational video, relevant Web content, and functionality,
called "chat," that allows students and teachers to communicate in real time
through written Internet messages. In addition, eSchool Online(TM) gives
educators the tools to assess a student's performance and record the results of
the assessment.
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Since its inception, ACTV has incurred operating losses approximating
$72 million related directly to the development and marketing of the
Individualized Television and HyperTV(TM). For financial information on the
operations of ACTV's Individualized Television and HyperTV(TM) lines of
business, see the consolidated financial statements commencing on page 22,
specifically Note 13.
Individualized Television
We are seeking to exploit the U.S. digital television market on both a
regional and national basis. We are launching regionally-based, individualized
cable television networks, with programming provided through our strategic
alliance with FOX Sports Net. We have 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 FOX Sports Net agreement
extends through June 2003.
FOX Sports Net is a service of "National Sports Partners," a joint
venture between Cablevision's Rainbow Media Holdings, Inc. and FOX/Liberty
Networks, which is a 50/50 partnership between News Corp. and
Tele-Communications Inc.'s Liberty Media Corporation. Equally owned by
FOX/Liberty Networks and Cablevision's Rainbow Media Holdings, Inc., the venture
now reaches more than 58 million homes nationwide through 22 regional sports
networks.
We plan to develop regional networks in regions served by Fox Sports
Net, with distribution to be provided by cable operators that are currently
upgrading their service from analog to digital transmission. Initially, the
regional networks will feature sports programming. We will produce and
distribute programming within each regional network from a master control
facility in the region; the facility will include the necessary production and
transmission equipment to both create and distribute individualized programming.
We plan to launch our first regional network in 1999 in the region
served by FOX Sports Southwest. FOX Sports Southwest distributes programming to
more than 5 million households in Texas, Louisiana, Arkansas, Oklahoma and nine
New Mexico counties. Our southwest regional network will feature individualized
telecasts of professional basketball, including the Houston Rockets, the Dallas
Mavericks, and the San Antonio Spurs, Dallas Stars hockey, and Texas Rangers and
Houston Astros baseball. In addition, we will offer college sports events from
the Southeastern, Southland and Western Athletic conferences.
We believe that the differentiation afforded by our individualized
programming will allow distributors to offer their customers a unique
programming service that will enhance their customers' acceptance of digital
television. We will be responsible for the incremental content, transmission,
delivery and master control costs incurred in connection with the production and
distribution of individualized programming for our regional networks.
In each regional network, we plan to construct or lease a master control
facility that includes the necessary production and transmission equipment to
both create and distribute individualized programming. For our southwest
regional network we have constructed a state-of-the-art master control in the
facility used by FOX Sports Southwest in Irving, Texas. During 1998, we produced
more than 100 individualized live sporting events and distributed the programs
through TCI's Dallas cable system to a small number of test viewers.
In the southwest region, for example, to produce a live individualized
sports program, our master control receives multiple video/audio feeds from Fox
Sports Southwest via fiber lines. Our production team creates and adds
individualized programming elements, digitally encodes the programming and
distributes it via fiber or satellite to cable operators.
We expect our regional networks to derive revenues from subscription
fees paid by viewers and through advertising. Individualized programming gives
television advertisers the opportunity to target their message demographically.
By asking the viewer basic questions at the beginning of the
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program, we can recall this information during a commercial break and send the
viewer an appropriate advertisement. Alternatively, before a commercial break,
we can ask viewers the product model that most interests them. We record this
choice, then send the requested commercial to each viewer. This same choice can
be recalled at a later commercial break to provide additional information. We
store the each response in the system memory, and can later trigger branches
based on the accumulated responses, offering premiums, additional information,
or better targeted commercial messages to each viewer.
We have an agreement with Tele-Communications Inc., or TCI, under which
TCI will distribute and market our southwest regional network programming to its
digital subscribers in Texas. The agreement also contemplates potential
nationwide distribution by TCI of ACTV's regional sports networks.
Our first national individualized programming will be developed and
managed through a joint venture with Liberty Media Corporation. In September
1998, Liberty Media Corporation invested $5 million in our common stock with an
option to invest an additional $5 million. Simultaneously with this strategic
investment, ACTV and Liberty Media Corporation created a joint venture, LMC IATV
Events, LLC, to develop national applications of individualized programming for
major events.
LMC IATV Events, through an exclusive license from ACTV, has the right
to produce and distribute telecasts of major events incorporating our
individualized programming enhancements. As consideration for granting such a
license, we received a fixed one-third equity interest in the joint venture,
with no obligations to make additional capital contributions.
We have other strategic digital television alliances, including General
Instrument Corporation and Scientific-Atlanta, Inc. General Instrument, or GI,
an investor in ACTV, and Scientific-Atlanta, Inc. are the leading suppliers of
digital television headend systems and digital set-top terminals. Headend is the
term used for a cable television operator's facility that receives and
aggregates programming from television content originators and retransmits the
programming to subscribers in its multi-channel system. We have agreements with
both GI and Scientific-Atlanta for the incorporation of our individualized
programming into each supplier's respective digital set-top cable terminals.
Working with The Sarnoff Corporation, a world leader in the development
of digital platforms, we have developed and integrated our individualized
programming into the MPEG-2 digital set-top terminals manufactured by GI. We are
in currently in the process of doing the necessary work for integration into
Scientific-Atlanta's digital terminals.
Business Strategies
Cable television is currently available for purchase by a high
percentage of the nearly 100 million U.S. television households. The cable
television industry is an established provider of multi-channel programming,
with subscriptions from approximately 65% of total households in the United
States that have televisions. Traditional analog cable systems have typically
offered 25 to 78 channels of programming.
The development of digital transmission and compression of the
television signal allows for the transmission of a greater number of channels
with better audio and video quality. With digital compression technology, each
6MHz of bandwidth can be converted on average into four or more channels of
programming, thereby enabling a cable operator to offer a broader variety of
programming choices than analog systems. 6MHz is the bandwidth required for an
analog channel.
Once a cable operator has upgraded its headend for digital distribution,
a cable home needs only a digital set-top terminal with our software to receive
individualized programming. TCI has announced that it expects 30% of its
subscribers to have digital cable service by the end of 1999 and
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80% within five years. Many other major U.S. cable operators are also converting
their systems from analog to digital distribution. GI has announced orders to
date for approximately 15 million digital set-top terminals. The number of
digital set-top boxes deployed is crucial to us since we cannot sell our digital
programming services unless there is a digital set-top box in a home that is
compatible with our software. We receive no royalty payments from GI or
Scientific-Atlanta when they sell a digital set-top box to a distributor of
programming,
Our business strategies for the U.S. digital television market are as
follows:
Target regions where cable operators are deploying digital
transmission systems. For the launch of our regional networks, we have
specifically targeted certain regions of the United States where we believe a
greater proportion of cable operators are upgrading their headends and are
currently offering or have indicated they will soon be offering digital
converter boxes to their cable subscribers. We plan to launch our first regional
network in the area served by Fox Sports Southwest.
Negotiate and sign affiliate agreements with cable operators to
offer regional network programming to their subscribers. We have entered into an
agreement with TCI, under which TCI will initially distribute our individualized
sports programming to its digital subscribers in the Dallas area. The agreement
also contemplates distribution throughout the region served by FOX Sports
Southwest, with the potential for nationwide distribution by TCI of our future
regional networks. We are in discussions with a number of other cable operators
to sign affiliate agreements to carry the Southwest Regional Network. We believe
that our regional networks will provide cable operators with uniquely
differentiated programming that can help them attract customers to their new
digital services, as well as offer a potentially significant source of new
revenues.
Through a focused marketing effort, educate both cable operators
and potential subscribers about the benefits of individualized programming. We
believe that as cable operators become better educated about the benefits of
individualized programming and perceive the additional revenues that can be
earned by providing it to their subscribers, our revenues and penetration rates
will increase. As consumers and cable operators understand that we can provide a
significantly better way of viewing a sporting event, we believe our penetration
rates will grow. Marketing efforts may include: (1) offering sample regional
network programming on a free trial basis to potential new subscribers; (2)
cross-promotional activities with FOX Sports Net; (3) cross-promotional
activities with cable operators and (4) traditional print media, television
advertising, and other marketing strategies.
Through the joint venture with Liberty Media, offer
individualized programming of marquee events to a national digital television
audience. We plan to offer, through LMC IATV Events LLC, our joint venture with
Liberty Media, individualized telecasts of major sports and other events to a
nationwide audience of viewers who have digital set-top boxes, first through
digital cable systems and eventually through satellite television systems.
Keep regional network programming costs low during our first few
years of operation and expand its penetration through sports programming. We
believe that sports is the most popular programming genre for attracting new
subscribers to our regional networks and to individualized programming in
general. In addition, a focus on sports programming is more cost-efficient than
a programming line-up that includes other types of programs. Therefore, it is
our intention initially to keep programming costs low by focusing primarily on
sports programming.
Individualized Programming
Our 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 the
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standard cable remote control that comes with the digital set-top box. 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 individualized programming simultaneously.
Individualized programming can also be effectively employed for live
telecasts, particularly sports events such as those to be produced by the
Southwest Regional Network. For live events, individualized programming allows a
viewer to have a choice of simultaneous options like instant replay on demand,
feature packages that are created and made available as the event progresses,
alternative camera angles and in-depth statistics.
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. Our software maintains "memory" on the progress
of the viewer and provides for automatic branching. The switch from one digital
video stream to a different can occur based on the viewer's earlier input. 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. Individualized programming
creates an individualized look and feel by using relational database management
and a very small amount of local memory to create millions of possible program
variations.
In digital systems, we can provide multiple video, audio and graphics
signals within 6MHz of band-width by using MPEG-2 compression techniques at a
4:1 compression ratio. MPEG-2 is a widely-used standard for digital video. To
support our programming we do not require any communication capability from the
set-top box back to the cable operator's headend, also known as a "back
channel." . There is no additional memory or hardware necessary to upgrade a
digital set-top terminal to deliver the individualized programming to
subscribers. Our software application can be downloaded into each set-top
terminal, including those GI terminals already deployed in a cable subscribers'
homes.
Our software enables the implementation of individualized programming
into digital television systems at no incremental hardware cost. Individualized
programming can be delivered through any digital video system and received by a
digital set-top terminal compatible with our software. It can be transmitted
through any service provider's channel, and can even be broadcast under the new
digital television standard recently approved by the FCC.
We will create individualized programming in each of our regional
production facilities and then distribute it to operators throughout the region
via a number of different delivery options, including land lines and satellite.
We will determine the distribution method based on geography and on the economic
viability of alternative delivery techniques available in each specific region.
HyperTV(TM)
Our target markets for HyperTV(TM) are entertainment applications for
consumers and online learning for schools, universities and corporations.
HyperTV(TM) enables allows television programmers and advertisers to --
simultaneously, directly and in real time -- provide enhanced content via the
Internet that directly corresponds to the video program. With HyperTV(TM),
television programmers can extend their brand identity and further differentiate
their program offerings.
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HyperTV(TM) users can explore enhanced content, chat with other remote
users, play games, and shop online, all in synch with a live or pre-recorded
video program. For example, a HyperTV(TM) user watching a rock concert can be
"pushed" a stream of web addresses, in synch with the video, that simultaneously
provide relevant content from the Internet. Such content might include lyrics to
the current song, bios of featured band members, interactive trivia questions
about the artist, the band's fan club site, a recent article about the band from
a music magazine, or e-commerce applications such as opportunities to purchase
related merchandise like a CD, DVD or apparel. During a commercial break in the
program, an advertisement for a new car can be enhanced by simultaneously
delivering information from the advertiser's web site or the site of a local
dealership where users receive more information that complements the video.
HyperTV(TM) works by either embedding a stream of web page addresses and
other interactive content into the video signal or by transmitting them directly
over the Internet to the user's computer. The web content corresponds in real
time to what is being shown on a particular television channel.
Today, HyperTV(TM) users can watch video on a standard television set
while viewing synchronized web content and interacting with other users via
their computer. Users with a television card in their computers can see the
video and web content on the same computer screen. As broadband technology and
digital cable become more common, we expect that users will be able to
experience both video and synchronized HyperTV(TM) content delivered
simultaneously to their televisions.
HyperTV(TM) is software-based and platform independent; that is, it can
operate on any of today's most popular computer operating systems: Windows,
Macintosh or UNIX. HyperTV(TM) supports both analog and digital television
systems, so neither programmers nor users are required to upgrade their existing
systems to begin enjoying HyperTV-enhanced television content.
HyperTV(TM) has a database capability that allows programmers,
advertisers or other businesses to build one-to-one relationships with the
end-user by capturing permission-based consumer information, demographics and
preferences.
We launched in mid-1997 the first application of HyperTV(TM), eSchool
Online(TM), for the education market. It consists of a suite of integrated
software products, including content creation software, student and teacher user
software, and database assessment software. In addition, we provide eSchool
Online(TM) clients with Internet content development assistance, hosting of
eSchool programs on computer servers, and consulting to schools and
universities. Currently, all of our revenues are derived from sales to the
online learning market.
In August 1998, we entered into a joint marketing agreement with Sun
Microsystems, Inc., the developer of the Java programming language and a leading
provider of hardware, software and services for the Internet. Under the
agreement, ACTV and Sun will are working together to offer eSchool Online(TM) in
conjunction with Sun servers to large school districts and state education
departments for statewide programs.
With eSchool software, a student can receive a traditional video lesson
through a frame in his or her web browser, or from a television in the
classroom. Simultaneously, eSchool provides separate frames in the web browser
that display 1) web sites with supporting information; 2) dialogue with teacher
and/or other students during a live lesson; and 3) a "playlist" of web sites
received to permit navigation from one to another. eSchool content creation
software allows an instructor to easily select and order the addresses of the
web sites and related questions to be included in the playlist. The web site
addresses and questions can be assigned times and sent automatically to students
during a pre-recorded program, or in a live lesson. The instructor can trigger
any Web site address or question to be sent to the students at any time.
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eSchool's components include instructor and student user software, authoring
software and database assessment software. In addition, we provide Internet
content development assistance, hosting of eSchool programs on its computer
servers, and consulting to schools and universities.
Business Strategies
Internet usage in the United States has been growing exponentially over
the past several years. It is now estimated that 55% of households and over 80%
of public schools in the U.S. have access to the Internet. As Internet usage has
increased, online advertising expenditures and shopping volume have been
expanding rapidly, with estimates of $1.5 billion and $4 billion, respectively,
during 1998.
Due to the increasing popularity of the Internet, combined with the
established popularity of television, home computer users have begun to
simultaneously access Internet content while they watch television. A major
cable network study recently concluded that 13 million of its viewers were
connected to the Internet while watching television.
For the education market, industry observers expect that spending for
educational technology infrastructure will continue to rise substantially for
the foreseeable future. Thus far, schools that are connected to the Internet
have principally used it for research purposes, rather than as a tool for the
delivery of on-line learning. The growth of the Internet itself and of school
connectivity have outpaced both the training of teachers on the Internet's
functionality and the availability of on-line curriculum. As a result, it is
expected that school spending for Internet teacher training and on-line learning
will grow rapidly for the foreseeable future.
Our television/Internet convergence business strategies are as follows:
Develop joint venture relationships with television content
providers . We seek to enter into joint venture and license agreements with
television networks to jointly create and offer HyperTV(TM) programming that
enhances the network's standard telecasts. Potential HyperTV(TM) revenue sources
are advertising, e-commerce, or merchandise sales via the Internet, permission
marketing, and software maintenance fees. Permission marketing is the term for
using viewer data collected during a HyperTV(TM) experience to offer follow-up
messages based on the viewer's responses.
Develop HyperTV server farms. We plan to create server farms to
support HyperTV(TM) programming at various points of presence throughout the
United States. The server farms will contain robust computer servers and related
equipment that will be connected to the Internet backbone, with a goal of
providing simultaneous HyperTV(TM) access to approximately 100,000 concurrent
users through each point of presence. We plan to host our own HyperTV(TM)
programming on these servers, as well as offer a fee-based hosting service to
HyperTV(TM) licensees that produce their own programming.
For education applications of HyperTV(TM), focus on online
curriculum development for both schools and business training networks. We have
developed and adapted eSchool to target online learning curriculum development.
To date, our eSchool contracts with schools and universities have all included,
in addition to the provision of eSchool application and database management
software, Internet educational content development jointly by us and our
clients. We plan to market an adapted version of eSchool to the corporations,
principally for in-house training applications.
Set-Top Converters, Terminals, Computers and Networking Equipment
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We do not intend to manufacture set-top converters, terminals, video
servers, or other devices that enable Individualized Television or HyperTV(TM).
This equipment will be supplied to us pursuant to agreements with third party
equipment suppliers.
In 1996, ACTV and General Instrument signed a non-exclusive,
royalty-free manufacturing agreement for General Instrument's MPEG-2 digital
set-top terminals. Working with us and with General Instrument, Sarnoff has
facilitated the integration of individualized programming into these terminals.
General Instrument and ACTV also agreed to jointly market our individualized
television application, which operates with GI's current generation digital
systems and consumer set-top terminals.
In January 1999 ACTV and Scientific-Atlanta, Inc. agreed to incorporate
our individualized programming software into Scientific-Atlanta's advanced
digital set-top boxes, including the Explorer 2000.
We may grant licenses similar to those granted to GI and
Scientific-Atlanta to other manufacturers that are selected by the future
distributors of Individualized Programming.
We do not intend to manufacture any computer or networking equipment
needed to build our planned HyperTV(TM) server farms. Such equipment is readily
available from a large number of potential suppliers.
Patents and Other Intellectual Property
We have sought to protect the proprietary features of its individualized
programming technologies and HyperTV(TM) technologies 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 16 patents that are currently in force, with
additional patents pending. The patents, which deal with HyperTV(TM) as well as
different aspects of individualized programming technologies, expire at various
dates from 2003 to 2016.
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. We believe such patents will strengthen our competitive position in the
aforementioned countries.
The inventors named on all of the patents issued have assigned to us all
right, title, and interest in and to the above U.S. patents and any
corresponding foreign patents or applications based thereon.
There can be no assurance that our patents are enforceable, particularly
in view of the high cost of patent litigation, nor can there be any assurance
that we will derive any competitive advantages from them. To the extent that
patents are not issued for any other products developed by us, we would be
subject to more competition. The issuance of patents may be insufficient to
prevent competitors from essentially duplicating our products by designing
around the patented aspects. In addition, there can be no assurance that our
products will not infringe on patents owned by others, licenses to which may not
be available to us, nor that competitors will not develop functionally similar
products outside the protection of any patents we have or may obtain.
We require that each of our employees, consultants and advisors execute
a confidentiality and assignment of proprietary rights agreement upon the
commencement of employment or a consulting relationship. 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 our exclusive property. This information shall be kept confidential and not
disclosed to third parties, except by our consent or in other specified
circumstances. There can be no assurance, however, that these agreements will
provide effective protection for our proprietary information in the event of
unauthorized use or disclosure of such information.
10
<PAGE>
Product Development
Our current research and development efforts for the digital television
market are focused refining our individualized programming software and
facilitating its integration into digital set-top terminals. ACTV, Sarnoff, and
General Instrument Corp. have completed the project to incorporate our
individualized programming software into General Instrument's MPEG-2 digital
set-top cable terminal. We are also in the process of adapting our application
software for use in digital converters manufactured by Scientific-Atlanta.
For HyperTV(TM), we plan to continue to refine our existing software, as
well as adapt it for potential new markets. We have already released several
versions of eSchool Online, the first commercial application of HyperTV(TM), and
plan during 1999 to release the first version of the software for the consumer
market.
Competition
There are two major new digital television applications that directly
compete with us for use of the new digital distribution capability: high
definition television and multicasting. High definition television provides
better color quality, but has the disadvantage of requiring the consumer to
purchase a new, expensive television set. Multicasting increases the quantity of
programs available within a channel that used to be able to distribute only one
television program before the conversion to digital. Individualized Television
offers the consumer in-depth programming that is tailored to each person's
preferences. It is premature to determine the relative consumer demand for
improved color offered by high definition television, versus greater quantity
offered by multicasting, versus the individualization of content offered by
Individualized Television.
We compete with many other companies that provide programming for
the television industry and, in particular, with companies that provide sports
programming. Our enhanced version of a Fox Sports Net program will compete with
the simultaneous telecast of the un-enhanced version of the same event.
HyperTV(TM) competes in a market that is characterized by rapid
technological change and heavy competition from firms with a wide range of size
and resources. Our planned introduction of HyperTV(TM) to the consumer market
will put us in competition with more established Internet sites for advertising
and e-commerce revenues. In addition, eSchool competes with the products of
traditional education content providers; nearly all of such companies have
greater financial, and other, resources than we do.
Employees
At December 31, 1998, we employed 45 full-time employees. We believe
that our relationships with our employees are generally satisfactory.
Item 2. PROPERTY - OFFICES AND FACILITIES
We maintain our principal and executive offices at Rockefeller Center,
1270 Avenue of the Americas, New York, New York, where we lease approximately
8,000 square feet for a base monthly rent of $22,200. Our lease for this space
extends through January 2001. We also lease office and technical space in four
other facilities, one each in New York, Dallas, Texas, Houston, Texas and Los
Angeles, California. The monthly rents for these facilities range from $1,460 to
$5,940. None of the leases extends beyond December 31, 1999. We consider our
properties adequate for our present needs.
Item 3. LEGAL PROCEEDINGS
11
<PAGE>
There are no pending material legal proceedings to which ACTV is a
party.
Item 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
On June 29, 1998 we held an Annual Meeting of Shareholders for which we
solicited votes by proxy. The following is a brief description of the matters
voted upon at the meeting and a statement of the number of votes cast for and
against, and the number of abstentions as to each matter.
<TABLE>
<CAPTION>
1. Election of directors:
For Withheld
<S> <C> <C>
David Reese 13,112,912 130,895
Steven W. Schuster 13,113,872 129,935
</TABLE>
<TABLE>
<CAPTION>
2. To approve the adoption of the ACTV's 1998 Stock Option Plan.
<S> <C> <C>
For Against Abstain
5,374,163 454,889 76,260
<CAPTION>
3. To ratify the appointment of Deloitte & Touche, LLP as independent auditors
<S> <C> <C>
For Against Abstain
13,135,792 49,045 58,970
</TABLE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
ACTV's common stock is traded on The Nasdaq Stock Market and the Boston
Stock Exchange under the symbols "IATV" and "IAT", respectively. The following
table sets forth the high and low bid prices for Common Stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
Common Stock
1998 Quarter High Low
-------------------------
<S> <C> <C>
First 2.125 1.500
Second 2.500 1.375
Third 2.969 1.500
Fourth 4.500 1.563
<CAPTION>
1997 Quarter High Low
-------------------------
<S> <C> <C>
First 3.750 2.000
Second 2.188 1.281
Third 1.906 1.375
Fourth 2.081 1.281
</TABLE>
On March 16, 1999, there were approximately 330 holders of record of ACTV's
33,217,184 outstanding shares of common stock.
12
<PAGE>
On March 16, 1999, the high and low bid prices of the common stock as reported
by Nasdaq were $7 1/4 and $6 5/16, respectively.
ACTV has not paid cash dividends since its organization. We plan to use
earnings, if any, to fund growth and do not anticipate the declaration or the
payment of cash dividends in the foreseeable future.
13
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues (1) $938,416 $1,311,860 $1,476,329 $1,650,955 $1,405,838
Operating Expenses (1) 5,734,132 8,272,884 10,240,158 9,120,266 15,618,389
Equity in Net Loss of
ACTV Interactive (2) 143,500 -- -- -- --
Loss Before Extraordinary
Item 5,122,010 6,920,906 10,300,481 10,358,683 20,868,324
Net Loss Applicable to
Common Shareholders(3) 4,465,240 6,826,789 10,300,481 10,358,683 20,868,324
Weighted Average Shares
Outstanding 7,897,278 10,162,128 11,739,768 12,883,848 21,399,041
Loss Per Basic and Diluted
Common Share Before
Extraordinary Item .65 .68 .88 .80 .98
Loss Per Basic and Diluted
Common Share (3) .57 .67 .88 .80 .98
<CAPTION>
Balance Sheet Data: 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working Capital 1,503,703 2,397,027 5,093,859 (1,082,097) 3,418,503
Total Assets 7,733,314 8,551,128 11,692,624 7,901,918 13,606,041
Long Term Obligations 2,325,061 -- -- -- 5,686,641
Convertible Preferred Stock
of Subsidiary -- -- 6,615,664 7,029,708 --
Stockholders' Equity (4) 3,972,543 6,893,853 2,585,404 (1,613,418) 4,763,348
Total Capitalization,
including 6,297,604 6,893,853 9,201,068 5,416,290 4,763,348
Minority Interest
</TABLE>
(1) For the period between January 1, 1993, and March 11, 1994, all
education sales and expenses were reported separately by ACTV's 49%
affiliate, ACTV Interactive, and were not consolidated with ACTV's
statements of operations. For the remainder of 1994, operational results
related to education were included with those of ACTV, as a result of
ACTV's March 11, 1994 purchase of the Washington Post Company's 51%
interest in ACTV Interactive.
(2) The results of ACTV Interactive are accounted for under the equity
method of accounting for 1993 and for the period January 1, 1994 to
March 11, 1994.
(3) Includes for the year ended 12/31/94 an extraordinary gain of $656,770,
($.08 per share) related to the extinguishment of debt and equipment
lease obligations. Includes for the year ended 12/31/95 an extraordinary
gain of $94,117 ($.01 per share) related to the extinguishment of debt
obligations.
(4) No cash or non-cash dividends on Common Stock have been paid or granted
and ACTV does not anticipate the declaration or payment of dividends on
Common Stock in the foreseeable future. The Company has not paid cash
dividends since its inception and expects to continue to pay preferred
dividends in kind. The Company plans to use earnings, if any, to fund
growth and does not anticipate the declaration or the payment of cash
dividends in the foreseeable future.
14
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
To the extent that the information presented in this Form 10-K discusses
financial projections, information or expectations about our products or
markets, or otherwise makes statements about future events, such statements are
forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made. These
include, among others, the successful and timely development and acceptance of
new products and markets and the availability of sufficient funding to effect
such product and/or market development.
Since its inception, we have incurred operating losses approximating $72
million related directly to the development and marketing of Individualized
Television and HyperTV(TM).
We are seeking to exploit the entertainment market for individualized
television programming, principally in the U.S., through our planned regional
networks. Programming for the regional networks is provided through our
strategic alliance with FOX Sports Net. The contribution of FOX Sports Net's
programming rights, production elements for each sporting event, and brand name
is extremely valuable to us, since the cost for us to secure the rights to and
produce such events, as well as build a brand identity on our own, would be
prohibitive. Our obligation is to pay FOX Sports Net a percentage of our net
subscriber revenue we receive from cable operators. In addition, we must bear
the production cost of all extra or new elements, like an extra camera to focus
on a particular star, that are used in our programming. We must also build and
maintain the production facility where we produce our enhanced programming.
We have entered into an agreement with TCI to distribute and market our
first regional network to TCI's digital subscribers in Texas. The agreement also
contemplates potential nationwide distribution by TCI of our regional sports
networks. TCI is the largest distributor of Fox Sports Southwest programming,
representing 25% of the market. In addition, TCI is prioritizing Texas for the
roll-out of digital set-top boxes. TCI takes a percentage of revenue from the
fees paid by subscribers to our network and remits the balance to us.
We plan to launch our first regional network in the southwestern United
States during 1999. Our projection, based on assumptions that could prove to be
incorrect, is that this network will break even after two full years of
operation. Even if we achieve this break-even goal for our first region, given
our plan to launch similar networks in many other regions, it is highly unlikely
that we will be profitable for the foreseeable future.
To date, nearly all of our revenues have been derived from sales to the
education market. There is no assurance that we will be able to successfully
compete in this market, where many of our current and potential competitors are
companies with significantly greater resources than we do.
15
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1997 and December 31, 1998
During the year ended December 31, 1998, our revenues decreased 15%, to
$1,405,838, from $1,650,955 for the year ended December 31, 1997. The decrease
was the result of our product shift toward online learning software and services
in 1998 and away from video programming and related equipment. All of our
revenues during 1998 were derived from the online learning market, compared to
only 20% of 1997 revenues.
Cost of sales decreased 54% in 1998, to $218,514 from $471,956 in 1997,
and cost of sales as a percentage of sales revenue decreased to 16% in the more
recent year, from 29% in 1997. The relatively lower cost of sales in 1998 was
due to eSchool's higher gross margins than those of video programming and
related equipment, which represented the majority of revenues in 1997.
Total expenses excluding cost of sales, net interest expense, and
minority interest -- subsidiary preferred stock dividends and accretion in 1998
increased 78%, to $15,399,875, from $8,648,310 in the comparable period in 1997.
The increase was attributable to a number of factors, including a large change
in stock appreciation rights expense due a higher common stock price at December
31, 1998, a rise in both operating and selling and administrative expenses
principally from increased activity of our Texas-based regional network
operation, and to higher depreciation and amortization expense.
Depreciation and amortization expense for 1998 increased 103%, to
$1,532,731, from $754,053 for 1997. This increase was due principally to
depreciation for the full year in 1998 of television production equipment
installed in our Texas subsidiary's facility, compared to several months during
1997, and to greater amortization of software development costs in the more
recent year.
We incurred interest expense of $932,247 for 1998, compared to no
interest expense for 1997. Interest expense is related to a $5 million face
value note issued by a subsidiary ACTV, Inc. in January 1998. Interest income
for 1998 increased 58%, to $184,285, compared with $116,870 in 1997. The
increase resulted from higher available average cash balances in the more recent
year.
For 1998 and 1997, we recorded $5,591,846 and $3,006,242, respectively,
for dividends and accretion on subsidiary convertible preferred stock issuances,
which were accounted for as minority interest. All dividend payments were made
in common stock. The increase during 1998 is the result principally of our
redemption in full of the subsidiary convertible preferred stock.
For the year ended December 31, 1998, our net loss applicable to common
shareholders was $20,868,324, or $.98 per basic and diluted share, an increase
of 101% over the net loss of $10,358,683 or $.80 per basic and diluted share,
incurred in 1997. The increase in net loss was due both to higher operating
expenses and depreciation and amortization, as well as an increase in charges
from stock appreciation rights and subsidiary preferred stock dividends,
accretion and redemption.
16
<PAGE>
Comparison of the Years Ended December 31, 1996 and December 31, 1997
During the year ended December 31, 1997, our revenues increased 12%, to
$1,650,955, from $1,476,329 for the year ended December 31, 1996. All revenues
during 1997 were derived from the education market, while in 1996, our revenues
derived from education sales as well as from license and executive producer
fees. The revenue increase in the more recent period was the result of the
inclusion of sales from eSchool, which was introduced during Fiscal 1997, and
higher sales of distance learning products and services when compared to 1996.
Cost of sales decreased 27% in 1997, to $471,956 , from $647,488 in
Fiscal 1996, and cost of sales as a percentage of sales revenue decreased to 29%
in the more recent year, from 44% in 1996. The relatively lower cost of sales in
1997 was due to a greater proportion of educational programming revenues and the
inclusion of eSchool sales in 1997. Both eSchool and educational programming
have higher gross margins than our other sources of revenue.
Total expenses excluding cost of sales, interest expense, and minority
interest -- subsidiary preferred stock dividends and accretion in 1997 decreased
10%, to $8,648,310, from $9,592,670 in the comparable period in 1996. The
decrease was partially attributable to lower operating expenses and depreciation
and amortization expense in the more recent period, which more than offset an
increase in selling and administrative expense. Also, we recorded a gain of
$346,892 in 1997, compared to an expense of $183,634 related to stock
appreciation rights. The difference was the result of a lower market price for
our common stock at the end of 1997, when compared to the end of 1996. Finally,
during Fiscal 1996 we incurred a valuation allowance of $274,325 related to an
investment in an affiliated company and, as a component of Fiscal 1996 selling
and administrative expense, reserved $82,746 against license fee and production
service receivables from this affiliate. During 1997, we incurred no valuation
allowance.
For 1997, direct expenses related to the entertainment and education
markets were approximately $2.7 million and $2.9 million, respectively.
Depreciation and amortization expense for 1997 decreased 11%, to
$754,053, from $846,351 for 1996. This decrease was due primarily to the
recognition during 1996 of amortization expense for programming assets that were
fully amortized during that year.
We had no interest expense for either 1997 or 1996. Interest income for
1997 decreased 26%, to $116,870, compared with $158,732 in 1996. The decrease
resulted from lower available average cash balances in the more recent year.
For the years ended December 31, 1997 and 1996, we recorded $3,006,242
and $1,695,384, respectively, for dividends and accretion on subsidiary
convertible preferred stock issuances, which were accounted for as minority
interest. All dividend payments were made in our common stock. The increase
during 1997 is the result of our having subsidiary convertible preferred stock
outstanding for less than half of the year during 1996.
For year ended December 31, 1997, our net loss was $10,358,683, or $.80
per basic and diluted share, an increase of less than 1% over the net loss of
$10,300,481 or $.88 per basic and diluted share, incurred in 1996. The decrease
in net loss was due principally to higher gross margins, lower operating
expenses, and lower depreciation and amortization and stock appreciation rights
expenses during the more recent year.
Liquidity and Capital Resources
17
<PAGE>
Since its inception, ACTV, Inc. (including its operating subsidiaries)
has not generated revenues sufficient to fund its operations, and has incurred
operating losses. Through December 31, 1998, we had an accumulated deficit of
approximately $72 million. Our cash position on December 31, 1998, was
$5,188,170, compared to $554,077 on December 31, 1997.
During the year ended December 31, 1998, we used $10,034,461 in cash for
our operations, compared with $6,603,499 for the year ended December 31, 1997.
The increase in the more recent year was due to both a higher operating deficit
in the more recent year, as well as a net use of cash related to asset and
liability changes. We met our cash needs in the year ended December 31, 1998
from sales of common stock totaling approximately $10.8 to private investors,
including $5 million invested by Liberty Media Corporation. Liberty also
received an option to invest an additional $5 million for the same price per
share. We met our cash needs in the year ended December 31, 1997 from the
proceeds of a series of private placements during 1997 of common stock totaling
$1.5 million, convertible preferred stock totaling $2.0 million, and from the
remainder of funds received from the sale in 1996 of exchangeable preferred
stock issued by a wholly-owned subsidiary totaling $9.1 million.
With respect to investing activities in the year ended December 31,
1998, we used cash of $1,927,921 for patents, property and equipment, and
systems and software development. During the year ended December 31, 1997, we
used cash of $2,895,803, related principally to the development of HyperTV(TM),
the purchase of equipment for a television master control facility in Dallas,
Texas and for the systems development related to the incorporation of
individualized programming into the GI cable set-top terminal.
All of ACTV, Inc.'s subsidiaries have been dependent on advances from
the parent company to meet their obligations. ACTV, Inc.'s, The Texas
Individualized Television Network, Inc., in January 1998 raised funds directly
for its operations and also received funding from ACTV, Inc. during 1998. During
the year ended December 31, 1998, ACTV, Inc. advanced approximately $2.6 million
to HyperTV Networks, Inc., $1.5 million to The Texas Individualized Television
Network, Inc., and $200,000 to ACTV Entertainment, Inc.
Advances are based upon budgeted expenses and revenues for each
respective subsidiary. Adjustments are made during the course of the year based
upon the subsidiary's performance versus the projections made in the budget.
As compared to our balance sheet as of December 31, 1997, our balance
sheet as of December 31, 1998, reflects a decrease of $403,164 in preferred
dividends payable, resulting principally from the redemption in late 1998 of
convertible preferred stock of issued by a subsidiary of ACTV, Inc.
In January 1998, the ACTV, Inc. subsidiaries ACTV Entertainment, Inc.
and The Texas Individualized Television Network, Inc. entered into a note
purchase agreement, dated as of January 13, 1998 with certain private investors.
Pursuant to the agreement, the investors purchased $5.0 million aggregate
principal amount notes from our subsidiaries. The notes bear interest at a rate
of 13.0% per annum, payable semi-annually, with principal repayment in one
installment on June 30, 2003. During the term of the note, we may, at our
option, pay any four semi-annual interest payments in kind rather than in cash,
with an increase in the rate applicable to such payments in kind to 13.75% per
annum. We have chosen to make the first two semi-annual interest payments (June
30, 1998 and December 31, 1998) in kind. The note is secured by the assets of
the Texas Network, and is guaranteed by ACTV, Inc.
18
<PAGE>
In connection with the purchase of such note, the investors received on
January 14, 1998 a common stock purchase warrant of Texas Network that granted
the investors the either the right to purchase up to 17.5% of the fully-diluted
shares of common stock of Texas Network or, through July 14, 1999, to exchange
the warrant for such number of shares of our common stock, at the time of and
giving effect to such exchange, that were equal to 5.5% of the fully diluted
number of shares of common stock outstanding. In January 1999, the investors
exchanged the warrant in full into shares of our common stock.
For accounting purposes, the Company has allocated approximately $1.4
million to the value of the warrant, based on the market value of ACTV, Inc.
common stock into which the warrant was convertible at issuance. The warrant is
included outside of Consolidated Shareholders' Equity (Deficiency) due to its
cash put feature and is being amortized as additional interest expense over the
life of the note.
In the first three months of 1999, we have raised approximately $540,000
from the exercise of options and warrants.
We believe that we have adequate funding to launch the southwest
regional network in 1999 and to fund our present operations for the next
12-month period, assuming that we are able to raise approximately $3.9 million
from forcing the exercise of approximately 1.95 million warrants. We can
effectively force such warrant exercise if the average closing price of our
common stock is above $4.50 per share for a twenty consecutive trading day
period and the shares to be issued pursuant to the warrants are registered for
sale by the SEC. Currently, the share price requirement has been met and we have
filed a registration statement for registration of the warrant shares. Approval
by the SEC is still pending.
Should we raise such funds from warrant exercises, we will still need
additional funding to operate the southwest regional network at planned levels,
to fund the commercialization of HyperTV(TM) for entertainment applications, and
to fund our other operations prior to breakeven. We will need additional funding
as well to launch networks in other regions. We currently do not have any
arrangements for additional financing and cannot assure you that additional
financing will be available on acceptable terms, or at all. As a result, there
is no assurance that we will secure the funding necessary to effect additional
launches in other regions, or that other factors might not delay or prohibit the
successful implementation of the our regional network strategy or for the
planned commercialization of HyperTV(TM) for entertainment applications.
If we are not successful at raising additional funds, we may be required
to significantly reduce our overall level of operations.
We do not have any material contractual commitments for capital
expenditures, although we believe that we may need to acquire computers and
network equipment of $500,000 to build our planned first HyperTV(TM) server farm
as well as for digital television and production equipment of approximately
$400,000.
Year 2000 compliance
The year 2000 issue is the result of computer software that was written
with only two digits rather than four digits to represent the year in a date
field. Computer hardware and software applications that are date-sensitive may
interpret a date represented as "00" to be the year 1900 rather than the year
2000. The result could be system failure or miscalculations causing the
disruption of operations.
19
<PAGE>
We believe that our internal systems, relating to both computer hardware
and software, will function properly with respect to dates in the year 2000 and
beyond. In addition, we believe that our proprietary software either sold
directly to third parties or incorporated in products sold to third parties is
year 2000 compliant. Having performed an assessment of the potential year 2000
problem, we do not expect to incur significant costs related to year 2000
issues.
However, there is general uncertainty regarding the year 2000 problem
and its effect on the overall business environment. We cannot determine at this
time whether the year 2000 problem will have a material impact on our operations
or financial condition as the result of significant disruptions to the U.S.
economy and/or business infrastructure.
Impact of Inflation
Inflation has not had any significant effect on our operating costs.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15,1999; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. The Company has not yet
determined the impact, if any, the adoption of SFAS No.
133 will have on its financial statements.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 14 in this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
Item 10. MANAGEMENT
Executive Officers and Directors
We intend to file with the Securities and Exchange Commission within 120
days of the end of December 31, 1998 a definitive proxy statement pertaining to
our annual meeting of stockholders to be held in May 1999. Information regarding
our directors and executive officers will appear under the caption "Election of
Directors" in the proxy statement and is incorporated in this report by
reference.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear under the
caption "Executive Compensation" in the proxy statement and is incorporated in
this report by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will appear under the caption "Ownership of Securities" in the
proxy statement and is incorporated in this report by reference.
Item 13. CERTAIN TRANSACTIONS
Information regarding certain transactions will appear under the caption
"Certain Transactions" in the proxy statement and is incorporated in this report
by reference.
PART IV
Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K:
(a)1. FINANCIAL STATEMENTS:
See the Consolidated Financial Statements beginning on Page 22 hereafter,
which is incorporated by reference.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of ACTV, Inc.:
We have audited the accompanying consolidated balance sheets of ACTV, Inc. and
subsidiaries ("the Company") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item 14 (a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
March 11, 1999
New York, New York
22
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... $554,077 $5,188,770
Accounts receivable-net........... 303,044 501,768
Education equipment inventory..... 237,757 110,405
Other............................. 308,653 773,613
---------- -----------
Total current assets.......... 1,403,531 6,574,556
---------- -----------
Property and equipment-net............ 2,596,785 2,365,775
---------- -----------
Other Assets:
Patents and patents pending....... 279,356 832,336
Software development costs........ 669,852 1,098,756
Goodwill.......................... 2,641,188 2,214,816
Other............................. 311,206 519,802
---------- -----------
Total other assets............ 3,901,602 4,665,710
========== ===========
Total ..................... $7,901,918 $13,606,041
========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued
expenses.......................... $1,882,159 $955,686
Deferred stock appreciation rights -- 2,000,062
Preferred dividends payable......... 603,469 200,305
---------- -----------
Total Current Liabilities.... 2,485,628 3,156,053
Long-Term Note Payable.............. -- 4,315,016
Put Warrant......................... -- 1,371,624
Preferred stock of a subsidiary,
convertible into common shares
of parent, no par value, 436,000
shares authorized: issued and
outstanding 316,944 at December
31, 1997, none at December 31,
1998.............................. 7,029,708 --
Shareholders' equity (deficiency):
Preferred series A stock, $.10 par
value, 1,000,000 shares
authorized, issued and
outstanding; none at December 31,
1997, 56,300 at December 31, 1998.. 8,620 5,630
Preferred series B stock, $.10 par
value, 1,000,000 shares authorized,
issued and outstanding; none at
December 31, 1997, 5,018 at
December 31, 1998.................. -- 2,805,961
Common stock, $.10 par value,
35,000,000 shares authorized:
issued and outstanding 14,614,611
at December 31, 1997, 29,759,459 at
December 31, 1998.................. 1,461,461 2,975,946
Additional paid-in capital........... 48,140,596 71,068,230
Notes receivable from stock sales.... (199,900) (199,900)
Accumulated deficit.................. (51,024,195) (71,892,519)
----------- -----------
Total shareholders' equity
(deficiency)................... (1,613,418) 4,763,348
----------- -----------
Total.................... $7,901,918 $13,606,041
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Revenues......................... $1,459,540 $1,650,955 $1,405,838
License fees from related party.. 16,789 -- --
----------- ----------- -----------
Total revenues................ 1,476,329 1,650,955 1,405,838
Cost of Sales.................... 647,488 471,956 218,514
----------- ----------- -----------
Gross profit.................. 828,841 1,178,999 1,187,324
Expenses:
Operating expenses............... 1,955,601 1,360,838 2,004,996
Selling and administrative....... 6,332,759 6,880,311 9,862,086
Depreciation and amortization.... 419,979 327,681 1,106,359
Amortization of goodwill......... 426,372 426,372 426,372
Loss on investment............... 274,325 -- --
Stock appreciation rights........ 183,634 (346,892) 2,000,062
----------- ----------- -----------
Total expenses................ 9,592,670 8,648,310 15,399,875
Interest (income).................. (158,732) (116,870) (184,285)
Interest expense................... -- -- 932,247
----------- ----------- -----------
Interest expense (income) - net.. (158,732) (116,870) 747,962
Minority Interest - Subsidiary
preferred stock dividend and
accretion.......................... 1,695,384 3,006,242 5,428,638
----------- ----------- -----------
Net loss .......................... 10,300,481 10,358,683 20,389,151
Preferred Stock Dividend
and Accretion -- -- 479,173
----------- ----------- -----------
Net loss applicable to common stock
shareholders....................... $10,300,481 $10,358,683 $20,868,324
=========== =========== ===========
Loss per basic and diluted common
share.............................. $.88 $.80 $.98
Weighted average number of common
shares outstanding................. 11,739,768 12,883,848 21,399,041
</TABLE>
See Notes to Consolidated Financial Statements
24
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
-------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss applicable to common
shareholders...................... $(10,300,481) $(10,358,683) $(20,552,359)
----------- ------------ ------------
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization..... 846,354 754,053 1,532,731
Stock appreciation rights......... 134,634 (701,517) 2,000,062
Stock issued in lieu of cash
compensation...................... 114,047 443,125 2,016,023
Note issued in lieu of cash ...... -- -- 686,641
Subsidiary preferred stock preferred
dividends and accretions....... 1,500,000 2,598,156 5,749,309
Amortization of the Put Warrant... -- -- 241,565
Loss on investment................ 274,325 -- --
Other ....................... 82,746 43,188 --
Changes in assets and liabilities:
Accounts receivable............... (143,648) 63,960 (198,724)
Education equipment inventory..... (225,286) 99,747 127,352
Other assets...................... (542,824) (241,117) (307,426)
Accounts payable and accrued
expenses........................ 504,263 287,504 (926,471)
Preferred stock dividends payable. 195,384 408,085 (403,164)
------------ ------------ ------------
Net cash used in operating
Activities.................... (7,560,486) (6,603,499) (10,034,461)
------------ ------------ ------------
Cash flows from investing activities:
Investment in patents pending..... -- (50,000) (598,671)
Investment in property and equipment (444,189) (2,159,576) (531,573)
Investment in systems............. -- (686,227) (797,677)
------------ ------------ ------------
Net cash used in investing activities. (444,189) (2,895,803) (1,927,921)
Cash flows from financing activities:
Net proceeds from debt issuance... -- -- 4,462,990
Net proceeds from put warrant
issuance........................ -- -- 1,371,624
Net Proceeds from preferred stock
transactions.................... 9,115,664 2,045,163 --
Proceeds from equity financing.... 1,877,985 1,487,460 10,762,461
------------ ------------ ------------
Net cash provided by financing
activities.......................... 10,993,649 3,532,623 16,597,075
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................... 2,988,974 (5,966,679) 4,634,693
Cash and cash equivalents,
beginning of period............... 3,531,782 6,520,756 554,077
------------ ------------ ------------
Cash and cash equivalents,
end of period..................... $6,520,756 $554,077 $5,188,770
=========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock Preferred Series A Preferred Series B Additional Paid-
Shares Amount Shares Amount Shares Amount in-Capital Deficit
- ---------------- ----------- ---------- --------- ---------- -------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
December 31, 11,396,419 $1,139,642 -- $ -- -- $ -- $36,686,742 $(30,365,031)
1995
Issuance of
shares in
connection 450,000 45,000 5,832,985
with financings
Issuance of
shares for 45,687 4,569 109,478
services
Reversal of
option exercise (105,000) (10,500) (357,000)
Net loss
applicable to
common
shareholders (10,300,481)
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
Balances
December 31, 11,787,106 $1,178,711 -- $ -- -- $ -- $42,272,205 $(40,665,512)
1996
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
Issuance of
shares in
connection with 733,333 73,333 86,200 8,620 3,447,778
financings
Issuance of
shares for 286,511 28,651 414,473
services
Issuance of
shares in
connection
with exchange 1,795,661 179,566 1,994,980
of preferred
stock
Issuance of
shares in
connection
with exercise 12,000 1,200 11,160
of stock
options
Net loss
applicable to
common
shareholders (10,358,683)
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
Balances
December 31, 14,614,611 $1,461,461 86,200 8,620 -- $ -- $48,140,596 $(51,024,195)
1997
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Common Stock Preferred Series A Preferred Series B Additional Paid-
Shares Amount Shares Amount Shares Amount in-Capital Deficit
- ---------------- ----------- ---------- --------- ---------- -------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
December 31, 14,614,611 $1,461,461 86,200 8,620 -- $ -- $48,140,596 $(51,024,195)
1997
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
Issuance of
shares in
connection with 6,458,332 645,833 9,987,692
financings
Issuance of
Preferred 5,018 2,805,961 2,527,723
Series B Stock
Issuance of
shares for 373,592 37,359 508,083
services
Issuance of
shares in
connection
with exchange 5,857,406 585,741 (29,900) (2,990) 2,535,660
of preferred
stock
Issuance of
shares in
connection
with exercise 1,662,452 166,245 2,282,323
of stock
options
Issuance of
warrants and
shares in
connection
with financing 793,066 79,307 5,086,153
activities
Net loss (20,389,151)
Preferred (479,173)
Dividends
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
Balances
December 31, 29,759,459 $2,975,946 56,300 $5,630 5,018 $2,805,961 $71,068,230 $(71,892,519)
1998
----------- ---------- --------- ---------- -------- ----------- ----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
ACTV, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997, and 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization ACTV, Inc. was incorporated July 8, 1983. ACTV, Inc. and its
subsidiaries (the "Company" or "ACTV"), has developed patented and proprietary
technologies that allow content providers to create unique interactive
programming for digital television ("Individualized Television") and for
television/Internet convergence applications ("HyperTV"). Individualized
Programming software technology provides the tools needed to create and view
live or pre-recorded television programming that individualizes what the viewer
sees and hears. HyperTV(TM) is a patented process for the delivery of Internet
web information that relates to and enhances a simultaneous videocast. Since its
inception, the Company has been engaged in the development of Individualized
Programming, the production of programs that use its Individualized Programming
and the marketing and sales of the various products and services incorporating
Individualized Programming. In 1997, the Company introduced HyperTV and its
first commercial application, eSchool Online ("eSchool") for the education
market. eSchool consists of a suite of software products that permit a teacher
to use the Internet as an accompanying instructional tool during a live or
pre-recorded video lesson.
Principles of Consolidation - The Company's consolidated financial statements
include the balances of its wholly owned operating subsidiaries. In
consolidation, all intercompany account balances are eliminated.
Property and Equipment - Property and equipment are recorded at cost and
depreciated on the straight-line method over their estimated useful lives
(generally five years). Depreciation expense for the years ended December
31,1996, 1997, and 1998 aggregated $189,957, $286,883, and
$782,990,respectively.
Education Equipment - Education equipment consists of standard personal
computers adapted to provide individualized programming functionality,
videocassette recorders, television monitors and computer printers that the
Company holds in inventory. This inventory is carried on the Company's books at
the lower of first-in, first-out cost or market.
Patents and Patents Pending - The cost of patents, which for patents issued
represents the consideration paid for the assignment of patent rights to the
Company by an employee and for patents pending represents legal costs related
directly to such patents pending, is being amortized on a straight-line basis
over the estimated economic lives of the respective patents (averaging 10
years), which is less than the statutory life of each patent. The balances at
December 31, 1996, 1997, and 1998, are net of accumulated amortization of
$116,371, $141,072, and $186,485, respectively.
Software Development Costs - The Company capitalizes costs incurred for product
software where economic and technological feasibility has been established.
Capitalized software costs are amortized on a straight-line basis over the
estimated useful lives of the respective products (5 years). The balance at
December 31, 1997 and 1998, is net of accumulated amortization of $16,376 and
$145,553, respectively.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition - Sales are recorded as products are shipped or services are
rendered.
Research and Development - Research and development costs, which represent
primarily refinements to Individualized Programming, were $1,221,362 for the
year ended December 31, 1996, $551,328 for the year ended December 31, 1997, and
$820,475 for the year ended December 31, 1998.
Earnings/(Loss) Per Share - The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share, for the period ended
December 31, 1998, which establishes standards for computing and presenting
28
<PAGE>
earnings per share ("EPS") and simplifies the standards for computing EPS
currently found in Accounting Principles Board ("APB") Opinion No. 15 ("Earnings
Per Share"). Common stock equivalents under APB No. 15 are no longer included in
the calculation of primary, or basic, EPS. Loss per common share equals net loss
divided by the weighted average number of shares of the Company's common stock
("Common Stock") outstanding during the period. The Company did not consider the
effect of stock options or convertible preferred stock upon the calculation of
the loss per common share, as it would be anti-dilutive.
Reclassifications - Certain reclassifications have been made in the December 31,
1996, and 1997 financial statements to conform to the December 31, 1998
presentation.
Intangibles - The excess of the purchase cost over the fair value of net assets
acquired in an acquisition (goodwill) is being amortized on a straight-line
basis over a period of 10 years. The Company evaluates the realizability of
goodwill based upon the expected undiscounted cash flows of the acquired
business. Impairments, if any, will be recognized through a charge to operation,
in the period in which the impairment is deemed to exist. Based on such
analysis, the Company does not believe that goodwill has been impaired.
Other Current Assets - The Company's consolidated balance sheets at December 31,
1996, December 31, 1997, and December 31, 1998 reflect balances of $343,962,
$224,712, and $434,575, respectively, related to cash advances made to executive
officers.
New Accounting Pronouncements
Newly Adopted Accounting Standards
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
131, Disclosures about Segments of an Enterprise and Related Information during
the year ending December 31, 1998. The Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
Statement supersedes Financial Accounting Standards Board ("FASB") Statement No.
14, Financial Reporting for Segments of a Business Enterprise, but retains the
requirement to report information about major customers. It amends FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
Management has determined that the Company operates in two segments the
Individualized Television and HyperTV, see Note 13.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15,1999; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. The Company has not yet
determined the impact, if any, the adoption of SFAS No. 133 will have on its
financial statements.
29
<PAGE>
2. NATURE OF OPERATIONS
The principal market for the Individualized Television is entertainment
programming distributed over digital television systems. The Company plans to
sell individualized entertainment programming (initially professional and
college sports programming) to the end user through cable television systems on
a subscription basis.
Our target markets for HyperTV(TM) are entertainment applications for consumers
and online learning for schools, universities and corporations. The Company
sells eSchool online learning programming and related hardware to schools,
colleges, and private education networks. The following clients accounted for
more than 10% of the Company's revenues during the year ended December 31, 1998,
Georgia Public Television, which accounted for approximately 17%, 24%, and 40%
of total revenues in 1996, 1997, and 1998, respectively, School District of
Philadelphia, which accounted for approximately 14% in 1998, and the Texas
Workforce Commission, which accounted for 24% of total revenues in 1997. During
1996 and 1998, the Company generated no revenues from the Texas Workforce
Commission.
3. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
4. PROPERTY AND EQUIPMENT - NET
Property and equipment - net at December 31, 1996, 1997, and 1998 consisted of
the following (at cost):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment $636,845 $2,931,682 $3,297,160
Office furniture and fixtures 357,373 501,435 667,508
------------------------------------
Total 994,218 3,433,117 3,964,688
Less accumulated depreciation 270,129 836,332 1,598,913
------------------------------------
Total $724,089 $2,596,785 $2,365,775
====================================
</TABLE>
5. FINANCING ACTIVITIES
In January 1998, the ACTV, Inc. subsidiaries ACTV Entertainment, Inc.
and The Texas Individualized Television Network, Inc. entered into a note
purchase agreement, dated as of January 13, 1998 with certain private investors.
Pursuant to the agreement, the investors purchased $5.0 million aggregate
principal amount notes from our subsidiaries. The notes bear interest at a rate
of 13.0% per annum, payable semi-annually, with principal repayment in one
installment on June 30, 2003. During the term of the note, we may, at our
option, pay any four semi-annual interest payments in kind rather than in cash,
with an increase in the rate applicable to such payments in kind to 13.75% per
annum. We have chosen to make the first two semi-annual interest payments (June
30, 1998 and December 31, 1998) in kind. The note is secured by the assets of
the Texas Network, and is guaranteed by ACTV, Inc.
In connection with the purchase of such note, the investors received on
January 14, 1998 a common stock purchase warrant of Texas Network that granted
the investors either the right to purchase up to 17.5% of the fully-diluted
shares of common stock of Texas Network or, through July 14, 1999, to exchange
the warrant for such number of shares of our common stock, at the time of and
giving effect to such exchange, that were equal to 5.5% of the fully diluted
number
30
<PAGE>
of shares of common stock outstanding. In January 1999, the investors exchanged
the warrant in full into shares of our common stock. This conversion has not
been reflected in the accompanying financial statements as it occurred in 1999.
For accounting purposes, the Company has allocated approximately $1.4
million to the value of the warrant, based on the market value of ACTV, Inc.
common stock into which the warrant was convertible at issuance. The warrant is
included outside of Consolidated Shareholders' Equity (Deficiency) due to its
cash put feature and is being amortized as additional interest expense over the
life of the note.
In November 1998, ACTV issued 5,018 shares of Series B Convertible
Preferred Stock, common stock, and warrants to purchase approximately 1.95
million shares of common stock at $2.00 per share as a partial exchange for
approximately 179,000 shares of exchangeable preferred stock, which had been
issued by a subsidiary of ACTV. The excess of the fair value of this
consideration over the carrying value of the convertible preferred stock for
which it was issued is included in Minority Interest - Subsidiary Preferred
stock dividend and accretion in the accompanying statement of operations. The
Series B Preferred has a liquidation preference $1,000.00 per share and pays a
dividend, in cash or accumulated and paid in common stock upon conversion, of
10% per annum.
The Series B Preferred is fully redeemable by ACTV at any time at a 10%
premium above face value plus accrued dividends. The holders of Series B
Preferred are prohibited from converting any shares into common stock through
November 13, 1999, whether or not ACTV gives a notice of redemption during this
period. Beginning November 13, 1999, the number of shares issued upon conversion
is determined by dividing the liquidation value of $1,000.00 plus accrued
dividends by the conversion price of $2.00 per common share. Beginning February
13, 2000, the number of shares issued upon conversion is determined by dividing
the liquidation value of $1,000.00 plus accrued dividends by the conversion
price of $1.33 per common share. Such preferred shares are currently not
convertible into common stock and will be convertible into common stock only
after November 13, 1999. The beneficial conversion attributable to the possible
conversion of the Series B Preferred at $1.33 per share, which equaled
$2,527,723 at the issuance date has been attributed to additional
paid-in-capital and will be accounted for as a charge to net loss applicable to
common stock shareholders over the period from issuance through February 13,
2000.
During the year ended December 31, 1998 we raised approximately $10.8
from sales of common stock to private institutional investors, including $5
million invested by Liberty Media Corporation.
During 1996, the Company raised approximately $11.0 million net from the
proceeds of a private placement of common stock ($1.9 million in net proceeds)
and of 5% convertible preferred stock (the "Convertible Preferred Stock") issued
by its wholly-owned subsidiary ($9.1 million in net proceeds). The Convertible
Preferred Stock is convertible into Common Stock of ACTV, Inc., beginning
January 1, 1997, at varying discounts to the market price of Common Stock. After
September 1, 1997, holders of the Convertible Preferred Stock have been able to
use the lesser of (i) the then current market price of the Company's Common
Stock, or (ii) an average market price during the month of August 1997 as the
price to which the discount is applied for conversions. In addition, the Company
has the right to redeem the Convertible Preferred Stock at a price equal to $25
times the number of shares being purchased, plus accrued and unpaid dividends
(the "Redemption Price"). This right may be exercised by the Company only if the
closing price of the Company's Common Stock is above $9.00 for thirty
consecutive trading days prior to redemption.
The Convertible Preferred Stock is convertible into shares of common
stock at a discounted conversion price. The discount ranged from 14% to a
maximum of 30.375%. The extent of the beneficial conversion feature was
approximately $4.0 million, representing the maximum difference between the
discounted conversion price and the prevailing market price of the Common Stock.
Preferred stock accretion of $1.5 million and $2.5 million, respectively, were
recorded and included as minority interest for the years ended December 31, 1996
and 1997. As of December 31, 1998, all of the Exchangeable Preferred Stock
issued by the Company's wholly-owned subsidiary, ACTV Holdings, Inc. had been
converted.
During 1999, we have raised approximately $540,000 from the exercise of
options and warrants.
We believe that we have adequate funding to launch the southwest
regional network in 1999 and to fund our present operations for the next
12-month period, assuming that we are able to raise approximately $3.9 million
from
31
<PAGE>
forcing the exercise of approximately 1.95 million warrants. We can effectively
force such warrant exercise if the average closing price of our common stock is
above $4.50 per share for a twenty consecutive trading day period and the shares
to be issued pursuant to the warrants are registered for sale by the SEC.
Currently, the share price requirement has been met and we have filed a
registration statement for registration of the warrant shares. Approval by the
SEC is still pending.
Should we raise such funds from warrant exercises, we will still need
additional funding to operate the southwest regional network at planned levels,
to fund the commercialization of HyperTV(TM) for entertainment applications, and
to fund our other operations prior to breakeven. We will need additional funding
as well to launch networks in other regions. We currently do not have any
arrangements for additional financing and cannot assure you that additional
financing will be available on acceptable terms, or at all. As a result, there
is no assurance that we will secure the funding necessary to effect additional
launches in other regions, or that other factors might not delay or prohibit the
successful implementation of the our regional network strategy or for the
planned commercialization of HyperTV(TM) for entertainment applications.
If we are not successful at raising funds from warrant exercises or other funds,
we will be required to significantly reduce our overall level of operations. If
necessary, we believe that we could continue to operate at this significantly
reduced level.
6. SHAREHOLDERS' EQUITY (DEFICIENCY)
At December 31, 1998, the Company had reserved shares of Common Stock for
issuance as follows:
<TABLE>
<S> <C>
1989 Qualified Stock Option Plan 31,000
1989 Non-Qualified Stock Option Plan 39,250
1996 Qualified Stock Option Plan 478,484
1998 Qualified Stock Option Plan 307,500
Options granted outside of formal plans 6,933,773
---------
Total 7,850,007
</TABLE>
In addition, the conversion of Series A Convertible Preferred and Series B
Convertible Preferred Shares could result in the issuance of 4,850,411 shares of
Common Stock.
Convertible Preferred Stock At December 31, 1998, the Company was authorized to
issue 1,000,000 shares of blank check preferred stock, par value $0.10 per
share, of which 120,00 shares have been designated Series A Convertible
Preferred Stock and 6,110 shares have been designated Series B Convertible
Preferred Stock. At December 31, 1998, 56,300 shares of Series A Convertible
Preferred Stock and 5,018 shares of Series B Convertible Preferred Stock were
issued and outstanding.
Exchangeable Preferred Stock As of December 31, 1998, all of the Exchangeable
Preferred Stock issued by the Company's wholly-owned subsidiary, ACTV Holdings,
Inc. had been converted.
Exchangeable Preferred Stock At December 31, 1997, the Company's wholly-owned
subsidiary, ACTV Holdings, Inc. was authorized to issue 436,000 shares of
Convertible Preferred Stock, no par value, of which 316,944 shares were issued
and outstanding.
7. STOCK OPTIONS
During 1989, the Board of Directors approved an Employee Incentive Stock Option
Plan (the "Employee Plan"). The Employee Plan provides for the granting of up to
100,000 options to purchase Common Stock to key employees. The Employee Plan
stipulates that the option price be not less than fair market value on the date
of grant. Options granted will have an expiration date not to exceed ten years
from the date of grant. At December 31, 1998, 97,500 options had been granted
under this plan, of which 37,567 had been exercised and 28,933 had expired or
been canceled.
32
<PAGE>
In addition, in August 1989, the Board of Directors approved a Non-Qualified
Stock Option Plan (the "Non-Qualified Plan"), to be administered by the Board or
a committee appointed by the Board. The Non-Qualified Plan provides for the
granting of up to 100,000 options to purchase shares of Common Stock to
employees, officers, directors, consultants and independent contractors. The
Non-Qualified Plan stipulates that the option price be not less than fair market
value at the date of grant, or such other price as the Board may determine.
Options granted under this Plan shall expire on a date determined by the
committee but in no event later than three months after the termination of
employment or retainer. At December 31, 1998, 97,000 options had been granted
under this plan, of which 30,500 had been exercised and 27,250 had expired or
been canceled.
During 1996, the Board of Directors approved the Company's 1996 Stock Option
Plan (the "1996 Option Plan"). The 1996 Option Plan provides for option grants
to employees and others who provide significant services to the Company. Under
the 1996 Option Plan, the Company is authorized to issue options for a total of
500,000 shares of Common Stock. As of December 31, 1998, the Company had issued
478,484 outstanding options under the plan, including 93,333 that had been
canceled. No options had been exercised under the 1996 Option Plan as of
December 31, 1998.
During 1998, the Board of Directors approved the Company's 1998 Stock Option
Plan (the "1998 Option Plan"). The 1998 Option Plan provides for option grants
to employees and others who provide significant services to the Company. Under
the 1998 Option Plan, the Company is authorized to issue options for a total of
900,000 shares of Common Stock. As of December 31, 1998, the Company had issued
307,500 outstanding options under the plan, including 27,500 that had been
canceled. No options had been exercised under the 1998 Option Plan as of
December 31, 1998.
At December 31, 1998, the Company also had outstanding options and warrants that
were issued to Directors, certain employees, and consultants and pursuant to
financing transactions for the purchase of 6,993,773 shares of Common Stock that
were not issued pursuant to a formal plan. The prices of these options range
from $1.50 to $5.50 per share; they have expiration dates in the years 1999
through 2008. The options granted are not part of the Employee Incentive Stock
Option Plan or the Non-Qualified Stock Option Plan discussed above.
A summary of the status of the Company's stock options as of December 31, 1998,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Wgtd. Wgtd. Wgtd.
Avg. Avg. Avg.
1998 Exer 1997 Exer 1996 Exer
Shares Price Shares Price Shares Price
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
Of period 3,539,218 3,328,718 2,747,082
Options and warrants granted 6,376,073 $1.91 339,683 $1.91 887,500 $3.73
Options and warrants exercised 1,844,951 $1.64 17,000 $0.73 -- --
Options and warrants terminated 220,333 $2.86 112,183 $4.06 305,864 $3.76
Outstanding at end
Of period 7,850,007 $1.90 3,539,218 $1.81 3,328,718 $2.99
Options and warrants exercisable
at end of period 5,782,275 $1.99 2,363,134 $1.87 1,719,134 $3.19
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
33
<PAGE>
<TABLE>
<CAPTION>
Weighted
Aver- Weighted Weighted
Number age Aver- Aver-
Outstand- Remaining age Number age
Range of ing at Contractual Exercise Exercisable Exercise
Exercise Prices 12/31/98 Life Price at 12/31/98 Price
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0 to 1.50 1,363,751 3.5 Years $1.50 680,353 $1.50
1.51 to 3.50 6,333,756 6.4 Years $1.94 4,957,756 $2.00
3.51 to 5.50 152,000 1.6 Years $4.02 144,166 $4.03
</TABLE>
The weighted average fair value of options granted during 1997 and 1998 was $.64
and $.97 per share, respectively, excluding the value of options granted and
terminated within the year. In the case of each issuance, options were issued at
an exercise price that was higher than the fair market value of the Company's
Common Stock on the date of grant. The Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting for its stock
option and purchase plans. Accordingly, no compensation cost has been recognized
for option issuances. Had compensation cost for the Company's option issuances
been determined based on the fair value at the grant dates consistent with the
method of FASB Statement 123, the Company's net loss and loss per basic and
diluted share for the years ended December 31, 1996, 1997 and 1998 would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Net loss to common shareholders 1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
As reported $10,300,481 $10,358,683 $20,552,359
Pro forma $11,185,735 $10,574,807 $21,987,835
<CAPTION>
Net loss per basic and diluted
common share 1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
As reported $0.88 $0.80 $0.96
Pro forma $0.95 $0.82 $1.02
</TABLE>
The Company estimated the fair value of options issued during 1996, 1997 and
1998 on the date of each grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used: no dividend yield, expected
volatility for 1996 of 61.5%, expected volatility for 1997 of 57.3%, expected
volatility for 1998 of 49.53%, and a risk free interest rate of 6% for all
years.
Certain employees, including the executive officers Samuels, Reese, Crowley and
Cline, have been granted options to purchase Class B Common Stock, at fair value
as of the date of grant, of certain of the Company's subsidiaries; such common
stock, if issued, will have majority voting rights in such subsidiaries.
8. STOCK APPRECIATION RIGHTS PLANS
The Company's 1992 Stock Appreciation Rights Plan (the "1992 SAR Plan") was
approved by the Company's stockholders in December 1992. Subject to adjustment
as set forth in the 1992 SAR Plan, the aggregate number of Stock Appreciation
Rights ("SARs") that may be granted shall not exceed 900,000.
The Company's 1996 Stock Appreciation Rights Plan (the "1996 SAR Plan") was
adopted by the Board of Directors in April 1996 and approved by the shareholders
in July 1996. Subject to adjustment as set forth in the 1996 SAR Plan, the
aggregate number of SARs that may be granted pursuant to the 1996 SAR Plan shall
not exceed 500,000; provided, however, that at no time shall there be more than
an aggregate of 900,000 outstanding, unexercised SARs granted pursuant to both
the 1996 SAR Plan and the 1992 SAR Plan. The 1996 SAR Plan imposes no limit on
the number of recipients to whom awards may be made. Both the 1992 and 1996 SAR
Plans are administered by the Stock Appreciation Rights Committee (the "SAR
Committee").
34
<PAGE>
SARs may not be exercised until the six months from the date of grant. SARs
issued pursuant to the 1992 SAR Plan vest in five equal annual installments
beginning twelve months from the date of grant. SARs issued pursuant to the 1996
SAR Plan vest either in a lump sum or in such installments, which need not be
equal, as the Committee shall determine. If a holder of a SAR ceases to be an
employee, director or consultant of the Company or one of its subsidiaries or an
affiliate, other than by reason of the holder's death or disability, any SARs
that have not vested shall become void. Exercise of SARs also will be subject to
such further restrictions (including limits on the time of exercise) as may be
required to satisfy the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission and any other applicable law or regulation (including,
without limitation, federal and state securities laws and regulations). SARs are
not transferable except by will or under the laws of descent and distribution or
pursuant to a domestic relations order as defined in the Internal Revenue Code
of 1986, as amended.
Upon exercise of a SAR, the holder will receive for each share for which a SAR
is exercised, as determined by the SAR Committee in its discretion, (a) shares
of the Company's Common Stock, (b) cash, or (c) cash and shares of the Company's
Common Stock, equal to the difference between (i) the fair market value per
share of the Common Stock on the date of exercise of the SAR and (ii) the
exercise price of a SAR, which amount shall be no less than the fair market
value per share of Common Stock on the date of grant of the SAR.
Under the Company's 1992 SAR Plan, as of December 31, 1998, the Company has
granted 516,000 outstanding SARs (with an exercise price of $1.50 per share) to
ten employees. The SARs expire between 2001 and 2006. Under the Company's 1996
SAR Plan, as of December 31, 1998, the Company has granted 380,000 outstanding
SARs (with an exercise price of $1.50 per share) to six employees. The SARs
expire between 2002 and 2006. During 1998, no SARs were exercised.
9. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes".
Deferred income taxes reflect the net tax effects at an effective tax rate of
35.33% of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax effects
of significant items comprising the Company's net deferred tax asset as of
December 31, 1996, December 31, 1997, and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforwards $13,365,772 $16,131,213 $20,254,782
Differences between book and tax basis of property 34,019 56,148 852,587
----------- ----------- -----------
13,399,791 16,187,361 21,107,369
Deferred tax liabilities:
Differences between book and tax basis of property (106,819) (181,104) (454,618)
----------- ----------- -----------
13,292,972 16,000,257 (20,652,751)
Valuation Allowance (13,292,972) (16,000,257) (20,652,751)
----------- ----------- -----------
Net deferred tax asset $ 0 $ 0 $ 0
============ ============ ============
</TABLE>
The increase in the valuation allowance for the year ended December 31, 1997 and
1998, was approximately $2.7 and $4.7 million, respectively. There was no
provision or benefit for federal income taxes as a result of the net operating
loss in the current year.
At December 31, 1997 and 1998, the Company has Federal net operating loss
carryovers of approximately $45.7 and $57.3 million, respectively. These
carryovers may be subject to certain limitations and will expire between the
years 1999 and 2013.
35
<PAGE>
10. COMMITMENTS
At December 31, 1998, future aggregate minimum lease commitments under
non-cancelable operating leases, which expire in 1999 and 2001, were
approximately $670,000. The leases contain customary escalation clauses, based
principally on real estate taxes. Rent expense related to these leases for the
years ended December 31, 1996, 1997, and 1998 aggregated $129,600, $330,430,
$422,729 respectively.
The Company has employment agreements with certain key employees. These
agreements extend for a period of a maximum of five years and contain
non-competition provisions, which extend two years after termination of
employment with the Company. At December 31, 1997 and 1998, the Company is
committed to expend a total of approximately $2.7 and $2.3 million, respectively
under these agreements.
11. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and receivables.
The Company attempts to mitigate cash investment risks by placing such
investments in insured depository accounts and with financial institutions that
have high credit ratings. Concentrations of risk with respect to trade
receivables exist because of the relatively few companies or other organizations
(primarily educational or government bodies) with which the Company currently
does business. The Company attempts to limit these risks by closely monitoring
the credit of those to whom it is contemplating providing its products, and
continuing such credit monitoring activities and other collection activities
throughout the payment period. In certain instances, the Company further
minimizes concentrations of credit risks by requiring partial advance payments
for the products provided.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
For financial instruments, including cash and cash equivalents, accounts
receivable and payable, and accruals, the carrying amounts approximated fair
value because of their short maturity. The notes payable of the Texas
Individualized Television Network, Inc. were issued in 1998 and management
believes that its carrying value is representative of its fair value.
13. SEGMENT REPORTING
ACTV, Inc. and its segments Individualized Television and HyperTV Networks,
Inc., has developed and markets proprietary technologies for individualized
television programming (the "Individualized Programming") and for Internet
learning systems. ACTV Entertainment, Inc.'s primary product will give the
consumer Individualized Programming and will allow a viewer to experience
instantly responsive television. Since its inception, the Company has been
engaged in the development of Individualized Programming, the production of
programs that use its Individualized Programming and the marketing and sales of
the various products and services incorporating the ACTV Entertainment, Inc.'s
Individualized Programming. During 1996 HyperTV Networks, Inc. conceptualized
and developed HyperTV. In 1997, HyperTV Networks, Inc. introduced to the
education market eSchool Online ("eSchool"), which is the first commercial
application of HyperTV. Please refer to Note 2 to the financial statements that
specifically addresses the revenue breakout by major customer. The operating
segments ( Individualized Television and HyperTV Networks, Inc.) have been
determined by the way the overall business is managed.
36
<PAGE>
Information concerning the Company's business segments in 1996, 1997 and 1998 is
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues
Individualized Television $ -- $ -- $ --
HyperTV Networks, Inc. 1,476,329 1,650,955 1,405,838
Unallocated corporate -- -- --
----------- ----------- -----------
Total $ 1,476,329 $ 1,650,955 $ 1,405,838
----------- ----------- -----------
Depreciation & Amortization
Individualized Television $ 381,135 $ 172,123 $ 763,241
HyperTV Networks, Inc. 1,086 29,622 206,338
Unallocated Corporate 464,130 552,309 563,151
----------- ----------- -----------
Total $ 846,351 $ 754,053 $ 1,532,731
----------- ----------- -----------
Interest Expense (Income)
Individualized Television $ -- $ (9,391) $ 850,770
HyperTV Networks, Inc. (152,040) (8,128) (8,405)
Unallocated corporate (6,692) (99,351) 94,403
----------- ----------- -----------
Total $ (158,732) $ (116,870) $ 747,963
----------- ----------- -----------
Net Loss
Individualized Television $ 2,459,965 $ 2,678,832 $ 5,273,173
HyperTV Networks, Inc. 1,196,767 1,771,671 2,020,228
Unallocated corporate 6,643,749 5,908,180 13,258,958
----------- ----------- -----------
Total $10,300,481 $10,358,683 $20,552,359
----------- ----------- -----------
Capital Expenditures
Individualized Television $ 411,212 $ 139,897 $ 947,710
HyperTV Networks, Inc. -- 273,778 361,716
Unallocated corporate 32,977 2,482,128 618,495
----------- ----------- -----------
Total $ 444,189 $ 2,895,803 $ 1,927,921
----------- ----------- -----------
Current Assets
Individualized Television $ 39,759 $ 290,421 $ 1,449,763
HyperTV Networks, Inc. 862,473 775,855 844,683
Unallocated corporate 6,683,183 337,255 4,280,110
----------- ----------- -----------
Total $ 7,585,415 $ 1,403,531 $ 6,574,556
----------- ----------- -----------
Total Assets
ACTV Entertainment, Inc. $ 488,081 $ 3,105,174 $ 4,708,444
HyperTV Networks, Inc. 865,629 1,023,170 1,250,825
Unallocated corporate 10,338,914 3,773,575 7,646,773
----------- ----------- -----------
Total $11,692,624 $ 7,901,918 $13,606,041
----------- ----------- -----------
</TABLE>
14. INVESTMENT AND ADJUSTMENTS
In January 1995, the Company invested $274,325 in the common stock
(approximately 15% of ownership interest) of a company (the "Licensee"), which
had licensed the Company's Individualized Programming for commercialization in
special-purpose theaters.
The Company also performed executive production services for the Licensee on a
fee basis. During 1996, the Company recorded license fee and production service
revenue from the Licensee of $16,789 and $199,666, respectively. At December 31,
1996, the Company had unpaid receivables pursuant to such revenues of $82,746.
During 1997, the Licensee filed for liquidation under United States Bankruptcy
laws. In anticipation of such filing, at December 31, 1996 the Company provided
a reserve for the full amount of the receivables outstanding of $82,746 and a
valuation allowance for its full investment in the Licensee of $274,325.
37
<PAGE>
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The consolidated financial statements at December 31, 1996, reflects non-cash
activity during the year ended December 31, 1996, that relates to a reversal of
certain of the option exercises and resulting non-recourse loan transactions
described above: a credit to shareholders' equity of $367,500.
The consolidated financial statements at December 31, 1997 and 1998, reflect
non-cash activity during the year ended December 31, 1997 and 1998, that relate
to stock appreciation rights, notes and stock issued in lieu of cash
compensation, subsidiary preferred stock dividends and accretions, and preferred
stock dividends payable. The non-cash stock appreciation rights activity for the
years ended December 31, 1997 and 1998 decreased by $701,517 and increased by
$2,000,062, respectively. The stock issued in lieu of cash compensation for the
years ended December 31, 1997 and 1998 was $443,125 and $2,016,023,
respectively. The notes issued in lieu of cash compensation for the years ended
December 31, 1998 was $686, 641. The subsidiary preferred stock dividends and
accretions for the years ended December 31, 1997 and 1998 was $2,598,156 and
$5,749,309, respectively and the preferred stock dividends payable for the years
ended December 31, 1997 and 1998 increased by $408,085 and decreased by
$403,164, respectively.
The Company made no cash payments of interest or income taxes during the years
ended December 31, 1996, 1997 and 1998.
38
<PAGE>
(a)2. FINANCIAL STATEMENT SCHEDULE
The following Financial Statement Schedule for the years ended December 31, 1998
and December 31, 1997 is filed as part of this Annual Report. We had no activity
reportable on this schedule for the year ended December 31, 1996. Schedule II -
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Column B Column C Column D Column E
-------- ----------------------- -------- --------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End
Description of Period Expenses Accounts -Describe of Period
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended 12/31/96:
Accounts receivable
allowance for doubtful
accounts -- $82,746 -- -- $ 82,746
Reserve for investment
losses -- $274,325 -- -- $274,325
Year ended 12/31/97:
Accounts receivable
allowance for doubtful
accounts................ $ 82,746 $ 43,188 -- $ 82,746 $ 43,188
Reserve for investment
losses.................. $ 274,325 -- -- --
Year ended 12/31/98:
Accounts receivable
allowance for doubtful
accounts............... $ 43,188 -- -- $ 43,188 --
Reserve for investment
losses -- -- -- -- --
</TABLE>
During 1997, the balances of $82,746 of accounts receivable and $274,325 of
investments were written off as uncollectable or unrecoverable, respectively.
During 1998, there were no changes to either the accounts receivable allowance
or investment loss reserve. Uncollectable accounts receivables in the amount of
$43,188 were written off in 1998.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of New York
and State of New York on the 15th day of March 1999.
ACTV, Inc.
By: /s/William C. Samuels
--------------------------------------
William C. Samuels
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William C. Samuels March 15, 1999
- ------------------------
William C. Samuels Chairman of the Board, Chief Executive
Officer, President and Director
/s/ David Reese March 15, 1999
- ------------------------
David Reese President, Chief Operating Officer,
President - ACTV Entertainment, Inc.,
and Director
/s/ Bruce Crowley March 15, 1999
- ------------------------
Bruce Crowley Executive Vice President, President - HyperTV
Networks, Inc. and Director
/s/ Christopher C. Cline March 15, 1999
- ------------------------
Christopher C. Cline Senior Vice President, Chief Financial
Officer and Secretary
/s/ William Frank March 15, 1999
- ------------------------
William A. Frank Director
/s/ Steven W. Schuster March 15, 1999
- ------------------------
Steven W. Schuster Director
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
(a)3. EXHIBITS INDEX (inapplicable items omitted):
3.1.a Restated Certificate of Incorporation of ACTV, Inc.*
3.1.b Amendment to Certificate of Incorporation of ACTV, Inc.**
3.1.c Certificate of Designation of Series B 10% Convertible Preferred Stock
of ACTV, Inc.******
3.2 By-Laws of ACTV, Inc.*
9.1 Voting Agreement dated November 11, 1994, by and between William C.
Samuels and Michael J. Freeman.***
9.2 Voting Trust Agreement dated March 10, 1994 by and among William C.
Samuels, The Washington Post Company and ACTV, Inc.**
10.1 First Amendment to Lease, dated December January 13, 1997 by and
between the Registrant, as the Tenant, and Rockefeller Center
Properties, as the Landlord.****
10.2 Form of 1989 Employee Incentive Stock Option Plan.*
10.3 Form of Amendment No. 1 to 1989 Employee Incentive Stock Option Plan.*
10.4 Form of 1989 Employee Non-qualified Stock Option Plan.*
10.5 Form of Amendment No. 1 to 1989 Employee Non-qualified Stock Option
Plan.*
10.8 1996 Non-qualified Stock Option Plan.****
10.9 1992 Stock Appreciation Rights Plan.****
10.10 1996 Stock Appreciation Rights Plan.****
10.11 deleted--replaced by 10.40
10.12 deleted--replaced by 10.41
10.13 deleted--replaced by 10.42
10.14 Master Programming License Agreement dated December 2, 1996, by and
between ACTV, Inc. and Liberty/Fox Sports, LLC.****
10.15 Enhancement License Agreement dated December 4, 1996, by and between
ACTV, Inc. and Prime Ticket Networks, L.P., d/b/a Fox Sports West.++,
****
10.16 Enhancement License Agreement dated February 28, 1997, by and between
ACTV, Inc. and ARC Holding, Ltd., d/b/a Fox Sports Southwest.++, ****
10.17 Agreement dated march 30, 1995 between General Instrument Corporation
and ACTV, Inc.***
10.18 Technical Services Agreement dated May 1995 between the David Sarnoff
Research Center, Inc. and ACTV, Inc.***
10.19 Option Agreement dated December 4, 1995 between the David Sarnoff
Research Center and ACTV, Inc.****
10.21(a) deleted
10.21(b) deleted
10.21(c) Option Agreement dated September 29, 1995 between ACTV, Inc. and
Richard H. Bennett.***
10.21(d) Assignment dated September 29, 1995 between ACTV, Inc. and Richard H.
Bennett.***
10.21(e) deleted--replaced by 10.44(a)
10.21(f) deleted
10.21(h) deleted--replaced by 10.44(b)
10.21(j) deleted--replaced by 10.44(c)
10.22 deleted--expired
10.23(a) deleted--replaced by 10.43(a)
10.23(b) deleted--replaced by 10.43(b)
10.23(c) deleted--replaced by 10.43(c)
10.23(d) deleted
10.23(e) deleted
10.23(f) deleted
10.23(g) deleted
10.24(a) Stock Option Agreement, dated March 14, 1997, by and between HyperTV
Networks, Inc. and William C. Samuels. +
10.24(b) Stock Option Agreement, dated March 14, 1997, by and between HyperTV
Networks, Inc. and Bruce Crowley. +
10.24(c) Stock Option Agreement, dated October 1, 1997, by and between HyperTV
Networks, Inc. and William Samuels. +
10.24(d) Stock Option Agreement, dated October 1, 1997, by and between HyperTV
Networks, Inc. and Bruce Crowley. +
10.25(a) Stock Option Agreement by and between ACTV Entertainment, Inc. and
William Samuels dated March 14, 1997 and amended January 14, 1998. +
10.25(b) Stock Option Agreement by and between ACTV Entertainment, Inc. and
David Reese dated March 14, 1997 and amended January 14, 1998. +
10.26(a) Stock Option Agreement by and between Florida Individualized Television
Network, Inc. and William Samuels dated June 3, 1997 and amended
January 14, 1998. +
10.26(b) Stock Option Agreement by and between Northwest Individualized
Television Network, Inc. and William Samuels dated June 3, 1997 and
amended January 14, 1998. +
10.26(c) Stock Option Agreement by and between New York Individualized
Television Network, Inc. and William Samuels dated June 3, 1997 and
amended January 14, 1998. +
10.26(d) Stock Option Agreement by and between San Francisco Individualized
Television Network, Inc. and William Samuels dated June 3, 1997 and
amended January 14, 1998. +
10.26(e) Stock Option Agreement by and between Los Angeles Individualized
Television Network, Inc. and William Samuels dated March 14, 1997 and
amended January 14, 1998. +
10.26(f) Stock Option Agreement by and between Texas Individualized Television
Network, Inc. and William Samuels dated March 14, 1997 and amended
January 14, 1998. +
10.26(g) Stock Option Agreement by and between Florida Individualized Television
Network, Inc. and David Reese dated June 3, 1997 and amended January
14, 1998. +
10.26(h) Stock Option Agreement by and between Northwest Individualized
Television Network, Inc. and David Reese dated June 3, 1997 and amended
January 14, 1998. +
10.26(i) Stock Option Agreement by and between New York Individualized
Television Network, Inc. and David Reese dated June 3, 1997 and amended
January 14, 1998. +
10.26(j) Stock Option Agreement by and between San Francisco Individualized
Television Network, Inc. and David Reese dated June 3, 1997 and amended
January 14, 1998. +
10.26(k) Stock Option Agreement by and between Los Angeles Individualized
Television Network, Inc. and David Reese dated March 14, 1997 and
amended January 14, 1998. +
10.26(l) Stock Option Agreement by and between Texas Individualized Television
Network, Inc. and David Reese dated March 14, 1997 and amended January
14, 1998. +
10.27 ACTV Entertainment Shareholder Agreement dated March 14, 1997 and
amended January 14, 1998. +
10.28 HyperTV Networks Shareholder Agreement dated March 14, 1997. +
10.29 HyperTV Networks Additional Shareholder Agreement dated October 1,
1997. +
10.30 deleted--replaced by 10.45
10.31 deleted--replaced by 10.46
10.32 The Los Angeles Individualized Television Network, Inc. Sublicense
Agreement dated March 14, 1997 between ACTV Entertainment and The Los
Angeles Individualized Television Network, Inc. +
10.33 The San Francisco Individualized Television Network, Inc. Sublicense
Agreement dated January 1, 1989 between ACTV Entertainment and The San
Francisco Individualized Television Network, Inc. +
10.34 The Texas Individualized Television Network, Inc. Sublicense Agreement
dated March 14, 1997 between ACTV Entertainment and The Texas
Individualized Television Network, Inc. +
10.35 The Los Angeles Individualized Television Network, Inc. Service
Agreement dated March 14, 1997 between ACTV, Inc., ACTV Entertainment
and The Los Angeles Individualized Television Network, Inc. +
10.36 The San Francisco Individualized Television Network, Inc. Service
Agreement dated January 1, 1998 between ACTV, Inc., ACTV Entertainment
and The San Francisco Individualized Television Network, Inc. +
10.37 The Texas Individualized Television Network, Inc. Service Agreement
dated March 14, 1997 between ACTV, Inc., ACTV Entertainment and The
Texas Individualized Television Network, Inc. +
10.38 Form of Note Purchase Agreement of the Texas Individualized Television
Network dated as of January 13, 1998 *****
10.39 Common Stock Purchase Warrant issued pursuant to the Note Purchase
Agreement as of January 14, 1998 *****
10.40 Amended employment agreement dated February 22, 1999, between ACTV,
Inc. and William C. Samuels, amending and restating in full the
agreement dated August 1, 1995, as amended.
10.41 Amended employment agreement dated February 22, 1999, between ACTV,
Inc. and David Reese, amending and restating in full the agreement
dated August 1, 1995, as amended.
10.42 Amended employment agreement dated February 22, 1999, between ACTV,
Inc. and Bruce Crowley, amending and restating in full the agreement
dated August 1, 1995, as amended.
10.43(a) Amended stock option agreement dated January 4, 1999, between ACTV,
Inc. and William C. Samuels, amending and restating in full the
agreement dated February 21, 1998.
10.43(b) Amended stock option agreement dated January 4, 1999, between ACTV,
Inc. and Bruce Crowley, amending and restating in full the agreement
dated February 21, 1998.
10.43(c) Amended stock option agreement dated January 4, 1999, between ACTV,
Inc. and David Reese, amending and restating in full the agreement
dated February 21, 1998.
10.44(a) Amended stock option agreement dated March 5, 1999, between ACTV, Inc.
and William C. Samuels, amending and restating in full the agreement
dated December 1, 1995, as amended.
10.44(b) Amended stock option agreement dated March 5, 1999, between ACTV, Inc.
and David Reese, amending and restating in full the agreement dated
December 1, 1995, as amended.
10.44(c) Amended stock option agreement dated March 5, 1999, between ACTV, Inc.
and Bruce Crowley, amending and restating in full the agreement dated
December 1, 1995, as amended.
10.45 Amended license agreement dated March 8, 1999, between ACTV, Inc. and
ACTV Entertainment, Inc., amending and restating in full the agreement
dated March 14, 1997.
10.46 Amended license agreement dated March 8, 1999, between ACTV, Inc. and
HyperTV Networks, Inc., amending and restating in full the agreement
dated March 13, 1997.
10.47 Patent assignment and license agreement between ACTV, Inc. and
Earthweb, Inc. dated December 1, 1997.
10.48 Employment agreement dated January 1, 1999, between ACTV, Inc. and
Christopher Cline.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
* Incorporated by reference from Form S-1 Registration Statement (File No.
33-34618)
** Incorporated by reference to ACTV, Inc.'s Form 10-K for the year ended
December 31, 1993.
*** Incorporated by reference from Form S-1 Registration Statement (File No.
33-63879) which became effective on February 12, 1996.
**** Incorporated by reference to ACTV, Inc.'s Form 10-K for the year ended
December 31, 1996.
***** Incorporated by reference from the Exhibits to Schedule 13D filed by
Value Partners, Ltd. on January 23, 1998.
****** Incorporated by reference from Form S-3 Registration Statement filed on
December 30, 1998.
+ Incorporated by reference to ACTV, Inc.'s Form 10-K for the year ended
December 31, 1997.
++ Certain information contained in this exhibit has been omitted and filed
separately with the Commission along with an application for
non-disclosure of information pursuant to Rule 24b-2 of the Securities
Act of 1933, as amended.
</TABLE>
Exhibit 10.40
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995, and
amended February 22, 1999 by and between ACTV, INC., a Delaware corporation,
having an office at 1270 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as "Employer") and WILLIAM C. SAMUELS, an individual
residing at 2 East 75th Street, Apt. #1A, New York, NY 10021(hereinafter
referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ, Employee
as Chairman of the Board of Directors and Chief Executive Officer of Employer;
and
WHEREAS, Employee is willing to continue to be employed as the Chairman
of the Board of Directors and Chief Executive Officer of Employer in the manner
provided for herein, and to perform the duties of the Chairman of the Board of
Directors and Chief Executive Officer of Employer upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth it is agreed as follows:
1. Employment of Chairman of the Board of Directors and Chief Executive
Officer. Employer hereby employs Employee as Chairman of the Board of Directors
and Chief Executive Officer of Employer.
2. Term.
a. Subject to Section 10 below and further subject to Section 2(b)
below, the term of this Agreement shall end on December 31, 2003. Each 12 month
period from January 1 through December 31 during the term hereof shall be
referred to as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
b. Subject to Section 10 below, unless the Board of Directors of the
Company (the "Board") of Employer shall determine to the contrary and shall so
notify Employee in writing on or before the end of any Annual Period, then at
the end of each Annual Period, starting December 31, 1999, the term of this
Agreement shall be automatically extended for one (1) additional Annual Period
to be added at the end of the then current term of this Agreement.
3. Duties. The Employee shall perform those functions generally
performed by persons of such title and position, shall attend all meetings of
the stockholders and the Board, shall perform any and all related duties and
shall have any and all powers as may be prescribed
<PAGE>
by resolution of the Board,
and shall be available to confer and consult with and advise the officers and
directors of Employer at such times that may be required by Employer. Employee
shall report directly and solely to the Board.
4. Compensation.
a. (i) Employee shall be paid a minimum of $295,000 for each Annual
Period, commencing January 1, 1998; provided, however, that Employee's salary
shall be increased annually at the beginning of each Annual Period commencing
January 1, 1999 by an amount equal to the amount of his annual salary for the
immediately preceding Annual Period times the percentage increase in the CPIW
(New York) then in effect as compared to the previous period for which the CPIW
(New York) is available. Employee shall be paid periodically in accordance with
the policies of the Employer during the term of this Agreement, but not less
than monthly.
(ii) Employee is eligible for quarterly bonuses, if any, which
will be determined and paid in accordance with policies set from time to time by
the Compensation Committee of the Board.
(iii) Employee shall be entitled to a leased car of his choice,
the cost of which shall reduce the total cash compensation paid under section 4
(a)(i).
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is an officer or a Director
of Employer on the effective date hereof), including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or obtains the
right to become, the beneficial owner of Employer securities having 30% or more
of the combined voting power of then outstanding securities of the Employer that
may be cast for the election of directors of the Employer;
(B) At any time, a majority of the Board-nominated slate of
candidates for the Board is not elected;
(C) Employer consummates a merger in which it is not the
surviving entity;
(D) Substantially all Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or
liquidation of Employer; then
(ii) (A) All stock options, warrants and stock appreciation
rights ("Rights") granted by Employer to Employee under any plan or otherwise
prior to the effective date of the Change of Control, shall become vested,
accelerate and become
-2-
<PAGE>
immediately exercisable; at an exercise price of 10(cent) per stock appreciation
right if applicable; and in addition the employee, at his option, shall receive
a special compensation payment for the exercise cost of all vested options upon
exercising those options any time within twelve months after the effective date
of the change of control, adjusted for any stock splits and capital
reorganizations having a similar effect, subsequent to the effective date
hereof. In the event Employee owns or is entitled to receive any unregistered
securities of Employer, then Employer shall use its best efforts to effect the
registration of all such securities as soon as practicable, but no later than
120 days after the effective date of the registration statement; provided,
however, that such period may be extended or delayed by Employer for one period
of up to 60 days if, upon the advice of counsel at the time such registration is
required to be filed, or at the time Employer is required to exercise its best
efforts to cause such registration statement to become effective, such delay is
advisable and in the best interests of Employer because of the existence of
non-public material information, or to allow Employer to complete any pending
audit of its financial statements;
(B) Any outstanding principle and interest on loans to Employee
pursuant to Section 4.g.(ii), below, shall be recalculated and reconstituted as
if the rights were exercised under 4(b)(ii).
(C) If upon said Change of Control, Employee is not retained as
Chief Executive Officer or substantially similar position of Employer or the
surviving entity, as applicable, under terms and conditions substantially
similar to those herein, then in addition, Employee shall be eligible to receive
a one-time bonus, equal on an after-tax basis to two times his then current
annual base salary. To effectuate this provision, the bonus shall be
"grossed-up" to include the amount necessary to reimburse Employee for his
federal, state and local income tax liability on the bonus and on the "gross-up"
at the respective effective marginal tax rates. In no event shall this bonus
exceed 2.7 times Employee's then current base salary. Said bonus shall be paid
within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health insurance program
available to Employer's executive officers.
d. Employer shall maintain a life, accidental death and
dismemberment insurance policy on Employee for the benefit of a beneficiary
named by Employee in an amount not less than $2,000,000. Ownership of the policy
shall be assigned to Employee upon termination of Employee's employment under
this Agreement.
e.(i) A bonus plan shall be instituted for Employee which shall take
account of the efforts of Employee in generating value to Employer's
shareholders. Under said plan, Employee shall be entitled to an annual bonus
payable for each 12 month period commencing April 1, 1995 in cash and/or
unregistered securities of Employer, at the option of the Compensation Committee
of the Board, equal to 2% of the increase for said 12 month period in the total
market capitalization of Employer calculated upon the excess of the total of the
average daily closing price (if applicable) price of each class of Employer's
shares for the last 90
-3-
<PAGE>
days of the 12 month period, multiplied by the number of shares of each class
outstanding as reported by Employer's Certified Public Accountants, (the "90 Day
Average") over the Base, which shall be the greater of $50,000,000 or the
highest previous 90 Day Average against which a bonus was paid under this bonus
plan, if any. Should the Compensation Committee elect hereunder to pay Employee
in unregistered securities, said securities shall be valued at 60% of the most
recent 90 Day Average. Should Employer's shares no longer be publicly traded,
the current 90 Day Average shall be determined by a 3 person panel, 1 person
appointed each by Employer and Employee and 1 appointed by the former 2.
Employee shall be entitled to receive compensation under this plan for five
fiscal years following expiration or termination of this employment contract,
except that if Employee is terminated for cause as defined in Section 10.a.(i)
hereof or resigns other than for reasons of disability, then said compensation
shall continue for three fiscal years.
(ii) Employee shall also be entitled to participate pari passu in
any other program established by Employer pursuant to which any executive
officers receive a share of the profits of Employer.
f. Employee shall have the right to participate in any other
employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly forbids it, all
Rights which may become exercisable during the term hereof shall be paid for in
cash only if Employee so elects, otherwise they may be paid for
(i) by the transfer by Employee to Employer of so much of
Employee's Rights which, when valued at the highest trading price of the
underlying securities of Employer during the previous six months, will offset
the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at the lowest
rate, if any, required to be charged by any governmental authority, to accrue
and become due and payable with the principle, in an amount no greater than the
exercise price, given by Employee to Employer and secured solely by the shares
of stock being paid for thereby, which Note shall become due and payable at the
earlier of the expiration hereof or, on a pro rata basis, the sale by Employee
of all or part of the Rights or underlying stock which constitute security for
the Note; or
(iii) by any combination of cash and (ii) or (iii), above.
5. Board of Directors. Employer agrees that so long as this Agreement
is in effect, Employee will be nominated to the Board as part of management's
slate of Directors.
-4-
<PAGE>
6. Expenses. Employee shall be reimbursed for all of his actual
out-of-pocket expenses incurred in the performance of his duties hereunder,
provided such expenses are acceptable to Employer, which approval shall not be
unreasonably withheld, for business related travel and entertainment expenses,
and that Employee shall submit to Employer reasonably detailed receipts with
respect thereto.
7. Vacation. Employee shall be entitled to receive four (4) weeks paid
vacation time after each year of employment upon dates agreed upon by Employer.
Upon separation of employment, for any reason, vacation time accrued and not
used shall be paid at the salary rate of Employee in effect at the time of
employment separation.
8. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
9. Covenant Not to Compete. Subject to, and limited by, Section 11(b),
Employee will not, at any time, anywhere in the world, during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business(as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by Employee, his spouse or his children is
permitted if such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or business and
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the NASDAQ Stock Market. As used in this Agreement, the business of Employer
shall be deemed to include the development and implementation of individualized
television technology or programs.
10. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement upon written notice for
Cause. For purposes hereof, "Cause" shall mean (A) engaging by the Employee in
conduct that constitutes activity in competition with Employer; (B) the
conviction of Employee for the commission of a felony; and/or (C) the habitual
abuse of alcohol or controlled substances. Notwithstanding anything to the
contrary in this Section 10(a)(i), Employer may not terminate Employee's
employment under this Agreement for Cause unless Employee shall have first
received notice from the Board advising Employee of the specific acts or
omissions alleged to constitute Cause, and such acts or omissions continue after
Employee shall have had a
-5-
<PAGE>
reasonable opportunity (at least 10 days from the date
Employee receives the notice from the Board) to correct the acts or omissions so
complained of. In no event shall alleged incompetence of Employee in the
performance of Employee's duties be deemed grounds for termination for Cause.
(ii) Employer may terminate Employee's employment under this
Agreement if, as a result of any physical or mental disability, Employee shall
fail or be unable to perform his duties under this Agreement for any consecutive
period of 90 days during any twelve-month period. If Employee's employment is
terminated under this Section 10(a)(ii): (A) for the first six months after
termination, Employee shall be paid 100% of his full compensation under Section
4(a) of this Agreement at the rate in effect on the date of termination, and in
each successive 12 month period thereafter Employee shall be paid an amount
equal to 67% of his compensation under Section 4(a) of this agreement at the
rate in effect on the date of termination; (B) Employer's obligation to pay life
insurance premiums on the policy referred to in Section 4(d) shall continue in
effect until five years after the date of termination; and (C) Employee shall
continue to be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit plans (including
profit sharing or pension plans) as Employee had been entitled to on the date of
termination. Any amounts payable by Employer to Employee under this paragraph
shall be reduced by the amount of any disability payments payable by or pursuant
to plans provided by Employer and actually paid to Employee.
(iii) This agreement automatically shall terminate upon the death
of Employee, except that Employee's estate shall be entitled to receive any
amount accrued under Section 4(a) and the pro-rata amount payable under Section
4(e) for the period prior to Employee's death and any other amount to which
Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to terminate his employment
under this Agreement upon 30 days' notice to Employer given within 90 days
following the occurrence of any of the following events (A) through (F) or
within three years following the occurrence of event (G):
(A) Employee is not elected or retained as Chairman of the
Board of Directors, President and Chief Executive Officer of Employer.
(B) Employer acts to materially reduce Employee's duties and
responsibilities hereunder. Employee's duties and responsibilities shall not be
deemed materially reduced for purposes hereof solely by virtue of the fact that
Employer is (or substantially all of its assets are) sold to, or is combined
with, another entity, provided that Employee shall continue to have the same
duties and responsibilities with respect to Employer's interactive business, and
Employee shall report directly to the chief executive officer and/or board of
directors of the entity (or individual) that acquires Employer or its assets.
-6-
<PAGE>
(C) Employer acts to change the geographic location of the
performance of Employee's duties from the New York Metropolitan area. For
purposes of this Agreement, the New York Metropolitan area shall be deemed to be
the area within 30 miles of midtown Manhattan.
(D) A Material Reduction (as hereinafter defined) in
Employee's rate of base compensation, or Employee's other benefits. "Material
Reduction" shall mean a ten percent (10%) differential;
(E) A failure by Employer to obtain the assumption of this
Agreement by any successor;
(F) A material breach of this Agreement by Employer, which
is not cured within thirty (30) days of written notice of such breach by
Employer;
(G) A Change of Control.
(ii) Anything herein to the contrary notwithstanding, Employee
may terminate this Agreement upon thirty (30) days written notice.
c. If Employer shall terminate Employee's employment other than due
to his death or disability or for Cause (as defined in Section 10(a)(i) of this
Agreement), or if Employee shall terminate this Agreement under Section
10(b)(i), Employer's obligations under Section 4 shall be absolute and
unconditional and not subject to any offset or counterclaim and Employee shall
continue to be entitled to receive all amounts provided for by Section 4 and all
additional employee benefits under Section 4 regardless of the amount of
compensation he may earn with respect to any other employment he may obtain.
11. Consequences of Breach by Employer; Employment Termination
a. If this Agreement is terminated pursuant to Section 10(b)(i)
hereof, or if Employer shall terminate Employee's employment under this
Agreement in any way that is a breach of this Agreement by Employer, the
following shall apply:
(i) Employee shall receive as a bonus, and in addition to his salary
continuation pursuant to Section 10.c., above, a cash payment equal to the
Employee's total base salary as of the date of termination hereunder for the
remainder of the term plus an additional amount to pay all federal, state and
local income taxes thereon on a grossed-up basis as heretofore provided, payable
within 30 days of the date of such termination; except that if this Agreement is
terminated pursuant to Section 10(b)(i)(G), then Employee shall not be entitled
to receive a bonus under this Section 11.a.(i) but shall instead receive a
lump-sum payout of Employee's total base salary for the remainder of the term
plus an additional amount to pay all
-7-
<PAGE>
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination.
(ii) Employee shall be entitled to payment of any previously
declared bonus and additional compensation as provided in Section 4(a), (b) and
(e) above.
b. In the event of termination of Employee's employment pursuant to
Section 10(b)(i) of this Agreement, the provisions of Section 9 shall not apply
to Employee.
12. Remedies
Employer recognizes that because of Employee's special talents, stature
and opportunities in the interactive television industry, and because of the
special creative nature of and compensation practices of said industry and the
material impact that individual projects can have on an interactive television
company's results of operations, in the event of termination by Employer
hereunder (except under Section 10(a)(i) or (iii), or in the event of
termination by Employee under Section 10(b)(i) before the end of the agreed
term, Company acknowledges and agrees that the provisions of this Agreement
regarding further payments of base salary, bonuses and the exercisability of
Rights constitute fair and reasonable provisions for the consequences of such
termination, do not constitute a penalty, and such payments and benefits shall
not be limited or reduced by amounts' Employee might earn or be able to earn
from any other employment or ventures during the remainder of the agreed term of
this Agreement.
13. Excise Tax. In the event that any payment or benefit received or to
be received by Employee in connection with a termination of his employment with
Employer would constitute a "parachute payment" within the meaning of Code
Section 280G or any similar or successor provision to 280G and/or would be
subject to any excise tax imposed by Code Section 4999 or any similar or
successor provision then Employer shall assume all liability for the payment of
any such tax and Employer shall immediately reimburse Employee on a "grossed-up"
basis for any income taxes attributable to Employee by reason of such Employer
payment and reimbursements.
14. Arbitration. Any controversies between Employer and Employee
involving the construction or application of any of the terms, provisions or
conditions of this Agreement, save and except for any breaches arising out of
Sections 8 and 9 hereof, shall on the written request of either party served on
the other be submitted to arbitration. Such arbitration shall comply with and be
governed by the rules of the American Arbitration Association. An arbitration
demand must be made within one (1) year of the date on which the party demanding
arbitration first had notice of the existence of the claim to be arbitrated, or
the right to arbitration along with such claim shall be considered to have been
waived. An arbitrator shall be selected according to the procedures of the
American Arbitration Association. The cost of arbitration shall be born by the
losing party or in such proportions as the arbitrator shall decide. The
arbitrator shall
-8-
<PAGE>
have no authority to add to, subtract from or otherwise modify the provisions of
this Agreement, or to award punitive damages to either party.
15. Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
16. Entire Agreement; Survival. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and supersedes, effective as of the date hereof any prior agreement or
understanding between Employer and Employee with respect to Employee's
employment by Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This Agreement may
not be amended except by an agreement in writing signed by the Employee and the
Employer, or any waiver, change, discharge or modification as sought. Waiver of
or failure to exercise any rights provided by this Agreement and in any respect
shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 8, 9, 10(a)(ii), 10(a)(iii), 10(c),
11, 12, 13, 14, 15, 18, 19 and 20 shall survive the termination of this
Agreement.
17. Assignment. This Agreement shall not be assigned to other parties.
18. Governing Law. This Agreement and all the amendments hereof, and
waivers and consents with respect thereto shall be governed by the internal laws
of the state of New York, without regard to the conflicts of laws principles
thereof.
19. Notices. All notices, responses, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been given
when
a. delivered by hand;
b. sent be telex or telefax, (with receipt confirmed), provided that
a copy is mailed by registered or certified mail, return receipt requested; or
c. received by the addressee as sent be express delivery service
(receipt requested) in each case to the appropriate addresses, telex numbers and
telefax numbers as the party may designate to itself by notice to the other
parties:
(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
-9-
<PAGE>
Attention: Christopher C. Cline
Telefax: (212) 459-9548
Telephone: (212) 262-2570
Gersten, Savage, Kaplowitz LLP
101 East 52 Street
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
William C. Samuels
2 East 75th Street, Apt. #1A
New York, NY 10021
20. Severability of Agreement. Should any part of this Agreement for
any reason be declared invalid by a court of competent jurisdiction, such
decision shall not affect the validity of any remaining portion, which remaining
provisions shall remain in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated, and it is hereby declared
the intention of the parties that they would have executed the remaining
portions of this Agreement without including any such part, parts or portions
which may, for any reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
ACTV, INC.
By:
-------------------------
CHRISTOPHER C. CLINE
Chief Financial officer
-------------------------
WILLIAM C. SAMUELS
-10-
Exhibit 10.41
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995, and
amended February 22, 1999, by and between ACTV, INC., a Delaware corporation,
having an office at 1270 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as "Employer") and DAVID REESE, an individual residing
at 30 Maclay Road, Montville, New Jersey 07045 (hereinafter referred to as
"Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ, Employee
as its President and Chief Operating Officer; and
WHEREAS, Employee is willing to continue to be employed as the
President and Chief Operating Officer of ACTV, Inc. in the manner provided for
herein, and to perform the duties of the President and Chief Operating Officer
of ACTV, Inc. upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth it is agreed as follows:
1. Employment of President and Chief Operating Officer of ACTV, Inc.
Employer hereby employs Employee as its President and Chief Operating Officer of
ACTV, Inc.
2. Term. Subject to Section 9 below, the term of this Agreement shall
commence on August 1, 1995 and end on December 31, 2000. Each 12 month period
from January 1 through December 31 during the term hereof shall be referred to
as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
3. Duties. The Employee shall perform any and all duties and shall have
any and all powers as may be prescribed by the Chairman and Chief Executive
Officer and shall be available to confer and consult with and advise the
officers and directors of Employer at such times that may be required by
Employer. Employee shall report directly and solely to the Chairman and Chief
Executive Officer.
4. Compensation.
a. (i) Employee shall be paid a minimum of $245,000 for each Annual
Period, commencing January 1, 1998; provided, however, that Employee's salary
shall be increased annually at the beginning of each Annual Period commencing
January 1, 1999 by an amount equal to no less than the amount of his annual
salary for the immediately preceding
<PAGE>
Annual Period times the percentage increase in the CPIW (New York) then in
effect as compared to the previous period for which the CPIW (New York) is
available. Employee shall be paid periodically in accordance with the policies
of the Employer during the term of this Agreement, but not less than monthly.
(ii) Employee is eligible for quarterly bonuses, if any, which
will be determined and paid in accordance with policies set from time to time by
the Board.
(iii) Employee shall be entitled to a leased car of his choice,
the cost of which shall reduce the total cash compensation paid under section 4
(a)(i).
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is an officer or a Director
of Employer on the effective date hereof), including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or obtains the
right to become, the beneficial owner of Employer securities having 30% or more
of the combined voting power of then outstanding securities of the Employer that
may be cast for the election of directors of the Employer;
(B) At any time, a majority of the Board-nominated slate of
candidates for the Board is not elected;
(C) Employer consummates a merger in which it is not the
surviving entity;
(D) Substantially all Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or
liquidation of Employer; then
(ii) (A) All stock options, warrants and stock appreciation
rights ("Rights") granted by Employer to Employee under any plan or otherwise
prior to the effective date of the Change of Control, shall become vested,
accelerate and become immediately exercisable; at an exercise price of 10(cent)
per stock appreciation right if applicable; and in addition the employee, at his
option, shall receive a special compensation payment for the exercise cost of
all vested options upon exercising those options any time within twelve months
after the effective date of the change of control, adjusted for any stock splits
and capital reorganizations having a similar effect, subsequent to the effective
date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
2
<PAGE>
(B) Any outstanding principle and interest on loans to Employee
pursuant to Section 4.g.(ii), below, shall be recalculated and reconstituted as
if the rights were exercised under 4 (b) (ii).
(C) If upon said Change of Control, (i) a new Chief Executive
Officer of Employer is appointed and (ii) Employee is not retained in his
immediately prior position or a substantially similar position with Employer or
the surviving entity, as applicable, then in addition, Employee shall be
eligible to receive a one-time bonus, equal on an after-tax basis to two times
his then current annual base salary. To effectuate this provision, the bonus
shall be "grossed-up" to include the amount necessary to reimburse Employee for
his federal, state and local income tax liability on the bonus and on the
"gross-up" at the respective effective marginal tax rates. In no event shall
this bonus exceed 2.7 times Employee's then current base salary. Said bonus
shall be paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health insurance program
available to Employer's executive officers.
d. Employer shall maintain a life, accidental death and
dismemberment insurance policy on Employee for the benefit of a beneficiary
named by Employee in an amount not less than $2,000,000. Ownership of the policy
shall be assigned to Employee upon termination of Employee's employment under
this Agreement.
e. Employee shall also be entitled to participate pari passu in any
other program established by Employer pursuant to which any executive officers
receive a share of the profits of Employer.
f. Employee shall have the right to participate in any other
employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly forbids it, all
Rights which may become exercisable during the term hereof shall be paid for in
cash only if Employee so elects, otherwise they may be paid for.
(i) by the transfer by Employee to Employer of so much of Employee's
Rights which, when valued at the highest trading price of the underlying
securities of Employer during the previous six months, will offset the price of
the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at the lowest
rate, it any, required to be charged by any governmental authority, to accrue
and become due and payable with the principle, in an amount no greater than the
exercise price, given by Employee to Employer and secured solely by the shares
of stock being paid for thereby, which Note shall become due and payable at the
earlier of the expiration hereof or, on a pro rata basis, the sale by Employee
of all or part of the Rights or underlying stock which constitute security for
the Note; or
3
<PAGE>
(iii) by any combination of cash and (ii) or (iii), above.
5. Expenses. Employee shall be reimbursed for all of his actual
out-of-pocket expenses incurred in the performance of his duties hereunder,
provided such expenses are acceptable to Employer, which approval shall not be
unreasonably withheld, for business related travel and entertainment expenses,
and that Employee shall submit to Employer reasonably detailed receipts with
respect thereto.
6. Vacation. Employee shall be entitled to receive four (4) weeks paid
vacation time after each year of employment upon dates agreed upon by Employer.
Upon separation of employment, for any reason, vacation time accrued and not
used shall be paid at the salary rate of Employee in effect at the time of
employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
8. Covenant Not to Compete. Subject to, and limited by, Section 10(b),
Employee will not, at any time, anywhere in the world, during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business (as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by Employee, his spouse or his children is
permitted if such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or business and
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the NASDAQ Stock Market. As used in this Agreement, the business of Employer
shall be deemed to include the development and implementation of individualized
television technology or programs.
9. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement upon written notice for
Cause. For purposes hereof, "Cause" shall mean (A) engaging by the Employee in
conduct that constitutes activity in competition with Employer; (B) the
conviction of Employee for the commission of a felony; and/or (C) the habitual
abuse of alcohol or controlled substances. Notwithstanding anything to the
contrary in this Section 9(a)(i), Employer may not terminate Employee's
employment under this Agreement for Cause unless Employee shall have first
received notice from the Board advising Employee of the specific acts or
omissions alleged to constitute Cause, and such acts or omissions continue after
Employee shall have had a
4
<PAGE>
reasonable opportunity (at least 10 days from the date Employee receives the
notice from the Board) to correct the acts or omissions so complained of.
(ii) Employer may terminate Employee's employment under this
Agreement if, as a result of any physical or mental disability, Employee shall
fail or be unable to perform his duties under this Agreement for any consecutive
period of 90 days during any twelve-month period. If Employee's employment is
terminated under this Section 9(a)(ii): (A) for the first six months after
termination, Employee shall be paid 100% of his full compensation under Section
4(a) of this Agreement at the rate in effect on the date of termination, and in
each successive 12 month period thereafter Employee shall be paid an amount
equal to 67% of his compensation under Section 4(a) of this agreement at the
rate in effect on the date of termination; (B) Employer's obligation to pay life
insurance premiums on the policy referred to in Section 4(d) shall continue in
effect until five years after the date of termination; and (C) Employee shall
continue to be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit plans (including
profit sharing or pension plans) as Employee had been entitled to on the date of
termination. Any amounts payable by Employer to Employee under this paragraph
shall be reduced by the amount of any disability payments payable by or pursuant
to plans provided by Employer and actually paid to Employee.
(iii) This agreement automatically shall terminate upon the death
of Employee, except that Employee's estate shall be entitled to receive any
amount accrued under Section 4(a) and the pro-rata amount payable under Section
4(e) for the period prior to Employee's death and any other amount to which
Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to terminate his employment
under this Agreement upon 30 days' notice to Employer given within 90 days
following the occurrence of any of the following events (A) through (D) or
within three years following the occurrence of event (E):
(A) Employer acts to change the geographic location of the
performance of Employee's duties from the New York Metropolitan area. For
purposes of this Agreement, the New York Metropolitan area shall be deemed to be
the area within 30 miles of midtown Manhattan.
(B) A Material Reduction (as hereinafter defined) in
Employee's rate of base compensation, or Employee's other benefits. "Material
Reduction" shall mean a ten percent (10%) differential;
(C) A failure by Employer to obtain the assumption of this
Agreement by any successor;
(D) A material breach of this Agreement by Employer, which is
not cured within thirty (30) days of written notice of such breach by Employer;
(E) A Change of Control.
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<PAGE>
(ii) Anything herein to the contrary notwithstanding, Employee
may terminate this Agreement upon thirty (30) days written notice.
c. If Employer shall terminate Employee's employment other than due
to his death or disability or for Cause (as defined in Section 9(a)(i) of this
Agreement), or if Employee shall terminate this Agreement under Section 9(b)(i),
Employer's obligations under Section 4 shall be absolute and unconditional and
not subject to any offset or counterclaim and Employee shall continue to be
entitled to receive all amounts provided for by Section 4 and all additional
employee benefits under Section 4 regardless of the amount of compensation he
may earn with respect to any other employment he may obtain.
10. Consequences of Breach by Employer; Employment Termination
a. If this Agreement is terminated pursuant to Section 9(b)(i)
hereof, or if Employer shall terminate Employee's employment under this
Agreement in any way that is a breach of this Agreement by Employer, the
following shall apply:
(i) Employee shall receive as a bonus, and in addition to his
salary continuation pursuant to Section 9.c., above, a cash payment equal to the
Employee's total base salary as of the date of termination hereunder for the
remainder of the term plus an additional amount to pay all federal, state and
local income taxes thereon on a grossed-up basis as heretofore provided, payable
within 30 days of the date of such termination; except that if this Agreement is
terminated pursuant to Section 9.(b)(i)(E), then Employee shall not be entitled
to receive a bonus under this Section 10.a.(i) but shall instead receive a
lump-sum payout of Employee's total base salary for the remainder of the term
plus an additional amount to pay all federal, state and local income taxes
thereon on a grossed-up basis as heretofore provided, payable within 30 days of
the date of such termination.
(ii) Employee shall be entitled to payment of any previously
declared bonus and additional compensation as provided in Section 4(a), (b) and
(e) above.
b. In the event of termination of Employee's employment pursuant to
Section 9(b)(i) of this Agreement, the provisions of Section 8 shall not apply
to Employee.
11. Remedies
Employer recognizes that because of Employee's special talents, stature
and opportunities in the interactive television industry, and because of the
special creative nature of and compensation practices of said industry and the
material impact that individual projects can have on an interactive television
company's results of operations, in the event of termination by Employer
hereunder (except under Section 9(a)(i) or (iii), or in the event of termination
by Employee under Section 9(b)(i) before the end of the agreed term, Company
acknowledges and agrees that the provisions of this Agreement regarding further
payments of base salary, bonuses and the exercisability of Rights constitute
fair and reasonable provisions for the consequences of such termination, do not
constitute a penalty, and such payments and benefits shall not be limited
6
<PAGE>
or reduced by amounts' Employee might earn or be able to earn from any other
employment or ventures during the remainder of the agreed term of this
Agreement.
12. Excise Tax. In the event that any payment or benefit received or to
be received by Employee in connection with a termination of his employment with
Employer would constitute a "parachute payment" within the meaning of Code
Section 280G or any similar or successor provision to 280G and/or would be
subject to any excise tax imposed by Code Section 4999 or any similar or
successor provision then Employer shall assume all liability for the payment of
any such tax and Employer shall immediately reimburse Employee on a "grossed-up"
basis for any income taxes attributable to Employee by reason of such Employer
payment and reimbursements.
13. Arbitration. Any controversies between Employer and Employee
involving the construction or application of any of the terms, provisions or
conditions of this Agreement, save and except for any breaches arising out of
Sections 7 and 8 hereof, shall on the written request of either party served on
the other be submitted to arbitration. Such arbitration shall comply with and be
governed by the rules of the American Arbitration Association. An arbitration
demand must be made within one (1) year of the date on which the party demanding
arbitration first had notice of the existence of the claim to be arbitrated, or
the right to arbitration along with such claim shall be considered to have been
waived. An arbitrator shall be selected according to the procedures of the
American Arbitration Association. The cost of arbitration shall be born by the
losing party or in such proportions as the arbitrator shall decide. The
arbitrator shall have no authority to add to, subtract from or otherwise modify
the provisions of this Agreement, or to award punitive damages to either party.
14. Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
15. Entire Agreement; Survival. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and supersedes, effective as of the date hereof any prior agreement or
understanding between Employer and Employee with respect to Employee's
employment by Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This Agreement may
not be amended except by an agreement in writing signed by the Employee and the
Employer, or any waiver, change, discharge or modification as sought. Waiver of
or failure to exercise any rights provided by this Agreement and in any respect
shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9(a)(ii), 9(a)(iii), 9(c),
10, 11, 12, 13, 14, 17, 18 and 19 shall survive the termination of this
Agreement.
16. Assignment. This Agreement shall not be assigned to other parties.
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<PAGE>
17. Governing Law. This Agreement and all the amendments hereof, and
waivers and consents with respect thereto shall be governed by the internal laws
of the state of New York, without regard to the conflicts of laws principles
thereof.
18. Notices. All notices, responses, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been given
when
a. delivered by hand;
b. sent be telex or telefax, (with receipt confirmed), provided that
a copy is mailed by registered or certified mail, return receipt requested; or
c. received by the addressee as sent be express delivery service
(receipt requested) in each case to the appropriate addresses, telex numbers and
telefax numbers as the party may designate to itself by notice to the other
parties:
(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: William C. Samuels
Telefax: (212) 459-9548
Telephone: (212) 262-2570
Gersten, Savage, Kaplowitz LLP
101 East 52nd Street
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
David Reese
30 Maclay Road
Montville, New Jersey 07045
19. Severability of Agreement. Should any part of this Agreement for
any reason be declared invalid by a court of competent jurisdiction, such
decision shall not affect the validity of any remaining portion, which remaining
provisions shall remain in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated, and it
8
<PAGE>
is hereby declared the intention of the parties that they would have executed
the remaining portions of this Agreement without including any such part, parts
or portions which may, for any reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
ACTV, INC.
By:
-------------------------------
WILLIAM C. SAMUELS
Chairman
-------------------------------
DAVID REESE
President
9
Exhibit 10.42
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995, and
amended February 22, 1999, by and between ACTV, INC., a Delaware corporation,
having an office at 1270 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as "Employer") and BRUCE CROWLEY, an individual
residing at 257 West 17th Street, New York, New York 10011 (hereinafter referred
to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ, Employee
as its Executive Vice President and President of HyperTV Networks, Inc.; and
WHEREAS, Employee is willing to continue to be employed as the
Executive Vice President of Employer and President of HyperTV Networks, Inc. in
the manner provided for herein, and to perform the duties of the Executive Vice
President of Employer and President of HyperTV Networks, Inc. upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth it is agreed as follows:
1. Employment of Executive Vice President of ACTV, Inc. and President
of HyperTV Networks, Inc. Employer hereby employs Employee as Executive Vice
President of ACTV Inc. and as President of HyprTV Networks, Inc.
2. Term. Subject to Section 9 below, the term of this Agreement shall
commence on August 1, 1995 and end on December 31, 2000. Each 12 month period
from January 1 through December 31 during the term hereof shall be referred to
as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
3. Duties. The Employee shall perform any and all duties and shall have
any and all powers as may be prescribed by the Chairman of ACTV, Inc. and shall
be available to confer and consult with and advise the officers and directors of
Employer at such times that may be required by Employer. Employee shall report
directly and solely to the Chairman or his designee.
<PAGE>
4. Compensation.
a. (i) Employee shall be paid a minimum of $245,000 for each Annual
Period, commencing January 1, 1998; provided, however, that Employee's salary
shall be increased annually at the beginning of each Annual Period commencing
January 1, 1999 by an amount equal to no less than the amount of his annual
salary for the immediately preceding Annual Period times the percentage increase
in the CPIW (New York) then in effect as compared to the previous period for
which the CPIW (New York) is available. Employee shall be paid periodically in
accordance with the policies of the Employer during the term of this Agreement,
but not less than monthly.
(ii) Employee is eligible for quarterly bonuses, if any, which
will be determined and paid in accordance with policies set from time to time by
the Board.
(iii) Employee shall be entitled to a leased car of his choice,
the cost of which shall reduce the total cash compensation paid under section 4
(a)(i).
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is an officer or a Director
of Employer on the effective date hereof), including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or obtains the
right to become, the beneficial owner of Employer securities having 30% or more
of the combined voting power of then outstanding securities of the Employer that
may be cast for the election of directors of the Employer;
(B) At any time, a majority of the Board-nominated slate of
candidates for the Board is not elected;
(C) Employer consummates a merger in which it is not the
surviving entity;
(D) Substantially all Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or
liquidation of Employer; then
(ii) (A) All stock options, warrants and stock appreciation
rights ("Rights") granted by Employer to Employee under any plan or otherwise
prior to the
<PAGE>
effective date of the Change of Control, shall become vested, accelerate and
become immediately exercisable; at an exercise price of 10(cent) per stock
appreciation right if applicable; and in addition the employee, at his option,
shall receive a special compensation payment for the exercise cost of all vested
options upon exercising those options any time within twelve months after the
effective date of the change of control, adjusted for any stock splits and
capital reorganizations having a similar effect, subsequent to the effective
date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
(B) Any outstanding principle and interest on loans to Employee
pursuant to Section 4.g.(ii), below, shall be recalculated and reconstituted as
if the rights were exercised under 4 (b)(ii).
(C) If upon said Change of Control, (i) a new Chief Executive
Officer of Employer is appointed and (ii) Employee is not retained in his
immediately prior position or a substantially similar position with Employer or
the surviving entity, as applicable, then in addition, Employee shall be
eligible to receive a one-time bonus, equal on an after-tax basis to two times
his then current annual base salary. To effectuate this provision, the bonus
shall be "grossed-up" to include the amount necessary to reimburse Employee for
his federal, state and local income tax liability on the bonus and on the
"gross-up" at the respective effective marginal tax rates. In no event shall
this bonus exceed 2.7 times Employee's then current base salary. Said bonus
shall be paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health insurance program
available to Employer's executive officers.
d. After January 1, 1999, Employer shall maintain a life, accidental
death and dismemberment insurance policy on Employee for the benefit of a
beneficiary named by Employee in an amount not less than $750,000. Ownership of
the policy shall be assigned to Employee upon termination of Employee's
employment under this Agreement.
<PAGE>
e. Employee shall also be entitled to participate pari passu in any
other program established by Employer pursuant to which any executive officers
receive a share of the profits of Employer.
f. Employee shall have the right to participate in any other
employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly forbids it, all
Rights which may become exercisable during the term hereof shall be paid for in
cash only if Employee so elects, otherwise they may be paid for.
(i) by the transfer by Employee to Employer of so much of Employee's
Rights which, when valued at the highest trading price of the underlying
securities of Employer during the previous six months, will offset the price of
the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at the lowest
rate, it any, required to be charged by any governmental authority, to accrue
and become due and payable with the principle, in an amount no greater than the
exercise price, given by Employee to Employer and secured solely by the shares
of stock being paid for thereby, which Note shall become due and payable at the
earlier of the expiration hereof or, on a pro rata basis, the sale by Employee
of all or part of the Rights or underlying stock which constitute security for
the Note; or
(iii) by any combination of cash and (ii) or (iii), above.
5. Expenses. Employee shall be reimbursed for all of his actual
out-of-pocket expenses incurred in the performance of his duties hereunder,
provided such expenses are acceptable to Employer, which approval shall not be
unreasonably withheld, for business related travel and entertainment expenses,
and that Employee shall submit to Employer reasonably detailed receipts with
respect thereto.
6. Vacation. Employee shall be entitled to receive four (4) weeks paid
vacation time after each year of employment upon dates agreed upon by Employer.
Upon separation of employment, for any reason, vacation time accrued and not
used shall be paid at the salary rate of Employee in effect at the time of
employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
<PAGE>
8. Covenant Not to Compete. Subject to, and limited by, Section 10(b),
Employee will not, at any time, anywhere in the world, during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business (as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by Employee, his spouse or his children is
permitted if such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or business and
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the NASDAQ Stock Market. As used in this Agreement, the business of Employer
shall be deemed to include the development and implementation of individualized
television technology or programs.
9. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement upon written notice for
Cause. For purposes hereof, "Cause" shall mean (A) engaging by the Employee in
conduct that constitutes activity in competition with Employer; (B) the
conviction of Employee for the commission of a felony; and/or (C) the habitual
abuse of alcohol or controlled substances. Notwithstanding anything to the
contrary in this Section 9(a)(i), Employer may not terminate Employee's
employment under this Agreement for Cause unless Employee shall have first
received notice from the Board advising Employee of the specific acts or
omissions alleged to constitute Cause, and such acts or omissions continue after
Employee shall have had a reasonable opportunity (at least 10 days from the date
Employee receives the notice from the Board) to correct the acts or omissions so
complained of.
(ii) Employer may terminate Employee's employment under this
Agreement if, as a result of any physical or mental disability, Employee shall
fail or be unable to perform his duties under this Agreement for any consecutive
period of 90 days during any twelve-month period. If Employee's employment is
terminated under this Section 9(a)(ii): (A) for the first six months after
termination, Employee shall be paid 100% of his full compensation under Section
4(a) of this Agreement at the rate in effect on the date of termination, and in
each successive 12 month period thereafter Employee shall be paid an amount
equal to 67% of his compensation under Section 4(a) of this agreement at the
rate in effect on the date of termination; (B) Employer's obligation to pay life
insurance premiums on the policy referred to in Section 4(d) shall continue in
effect until five years after the date of termination; and (C) Employee shall
continue to be entitled, insofar as is permitted under applicable insurance
policies or plans, to
<PAGE>
such general medical and employee benefit plans (including profit sharing or
pension plans) as Employee had been entitled to on the date of termination. Any
amounts payable by Employer to Employee under this paragraph shall be reduced by
the amount of any disability payments payable by or pursuant to plans provided
by Employer and actually paid to Employee.
(iii) This agreement automatically shall terminate upon the death
of Employee, except that Employee's estate shall be entitled to receive any
amount accrued under Section 4(a) and the pro-rata amount payable under Section
4(e) for the period prior to Employee's death and any other amount to which
Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to terminate his employment
under this Agreement upon 30 days' notice to Employer given within 90 days
following the occurrence of any of the following events (A) through (D) or
within three years following the occurrence of event (E):
(A) Employer acts to change the geographic location of the
performance of Employee's duties from the New York Metropolitan area. For
purposes of this Agreement, the New York Metropolitan area shall be deemed to be
the area within 30 miles of midtown Manhattan.
(B) A Material Reduction (as hereinafter defined) in
Employee's rate of base compensation, or Employee's other benefits. "Material
Reduction" shall mean a ten percent (10%) differential;
(C) A failure by Employer to obtain the assumption of this
Agreement by any successor;
(D) A material breach of this Agreement by Employer, which is
not cured within thirty (30) days of written notice of such breach by Employer;
(E) A Change of Control.
(ii) Anything herein to the contrary notwithstanding, Employee
may terminate this Agreement upon thirty (30) days written notice.
c. If Employer shall terminate Employee's employment other than due
to his death or disability or for Cause (as defined in Section 9(a)(i) of this
Agreement), or if Employee shall terminate this Agreement under Section 9(b)(i),
Employer's obligations under Section 4 shall be absolute and unconditional and
not subject to any offset or counterclaim and Employee shall continue to be
entitled to receive all amounts provided for by Section 4 and all
<PAGE>
additional employee benefits under Section 4 regardless of the amount of
compensation he may earn with respect to any other employment he may obtain.
10. Consequences of Breach by Employer;
Employment Termination
a. If this Agreement is terminated pursuant to Section 9(b)(i)
hereof, or if Employer shall terminate Employee's employment under this
Agreement in any way that is a breach of this Agreement by Employer, the
following shall apply:
(i) Employee shall receive as a bonus, and in addition to his
salary continuation pursuant to Section 9.c., above, a cash payment equal to the
Employee's total base salary as of the date of termination hereunder for the
remainder of the term plus an additional amount to pay all federal, state and
local income taxes thereon on a grossed-up basis as heretofore provided, payable
within 30 days of the date of such termination; except that if this Agreement is
terminated pursuant to Section 9.(b)(i)(E), then Employee shall not be entitled
to receive a bonus under this Section 10.a.(i) but shall instead receive a
lump-sum payout of Employee's total base salary for the remainder of the term
plus an additional amount to pay all federal, state and local income taxes
thereon on a grossed-up basis as heretofore provided, payable within 30 days of
the date of such termination.
(ii) Employee shall be entitled to payment of any previously
declared bonus and additional compensation as provided in Section 4(a), (b) and
(e) above.
b. In the event of termination of Employee's employment pursuant to
Section 9(b)(i) of this Agreement, the provisions of Section 8 shall not apply
to Employee.
11. Remedies
Employer recognizes that because of Employee's special talents, stature
and opportunities in the interactive television industry, and because of the
special creative nature of and compensation practices of said industry and the
material impact that individual projects can have on an interactive television
company's results of operations, in the event of termination by Employer
hereunder (except under Section 9(a)(i) or (iii), or in the event of termination
by Employee under Section 9(b)(i) before the end of the agreed term, Company
acknowledges and agrees that the provisions of this Agreement regarding further
payments of base salary, bonuses and the exercisability of Rights constitute
fair and reasonable provisions for the consequences of such termination, do not
constitute a penalty, and such payments and benefits shall not be limited or
reduced by amounts' Employee might earn or be able to earn from any other
employment or ventures during the remainder of the agreed term of this
Agreement.
<PAGE>
12. Excise Tax. In the event that any payment or benefit received or to
be received by Employee in connection with a termination of his employment with
Employer would constitute a "parachute payment" within the meaning of Code
Section 280G or any similar or successor provision to 280G and/or would be
subject to any excise tax imposed by Code Section 4999 or any similar or
successor provision then Employer shall assume all liability for the payment of
any such tax and Employer shall immediately reimburse Employee on a "grossed-up"
basis for any income taxes attributable to Employee by reason of such Employer
payment and reimbursements.
13. Arbitration. Any controversies between Employer and Employee
involving the construction or application of any of the terms, provisions or
conditions of this Agreement, save and except for any breaches arising out of
Sections 7 and 8 hereof, shall on the written request of either party served on
the other be submitted to arbitration. Such arbitration shall comply with and be
governed by the rules of the American Arbitration Association. An arbitration
demand must be made within one (1) year of the date on which the party demanding
arbitration first had notice of the existence of the claim to be arbitrated, or
the right to arbitration along with such claim shall be considered to have been
waived. An arbitrator shall be selected according to the procedures of the
American Arbitration Association. The cost of arbitration shall be born by the
losing party or in such proportions as the arbitrator shall decide. The
arbitrator shall have no authority to add to, subtract from or otherwise modify
the provisions of this Agreement, or to award punitive damages to either party.
14. Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
15. Entire Agreement; Survival. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and supersedes, effective as of the date hereof any prior agreement or
understanding between Employer and Employee with respect to Employee's
employment by Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This Agreement may
not be amended except by an agreement in writing signed by the Employee and the
Employer, or any waiver, change, discharge or modification as sought. Waiver of
or failure to exercise any rights provided by this Agreement and in any respect
shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9(a)(ii), 9(a)(iii), 9(c),
10, 11, 12, 13, 14, 17, 18 and 19 shall survive the termination of this
Agreement.
16. Assignment. This Agreement shall not be assigned to other parties.
<PAGE>
17. Governing Law. This Agreement and all the amendments hereof, and
waivers and consents with respect thereto shall be governed by the internal laws
of the state of New York, without regard to the conflicts of laws principles
thereof.
18. Notices. All notices, responses, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been given
when
a. delivered by hand;
b. sent be telex or telefax, (with receipt confirmed), provided that
a copy is mailed by registered or certified mail, return receipt requested; or
c. received by the addressee as sent be express delivery service
(receipt requested) in each case to the appropriate addresses, telex numbers and
telefax numbers as the party may designate to itself by notice to the other
parties:
(i) if to the Employer:
ACTV, Inc. and ACTV Net, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: William C. Samuels
Telefax: (212) 459-9548
Telephone: (212) 262-2570
Gersten, Savage, Kaplowitz LLP
101 East 52nd Street
New York, New York 10022
Attention: Jay Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
Bruce Crowley
257 West 17th Street
<PAGE>
New York, New York 10011
19. Severability of Agreement. Should any part of this Agreement for
any reason be declared invalid by a court of competent jurisdiction, such
decision shall not affect the validity of any remaining portion, which remaining
provisions shall remain in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated, and it is hereby declared
the intention of the parties that they would have executed the remaining
portions of this Agreement without including any such part, parts or portions
which may, for any reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
ACTV, INC.
By:
-----------------------------
WILLIAM C. SAMUELS
Chairman
-----------------------------
BRUCE CROWLEY
Exhibit 10.43(a)
OPTION AGREEMENT
OPTION AGREEMENT dated February 21, 1998 and amended January 4, 1999,
between ACTV, Inc., a Delaware corporation (the "Corporation") and William C.
Samuels (the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 525,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 525,000
Option Shares, at a purchase price of $1.60 per Option Share (the "Option
Price"). The Employee's right and option to purchase the Option Shares shall
vest annually commencing January 1, 2000 until January 1, 2002, with respect to
installments of 175,000 Option Shares at the Option Price, so long as the
Employee is employed by the Corporation. Said right shall be cumulative so that
as of January 1, 2002, Optionee shall have the fully vested right to purchase
525,000 Option Shares. In the event that the Employee's employment with the
Corporation terminates prior to January 1 of any year, the Employee shall not
have the right or option to purchase any part of the installment of 175,000
Option Shares that would have otherwise vested on such January 1. With respect
to the Option, the "Option Period" shall commence on the date hereof and
terminate on December 31, 2006.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of the Corporation. Delivery of the Stock certificate or other instrument
registered in the name of the Employee, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
<PAGE>
SECTION 2. Representations and Warranties of The Holder. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised and fully vested portion of
this Option shall, after such reorganization, reclassification, consolidation,
merger or sale, be exercisable for the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation resulting
from such consolidation or surviving such merger or to which such properties and
assets shall have been sold to which the Employee would have been entitled if
the Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and shall
be adjusted for any stock dividend, subdivision, split-up or combination of
Common Stock
b. If, at any time through December 31, 2001 of the Option Period,
the Corporation issues any previously unissued Common Stock over and beyond the
number of shares outstanding February 21, 1998, then, on January 1, 2000, 2001
and 2002, the number of shares subject to the Option shall be adjusted such that
the holder thereof shall have the right to exercise the Option for the same
percentage of the issued and outstanding Common Stock of the Corporation as he
held option shares on February 21, 1998.
c. The Option Price shall be subject to adjustment from time to time
as follows:
(1) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares
2
<PAGE>
of Common Stock or by a subdivision or split-up of shares of Common Stock, then,
immediately following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Option Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon the exercise hereof shall be increased
in proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is decreased by a combination of outstanding
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsections (b) -
(c) of this Section, the Option granted hereby shall terminate and the Option
shall no longer be exercisable after the earlier of December 31, 2006, except in
the case of death or disability.
b. Option Rights Upon Disability. If an Employee becomes disabled
while employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
c. Death of the Optionee. In the event that an Employee shall die
while he is an employee of the Corporation and prior to his complete exercise of
the Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. Piggyback Registration.
a. If, at any time commencing January 1, 2000 and expiring December
31, 2006, the Corporation proposes to register any of its securities under the
Securities Act (other than in connection with a merger or pursuant to Form S-8
or other comparable Form) it will give written notice by registered mail, at
least thirty (30) days prior to the filing of such registration statement, to
the Employee of its intention to do so. If the Employee notifies the Corporation
within ten (10) days after receipt of any such notice of his desire to include
any Option Shares, owned by him (on a fully vested basis) in such proposed
registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement, the Corporation shall afford the Employee the opportunity to have any
of his Option Shares registered under such registration statement; provided that
(i) such inclusion does not pose any significant legal problem and (ii) if such
3
<PAGE>
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the Corporation
shall have the right at any time after it shall have given written notice
pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares
under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc. 1270 Avenue of the Americas - Suite 2401 New York,
New York 10020
Attention: Christopher C. Cline, Chief Financial Officer
4
<PAGE>
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
William C. Samuels
2 East 75th Street, Apt. 1A
New York, New York 10020
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and amends the previous February 21, 1998 agreement and
supersedes all previously written or oral negotiations, commitments,
representations and agreement.
SECTION 11. Amendments and Modifications. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-------------------------------
Christopher C. Cline
Chief Financial Officer
Agreed:
---------------------------
William C. Samuels
5
Exhibit 10.43 (b)
OPTION AGREEMENT
OPTION AGREEMENT dated February 21, 1998 and amended January 4, 1999,
between ACTV, Inc., a Delaware corporation (the "Corporation") and Bruce Crowley
(the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 201,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 201,000
Option Shares, at a purchase price of $1.60 per Option Share (the "Option
Price"). The Employee's right and option to purchase the Option Shares shall
vest annually commencing January 1, 2000 until January 1, 2002, with respect to
installments of 67,000 Option Shares at the Option Price, so long as the
Employee is employed by the Corporation. Said right shall be cumulative so that
as of January 1, 2002, Optionee shall have the fully vested right to purchase
201,000 Option Shares. In the event that the Employee's employment with the
Corporation terminates prior to January 1 of any year, the Employee shall not
have the right or option to purchase any part of the installment of 67,000
Option Shares that would have otherwise vested on such January 1. With respect
to the Option, the "Option Period" shall commence on the date hereof and
terminate on December 31, 2006.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of the Corporation. Delivery of the Stock certificate or other instrument
registered in the name of the Employee, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
<PAGE>
SECTION 2. Representations and Warranties of The Holder. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised and fully vested portion of
this Option shall, after such reorganization, reclassification, consolidation,
merger or sale, be exercisable for the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation resulting
from such consolidation or surviving such merger or to which such properties and
assets shall have been sold to which the Employee would have been entitled if
the Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and shall
be adjusted for any stock dividend, subdivision, split-up or combination of
Common Stock.
b. If, at any time through December 31, 2001 of the Option Period,
the Corporation issues any previously unissued Common Stock over and beyond the
number of shares outstanding February 21, 1998, then, on January 1, 2000, 2001,
2002 the number of shares subject to the Option shall be adjusted such that the
holder thereof shall have the right to exercise the Option for the same
percentage of the issued and outstanding Common Stock of the Corporation as he
held option shares on February 21, 1998.
c. The Option Price shall be subject to adjustment from time to time
as follows:
(1) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares
2
<PAGE>
of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Option Price shall be appropriately decreased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be increased in proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is decreased by a combination of outstanding
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsections (b) -
(c) of this Section, the Option granted hereby shall terminate and the Option
shall no longer be exercisable after the earlier of December 31, 2006 or one
year after the date of termination of employment, except in the case of death or
disability.
b. Option Rights Upon Disability. If an Employee becomes disabled
while employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
c. Death of the Optionee. In the event that an Employee shall die
while he is an employee of the Corporation and prior to his complete exercise of
the Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. Piggyback Registration.
a. If, at any time commencing January 1, 2000 and expiring December
31, 2006, the Corporation proposes to register any of its securities under the
Securities Act (other than in connection with a merger or pursuant to Form S-8
or other comparable Form) it will give written notice by registered mail, at
least thirty (30) days prior to the filing of such registration statement, to
the Employee of its intention to do so. If the Employee notifies the Corporation
within ten (10) days after receipt of any such notice of his desire to include
any Option Shares, owned by him (on a fully vested basis) in such proposed
registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement, the Corporation shall afford the Employee the opportunity to have any
of his Option Shares registered under such registration statement; provided that
(i) such inclusion does not pose any significant legal problem and (ii) if such
3
<PAGE>
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the Corporation
shall have the right at any time after it shall have given written notice
pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares
under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
4
<PAGE>
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
Bruce Crowley
257 West 17th Street, Apt. 4C
New York, New York 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and amends the previous February 21, 1998 agreement and
supersedes all previously written or oral negotiations, commitments,
representations and agreement.
SECTION 11. Amendments and Modifications. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-------------------------------
William C. Samuels
Chief Executive Officer
Agreed:
---------------------------
Bruce Crowley
Exhibit 10.43(c)
OPTION AGREEMENT
OPTION AGREEMENT dated February 21, 1998 and amended January 4, 1999,
between ACTV, Inc., a Delaware corporation (the "Corporation") and David Reese
(the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 330,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 330,000
Option Shares, at a purchase price of $1.60 per Option Share (the "Option
Price"). The Employee's right and option to purchase the Option Shares shall
vest annually commencing January 1, 2000 until January 1, 2002, with respect to
installments of 110,000 Option Shares at the Option Price, so long as the
Employee is employed by the Corporation. Said right shall be cumulative so that
as of January 1, 2002, Optionee shall have the fully vested right to purchase
330,000 Option Shares. In the event that the Employee's employment with the
Corporation terminates prior to January 1 of any year, the Employee shall not
have the right or option to purchase any part of the installment of 110,000
Option Shares that would have otherwise vested on such January 1. With respect
to the Option, the "Option Period" shall commence on the date hereof and
terminate on December 31, 2006.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of the Corporation. Delivery of the Stock certificate or other instrument
registered in the name of the Employee, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
<PAGE>
SECTION 2. Representations and Warranties of The Holder. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised and fully vested portion of
this Option shall, after such reorganization, reclassification, consolidation,
merger or sale, be exercisable for the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation resulting
from such consolidation or surviving such merger or to which such properties and
assets shall have been sold to which the Employee would have been entitled if
the Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and shall
be adjusted for any stock dividend, subdivision, split-up or combination of
Common Stock.
b. If, at any time through December 31, 2001 of the Option Period,
the Corporation issues any previously unissued Common Stock over and beyond the
number shares outstanding February 21, 1998, then, on January 1, 2000, 2001 and
2002 the number of shares subject to the Option shall be adjusted such that the
holder thereof shall have the right to exercise the Option for the same
percentage of the issued and outstanding Common Stock of the Corporation as he
held option shares on February 21, 1998.
c. The Option Price shall be subject to adjustment from time to time
as follows:
(1) If, at any time during the Option Period, the number of
2
<PAGE>
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Option Price shall be appropriately decreased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be increased in proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of shares
of Common Stock outstanding is decreased by a combination of outstanding shares
of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsections (b) -
(c) of this Section, the Option granted hereby shall terminate and the Option
shall no longer be exercisable after the earlier of December 31, 2006 or one
year after the date of termination of employment, except in the case of death or
disability.
b. Option Rights Upon Disability. If an Employee becomes disabled
while employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
c. Death of the Optionee. In the event that an Employee shall die
while he is an employee of the Corporation and prior to his complete exercise of
the Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. Piggyback Registration.
a. If, at any time commencing January 1, 2000 and expiring December
31, 2006, the Corporation proposes to register any of its securities under the
Securities Act (other than in connection with a merger or pursuant to Form S-8
or other comparable Form) it will give written notice by registered mail, at
least thirty (30) days prior to the filing of such registration statement, to
the Employee of its intention to do so. If the Employee notifies the Corporation
within ten (10) days after receipt of any such notice of his desire to include
any Option Shares, owned by him (on a fully vested basis) in such proposed
registration statement, the Corporation shall afford the Employee the
opportunity to
3
<PAGE>
have any of his Option Shares registered under such registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement; provided that (i) such
inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the Corporation
shall have the right at any time after it shall have given written notice
pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares
under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
4
<PAGE>
Attention: William C. Samuels, Chief Executive Officer
With a copy to:
Jay Kaplowitz
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
David Reese
30 Maclay Road
Montville, New Jersey 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and amends the previous February 21, 1998 agreement and
supersedes all previously written or oral negotiations, commitments,
representations and agreement.
SECTION 11. Amendments and Modifications. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-------------------------------
William C. Samuels
Chief Executive Officer
Agreed:
----------------------------
David Reese
5
Exhibit 10.44 (a)
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, amended on July 29, 1997 and
adjusted March 5, 1999, between ACTV, Inc., a Delaware corporation (the
"Corporation") and William C. Samuels (the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 1,173,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 1,173,000
vested Option Shares, excluding options previously exercised, at a purchase
price of $1.50 per Option Share (the "Option Price"). With respect to the
Option, the "Option Period" shall commence on the date hereof and terminate on
December 31, 2003.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of the Corporation. Delivery of the Stock certificate or other instrument
registered in the name of the Employee, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
<PAGE>
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which the Employee would have been entitled if the
Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the
Option Period shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. If, at any time during the first 36 months of the Option Period,
the Corporation issues any previously unissued Common Stock as the result of any
financing, acquisition, joint venture or other business transaction, then,
during such period the number of shares subject to the Option shall be adjusted
such that the holder thereof shall have the right to exercise the Option for the
same percentage of the issued and outstanding Common Stock of the Corporation
after giving effect to such transaction (including the future conversion or
exercise of any option or warrants issued during the first 36 months, but
converted by January 1, 2000) as he held options for immediately prior to such
transaction.
c. The Option Price shall be subject to adjustment from time to time
as follows:
(1) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares
2
<PAGE>
of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Option Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon the exercise hereof shall be increased
in proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is decreased by a combination of outstanding
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsections (b) -
(c) of this Section, the Option granted hereby shall terminate and the Option
shall no longer be exercisable after of December 31, 2003.
b. Option Rights Upon Disability. If an Employee becomes disabled
while employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
c. Death of the Optionee. In the event that an Employee shall die
While he is an employee of the Corporation and prior to his complete exercise of
the Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. Piggyback Registration.
a. If, at any time commencing up to December 31, 2003, the
Corporation proposes to register any of its securities under the Securities Act
(other than in connection with a merger or pursuant to Form S-8 or other
comparable Form) it will give written notice by registered mail, at least thirty
(30) days prior to the filing of such registration statement, to the Employee of
its intention to do so. If the Employee notifies the Corporation within ten (10)
days after receipt of any such notice of his desire to include any Option
Shares, owned by him (on a fully vested basis) in such proposed registration
statement, the Corporation shall afford the Employee the opportunity to have any
of his Option Shares registered under such registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement; provided that (i) such
inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
3
<PAGE>
b. Notwithstanding the provisions of this Section 6, the Corporation
shall have the right at any time after it shall have given written notice
pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares
under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Christopher Cline, Chief Financial Officer
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
4
<PAGE>
If to the Employee, to:
William C. Samuels
2 East 75th Street
New York, NY 10021
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This amended agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes the option agreement dated December 1, 1995
and amended July 29, 1997.
SECTION 11. Amendments and Modifications. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
--------------------------------
Christopher Cline
Chief Financial Officer
Agreed:
---------------------------
William C. Samuels
6
Exhibit 10.44 (b)
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, amended on July 29, 1997 and
adjusted March 5, 1999, between ACTV, Inc., a Delaware corporation (the
"Corporation") and David Reese (the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 737,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 737,000
vested Option Shares, excluding options previously exercised, at a purchase
price of $1.50 per Option Share (the "Option Price"). With respect to the
Option, the "Option Period" shall commence on the date hereof and terminate on
December 31, 2003.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of the Corporation. Delivery of the Stock certificate or other instrument
registered in the name of the Employee, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee
<PAGE>
understands that except as set forth in Section 6 hereof, the Option Shares will
not be registered under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4 (2) thereof and that
they must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which the Employee would have been entitled if the
Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the
Option Period shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. If, at any time during the first 36 months of the Option Period,
the Corporation issues any previously unissued Common Stock as the result of any
financing, acquisition, joint venture or other business transaction, then,
during such period the number of shares subject to the Option shall be adjusted
such that the holder thereof shall have the right to exercise the Option for the
same percentage of the issued and outstanding Common Stock of the Corporation
after giving effect to such transaction (including the future conversion or
exercise of any option or warrants issued during the first 36 months, but
converted by January 1, 2000) as he held options for immediately prior to such
transaction.
c. The Option Price shall be subject to adjustment from time to time
as follows:
(1) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Option Price shall be appropriately decreased so
that the number of shares of Common
2
<PAGE>
Stock issuable upon the exercise hereof shall be increased in proportion to such
increase in outstanding shares.
(2) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is decreased by a combination of outstanding
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsections (b) -
(c) of this Section, the Option granted hereby shall terminate and the Option
shall no longer be exercisable after of December 31, 2003.
b. Option Rights Upon Disability. If an Employee becomes disabled
while employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
c. Death of the Optionee. In the event that an Employee shall die
while he is an employee of the Corporation and prior to his complete exercise of
the Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. Piggyback Registration.
a. If, at any time commencing up to December 31, 2003, the
Corporation proposes to register any of its securities under the Securities Act
(other than in connection with a merger or pursuant to Form S-8 or other
comparable Form) it will give written notice by registered mail, at least thirty
(30) days prior to the filing of such registration statement, to the Employee of
its intention to do so. If the Employee notifies the Corporation within ten (10)
days after receipt of any such notice of his desire to include any Option
Shares, owned by him (on a fully vested basis) in such proposed registration
statement, the Corporation shall afford the Employee the opportunity to have any
of his Option Shares registered under such registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement; provided that (i) such
inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the
3
<PAGE>
Corporation shall have the right at any time after it shall have given written
notice pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares
under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Christopher Cline, Chief Financial Officer
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
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<PAGE>
If to the Employee, to:
David Reese
30 Maclay Road
Montville, NJ 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This amended agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes the option agreement dated December 1, 1995
and amended July 29, 1997.
SECTION 11. Amendments and Modifications. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-------------------------------
William C. Samuels
Chairman and CEO
Agreed:
---------------------------
David Reese
5
Exhibit 10.44 (c)
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, amended on July 29, 1997 and
adjusted March 5, 1999, between ACTV, Inc., a Delaware corporation (the
"Corporation") and Bruce Crowley (the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 449,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. Subject to Section 5, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 449,000
vested Option Shares, excluding options previously exercised, at a purchase
price of $1.50 per Option Share (the "Option Price"). With respect to the
Option, the "Option Period" shall commence on the date hereof and terminate on
December 31, 2003.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to
the terms of this Option Agreement shall be made on the Closing Date at the
offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
holder of this Option on the Closing Date against the delivery to the
Corporation of a check in the full amount of the aggregate purchase price
therefor.
<PAGE>
SECTION 2. Representations and Warranties of The Holder. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which the Employee would have been entitled if the
Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the
Option Period shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. If, at any time during the first 36 months of the Option
Period, the Corporation issues any previously unissued Common Stock as the
result of any financing, acquisition, joint venture or other business
transaction, then, during such period the number of shares subject to the Option
shall be adjusted such that the holder thereof shall have the right to exercise
the Option for the same percentage of the issued and outstanding Common Stock of
the Corporation after giving effect to such transaction (including the future
conversion or exercise of any option or warrants issued during the first 36
months, but converted by January 1, 2000) as he held options for immediately
prior to such transaction.
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c. The Option Price shall be subject to adjustment from time to
time as follows:
(1) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Option Price shall be appropriately decreased so
that the number of shares of Common Stock issuable upon the exercise hereof
shall be increased in proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is decreased by a combination of outstanding
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsections (b)
- - (c) of this Section, the Option granted hereby shall terminate and the Option
shall no longer be exercisable after of December 31, 2003.
b. Option Rights Upon Disability. If an Employee becomes disabled
while employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
c. Death of the Optionee. In the event that an Employee shall die
while he is an employee of the Corporation and prior to his complete exercise of
the Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. Piggyback Registration.
a. If, at any time commencing up to December 31, 2003, the
Corporation proposes to register any of its securities under the Securities Act
(other
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<PAGE>
than in connection with a merger or pursuant to Form S-8 or other comparable
Form) it will give written notice by registered mail, at least thirty (30) days
prior to the filing of such registration statement, to the Employee of its
intention to do so. If the Employee notifies the Corporation within ten (10)
days after receipt of any such notice of his desire to include any Option
Shares, owned by him (on a fully vested basis) in such proposed registration
statement, the Corporation shall afford the Employee the opportunity to have any
of his Option Shares registered under such registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement; provided that (i) such
inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the
Corporation shall have the right at any time after it shall have given written
notice pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all respects
in connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares
under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. Transfer of Option; Successors And Assigns. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all
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the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Christopher Cline, Chief Financial Officer
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
Bruce Crowley
257 west 17th Street
New York, NY 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. Governing Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. Entire Agreement. This amended agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes the option agreement dated December 1, 1995
and amended July 29, 1997.
SECTION 11. Amendments and Modifications. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By: ____________________________
William C. Samuels
Chairman and CEO
Agreed: ______________________
Bruce J. Crowley
6
Exhibit 10.45
LICENSE AGREEMENT
AGREEMENT, made as of the 8th day of March, 1999, by and between ACTV,
INC., a Delaware corporation, having its corporate offices at 1270 Avenue of the
Americas, Suite 2401, New York, New York 10020 (collectively, "Licensor") and
ACTV ENTERTAINMENT, INC., a New York corporation, having its corporate offices
at 1270 Avenue of the Americas, Suite 2401, New York, New York 10020
("Licensee").
W I T N E S S E T H
WHEREAS, Licensor is the exclusive owner of the Patents listed on
Exhibit A hereto and various patents pending (the "Patents") and proprietary
technologies, programming methods, the ACTV Programming and Coding Language, and
other trade secrets and know-how, all relating to the inventions described in
Patents (the "Know-how"; the Patents and the Know-how collectively called the
"Intellectual Property"; and
WHEREAS, Licensor wishes to grant to Licensee and Licensee wishes to
obtain from Licensor an exclusive license in the Territory to use and exploit
the Intellectual Property.
NOW, THEREFORE, in consideration of one dollar ($1.00), the foregoing
premises and the mutual covenants herein contained, the parties agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Patent Improvements" shall mean any improvement, refinement,
enhancement or other modification of the Patents which are directly related to
the Patents.
(b) "Know-how Improvements" shall mean any improvement, refinement,
enhancement or other modification of the Know-how.
(c) "License" shall mean that exclusive license which the Licensor
hereby grants to the Licensee to use and exploit the Intellectual Property,
including Improvements, as set forth in Paragraph 6 hereof, subject to the terms
hereof.
(d) "Net Sales" shall mean subscriber and advertising revenues
received by Licensee and its affiliates and sublicensees, if any, less any
license fees payable to third party programming providers, less trade discounts
allowed, valid credits for claims or allowances, refunds, returns and recalls
and less taxes and other governmental charges levied on or measured by sales and
included in the billing price.
<PAGE>
(e) "Territory" shall mean the United States of America and its
possessions, territories and associated commonwealths (including Puerto Rico,
the Virgin Island and Guam), including all United States military installations
located therein.
(f) "Control" and variants thereof shall mean the right to vote,
directly, or indirectly through Controlled entities, by ownership, proxy or
other contract, more than 50% of the outstanding voting securities, or voting
interest, of a corporation, or other business entity.
(g) "Sublicense" shall mean a grant of rights hereunder by License
to another entity to develop and exploit the Intellectual Property in defined
territories and markets consistent with the terms hereof. "Sublicense" shall not
include a grant to an end user or consumer of the Intellectual Property and
services provided by Licensee or a Sublicensee. "Sublicensee" shall mean any
entity receiving a Sublicense pursuant to the terms hereof.
2. Grant of Rights.
(a) Subject to the terms and conditions herein contained and for
good and valuable consideration, the receipt of which is hereby acknowledged,
Licensor hereby grants to Licensee, subject to the terms hereof, an exclusive,
perpetual License to use, distribute and sublicense the Intellectual Property
and Improvements throughout the Territory both for individualized television as
disclosed in the Patents and for all other applications contained in the
patents. Licensor hereby agrees promptly to disclose to Licensee the
Intellectual Property licensed hereby.
(b) All products, including, without limitation, television
programming, which are distributed, sold or utilized in any manner and which
incorporate in any manner all or any part of the Intellectual Property contained
within the License granted hereunder will bear the proper proprietary rights
notice, all as specified in writing by Licensor to Licensee, as shall be
sufficient, in Licensor's judgment, to protect its rights and interest in the
rights granted by Licensor to Licensee pursuant hereto. Licensee further agrees
to give proper notice of trademarks, patents and/or copyrights where applicable
in connection with the use by Licensee of any rights thereunder, as may be
specified from time-to-time by Licensor.
(c) Licensee agrees that during the term of this Agreement, it will
diligently and actively develop, promote, distribute and market the Intellectual
Property in the Territory.
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<PAGE>
3. Consideration.
(a) In consideration for the License granted hereunder, Licensee
shall pay Licensor five (5) percent of all Net Sales by Licensee at any time
that Licensor does not Control Licensee.
(b) Royalty payments shall be made within thirty (30) days of the
end of each calendar quarterly period for sales invoiced by Licensee or each
sublicense, as the case may be, during such calendar quarterly period. Each
royalty payment shall be accompanied by a report setting forth in reasonable
detail the Net Sales during the calendar quarter and the calculation of
royalties based thereon. Licensor shall have the right once a year and with
reasonable notice to examine the books and records of Licensee. Such examination
shall take place at Licensee's principal place of business during normal
business hours.
4. Sublicense and Reservation of Rights.
(a) Licensee is permitted to assign or sublicense the rights
hereunder granted to any third party, provided such party agrees in writing to
abide by the terms and conditions of this Agreement to the extent applicable to
it.
(b) All rights not specifically granted to Licensee hereunder are
reserved to Licensor.
5. Confidentiality. Licensee shall maintain in strict confidence and
shall not at any time whether before or after the termination of this agreement
(a) utilize for any purpose other than as permitted under this License, or
cause, enable, assist or permit anyone else to utilize, any of the Intellectual
Property or Improvements; (b) disclose to anyone any such Intellectual Property,
Improvements and/or related information (the "Confidential Information") which
is not generally available to the public unless, (i) through no act of Licensee
contrary to the obligations imposed hereby, such Confidential Information
becomes known to the public prior to the date of Licensee's disclosure, (ii)
such Confidential Information is approved for public release by Licensor, (iii)
such Confidential Information is rightfully received by Licensee from a third
party without restrictions and without breach of Licensee's obligations
hereunder, (iv) such Confidential Information is independently developed by
Licensee without breach of this Agreement, (v) such Confidential Information is
required to be disclosed by judicial or governmental proceeding subject to a
protective order or (vi) such disclosure is necessary or appropriate to the
exploitation of the License granted hereby and only then after such person or
entity to whom disclosure is to be made executes a confidentiality agreement
acceptable to Licensor. Notwithstanding the foregoing, Licensee may disclose
such Confidential Information to its employees who need to know such information
in order for Licensee to use and exploit the Intellectual Property pursuant to
the terms of this Agreement if it has taken reasonable steps to impose the
aforesaid covenants of confidentiality on said employees and to ensure that said
employees will not violate said covenants, including, but not
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<PAGE>
limited to, causing said employees to enter into written agreements in which
said covenants of confidentiality are effectively imposed upon them. Licensee
will copy Licensor's Confidential Information only to the extent reasonably
necessary to enable Licensee to exercise its rights under the License. In making
any such copies, Licensee agrees to produce faithfully all notices respecting
copyright, trade secrets, and other proprietary rights. Nothing contained herein
shall prevent Licensee from disclosing in general terms the nature of its
relationship with Licensor.
6. Improvements. Any Improvements upon the Intellectual Property made,
conceived, invented or wholly acquired by Licensor during the term of this
Agreement, shall be included hereunder, and Licensee shall have the right to
such Improvements (limited, however, by the specific terms hereof) without
payment other than the royalties provided for herein. Licensee agrees that if
during the term of this Agreement it should make, conceive, invent or acquire
any improvements to the Intellectual Property, or any component or portion
thereof, it will grant, and hereby does grant, to Licensor a royalty-free,
exclusive, paid up, perpetual license to use such improvements, on a world-wide
basis. Each party agrees to disclose promptly to the other party all
improvements so made, conceived, invented or acquired during the term of this
Agreement which are based, in whole or in part, on any of the Intellectual
Property or Improvements.
7. Representations. Licensor represents and warrants that: (i) it has
the right and authority to enter into this Agreement; (ii) to the best of its
knowledge, it is the sole owner or licensee of all Intellectual Property and
Improvements licensed hereunder and the use thereof will not violate any law or
infringe upon or violate any rights of any person, firm or corporation; (iii) it
is not a party to any other existing agreement which would prevent it from
entering into or performing its obligations under the terms of this Agreement
and (iv) to the best of its knowledge, the Patents have been validly issued,
have not been challenged and no adverse claim has been asserted.
8. Litigation. Licensee shall have the sole responsibility at its sole
cost and expense for protecting the rights granted and to be granted herein
against any third party infringement. Licensee agrees promptly and diligently to
seek to protect all rights granted and to be granted herein from and against any
infringement by third parties.
9. Insurance.
(a) During the term of this Agreement, Licensee will maintain, at
its own expense, in full force and effect, with a responsible insurance carrier,
reasonably acceptable to Licensor, such product liability insurance as is
customary for a business of the type, nature and size of Licensee.
(b) Licensee shall, from time to time upon reasonable request by the
other party, promptly furnish or cause to be furnished to Licensor, a
certificate evidencing the insurance required hereby.
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<PAGE>
10. Termination.
(a) In the event that the Licensee materially defaults or breaches
any provision of this Agreement, Licensor reserves the right to terminate this
Agreement upon written notice to Licensee; provided, however, that if Licensee,
within 30 days of such written notice, cures such default or breach, this
Agreement shall continue in full force and effect as if such default or breach
had not occurred; and provided, further, should Licensee dispute any such
alleged breach of this Agreement and such dispute is either submitted to
arbitration in due course pursuant to Paragraph 18 hereof or being resolved by
the parties hereto, then there shall be no default hereunder during the period
in which the parties are in arbitration or diligently, and in good faith,
attempting to resolve such dispute; provided, that after the parties reach an
agreement or an arbitrator makes its decision, Licensee shall comply therewith
within 15 days thereof.
(b) In the event of any adjudication of bankruptcy which is not
vacated within 30 days, appointment of a receiver by a court of competent
jurisdiction who is not removed within 30 days, assignment for the benefit of
creditors or levy of execution directly involving Licensee, this Agreement shall
thereupon forthwith terminate and no longer be of any further force and effect.
(c) In the event of termination of this Agreement for any reason
whatsoever:
(i) Licensee shall deliver to Licensor all books, notes,
drawings, writings and other documents, in the possession of
Licensee or the Permitted Parties relating to the Intellectual
Property and any Improvements licensed to it under Paragraph
2(a) hereof (except that in connection with any Improvements
made by Licensee it may retain copies of all such items
delivered to Licensor and may continue to use any such
Improvements made by it), together with all copies of any
Confidential Information.
(ii) All rights granted by Licensor to Licensee shall
forthwith revert to Licensor.
(iii) Licensor (in the event this Agreement is terminated by
reason of Licensee's default hereunder) shall continue to be
entitled to use or exploit any exclusive royalty-free license
to new developments of Licensee granted pursuant to Paragraph
6 hereof.
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<PAGE>
(d) In the event of termination of this Agreement, Licensee shall
assign to Licensor, at the request of Licensor, all of its right, title and
interest in and to any contracts or agreements relating, directly or indirectly
to the Intellectual Property.
11. Notices. All notices to be given or payments made hereunder shall
be in writing and sent by hand, federal express or by registered or certified
mail, postage prepaid, addressed to the respective parties at the addresses set
forth above. All notices shall be effective upon receipt. Copies of all notices
to Licensor or Licensee shall be sent to Gersten, Savage & Kaplowitz, LLP, 101
East 52nd Street, New York, New York 10022, attention: Jay M. Kaplowitz, Esq.
12. New York Law. This Agreement and all matters or issues collateral
thereto shall be governed by and construed and enforced in accordance with the
laws of the State of New York applicable to contacts made and performed entirely
therein.
13. Entire Understanding. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter herein
contained, and supersedes any and all prior agreements or understandings
relating to the subject matter hereof. Without limiting the generality of the
foregoing, this License Agreement amends, restates in its entirety and
supercedes that License Agreement dated March 14, 1997 by and between Licensor
and Licensee. This Agreement may not be changed except by a writing signed by
the party sought to be charged therewith.
14. No Waiver. No waiver by either party, whether express or implied,
of any provisions of this Agreement or of any breach or default by either party,
shall constitute a continuing waiver or a waiver of any other provision of this
Agreement, and no such waiver by either party shall prevent such party from
enforcing any and all provisions of this Agreement or from acting upon the same
or any subsequent breach or default of the other party. No waiver of any
provision hereunder shall be effective unless it is in writing signed by the
against whom enforcement thereof is sought.
15. Separability. The provisions set forth in this Agreement shall be
considered to be separable and independent of each other. In the event that any
provision of this Agreement shall be determined in any jurisdiction to be
unenforceable, such determination shall not be deemed to affect the
enforceability of any other remaining provision and the parties agree that any
court making such a determination is hereby requested and empowered to modify
such provision and to substitute for such enforceable provision such limitation
or provision of a maximum scope as the court then deems reasonable and
judicially enforceable and the parties agree that such substitute provision
shall be as enforceable in said jurisdiction as if set forth initially in this
Agreement. Any such substitute provision shall be applicable only in the
jurisdiction in which the original provision was determined to be unenforceable.
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<PAGE>
16. Relationship of the Parties. Nothing contained herein shall be
construed to place the parties in the relationship of partners or joint
venturers and neither party shall have the power to bind or obligate the other.
17. Survival. Unless otherwise provided, the obligations of the parties
hereto shall survive the termination of the term of this Agreement.
18. Arbitration. All claims, demands, disputes, controversies,
differences or misunderstandings between or among the parties hereto or any
other persons bound hereby arising out of or by virtue of this Agreement, shall
be submitted to and determined by arbitration in the City of New York. If the
parties to a dispute arising out of this Agreement are unable to agree on an
arbitrator within 10 days after any party shall have given written notice to the
other that it desires to submit any issue to arbitration, then the American
Arbitration Association shall be designated by any party to appoint an
arbitrator and to arbitrate the matter under its rules. The award of the
arbitrator shall be made in writing, shall be within the scope of this
Agreement, shall not change any of its terms or conditions, shall be binding and
conclusive on all parties, and shall include a finding for the payment of the
costs of the arbitration proceeding (including reasonable attorneys' fees). It
is further agreed that judgment of a court having jurisdiction may be entered
upon the award of the arbitrator.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
ACTV, INC.
By:
-----------------------------------
William C. Samuels,
Chairman and Chief Executive Officer
ACTV ENTERTAINMENT, INC.
By:
-----------------------------------
David Reese, President
Exhibit 10.46
LICENSE AGREEMENT
AGREEMENT, made as of the 8th day of March, 1999, by and between ACTV,
INC., a Delaware corporation, having its corporate offices at 1270 Avenue of the
Americas, Suite 2401, New York, New York 10020 (collectively, "Licensor") and
HyperTV Networks, Inc. a Delaware corporation, having its corporate offices at
1270 Avenue of the Americas, Suite 2401, New York, New York 10020 ("Licensee").
W I T N E S S E T H
WHEREAS, Licensor is the exclusive owner of the Patents and patent
application listed on Exhibit A hereto (the "Patents") and proprietary
technologies, programming methods, server software, authoring and end user
software, data bases and other trade secrets and know-how, all relating to the
inventions described in Patents (the "Know-how"; the Patents and the Know-how
collectively called the "Intellectual Property"; and
WHEREAS, Licensor wishes to grant to Licensee and Licensee wishes to
obtain from Licensor an exclusive, worldwide license to use and exploit the
Intellectual Property;
NOW, THEREFORE, in consideration of one dollar ($1.00), the foregoing
premises and the mutual covenants herein contained, the parties agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Patent Improvements" shall mean any improvement, refinement,
enhancement or other modification of the Patents which are directly related to
the Patents.
(b) "Know-how Improvements" shall mean any improvement, refinement,
enhancement or other modification of the Know-how.
(c) "Improvements" shall mean the Patent Improvements and the Know-
how Improvements, collectively.
(d) "License" shall mean that exclusive license which the Licensor
hereby grants to the Licensee to use and exploit the Intellectual Property,
including Improvements, as set forth in Paragraph 6 hereof, subject to the terms
hereof.
(e) "Net Sales" shall mean subscriber and advertising revenues
received by Licensee and its affiliates and sublicenses, if any, less any
license fees payable to third party programming providers, less trade discounts
allowed, valid credits for claims or allowances,
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refunds, returns and recalls and less taxes and other governmental charges
levied on or measured by sales and included in the billing price.
(f) "Control" and variants thereof shall mean the right to vote,
directly, or indirectly through Controlled entities, by ownership, proxy or
other contract, more than 50% of the outstanding voting securities, or voting
interest, of a corporation, or other business entity.
(g) "Sublicense" shall mean a grant of rights hereunder by License
to another entity to develop and exploit the Intellectual Property in defined
territories and markets consistent with the terms hereof. "Sublicense" shall not
include a grant to an end user or consumer of the Intellectual Property and
services provided by Licensee or a Sublicensee. "Sublicensee" shall mean any
entity receiving a Sublicense pursuant to the terms hereof.
2. Grant of Rights.
(a) Subject to the terms and conditions herein contained and for
good and valuable consideration, the receipt of which is hereby acknowledged,
Licensor hereby grants to Licensee, subject to the terms hereof, an exclusive,
worldwide, perpetual License to exploit and sublicense the Intellectual
Property. Licensor hereby agrees promptly to disclose to Licensee the
Intellectual Property licensed hereby.
(b) All products or services which are distributed, sold or utilized
in any manner and which incorporate in any manner all or any part of the
Intellectual Property contained within the License granted hereunder will bear
the proper proprietary rights notice, all as specified in writing by Licensor to
Licensee, as shall be sufficient, in Licensor's judgment, to protect its rights
and interest in the rights granted by Licensor to Licensee pursuant hereto.
Licensee further agrees to give proper notice of trademarks, patents and/or
copyrights where applicable in connection with the use by Licensee of any rights
thereunder, as may be specified from time-to-time by Licensor.
(c) License agrees to abide by the December 1, 1997 agreement
between ACTV, Inc. and EarthWeb, Inc.
(d) Licensee agrees that during the term of this Agreement, it will
diligently and actively develop, promote, distribute and market the Intellectual
Property.
3. Consideration.
(a) In consideration for the License granted hereunder, Licensee
shall pay Licensor five (5) percent of all Net Sales Licensee at any time that
Licensor does not Control Licensee.
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(b) Royalty payments shall be made within thirty (30) days of the
end of each calendar quarterly period for sales invoiced by Licensee or
Sublicensee, as the case may be, during such calendar quarterly period. Each
royalty payment shall be accompanied by a report setting forth in reasonable
detail the Net Sales during the calendar quarter and the calculation of
royalties based thereon. Licensor shall have the right once a year and with
reasonable notice to examine the books and records of Licensee. Such examination
shall take place at Licensee's principal place of business during normal
business hours.
4. Sublicense and Reservation of Rights.
(a) Licensee is permitted to assign or Sublicense the rights
hereunder granted to any third party, provided such party agrees in writing to
abide by the terms and conditions of this Agreement to the extent applicable to
it.
(b) All rights not specifically granted to Licensee hereunder are
reserved to Licensor.
5. Confidentiality. Licensee shall maintain in strict confidence and
shall not at any time whether before or after the termination of this agreement
(a) utilize for any purpose other than as permitted under this License, or
cause, enable, assist or permit anyone else to utilize, any of the Intellectual
Property or Improvements; (b) disclose to anyone any such Intellectual Property,
Improvements and/or related information (the "Confidential Information") which
is not generally available to the public unless, (i) through no act of Licensee
contrary to the obligations imposed hereby, such Confidential Information
becomes known to the public prior to the date of Licensee's disclosure, (ii)
such Confidential Information is approved for public release by Licensor, (iii)
such Confidential Information is rightfully received by Licensee from a third
party without restrictions and without breach of Licensee's obligations
hereunder, (iv) such Confidential Information is independently developed by
Licensee without breach of this Agreement, (v) such Confidential Information is
required to be disclosed by judicial or governmental proceeding subject to a
protective order or (vi) such disclosure is necessary or appropriate to the
exploitation of the License granted hereby and only then after such person or
entity to whom disclosure is to be made executes a confidentiality agreement
acceptable to Licensor. Notwithstanding the foregoing, Licensee may disclose
such Confidential Information to its employees who need to know such information
in order for Licensee to use and exploit the Intellectual Property pursuant to
the terms of this Agreement if it has taken reasonable steps to impose the
aforesaid covenants of confidentiality on said employees and to ensure that said
employees will not violate said covenants, including, but not limited to,
causing said employees to enter into written agreements in which said covenants
of confidentiality are effectively imposed upon them. Licensee will copy
Licensor's Confidential Information only to the extent reasonably necessary to
enable Licensee to exercise its rights under the License. In making any such
copies, Licensee agrees to produce faithfully all notices respecting copyright,
trade secrets, and other proprietary rights. Nothing contained herein shall
prevent Licensee from disclosing in general terms the nature of its relationship
with Licensor.
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<PAGE>
6. Improvements. Any Improvements upon the Intellectual Property made,
conceived, invented or wholly acquired by Licensor during the term of this
Agreement, shall be included hereunder, and Licensee shall have the right to
such Improvements (limited, however, by the specific terms hereof) without
payment other than the royalties provided for herein. Licensee agrees that if
during the term of this Agreement it should make, conceive, invent or acquire
any improvements to the Intellectual Property, or any component or portion
thereof, it will grant, and hereby does grant, to Licensor a royalty-free,
exclusive, paid up, perpetual license to use such improvements, on a world-wide
basis. Each party agrees to disclose promptly to the other party all
improvements so made, conceived, invented or acquired during the term of this
Agreement which are based, in whole or in part, on any of the Intellectual
Property or Improvements.
7. Representations. Licensor represents and warrants that: (i) it has
the right and authority to enter into this Agreement; (ii) to the best of its
knowledge, it is the sole owner or licensee of all Intellectual Property and
Improvements licensed hereunder and the use thereof will not violate any law or
infringe upon or violate any rights of any person, firm or corporation; (iii) it
is not a party to any other existing agreement which would prevent it from
entering into or performing its obligations under the terms of this Agreement
and (iv) to the best of its knowledge, the Patents have been validly issued,
have not been challenged and no adverse claim has been asserted.
8. Litigation. Licensee shall have the sole responsibility at its sole
cost and expense for protecting the rights granted and to be granted herein
against any third party infringement. Licensee agrees promptly and diligently to
seek to protect all rights granted and to be granted herein from and against any
infringement by third parties.
9. Insurance.
(a) During the term of this Agreement, Licensee will maintain, at
its own expense, in full force and effect, with a responsible insurance carrier,
reasonably acceptable to Licensor, such product liability insurance as is
customary for a business of the type, nature and size of Licensee.
(b) Licensee shall, from time to time upon reasonable request by the
other party, promptly furnish or cause to be furnished to Licensor, a
certificate evidencing the insurance required hereby.
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10. Termination.
(a) In the event that the Licensee materially defaults or breaches
any provision of this Agreement, Licensor reserves the right to terminate this
Agreement upon written notice to Licensee; provided, however, that if Licensee,
within 30 days of such written notice, cures such default or breach, this
Agreement shall continue in full force and effect as if such default or breach
had not occurred; and provided, further, should Licensee dispute any such
alleged breach of this Agreement and such dispute is either submitted to
arbitration in due course pursuant to Paragraph 18 hereof or being resolved by
the parties hereto, then there shall be no default hereunder during the period
in which the parties are in arbitration or diligently, and in good faith,
attempting to resolve such dispute; provided, that after the parties reach an
agreement or an arbitrator makes its decision, Licensee shall comply therewith
within 15 days thereof.
(b) In the event of any adjudication of bankruptcy which is not
vacated within 30 days, appointment of a receiver by a court of competent
jurisdiction who is not removed within 30 days, assignment for the benefit of
creditors or levy of execution directly involving Licensee, this Agreement shall
thereupon forthwith terminate and no longer be of any further force and effect.
(c) In the event of termination of this Agreement for any reason
whatsoever:
(i) Licensee shall deliver to Licensor all books, notes,
drawings, writings and other documents, in the possession of
Licensee or the Permitted Parties relating to the Intellectual
Property and any Improvements licensed to it under Paragraph
2(a) hereof (except that in connection with any Improvements
made by Licensee it may retain copies of all such items
delivered to Licensor and may continue to use any such
Improvements made by it), together with all copies of any
Confidential Information.
(ii) All rights granted by Licensor to Licensee shall
forthwith revert to Licensor.
(iii) Licensor (in the event this Agreement is terminated by
reason of Licensee's default hereunder) shall continue to be
entitled to use or exploit any exclusive royalty-free license
to new developments of Licensee granted pursuant to Paragraph
6 hereof.
(d) In the event of termination of this Agreement, Licensee shall
assign to Licensor, at the request of Licensor, all of its right, title and
interest in and to any contracts or agreements relating, directly or indirectly
to the Intellectual Property.
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11. Notices. All notices to be given or payments made hereunder shall
be in writing and sent by hand, federal express or by registered or certified
mail, postage prepaid, addressed to the respective parties at the addresses set
forth above. All notices shall be effective upon receipt. Copies of all notices
to Licensor or Licensee shall be sent to Gersten, Savage & Kaplowitz, LLP, 101
East 52nd Street, New York, New York 10022, attention: Jay M. Kaplowitz, Esq.
12. New York Law. This Agreement and all matters or issues collateral
thereto shall be governed by and construed and enforced in accordance with the
laws of the State of New York applicable to contacts made and performed entirely
therein.
13. Entire Understanding. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter herein
contained, and supersedes any and all prior agreements or understandings
relating to the subject matter hereof. Without limiting the generality of the
foregoing, this License Agreement amends, restates in its entirety and
supercedes that License Agreement dated March 13, 1997 by and between Licensor
and Licensee. This Agreement may not be changed except by a writing signed by
the party sought to be charged therewith.
14. No Waiver. No waiver by either party, whether express or implied,
of any provisions of this Agreement or of any breach or default by either party,
shall constitute a continuing waiver or a waiver of any other provision of this
Agreement, and no such waiver by either party shall prevent such party from
enforcing any and all provisions of this Agreement or from acting upon the same
or any subsequent breach or default of the other party. No waiver of any
provision hereunder shall be effective unless it is in writing signed by the
against whom enforcement thereof is sought.
15. Separability. The provisions set forth in this Agreement shall be
considered to be separable and independent of each other. In the event that any
provision of this Agreement shall be determined in any jurisdiction to be
unenforceable, such determination shall not be deemed to affect the
enforceability of any other remaining provision and the parties agree that any
court making such a determination is hereby requested and empowered to modify
such provision and to substitute for such enforceable provision such limitation
or provision of a maximum scope as the court then deems reasonable and
judicially enforceable and the parties agree that such substitute provision
shall be as enforceable in said jurisdiction as if set forth initially in this
Agreement. Any such substitute provision shall be applicable only in the
jurisdiction in which the original provision was determined to be unenforceable.
16. Relationship of the Parties. Nothing contained herein shall be
construed to place the parties in the relationship of partners or joint
venturers and neither party shall have the power to bind or obligate the other.
17. Survival. Unless otherwise provided, the obligations of the parties
hereto shall survive the termination of the term of this Agreement.
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18. Arbitration. All claims, demands, disputes, controversies,
differences or misunderstandings between or among the parties hereto or any
other persons bound hereby arising out of or by virtue of this Agreement, shall
be submitted to and determined by arbitration in the City of New York. If the
parties to a dispute arising out of this Agreement are unable to agree on an
arbitrator within 10 days after any party shall have given written notice to the
other that it desires to submit any issue to arbitration, then the American
Arbitration Association shall be designated by any party to appoint an
arbitrator and to arbitrate the matter under its rules. The award of the
arbitrator shall be made in writing, shall be within the scope of this
Agreement, shall not change any of its terms or conditions, shall be binding and
conclusive on all parties, and shall include a finding for the payment of the
costs of the arbitration proceeding (including reasonable attorneys' fees). It
is further agreed that judgment of a court having jurisdiction may be entered
upon the award of the arbitrator.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
ACTV, INC.
By:
------------------------------------
William C. Samuels,
Chairman and Chief Executive Officer
HYPERTV NETWORKS, INC.
By:
------------------------------------
Bruce Crowley, President
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EXHIBIT A
TO LICENSE BETWEEN
ACTV, INC.
AND
HYPERTV NETWORKS, INC.
Patent No. 5,776,181 entitled "Enhanced Video Programming System and Method for
Incorporating and Displaying Retrieved Integrated Internet Information
Segments".
Patent No. 5,774,664 entitled "Enhanced Video Programming System and Method for
Incorporating and Displaying Retrieved Integrated Internet Information
Segments".
Patent No. 5,537,141 entitled "A Distance Learning System Providing
Individualized Television Participation, Audio Responses, and Memory for Every
Student."
Patent Application: Enhanced Video Programming #3
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Exhibit 10.47
AGREEMENT
This Agreement is made and entered into as of December 1, 1997, (the
"Effective Date") by and between ACTV, Inc., having its principal place of
business at 1270 Avenue of the Americas, Suite 2401, Rockefeller Center, New
York, New York 10020 ("ACTV"), and EarthWeb Inc., an assignee of EarthWeb LLC,
having its principal place of business at 3 Park Avenue, 38th Floor, New York,
New York 10016 ("EarthWeb").
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties, the parties hereto agree as
follows:
1. Definitions.
1.1 "Patent Applications" mean United States Patent and Trademark
Office (USPTO) patent applications entitled Integrated Interactive Video and
Internet System, identified in the USPTO by serial numbers 08/615,143, and
08/622,474, filed March 14, 1996, and March 25, 1996, respectively, and all
amendments thereto, and all reissue applications, all divisional applications,
all continuation applications (to the extent that such continuation applications
claim inventions that are disclosed in the two previously identified patent
applications), all continuation-in-part applications (to the extent such
continuation-in-part applications claim inventions that are disclosed in the two
previously identified patent applications), and all corresponding foreign
applications.
1.2 "HyperTV Software" means that certain software jointly developed
by ACTV and EarthWeb LLC, including all derivative works thereto, under that
certain Joint Venture Agreement dated December 1, 1995.
1.3 "eSchool(TM) Product" means that Integrated Interactive Video
and Internet System product which is claimed in the Patent Applications, in
object code form, developed and marketed by ACTV, and all upgrades and new
revisions thereof developed and offered to ACTV's customers, including all
documentation corresponding thereto.
1.4 "EarthWebModerator(TM) Product" means that certain real time
discussion software product, which has not been claimed in the Patent
Applications, in object code form, developed and marketed by EarthWeb, and all
upgrades and new revisions thereof developed and offered to EarthWeb's
customers, including all documentation corresponding thereto.
<PAGE>
2. Ownership and Assignment.
2.1 Inventions: EarthWeb hereby assigns all of its right, title
and interest in and to the inventions described and disclosed in the Patent
Applications, and in and to the Patent Applications and to any Letters Patents,
both foreign and domestic, and all reissue, divisional and continuation
applications, which may issue thereon, by execution of the Assignment attached
as Attachment A. Concurrently with this Assignment, ACTV grants to EarthWeb a
worldwide, nonexclusive, nontransferable (except as expressly provided herein),
irrevocable license to practice the Patents issuing from the Patent Applications
as more fully described in Section 4.1
2.2 Other Intellectual Property Rights: EarthWeb hereby assigns
to ACTV all of its right, title and interest in and to the copyrights and other
intellectual property rights in the HyperTV Software, together with all rights
arising from copyright ownership, and ACTV shall have the right to register such
copyrights and other intellectual property rights in its own name. EarthWeb also
assigns to ACTV all of the right, title and interest in and to the HyperTV
trademarks, including all of the goodwill associated therewith. Concurrently
with this Assignment, ACTV grants to EarthWeb a worldwide, nonexclusive,
nontransferable (except as expressly provided herein), irrevocable license under
the copyrights and other intellectual property rights in the HyperTV Software as
more fully described in Section 4.2
2.3 EarthWeb LLC: As a condition precedent to this Agreement,
EarthWeb will provide to ACTV, at or prior to the time of execution of this
Agreement, original assignment documents suitable and acceptable for recording
in the United States Patent and Trademark Office and such other evidence as is
needed which is sufficient to establish, to the satisfaction of ACTV's counsel,
the assignment by EarthWeb LLC to EarthWeb Inc. of EarthWeb LLC's right, title
and interest in the Patent Applications and the HyperTV Software and the
copyrights and other intellectual property rights in the HyperTV Software,
together with all rights arising from copyright ownership.
2.4 Obligation: ACTV agrees to use commercially reasonable
efforts to pay for and prosecute the patent applications entitled Integrated
Interactive Video and Internet System, identified in the USPTO by serial numbers
08/615,143, and 08/622,474, filed March 14, 1996, and March 25, 1996,
respectively. If, prior to the issuance of a USPTO Final Action including a
"final rejection" of all pending claims in an application, ACTV decides not to
continue the prosecution of any of the patent applications, it shall promptly
provide notice to EarthWeb of its decision and, if EarthWeb so requests, ACTV
shall assign such application(s) to EarthWeb, provided that EarthWeb shall
return to ACTV a pro rata portion of the monies actually paid by ACTV to
EarthWeb pursuant to this Agreement (i.e., one-half if EarthWeb requests
assignation of one patent application, and the entire amount if EarthWeb request
assignation of both patent applications).
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3. Payment: ACTV shall pay Two Hundred Thousand Dollars ($200,000) to
EarthWeb in four quarterly installments of Fifty Thousand Dollars ($50,000) per
quarter. ACTV shall pay the first quarterly installment of Fifty Thousand
Dollars ($50,000) upon execution of the Agreement. Upon issuance of any Letters
Patent to ACTV or its assignee(s), based upon any of the Patent Applications
from the United States Patent and Trademark Office, ACTV shall, within thirty
(30) days from the date of issuance of the first such patent, pay in full to
EarthWeb an additional Two Hundred Thousand Dollars ($200,000). ACTV shall
provide EarthWeb with prompt written notice of the issuance of any such Letters
Patent.
4. Grant of Licenses.
4.1 ACTV hereby grants EarthWeb, and EarthWeb hereby accepts, a
worldwide, nonexclusive, nontransferable (except as expressly provided herein),
irrevocable license to (i) make, have made, use, sell, offer for sale and export
any invention claimed in the Patent Applications and/or in any Letters Patents
which issue from the Patent Applications; (ii) to grant to EarthWeb's
distributors the rights to use, sell, offer for sale and export any products
made by or for EarthWeb which are covered by the Patent Applications and/or any
Letters Patents issuing thereon and (iii) to grant to EarthWeb's or its
distributor's customers the rights to use any such products.
4.2 ACTV also hereby authorizes EarthWeb and grants to EarthWeb, and
EarthWeb hereby accepts, a worldwide, non-exclusive, nontransferable (except as
expressly provided herein), irrevocable license to (i) adapt, reproduce,
distribute, and/or transmit, any copyrighted material or other material
protected by intellectual property laws covered by the Hyper TV Software
copyrights and intellectual property rights assigned to ACTV in Section 2.2
above and to generally practice any and all of the rights listed in Section 106
of the Copyright Law of the United States of America, including such rights as
are necessary to use the products, to advertise or promote the products publicly
and to make available such products on the Internet; (ii) to grant to EarthWeb's
distributors the rights to reproduce, distribute and transmit any products made
by or for and sold or licensed by EarthWeb which are covered by any copyrights
or other intellectual property rights in the HyperTV Software and to generally
practice any and all of the rights listed in Section 106 of the Copyright Law of
the United States of America, including such rights as are necessary to use the
products, to advertise or promote the products publicly and to make available
such products on the Internet; and (iii) to grant to EarthWeb's and its
distributors' customers the rights to use any products made by or for and sold
or licensed by EarthWeb which are covered by the copyrights or other
intellectual property rights in the HyperTV Software.
4.3 Except as provided herein, EarthWeb shall not have the right to
grant any license or sublicense to any third party relating to the rights
granted to EarthWeb by ACTV pursuant to this Agreement.
4.4 EarthWeb agrees that, upon receiving notice from ACTV that any
Letters Patent on the Patent Applications has issued, EarthWeb shall use best
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efforts to mark any products utilizing the patented technology thereafter sold
or otherwise distributed by EarthWeb under the licenses granted in this
Agreement with the word "Patent(s)" and the number(s) of the Patent(s)
applicable thereto.
4.5 ACTV does not grant EarthWeb any license to the HyperTV
trademarks. All rights not granted to EarthWeb in this provision are reserved
and retained by ACTV.
5. Distributorship Negotiations: Upon EarthWeb's establishment of a
distribution partner program for its EarthWebModerator(TM) Product, and if
requested by ACTV, the parties agree to discuss the possibility of a
distributorship agreement between EarthWeb and ACTV pursuant to which ACTV would
be appointed by EarthWeb as a nonexclusive distributor of the
EarthWebModerator(TM) Product. If no agreement is reached within thirty days
following the request by ACTV, neither party shall be required to continue the
discussions. Upon ACTV's establishment of a distribution program for its
eSchool(TM) Product, and if requested by EarthWeb, the parties agree to discuss
the possibility of a distributorship agreement between ACTV and EarthWeb
pursuant to which EarthWeb would be appointed by ACTV as a nonexclusive
distributor of the eSchool(TM) Product. If no agreement is reached within thirty
days following the request by EarthWeb, neither party shall be required to
continue the discussions.
6. Termination: If either ACTV or EarthWeb breaches or defaults in the
performance or observance of any of the material provisions of this Agreement,
and such breach or default is not cured within thirty (30) days after the giving
of written notice by the non-defaulting party specifying such breach or default,
the non-defaulting party shall have the right to terminate this Agreement by
written notice, effective upon the receipt of such notice by the defaulting
party.
7. Confidentiality: EarthWeb acknowledges that unless and until the
Patent Applications are granted and U.S. Letters Patent are issued to ACTV, the
Patent Applications constitute ACTV Confidential Information. ACTV Confidential
Information shall expressly include any and all information derived from the
forgoing ACTV Confidential Information. ACTV Confidential Information shall not
include any information that (a) is now or later becomes available to the public
through means not involving the breach of a duty or obligation owed to ACTV by
EarthWeb hereunder; (b) is disclosed to the public by ACTV or its authorized
representatives; or (c) becomes rightfully known to EarthWeb from a third party
not subject to a confidential or proprietary restriction. EarthWeb shall keep
the ACTV Confidential Information in strict confidence and shall not disclose it
to any person, firm or corporation, nor use the ACTV Confidential Information
for any purpose other than for the specific purposes of this Agreement as
described herein without the prior written consent of ACTV. Notwithstanding the
foregoing, EarthWeb shall be entitled to develop, market and sell or license
products and services pursuant to the licenses granted by ACTV to EarthWeb
pursuant to Section 4 above, and may distribute such products and services,
including information regarding such products and services, to the public. Any
confidentiality
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obligations imposed on EarthWeb under this Section 7 shall expire to the extent
the ACTV Confidential Information is disclosed by issuance of any Letter Patents
based on the Patent Applications or four (4) years following the Effective Date,
whichever is earlier.
8. General Provisions.
8.1 This Agreement, including Attachment A, which is incorporated by
reference herein, sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof and supersedes all prior
agreements, discussions, representations or understandings between them.
8.2 EarthWeb acknowledges that ACTV owns all property and
intellectual property rights in the eSchool(TM) Product (including but not
limited to any enhancements, upgrades, new releases, and modifications).
8.3 ACTV acknowledges that EarthWeb owns all property and
intellectual property rights in the EarthWebModerator(TM) Product (including but
not limited to any enhancements, upgrades, new releases, and modifications).
8.4 Neither party shall solicit or interview for employment or as a
consultant or independent contractor, or hire, contract with or employ any
individuals (a) who are employees of the other party or (b) who have been
employed by the other party during the twelve (12) months prior to the possible
employment, contract or retention date. This Section 8.4 shall apply to
EarthWeb's possible employment of Ray Singh.
8.5 In the event that either party is prevented from the performance
of its obligations hereunder due to events beyond its control (such as, without
limitation, strikes, fire, war, rebellion, accident, acts of God, embargoes,
governmental orders or other such restrictions), this Agreement shall be
suspended during such interruption.
8.6 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, U.S.A., exclusive of its choice of law
principles. Any controversy or claim arising out of or related to this
Agreement, or any breach thereof (a "Dispute"), shall be settled by binding
arbitration under the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), conducted by a single arbitrator familiar with
software-related disputes selected by the parties from a list supplied by the
AAA, with the forum being in the Borough of Manhattan, City of New York, State
of New York, USA. The arbitrator shall undertake reasonable efforts to minimize
the cost of the arbitration to the parties. In no event shall the arbitrator be
authorized to award punitive or enhanced damages. The parties hereby submit
exclusively, unconditionally and irrevocably to the jurisdiction of the Courts
of the State of New York in the event it is necessary to enforce the
arbitrator's award.
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8.7 The relationship of ACTV and EarthWeb established by this
Agreement is that of independent contractors, and nothing contained in this
Agreement shall be construed to constitute or imply that the parties are related
as employer-employee, agent-principal, partners, joint venturers, co-owners, or
otherwise as participants in a joint or common undertaking. Neither party has
power or authority to represent, act for, bind, or otherwise create or assume
any obligation on behalf of the other party for any purpose whatsoever.
8.8 No modification, change or amendment to this Agreement, nor any
waiver of any rights in respect hereto, shall be binding unless confirmed by a
written instrument signed by an authorized officer of each party. The waiver of
any breach or default hereunder shall not constitute the waiver of any
subsequent breach or default.
8.9 All notices hereunder required to be given to ACTV shall be sent
to ACTV at 1270 Avenue of the Americas, Suite 2401, Rockefeller Center, New
York, New York, Attention: William Samuels, and all notices to EarthWeb shall be
sent to EarthWeb at 3 Park Avenue, 38th Floor, New York, New York 10016,
Attention: Nova Spivack.
8.10 This Agreement shall inure to the benefit of and be binding on
each of the parties hereto and their respective successors, permitted assigns
and representatives. Either party may assign its rights and obligations under
this Agreement to a third party upon the prior written consent of the other
party, such consent not to be unreasonably withheld or delayed, provided that
the fact that a potential assignee is a competitor of the party from whom
consent must be obtained shall be a reasonable basis for withholding consent.
Notwithstanding the foregoing, either party shall have the right to assign this
Agreement and all rights and obligations herein to any majority owned subsidiary
or affiliate or to any person or entity acquiring substantially all of that
portion of the assigning party's business relating to the subject matter of the
Patent Applications. In the event that a party assigns his or her rights and
obligations hereunder to a person or entity acquiring substantially all of that
portion of the assigning party's business related to the subject matter of the
Patent Applications, the assigning party agrees to provide the other party with
notice of such assignment within thirty (30) days following the assignment.
8.11 If one or more of the provisions contained herein shall be
deemed to be null and void by law, then the remaining provisions shall continue
in full force and effect.
8.12 The provisions of paragraphs 4, 7 and 8 shall survive
termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
ACTV, INC. EARTHWEB INC.
("ACTV") ("EarthWeb")
By: By:
--------------------------- ----------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- --------------------------
<PAGE>
ATTACHMENT A
ASSIGNMENT
WHEREAS, by Assignment recorded in the United States Patent and
Trademark Office on Reel 7904, Frame 0056, ACTV, Inc., a corporation organized
and existing under the laws of the state of Delaware, and having a business
address at 1270 Avenue of the Americas, Suite 2401, Rockefeller Center, New
York, New York 10020, and EarthWeb Inc., a corporation organized and existing
under the laws of the state of Delaware, and having a business address at 3 Park
Avenue, 38th Floor, New York, New York 10016, jointly own the entire right,
title and interest in and to (1) INTEGRATED INTERACTIVE VIDEO AND INTERNET
SYSTEM, for which an application for Letters Patent of the United States was
filed on March 14, 1996, and which may be identified in the United States Patent
and Trademark Office by Serial No. 08/615,143; and (2) INTEGRATED INTERACTIVE
VIDEO AND INTERNET SYSTEM, for which an application for Letters Patent of the
United States was filed on March 25, 1996, and which may be identified in the
United States Patent and Trademark Office by Serial No. 08/622,474.
WHEREAS, EarthWeb Inc. has been assigned all the rights interest, title
and privileges of EarthWeb LLC in and to said applications and all reissue,
divisional and continuation applications and to any Letters Patent, both foreign
and domestic, that may or shall issue from such applications, including all of
its entire rights under the International Convention and all inventions
disclosed and discussed therein.
WHEREAS, ACTV, Inc., is desirous of acquiring the entire right, title
and interest in and to said inventions, said applications and in, to and under
any and all Letters Patent, foreign and domestic, to be obtained therefor.
NOW, THEREFORE, it is agreed by, as follows:
For good and valuable consideration, including a separate agreement
between the parties, the sufficiency and adequacy of which is expressly
acknowledged, EarthWeb Inc. has sold, assigned and transferred, and by these
presents does hereby sell, assign and transfer unto said ACTV, Inc., its
successors and assigns, its entire right, title and interest in and to said
applications and all reissue, divisional and continuation applications and the
Letters Patent, both foreign and domestic, that may or shall issue, including
all of its entire rights under the International Convention and all inventions
disclosed and discussed therein.
Upon Said Consideration, EarthWeb Inc., its successor and assigns, does
hereby covenant and agree with the said Assignee, its successors and assigns,
that EarthWeb Inc., its successor and assigns, will not execute any writing or
do any act whatsoever conflicting with these presents and that EarthWeb Inc.,
its successor and assigns, will at any time upon request, without further
consideration, but at the expense of
<PAGE>
said Assignees, their successors or assigns, execute such additional writings
and do such additional acts as said Assignees, their successors or assigns, may
deem necessary or desirable to perfect the Assignee's enjoyment of this grant,
and render all necessary assistance in making application for and obtaining
original, divisional, continuation, reissued or extended Letters Patent of the
United States, or of any and all foreign countries on said invention, and in
enforcing any rights occurring as a result of such applications or patents, by
giving testimony in any proceedings or transactions involving such applications
or patents.
IN WITNESS WHEREOF, Jack D. Hidary, Chief Executive Officer of EarthWeb
Inc. has signed this Agreement on the date set forth below, and wherein this
Assignment becomes effective on the date set forth below.
EarthWeb Inc.
- ---------------------------
Date Jack D. Hidary
Chief Executive Office (CEO)
STATE OF NEW YORK )
) ss.
CITY OF NEW YORK )
On this _____ day of _________, 1997, before me a Notary Public,
personally appeared Jack D. Hidary, known to me to be the Chief Executive
Officer (CEO) of EarthWeb Inc., who is authorized to act on behalf of EarthWeb
Inc., and further known to me to be the person who executed the foregoing
Assignment an acknowledged that he executed the same as his free act and deed.
SEAL
- --------------------------
Notary Public
Exhibit 10.48
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of January 1999, by and
between ACTV, INC., a Delaware corporation, having an office at 1270 Avenue of
the Americas, New York, New York 10020 (hereinafter referred to as "Employer")
and CHRISTOPHER CLINE an individual residing at 514 West End Avenue, New York,
New York 10024 (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ, Employee
as its Chief Financial Officer; and
WHEREAS, Employee is willing to continue to be employed as the Chief
Financial Officer of Employer in the manner provided for herein, and to perform
the duties of the Chief Financial Officer of Employer upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth it is agreed as follows:
1. Employment of Chief Financial Officer of ACTV, Inc. Employer hereby
employs Employee as Chief Financial Officer of ACTV, Inc.
2. Term. Subject to Section 9 below, the term of this Agreement shall
commence on January 1, 1999 and end on December 31, 2004. Each 12 month period
from January 1 through December 31 during the term hereof shall be referred to
as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
3. Duties. The Employee shall perform any and all duties and shall have
any and all powers as may be prescribed by the Chairman and Chief Executive
Officer of ACTV, Inc. and shall be available to confer and consult with and
advise the officers and directors of Employer at such times that may be required
by Employer. Employee shall report directly and solely to the Chairman or his
designee.
4. Compensation.
a. (i) Employee shall be paid a minimum of $150,000 for each Annual
Period, commencing January 1, 1999; provided, however, that Employee's salary
shall be increased annually at the beginning of each Annual Period commencing
January 1, 2000 by an amount equal to no less than the amount of his annual
salary for the immediately preceding Annual Period times the percentage increase
in the CPIW (New York) then in effect as compared to the previous period for
which the CPIW (New York) is available. Employee shall be paid periodically in
accordance with the policies of the Employer during the term of this Agreement,
but not less than monthly.
<PAGE>
(ii) Employee is eligible for bonuses, if any, which will be
determined and paid in accordance with policies set from time to time by the
Board.
(iii) Employee shall be entitled to a leased car of his choice,
the cost of which shall reduce the total cash compensation paid under section 4
(a)(i).
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is an officer or a Director
of Employer on the effective date hereof), including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or obtains the
right to become, the beneficial owner of Employer securities having 30% or more
of the combined voting power of then outstanding securities of the Employer that
may be cast for the election of directors of the Employer;
(B) At any time, a majority of the Board-nominated slate of
candidates for the Board is not elected;
(C) Employer consummates a merger in which it is not the
surviving entity;
(D) Substantially all Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or
liquidation of Employer; then
(ii) (A) All stock options, warrants and stock appreciation
rights ("Rights") granted by Employer to Employee under any plan or otherwise
prior to the effective date of the Change of Control, shall become vested,
accelerate and become immediately exercisable; at an exercise price of 10(cent)
per stock appreciation right if applicable; and in addition the employee, at his
option, shall receive a special compensation payment for the exercise cost of
all vested options upon exercising those options any time within twelve months
after the effective date of the change of control, adjusted for any stock splits
and capital reorganizations having a similar effect, subsequent to the effective
date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
(B) If upon said Change of Control, (i) a new Chief Executive
Officer of Employer is appointed and (ii) Employee is not retained in his
immediately prior position or a substantially similar position with Employer or
the surviving entity, as applicable, then in addition, Employee shall be
eligible to receive a one-time bonus, equal on an after-tax basis to his then
current annual base salary. To effectuate this provision, the bonus shall be
"grossed-up" to include the amount necessary to reimburse Employee for his
federal, state and
<PAGE>
local income tax liability on the bonus and on the "gross-up"
at the respective effective marginal tax rates. Said bonus shall be paid within
thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health insurance program
available to Employer's executive officers.
d. After January 1, 2000, Employer shall maintain a life, accidental
death and dismemberment insurance policy on Employee for the benefit of a
beneficiary named by Employee in an amount not less than $750,000. Ownership of
the policy shall be assigned to Employee upon termination of Employee's
employment under this Agreement.
e. Employee shall also be entitled to participate pari passu in any
other program established by Employer pursuant to which any executive officers
receive a share of the profits of Employer.
f. Employee shall have the right to participate in any other
employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly forbids it, all
Rights which may become exercisable during the term hereof shall be paid for in
cash only if Employee so elects, otherwise they may be paid for:
(i) by the transfer by Employee to Employer of so much of Employee's
Rights which, when valued at the highest trading price of the underlying
securities of Employer during the previous six months, will offset the price of
the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at the lowest
rate, it any, required to be charged by any governmental authority, to accrue
and become due and payable with the principal, in an amount no greater than the
exercise price, given by Employee to Employer and secured solely by the shares
of stock being paid for thereby, which Note shall become due and payable at the
earlier of the expiration hereof or, on a pro rata basis, the sale by Employee
of all or part of the Rights or underlying stock which constitute security for
the Note; or
(iii) by any combination of cash and (ii) or (iii), above.
5. Expenses. Employee shall be reimbursed for all of his actual
out-of-pocket expenses incurred in the performance of his duties hereunder,
provided such expenses are acceptable to Employer, which approval shall not be
unreasonably withheld, for business related travel and entertainment expenses,
and that Employee shall submit to Employer reasonably detailed receipts with
respect thereto.
6. Vacation. Employee shall be entitled to receive three (3) weeks paid
vacation time after each year of employment upon dates agreed upon by Employer.
Upon separation of employment, for any reason, vacation time accrued and not
used shall be paid at the salary rate of Employee in effect at the time of
employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a)
<PAGE>
internal affairs or proprietary business operations of Employer or (b) any trade
secrets, new product developments, patents, programs or programming, especially
unique processes or methods.
8. Covenant Not to Compete. Subject to, and limited by, Section 10(b),
Employee will not, at any time, anywhere in the world, during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business (as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by Employee, his spouse or his children is
permitted if such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or business and
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the NASDAQ Stock Market. As used in this Agreement, the business of Employer
shall be deemed to include the development and implementation of individualized
television technology or programs.
9. Termination.
a. Termination by Employer
(i) For Cause. Employer may terminate this Agreement upon written
notice for Cause. For purposes hereof, "Cause" shall mean (A) engaging by the
Employee in conduct that constitutes activity in competition with Employer; (B)
the conviction of Employee for the commission of a felony; and/or (C) the
habitual abuse of alcohol or controlled substances. Notwithstanding anything to
the contrary in this Section 9(a)(i), Employer may not terminate Employee's
employment under this Agreement for Cause unless Employee shall have first
received notice from the Board advising Employee of the specific acts or
omissions alleged to constitute Cause, and such acts or omissions continue after
Employee shall have had a reasonable opportunity (at least 10 days from the date
Employee receives the notice from the Board) to correct the acts or omissions so
complained of.
(ii) Without Cause. Employer may terminate this Agreement without
cause with no notice to Employee. In the event Employee is terminated without
cause, Employee shall receive severance pay equal to six months.
(iii) Employer may terminate Employee's employment under this
Agreement if, as a result of any physical or mental disability, Employee shall
fail or be unable to perform his duties under this Agreement for any consecutive
period of 90 days during any twelve-month period. If Employee's employment is
terminated under this Section 9(a)(ii): (A) for the first six months after
termination, Employee shall be paid 100% of his full compensation under Section
4(a) of this Agreement at the rate in effect on the date of termination, and in
each successive 12 month period thereafter Employee shall be paid an amount
equal to 67% of his compensation under Section 4(a) of this agreement at the
rate in effect on the date of termination; (B) Employer's obligation to pay life
insurance premiums on the policy referred to in Section 4(d) shall continue in
effect until five years after the date of termination; and (C) Employee shall
continue to be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit plans (including
profit sharing or pension plans) as
<PAGE>
Employee had been entitled to on the date of termination. Any amounts payable by
Employer to Employee under this paragraph shall be reduced by the amount of any
disability payments payable by or pursuant to plans provided by Employer and
actually paid to Employee.
(iv) This agreement automatically shall terminate upon the death
of Employee, except that Employee's estate shall be entitled to receive any
amount accrued under Section 4(a) and the pro-rata amount payable under Section
4(e) for the period prior to Employee's death and any other amount to which
Employee was entitled of the time of his death.
10. Arbitration. Any controversies between Employer and Employee
involving the construction or application of any of the terms, provisions or
conditions of this Agreement, save and except for any breaches arising out of
Sections 7 and 8 hereof, shall on the written request of either party served on
the other be submitted to arbitration. Such arbitration shall comply with and be
governed by the rules of the American Arbitration Association. An arbitration
demand must be made within one (1) year of the date on which the party demanding
arbitration first had notice of the existence of the claim to be arbitrated, or
the right to arbitration along with such claim shall be considered to have been
waived. An arbitrator shall be selected according to the procedures of the
American Arbitration Association. The cost of arbitration shall be born by the
losing party or in such proportions as the arbitrator shall decide. The
arbitrator shall have no authority to add to, subtract from or otherwise modify
the provisions of this Agreement, or to award punitive damages to either party.
11. Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
12. Entire Agreement; Survival. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and supersedes, effective as of the date hereof any prior agreement or
understanding between Employer and Employee with respect to Employee's
employment by Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This Agreement may
not be amended except by an agreement in writing signed by the Employee and the
Employer, or any waiver, change, discharge or modification as sought. Waiver of
or failure to exercise any rights provided by this Agreement and in any respect
shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9 (a) (iii), 9(a)(iv), 14, 15
and 16 shall survive the termination of this Agreement.
13. Assignment. This Agreement shall not be assigned to other parties.
14. Governing Law. This Agreement and all the amendments hereof, and
waivers and consents with respect thereto shall be governed by the internal laws
of the state of New York, without regard to the conflicts of laws principles
thereof.
15. Notices. All notices, responses, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been given
when
a. delivered by hand;
<PAGE>
b. sent be telex or telefax, (with receipt confirmed), provided that
a copy is mailed by registered or certified mail, return receipt requested; or
c. received by the addressee as sent be express delivery service
(receipt requested) in each case to the appropriate addresses, telex numbers and
telefax numbers as the party may designate to itself by notice to the other
parties:
(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: William C. Samuels
Telefax: (212) 459-9548
Telephone: (212) 217-1600
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
Attention: Jay Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
Christopher Cline
514 West End Avenue, #7A
New York, NY 10024
16. Severability of Agreement. Should any part of this Agreement for
any reason be declared invalid by a court of competent jurisdiction, such
decision shall not affect the validity of any remaining portion, which remaining
provisions shall remain in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated, and it is hereby declared
the intention of the parties that they would have executed the remaining
portions of this Agreement without including any such part, parts or portions
which may, for any reason, be hereafter declared invalid.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
ACTV, INC.
By:
-------------------------
WILLIAM C. SAMUELS
President
-------------------------
CHRISTOPHER CLINE
Exhibit 21
ACTV, Inc. Subsidiaries
ACTV Entertainment, Inc.
HyperTV Networks, Inc.
The Los Angeles Individualized Television Network, Inc.
3D Virtual, Inc.
The Florida Individualized Television Network, Inc.
The New York Individualized Television Network, Inc.
The San Francisco Individualized Television Network, Inc.
The Northwest Individualized Television Network, Inc.
The Texas Individualized Television Network, Inc.
The Rocky Mountain Individualized Television Network, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDED IN
THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,188,179
<SECURITIES> 0
<RECEIVABLES> 501,768
<ALLOWANCES> 0
<INVENTORY> 110,405
<CURRENT-ASSETS> 6,574,556
<PP&E> 3,964,688
<DEPRECIATION> 1,598,913
<TOTAL-ASSETS> 13,606,041
<CURRENT-LIABILITIES> 3,156,053
<BONDS> 4,315,016
0
5,023,349
<COMMON> 2,975,946
<OTHER-SE> (3,235,947)
<TOTAL-LIABILITY-AND-EQUITY> 13,606,041
<SALES> 1,405,838
<TOTAL-REVENUES> 1,405,838
<CGS> 218,514
<TOTAL-COSTS> 15,399,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 747,962
<INCOME-PRETAX> (20,868,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,868,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,868,324)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)
</TABLE>
