<PAGE>
514,500 Shares
[GRAPHIC OMITTED]
ACTV, INC.
Common Stock
Stockholders of ACTV, Inc. named under the caption "Selling Security
Holders", from time to time, may offer and sell up to 514,500 shares of our
common stock, par value $.10 per share. We will not receive any of the proceeds
from the sale of the common stock by the selling stockholders.
We have agreed with the selling stockholders to register the shares
offered in this prospectus and we have agreed to pay certain fees and expenses
incident to such registration.
Our common stock is traded on The Nasdaq National Market under the symbol
"IATV." On April 11, 2000, the last reported sale price of our common stock on
The Nasdaq National Market was $22.75.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON
PAGE 6.
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April 13, 2000.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Special Note Regarding Forward Looking Statements............................. ii
Prospectus Summary............................................................ 1
Risk Factors ................................................................. 6
Use of Proceeds .............................................................. 13
Dividend Policy .............................................................. 13
Material Changes.............................................................. 13
Selling Security Holders...................................................... 14
Description of Capital Stock.................................................. 16
Shares Eligible for Future Sale .............................................. 18
Plan of Distribution.......................................................... 19
Indemnification of Directors and Officers..................................... 20
Legal Matters ................................................................ 21
Experts....................................................................... 21
Where You Can Find More Information........................................... 21
Incorporation by Reference.................................................... 21
</TABLE>
ACTV, INC.
514,500 shares of Common Stock offered by Selling Security Holders
April 13, 2000
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information both included and incorporated by reference in this prospectus
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
The following are some of the important factors that could cause actual
results or outcomes to differ materially from those discussed in forward-looking
statements:
- the failure of viewers, producers and advertisers to accept our new
products;
- untimely and unsuccessful deployment of our new products;
- untimely or inadequate deployment of digital set-top boxes;
- the failure of programming distributors to offer and market our
products to their subscribers;
- the lack of acceptable content;
- our inability to compete with companies offering products and
services similar to ours;
- the success of other digital television formats;
- the effect of government regulation or legal proceedings relating to
our business;
- our failure to adequately protect our intellectual property rights
or the adverse impact of other companies' intellectual property
rights;
- our inability to respond to rapid technological change;
- our inability to successfully handle the challenges associated with
the growth of the Internet; and
- other matters discussed in the "Risk Factors" section of this
prospectus.
ACTV-Registered Trademark-, HyperTV-Registered Trademark- and
eSchool-Registered Trademark- are registered trademarks of ACTV, Inc.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION IN THIS PROSPECTUS. IT MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS
OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
RISK FACTORS, THE FINANCIAL STATEMENTS AND THE DOCUMENTS INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS.
ACTV
We are a digital media company that has developed proprietary
technologies, called Individualized Television and HyperTV-Registered
Trademark-. Individualized Television enables television programmers and
advertisers to create individualized programming for digital television.
HyperTV enhances standard television content with information and
interactivity delivered through the Internet. We believe that Individualized
Television is the only technology that enables viewers to instantly and
seamlessly customize their viewing experiences. HyperTV is one of the first
technologies to provide synchronized delivery of television programming and
Internet content.
We anticipate that the expansion of digital television transmission
systems, together with the new applications they enable, will revolutionize
television as we know it by turning passive viewing into an interactive
experience. Digital technology will allow telecasters, advertisers and digital
media companies to bring interactivity and Internet content to a mass audience.
We believe that our proprietary technologies uniquely position us to capitalize
on this anticipated digital television revolution.
Our goal is to establish Individualized Television and HyperTV as industry
standards. To this end, we have built key strategic relationships with industry
leaders, including:
- Liberty Media Corporation, our largest shareholder and a
co-venturer;
- General Instrument Corporation, a shareholder and a
co-investor;
- iN DEMAND LLC (formerly known as Viewer's Choice, LLC),
the nation's leading pay-per-view network;
- FOX Sports Net, the first national supplier of regional
sports programming; and
- The Box Music Network, part of Viacom's MTV Networks.
INDIVIDUALIZED TELEVISION
Individualized Television is a patented process for creating interactive
and instantly customized television content and advertising in response to
viewer remote control entries or to stored demographic information.
Individualized Television remembers a viewer's inputs throughout a program and
can later deliver tailored content to the viewer based on those inputs. We
create individualized programming by simultaneously sending the viewer multiple
television signals, related in time and content, and switching among those
signals without a visually perceptible delay. With Individualized Television,
the viewer experiences the video, audio and graphics of a single fluid
programming stream, while the programming on the other signals remains
transparent. We expect Individualized Television to generate revenues from
subscriber fees, advertising sales and sales of software and services related to
targeted advertising.
We believe that Individualized Television is a core breakthrough for
television programming and advertising. For example:
<PAGE>
- the viewer of a national or international pay-per-view
sporting event or of a regional sports telecast can select
from features such as a different view of the action,
highlight packages, statistics or instant replays;
- a car commercial can ask viewers to identify the models
that most interest them and, based upon their answers,
provide individualized information about the identified
models;
- neighbors watching the same television program can see
entirely different advertisements based upon demographic
information stored in their respective set-top boxes; and
- a child viewing a program can engage a favorite
television character in what seems to be a one-on-one
dialogue.
We are initially targeting Individualized Television, which is
software-based, for distribution through digital cable systems. To receive
Individualized Television, all the cable subscriber needs is a digital set-top
box with our software download. We have agreements with leading manufacturers of
digital set-top terminals--General Instrument, Scientific-Atlanta and
Pioneer--to achieve compatibility of our software with their equipment.
We intend to develop the market for Individualized Television on a
national basis through our joint venture with Liberty Media and our
co-investment with General Instrument, a wholly-owned subsidiary of Motorola,
Inc. Our joint venture with Liberty Media, called LMC IATV Events, LLC, will
license and produce individualized national or international marquee
pay-per-view events, including sports, musical, theatrical and news events. iN
DEMAND LLC, a co-venturer with LMC IATV Events, will provide nationwide
marketing and distribution for LMC IATV Event's programming.
We have created a company with General Instrument, called Digital ADCO,
Inc., to develop and introduce a comprehensive end-to-end system to allow
digital cable, satellite and broadcast systems to offer targeted advertising. By
allowing advertisers to send commercials that reach target audiences, we believe
that Digital ADCO will improve dramatically the efficiency of television
advertising.
For regional sports, we have entered into a master license agreement that
sets forth the framework for negotiating with each of FOX Sports Net's 19 owned
or affiliated regional sports networks to provide content for our planned
individualized sports programming service. To date, we have entered into
licensing agreements with five regional sports networks.
HYPERTV
HyperTV is a patented process that enhances a television program or
advertisement with related and synchronized content delivered through the
Internet. HyperTV works by embedding a stream of Web page addresses into the
video or audio signal or by transmitting the addresses directly over the
Internet to the user's computer. The Web content is synchronized to what is
being shown on a particular television channel. HyperTV generates revenues from
software licensing and program hosting fees, on-line advertising sales,
e-commerce applications, event sponsorship, data management and content creation
fees.
We believe that HyperTV has potential applications for virtually all forms
of television programming and advertising. For instance:
- a music video network can send its viewers song lyrics,
band member biographies or trivia through the Internet in
sync with its television content;
<PAGE>
- a network, televising a movie, can sell banner
advertisements on the Internet and generate revenues from
the sale of movie-related merchandise; and
- a HyperTV-enhanced automobile advertisement can deliver
detailed information from the manufacturer's website or
link to local dealer websites where viewers can schedule
test drives.
Initially, HyperTV will serve the growing number of TV viewers who
simultaneously use the Internet to complement and enhance their TV viewing
experiences. Over half of all PCs in US households, or 22.6 million, are in the
same room as a television and of those, nearly all, or 21.8 million, use the
television and PC simultaneously at least some of the time, according to Media
Metrix. As digital set-top box technology becomes more sophisticated and
powerful and as more cable operators offer high-speed Internet access, we
anticipate that TV viewers will be able to experience both video and Internet
content delivered simultaneously to their television. We believe that our
proprietary HyperTV technology uniquely positions us to capitalize on this
anticipated convergence of television and Internet content.
Like Individualized Television, HyperTV is a software-based system. We
offer free HyperTV software through downloads from our HyperTV.com website. We
market HyperTV to television networks and other television content and
advertising producers as a turnkey system consisting of user software, Web
content creation software and creative services, database management and
analysis and program hosting. We have already built our first program hosting
facility capable of delivering HyperTV-enhanced content to mass audiences and
will scale up our capacity as demand increases.
We have recently entered into an agreement with The Box Music Network
("The Box"), which reaches more than 40 million households worldwide, to create
programming that will integrate HyperTV with The Box's 24-hour-a-day interactive
music television programming. The network uniquely tailors programming for each
of its 200 markets. Viewers within each mar ket have the option to call in or go
on-line to request video for that market from a menu of up to 200 selections.
HyperTV will enable The Box to extend brand identity by synchronizing the
delivery of relevant Web material, Web-based advertising, messages, e-commerce
and chat to broaden the viewer experience and generate new revenue streams. We
will share the incremental on-line revenues and expenses equally with The Box.
We commenced distribution of The Box's enhanced programming in December 1999,
We have also worked with other TV networks and programmers to produce and
distribute HyperTV presentations, including:
- SHOWTIME Online, Inc. for its STARGATE science fiction
program;
- New Line Television, Inc. for pay-per-view exhibitions of
AUSTIN POWERS, THE SPY WHO SHAGGED ME;
- TBS Superstation for its CYBERBOND: 15 DAYS OF 007 movie
festival; and
- Turner Network television for the Screen Actors Guild
Awards program and the exhibition of a filmed concert
tribute to Bob Marley,
OUR BUSINESS STRATEGY
INDIVIDUALIZED TELEVISION
To make Individualized Television a leading application for digital
television, we expect to:
<PAGE>
- Focus initially on marquee national event programming;
- Develop targeted advertising services through Digital
ADCO;
- Gain broad distribution through cable, DBS and eventually
broadcast television; and
- Later expand into other types of television programming,
including regional sports.
HYPERTV
Another business objective is to be a leading provider of software
applications, program hosting and creative services for the enhancement of
traditional television programming with information and interactivity available
through the Internet. Our strategies for accomplishing this objective include
the following:
- Develop early awareness and adoption of HyperTV products
and services in the existing market of viewers who
simultaneously view television and Internet content;
- Offer television content providers a turnkey solution for
television/Internet convergence;
- Form joint venture and license relationships with
television and video content providers to create and offer
HyperTV programming that enhances their standard
telecasts;
- Create a HYPERTV.COM website to serve as a portal and
programming guide for HyperTV; and
- Establish a data warehouse for the benefit of programming
partners and advertisers.
With increases in digital broadband capacity and the deployment of the
next generation of digital set-top boxes, we expect that the market for the
integration of television programming and Internet content delivered to viewers
through a single device will begin to grow significantly. Our long term
objective is to be a leader in this market by providing powerful programming
tools for television networks, advertisers, cable networks and DBS through the
integration of Individualized Television with HyperTV products and services.
OUR ADDRESS
Our principal executive offices are located at 1270 Avenue of the
Americas, New York, New York 10020, and our telephone number is (212) 217-1600.
Our corporate website is located at WWW.ACTV.COM. Information contained at our
website is not a part of this prospectus.
<PAGE>
THE OFFERING
Common stock offered 514,500 shares
<PAGE>
Common outstanding after the offering 49,685,396 shares
Use of proceeds We will not receive any of the
proceeds from the sale of the common
stock by the selling stockholders.
Nasdaq National Market symbol IATV
Risk Factors An investment in our common stock
involves a high degree of risk. See
"Risk Factors" commencing on the
next page.
As of March 24, 2000 there were 49,685,396 shares of common stock
outstanding which includes the 514,500 shares of common stock being registered
hereby. That number does not include, (a) 7,781,645 shares of common stock
issuable upon the exercise of stock options outstanding; and (b) 5,625,000
shares of common stock issuable upon the exercise of warrants outstanding.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING
SHARES OF OUR COMMON STOCK IN THIS OFFERING. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY RISKS WE FACE. ADDITIONAL RISKS AND
UNCERTAINTIES NOT CURRENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY
IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE ADVERSE EVENTS DESCRIBED IN THIS
RISK FACTORS SECTION ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE AND YOU MIGHT LOSE ALL OR PART OF YOUR
INVESTMENT. WE HAVE HAD OPERATING LOSSES AND LIMITED REVENUES TO DATE AND DO NOT
EXPECT TO BE PROFITABLE IN THE FORESEEABLE FUTURE.
WE HAVE BEEN OPERATING AT A LOSS EACH YEAR SINCE OUR INCEPTION, AND WE EXPECT TO
CONTINUE TO INCUR SUBSTANTIAL LOSSES FOR AT LEAST THE FORESEEABLE FUTURE.
Net (loss) applicable to common stockholders for the years ended December
31, 1997, 1998 and 1999 was approximately $10.4 million, $20.9 million and $23.4
million, respectively. Through December 31, 1999, we had an accumulated deficit
of approximately $95.3 million. We also have had limited revenues. Revenues for
the years ended December 31, 1997, 1998 and 1999 were $1.7 million, $1.4 million
and $2.1 million, respectively. Further, we may not be able to generate
significant revenues in the future. In addition, we expect to incur substantial
operating expenses in order to fund the expansion of our Individualized
Television and HyperTV businesses. As a result, we expect to continue to
experience substantial negative cash flow for at least the foreseeable future
and cannot predict when, or even if, we might become profitable.
APPLICATIONS OF INDIVIDUALIZED TELEVISION HAVE NOT BEEN COMMERCIALLY INTRODUCED
AND MAY NOT BE SUCCESSFUL.
We have not generated any revenues from sales of our digital
Individualized Television applications. Our Individualized Television
applications are new, the demand for and market acceptance of which are
uncertain. While we plan to initially commercialize our digital individualized
programming and advertising nationally through our affiliations with LMC IATV
Events, iN DEMAND and General Instrument and have conducted test marketing, we
have not yet introduced Individualized Television on a commercial basis.
Individualized Television may not appeal to a sufficient number of consumers for
it to become commercially viable. Consumers also may be concerned about security
or privacy issues relating to the electronic transmission of their personal
information. We cannot assure you that applications of Individualized Television
will generate sufficient revenues to achieve profitability. As a result of these
uncertainties, applications of Individualized Television may not be successful.
COMMERCIAL ACCEPTANCE OF HYPERTV IS UNCERTAIN, AND RECENT SALES IN THE
ENTERTAINMENT MARKET MAY NOT BE AN INDICATOR OF FUTURE SALES.
HyperTV is new, and the demand for, and the market acceptance of it, are
uncertain. HyperTV may not appeal to a sufficient number of consumers for it to
become commercially viable. We have had a limited number of sales of HyperTV in
the entertainment and on-line education markets, and we cannot assure you that
our marketing or development efforts will significantly increase our sales in
these markets. As a result of these uncertainties, HyperTV may not be
successful.
DELIVERY OF OUR DIGITAL PROGRAMMING IS DEPENDENT UPON THE TIMELY UPGRADE OF
ANALOG CABLE DISTRIBUTION SYSTEMS AND DEPLOYMENT OF DIGITAL SET-TOP BOXES.
The success of Individualized Television depends upon the evolving digital
television market. The speed with which cable operators both upgrade their
current programming distribution systems for digital distribution and deploy
digital set-top boxes directly affects the number of potential subscribers to
our
<PAGE>
Individualized Television services. To have access to Individualized Television,
subscribers must have digital set-top boxes that have been activated with our
software. We cannot assure you that there will be a sufficient number of
potential subscribers with digital set-top boxes in the near future to justify
the deployment of our individualized programming.
WE DEPEND ON THIRD PARTY DISTRIBUTORS TO OFFER AND MARKET APPLICATIONS OF
INDIVIDUALIZED TELEVISION TO THEIR SUBSCRIBERS.
Because we will use third party cable or satellite operators' systems to
offer applications of Individualized Television, our growth and future success
depends substantially upon our ability to convince these distributors to offer
their subscribers Individualized Television. If operators determine that
Individualized Television is not viable as a business proposition or if they
determine that it does not meet their business or operational expectations or
strategies, they will not offer applications of Individualized Television to
their subscribers. Factors that could affect such a determination include:
- the availability of alternative programming which offers
greater financial benefits to the operators;
- government regulations which require the operators to
carry certain programming; and
- constraints on available channel capacity.
Most distributors of television programming have channel capacity limitations.
Traditional analog cable systems transmit significantly fewer channels of
programming than digital cable systems. Digital compression technology can
convert the bandwidth required for one analog channel into as many as twelve
digital channels of programming. Our individualized programming applications
currently require the bandwidth necessary for one analog channel through which
we will transmit four digital signals. We cannot assure you that distributors of
television programming will devote sufficient bandwidth to our individualized
programming in the future, even if they do increase channel capacity. In
addition, we have limited control over the manner in which cable operators
market and price our products to their subscribers, which may have a significant
impact on the overall consumer acceptance of Individualized Television.
WE DEPEND ON TELEVISION PROGRAMMERS AND ADVERTISERS ENHANCING THEIR PROGRAMMING
AND ADVERTISEMENTS WITH OUR TECHNOLOGY.
No television programmer or advertiser is obligated to use our
Individualized Television or HyperTV technology in its programs or
advertisements. Our future growth and long-term success depend on our ability to
convince television programmers and advertisers to enhance their programs and
advertisements with our Individualized Television or HyperTV technology. If our
technology does not appeal to television programmers, advertisers or consumers,
or if they find our competitors' technology more appealing, our business may not
succeed. We have entered into a limited number of agreements with television
programmers to incorporate our technologies. Ultimately, we depend on such
programmers to maintain satisfactory relationships and to negotiate favorable
licensing agreements with the owners of the programming rights, which are
typically the sports teams, leagues, conferences or networks responsible for the
licensed event.
WE ARE SUBJECT TO INTENSE COMPETITION FROM COMPANIES OFFERING PRODUCTS AND
SERVICES SIMILAR TO OURS.
The markets for digital television applications and television/Internet
convergence programming are extremely competitive, and we expect competition to
intensify in the future. In addition, these markets are
<PAGE>
new and quickly evolving and are characterized by untested consumer demand and a
lack of industry standards. These markets are therefore subject to significant
changes in the products and services offered by existing market participants and
the emergence of new market participants. As a result, it is difficult to
identify all of the companies and technologies that compete with us or may
compete with us in the future in one or more of our lines of business. In
addition, any one of these competitors or future competitors may have
significantly greater financial, technical and marketing resources as well as
better brand recognition than we do. A number of companies offer products and
services that contain comparable features to certain discrete elements of
Individualized Television. For example, certain competitors offer products that
allow viewers to switch among different camera angles or to replay portions of a
program. HyperTV's competitors in the television/Internet convergence
programming and services markets include companies that offer, or may soon
offer, products and services that are competitive with some or all of HyperTV's
current or proposed products and services. We expect to face future competition
from computer and software companies, one or more of which may extend the scope
of their products to include functionality similar to that of HyperTV. In
addition, we also face competition from traditional broadcast and cable
television networks.
COMPETITION WITH HIGH DEFINITION TELEVISION AND MULTICASTING MAY LIMIT THE
AVAILABILITY OF INDIVIDUALIZED TELEVISION.
High definition television and multicasting are two major digital
television applications that will directly compete with us for use of the new
digital broadcast distribution capacity. High definition television provides
better color quality and sharper pictures than traditional television.
Multicasting is the transmission of multiple television programs through what
was a single analog television channel and is only available through digital
transmissions. It is too early to determine to what extent third party
distributors who can control access to their distribution system will prefer to
distribute high definition television or multicast programs to the exclusion of
our services. Also, it is too early to determine consumers' relative demand for
the improved color and sharper pictures offered by high definition television,
greater programming quantity offered by multicasting or the individualization of
content offered by Individualized Television. In addition, consumers may resist
the extra cost of subscribing to services that offer our individualized
programming. As a result, there is a risk that other digital television
applications will be employed to the detriment of Individualized Television.
WE DEPEND ON EQUIPMENT MANUFACTURERS TO INCORPORATE OUR TECHNOLOGY.
The success of our products depends upon our relationships with digital
set-top box manufacturers, such as General Instrument, Scientific-Atlanta and
Pioneer, for distribution of digital set-top boxes compatible with our software.
In addition, General Instrument and Scientific-Atlanta, the two largest
suppliers of set-top boxes, also have arrangements with other providers of
similar products or products that may compete with our products. A supplier may
decide in the future to discontinue production of digital set-top boxes
compatible with our technology or to devote its attention to developing similar
technology with our competitors.
WE MAY BE UNABLE TO RESPOND TO RAPID CHANGES IN TECHNOLOGY.
The markets for digital television applications and television/Internet
convergence programming and services are characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of these products and services and their rapid
evolution require us to continually improve the performance, features and
<PAGE>
reliability of our present and proposed products and services, particularly in
response to our competitors' product offerings. We cannot assure you that we
will have the resources or the ability to quickly, cost effectively or
adequately respond to these developments. There may be a limited time-frame for
consumer adoption of Individualized Television and HyperTV applications, and we
cannot assure you that we will be successful in achieving widespread acceptance
of our products and services before competitors offer products and services with
features and performance similar to ours. In addition, the widespread adoption
of new Internet or television technologies or standards could require
substantial expenditures by us to modify or adapt our services and could
fundamentally affect the character and viability of our business model.
OUR SOFTWARE PRODUCTS AND SERVICES MAY CONTAIN UNKNOWN DEFECTS.
Individualized Television, HyperTV or other applications offered by us may
contain design flaws or other defects. Design flaws and other defects which may
include defects that make our products and services incompatible with the
technology employed in digital distribution systems, set-top boxes or the
Internet--may lead to delays in deployment of our products, additional costs,
delayed or lost revenues, loss of market share, failure to achieve market
acceptance, diversion of development resources and harm to our reputation.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS AND SYSTEM FAILURES AS WE DEPLOY OUR
HYPERTV POINTS OF PRESENCE.
Our first HyperTV point of presence, or POP, is at an early stage of
development. We cannot assure you that we or our subcontractor will be able to
handle anticipated traffic at our initial POP or increase the scale of our POP
system to handle significant commercial traffic and provide high quality
performance. Any of these problems in our systems could reduce consumer demand
for our products and have a material adverse effect on our business, financial
condition and results of operations.
WE MAY HAVE DIFFICULTY SUCCESSFULLY MANAGING OUR GROWTH.
Our development activities and operations are expanding rapidly, and
significant further expansion will be necessary to meet our growing demands and
to take advantage of market opportunities. Expansion has placed and will
continue to place substantial strain on our managerial, operational and
financial resources and systems. To manage our growth, we must successfully
implement, improve and effectively utilize our operational and financial systems
while aggressively expanding our workforce. Some of our key personnel have been
with us for less than one year, and we will have to successfully hire and
integrate additional key personnel in the future. We must also maintain and
strengthen the breadth and depth of current strategic relationships while
rapidly developing new relationships. Our existing or anticipated operational
and financial systems may not be sufficient to support our growth, and our
management may not be able to effectively identify, manage and develop existing
and emerging market opportunities. If potential growth is not adequately
managed, our business will suffer.
WE DEPEND UPON OUR KEY MANAGEMENT AND TECHNICAL PERSONNEL, AND THEIR LOSS COULD
PUT US AT A COMPETITIVE DISADVANTAGE.
We largely depend upon the efforts of William C. Samuels, our Chairman of
the Board and Chief Executive Officer, David Reese, our President and Director
and the President of ACTV Entertainment, Inc. and Bruce Crowley, our Executive
Vice President and Director and the President of HyperTV Networks, Inc. We have
entered into employment agreements with each of Messrs. Samuels, Reese and
Crowley, but these agreements do not ensure their continued employment with our
company. We do not maintain "key employee" insurance on the lives of Messrs.
Samuels, Reese or Crowley. Our success also depends on our ability to attract,
train and retain qualified personnel, specifically those with product
development skills. In particular, we must hire additional skilled software
engineers to further our research and development efforts. There is currently a
shortage of qualified senior technical personnel in the software development
field, and this shortage will likely continue. Consequently, competition for
such personnel is intense. We cannot assure you that we will attract a
sufficient number of qualified employees in the future to sustain and grow our
business, or that we will successfully motivate and retain the employees we
attract. If we cannot attract, motivate and retain qualified professionals, our
business may suffer.
<PAGE>
GOVERNMENT LEGISLATION AND REGULATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
The media, telecommunications, broadcast and cable television industries
are subject to extensive regulation by federal, state and local governments and
governmental agencies. Federal, state and local governments and governmental
agencies continue to adopt legislation and regulations affecting these
industries which may affect our business, market participants with which we have
relationships or the acceptance of our products in general. Existing regulations
were substantially affected by the passage of the Telecommunications Act of
1996. For example, competition for channel space has increased as cable
operators have utilized available channel space to comply with "must-carry"
provisions, mandated retransmission consent agreements and "leased access"
provisions. The outcome of pending federal and state administrative proceedings
may also affect the nature and extent of competition that we will encounter.
Increased regulation of the Internet might slow the growth of Internet use,
which could decrease demand for our services, increase our cost of doing
business or otherwise have a material adverse effect on our business, financial
condition and results of operations. Congress has recently passed legislation
regulating certain aspects of the Internet, including on-line content,
children's protection, copyright infringement, user privacy, taxation, access
charges, liability for third-party activities and jurisdiction. In addition,
federal, state and local governmental organizations as well as foreign
governments are considering other legislative and regulatory proposals that
would regulate the Internet. Areas of potential regulation include libel,
pricing, quality of goods and services, intellectual property ownership and
personal privacy. We collect and store personal information from users of our
Individualized Television and HyperTV applications and plan to use such
information to develop our businesses and generate revenues, particularly with
respect to targeted advertising. Storage and use of such information is subject
to state and federal regulation. Storage and use of such information may also
subject us to privacy claims relating to our use and dissemination of personal
information. We do not know how courts will interpret laws governing the
Internet or the extent to which they will apply existing laws regulating issues
such as property ownership, libel and personal privacy to the Internet.
Therefore, we are not certain how new laws governing the Internet or other
existing laws will affect our business.
WE FACE CERTAIN SECURITY AND PRIVACY RISKS.
A significant concern associated with communications and commerce through
our HyperTV applications is the need for secure transmission of confidential
information, such as credit card numbers, over public networks. A party who
gains unauthorized access to our system could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against these security
breaches or to alleviate problems caused by these breaches. In addition, the
information gathered during the Individualized Television experience and stored
in the digital set-top boxes may be subject to personal privacy rights. A breach
of these rights by ourselves, cable operators or other third parties could
expose us to liability. We have no direct control over the confidentiality or
security measures of cable operators or other third parties. Any compromise of
security or misuse of private information could materially adversely affect our
reputation, business, operating results and financial condition and expose us to
a risk of loss or litigation and potential liability. Our insurance may not
cover claims of this type or may not be adequate to indemnify us for all
liability to which we may be exposed. Moreover, concerns over the security of
e-commerce transactions and the potential misuse of personal information may
inhibit the growth of HyperTV and Individualized Television.
WE MAY HAVE LIABILITY FOR INFORMATION RETRIEVED AND REPLICATED ON THE INTERNET.
Because HyperTV users can download and redistribute materials that we may
not create ourselves and this material could be replicated by us or other
content providers, negligence, copyright or trademark infringement or other
legal claims could be made against us. Copyright and trademark laws are evolving
both domestically and internationally, and we are uncertain as to their
applicability to the HyperTV service
<PAGE>
and our possible role as both a technology and content provider. The imposition
of liability for information carried by us would have a material adverse effect
on our business, operating results and financial condition.
OUR EFFORTS TO PROTECT OUR PATENTS AND PROPRIETARY INFORMATION FROM COMPETITORS
MAY NOT BE ADEQUATE.
We have obtained 19 patents covering certain aspects of Individualized
Television and HyperTV and have patents pending with respect to other
developments or enhancements. However:
- the patents we own or have rights to, or that may be
granted or obtained in the future, may not be enforceable,
may not provide us with meaningful protection from
competition or may be revoked entirely;
- patents applied for may not be granted;
- products developed by us may infringe upon patents or
rights of others; and
- we may not possess the financial resources necessary to
enforce patent rights that we hold.
It is very difficult for us to police the unauthorized use of our products and
intellectual property rights. It may be possible for a third party to copy or
otherwise obtain and use our products or technology without our authorization or
to develop similar technology independently. Furthermore, our confidentiality
and invention rights agreements with our full-time employees, consultants and
advisors may not provide effective protection of our proprietary information in
the event of unauthorized use or disclosure of such information. In addition,
laws in many countries other than the United States do not afford us the same
protection of our intellectual property as do our United States patents.
Currently, there are companies offering competitive products that we believe may
be in violation of our patents and expect that companies in the future will
infringe on our intellectual property rights. We intend to aggressively defend
our intellectual property rights, which may involve both litigation and
extensive negotiations with companies we believe are infringing on such rights.
It is possible that we will commence legal action against one or more infringers
in the future to protect our intellectual property rights. If we commence
litigation to protect these rights, we expect the litigation will be extensive,
time-consuming and costly, and we cannot assure you that we will be successful.
Any licensing negotiations we pursue will also be extensive and costly because
the issues are very complex and subjective. We cannot assure you that these
negotiations will result in agreements that will be beneficial to our business
or provide us adequate protection of our rights.
OUR BUSINESS MAY BE RESTRICTED OR MAY BE SUBJECT TO LITIGATION IN THE FUTURE AS
A RESULT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We may be unable to implement our current business plan or expand the
commercial uses of our products if other companies have already acquired or in
the future acquire patents or other intellectual property on which our
technology infringes. The patent application process is not public, and we
cannot assure you that another company has not applied for and will not obtain a
patent that blocks any patents we have pending. Furthermore, because many
companies might choose not to publicize their patents until they have a viable
commercial product or until they believe another company is infringing on their
patents, we cannot assure you that another company has not already obtained
patents that we are violating. As a result, as we expand our business and begin
the commercial deployment of our products, we may receive notices of claims of
infringement of other parties' property rights or claims for indemnification
resulting from infringement claims. Irrespective of the validity or the
successful assertion of such claims, we would incur significant costs and a
diversion of resources with respect to the defense of any claims
<PAGE>
brought. The assertion of such infringement claims could result in injunctions
preventing us from distributing certain products, which could materially
adversely affect our business. If any claims or actions are asserted against us,
we may seek to obtain a license under a third party's intellectual property
rights. However, a license under such circumstances may not be available on
reasonable terms, if at all.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.
Our quarterly revenues and operating results have varied in the past and
will likely continue to vary from quarter to quarter as a result of a number of
factors including:
- the rate of deployment of our Individualized Television
service in any given quarter by cable operators;
- the number of television programmers and advertisers using
our HyperTV products;
- the degree of positive or negative consumer response and
publicity to our initial product launches or any high
profile offerings in a quarter;
- the timing of significant expenses we must incur in order
to expand our businesses; and
- our ability to maintain our current relationships with
Liberty Media, Viewer's Choice, General Instrument, FOX
Sports Net and set-top box manufacturers and to develop
other strategic relationships.
Because we currently have relationships with only a few other companies that we
rely on for manufacturing, programming and distribution, and because we plan to
initially launch our products in narrow markets, any one of these factors could
have a significant effect on our revenues and earnings in a quarter. Any decline
in revenues or earnings or a greater than expected loss for any quarter could
materially adversely affect the price of our common stock, even if not
reflective of any long-term problems with our business.
EXTERNAL FACTORS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
The market price of our common stock has been and may continue to be
volatile and could fluctuate significantly as a result of:
- general economic and stock market conditions;
- changes in financial estimates by securities analysts;
- earnings and other announcements by, and changes in market
evaluations of, providers of digital television products
and convergent media;
- changes in business or regulatory conditions affecting us;
- announcements by our competitors of technological
innovations or new products or services;
- sales, or the anticipation of sales, of substantial
amounts of our common stock in the public market after
completion of this offering; and
<PAGE>
- trading volume of our common stock.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performances. For example, market prices for securities of Internet-related
companies and interactive technology companies have frequently reached elevated
levels. These levels may not be sustainable and may not bear any relationship to
these companies' operating performances. If the market price of our common stock
reaches an elevated level following this offering, it is likely to materially
decline. In the past, following periods of volatility in the market price of a
company's securities, that company's stockholders have often instituted
securities class action litigation against that company.
WE MAY BE UNABLE TO OBTAIN ADDITIONAL FINANCING NECESSARY FOR OUR BUSINESS.
We believe that as of the date of this prospectus, we have the necessary
resources to execute our current business plan. However, to the extent that we
enter new markets or digital set-top box deliveries are delayed, we will require
additional capital. We currently do not have any arrangements for additional
financing and cannot assure you that additional financing will be available on
acceptable terms, if at all. Additional equity financing may substantially
dilute your investment in our common stock, and debt financing, if available,
may involve significant restrictions on our financing and operating activities.
OUR BUSINESS COULD BE DISRUPTED IF ANY OF THE COMPUTER SYSTEMS OR SOFTWARE WE
RELY ON EXPERIENCE YEAR 2000 PROBLEMS.
Although we have not experienced any year 2000 problems, it remains
possible that year 2000-related issues may cause problems or disruptions. While
we believe that all of our systems are year 2000 compliant, we cannot assure you
that we will not discover a year 2000-related problem that will require
upgrading, modifying or replacing our systems. In addition, we depend on a
number of third-party vendors to provide both information and non-information
technology systems and services. While we believe that our material third-party
systems and services are year 2000 compliant, we cannot assure that such systems
will not have year 2000-related problems in the future. We also cannot provide
any assurance that governmental agencies, utility companies, Internet access
companies and others outside of our control will not experience any future year
2000 problems.
WE HAVE A LIMITED NUMBER OF SHARES AVAILABLE FOR FINANCING, ACQUISITIONS AND
JOINT VENTURES.
Upon completion of this offering, our authorized but unissued shares will
be insufficient to effect a major financing, joint venture or acquisition.
Historically, we have had to issue our common stock in order to complete certain
joint ventures, strategic alliances and acquisitions, and we may be required to
issue our stock in the future to complete similar transactions. We will need
approval by a majority of our stockholders to increase the number of our
authorized shares. We cannot assure you that we will receive such authorization
in a timely manner or at all. Failure to receive authorization to issue
additional shares may cause us to forego business and financing opportunities
and could therefore adversely affect our business.
YOUR INVESTMENT MAY BE SUBSTANTIALLY DILUTED UPON EXERCISE OF OUTSTANDING
OPTIONS AND WARRANTS.
As of March 24, 2000, we have granted options and warrants to purchase an
aggregate of 13,406,645 shares of common stock that have not been exercised. To
the extent that the outstanding stock options and warrants are exercised, our
stockholders' interest in us will be diluted. Moreover, the terms upon which we
will be able to obtain additional equity capital may be adversely affected,
since the holders of the outstanding options and warrants can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on more favorable terms than those provided for in the
<PAGE>
outstanding options and warrants. In addition, we have issued to certain of our
officers and other employees options to purchase up to 20% of the capital stock
of our material subsidiaries exercisable in the event of a change of control
under certain circumstances. The aggregate exercise price of these options is
not material. See "Description of Capital Stock" for a more detailed description
of these options.
THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
COULD ADVERSELY AFFECT ITS MARKET PRICE.
Sales of substantial amounts of our common stock in the public market
after the completion of this offering, or the perception that such sales could
occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our
common stock. We cannot predict what effect, if any, market sales of shares held
by any other stockholder or the availability of these shares for future sale
will have on the market price of our common stock. See "Shares Eligible for
Future Sale" for a more detailed description of the restrictions on selling
shares of our common stock after this offering.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
We have issued to certain of our officers and other employees options,
substantially all of which have vested, to acquire class B common stock of our
material subsidiaries, HyperTV Networks, Inc. and ACTV Entertainment, Inc.,
exercisable in the event of a change of control under certain circumstances. The
holders have entered into agreements giving the voting rights of the shares
underlying such class B options to William C. Samuels, our Chief Executive
Officer. If all the issued options are exercised, the options will result in Mr.
Samuels having approximately 86% of the voting power of each material subsidiary
and such officers owning 20% of each material subsidiary. As a result, Mr.
Samuels would have the right to elect the Board of Directors of the subsidiary
and otherwise control its business and affairs. In addition, the exercise of
these options would create a significant minority interest in our material
subsidiaries and would affect the value of our common stock. A potential
acquirer may be discouraged from completing an acquisition if it could not be
assured of having control of us and our material subsidiaries through us. Our
Board of Directors has also adopted a resolution which authorizes them to take
all necessary actions to use and exploit our proprietary and patented
technologies in the event a person or entity seeks to acquire or acquires 20% or
more of our common stock and the Board determines that the acquirer is likely to
act inconsistently with the best interests of our stockholders. For more
information on these provisions, see "Description of Capital Stock--
Antitakeover Provisions Affecting the Common Stock". In addition, our
certificate of incorporation permits our Board of Directors to have us designate
and issue, without stockholder approval, preferred stock with voting, conversion
and other rights and preferences that could differentially and adversely affect
the voting power or other rights of the holders of our common stock. Our
issuance of preferred stock or of rights to purchase preferred stock could also
be used to discourage an unsolicited acquisition proposal. The exercise of the
options, our policy relating to suitable acquirers or the issuance of the
preferred stock could each make it more difficult and therefore discourage an
unsolicited takeover proposal such as a tender offer, proxy contest or removal
of incumbent management, even if such actions would be in the best interest of
our stockholders.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling security holders. All proceeds from the sale of the selling security
holders shares will be for the account of the selling security holders.
<PAGE>
DIVIDEND POLICY
We have never paid or declared a dividend on our common stock. We intend,
for the foreseeable future, to retain all future earnings for use in our
business. The amount of dividends we pay in the future, if any, is within the
discretion of our Board of Directors and will depend upon our earnings, capital
requirements, financial condition and other relevant factors.
MATERIAL CHANGES
On February 4, 2000, we completed a public offering of 4,600,000 shares of
our common stock at a price of $30.00 per share for net proceeds of
$129,750,000. The net proceeds were and will be used for the repayment of debt,
general corporate purposes and working capital.
<PAGE>
SELLING SECURITY HOLDERS
All of the shares of our common stock offered under this prospectus may be
sold by the holders who have previously acquired their shares. We will not
receive any of the proceeds from the sales of shares offered under this
prospectus. All costs, expenses and fees in connection with the registration of
the selling security holders' shares will be borne by us. All brokerage
commissions, if any, attributable to the sale of shares by selling security
holders will be borne by such holders.
The selling security holders are offering a total of 514,500 shares of our
common stock. The following table sets forth:
- the name of each person who is a selling security holder;
- the number of securities owned by each such person at the
time of this offering; and
- the number of shares of common stock each such person will
own after the completion of this offering.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name Beneficial Shares Beneficial Percent
ownership prior included ownership
to this in this after this
offering(1) offering offering(2)
Kelly Porter 28,325 28,325 0 *
International Network Capital LDC 26,501 26,501 0 *
International Network Capital Corp 39,752 39,752 0 *
Gary Lauder 175,536 175,536 0 *
David McGlade 58,646 58,646 0 *
Deborah Raffin/Michael Viner 15,000 15,000 0 *
Dean Dibiase 12,062 12,062 0 *
Ramin Yazdi 9,232 9,232 0 *
William Morrow 11,808 11,808 0 *
Corporate Counselors 12,500 12,500 0 *
John Gee 3,777 3,777 0 *
Imperial Bancorp 2,577 2,577 0 *
Ingrid Carney 2,190 2,190 0 *
Irene Fernandez 1,007 1,007 0 *
Thomas R. Wolzien 100,000 100,000 0 *
Jodi Gallant 892 892 0 *
Ken Goldberg 839 839 0 *
Michio Fujimura 504 504 0 *
Bruce Pfander 504 504 0 *
Bridge Technology Group, LLC 12,000 12,000 0 *
Tomer Tal 294 294 0 *
Steve Braker 210 210 0 *
Charlie Marshall 201 201 0 *
Dave Fiore 101 101 0 *
Judy Young 42 42 0 *
</TABLE>
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to the
securities and includes Shares of Common Stock
<PAGE>
issuable upon the conversion of outstanding preferred stock or subject to
options, or warrants currently exercisable or convertible, or exercisable
or convertible with 60 days.
(2) Gives effect to the sale of all the shares of common stock being offered
hereby.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our total authorized capital stock consists of 65,000,000 shares of common
stock, par value $0.10 per share, and 1,000,000 shares of preferred stock, par
value $0.10 per share. The following descriptions of capital stock are qualified
in all respects by reference to our Restated Certificate of Incorporation and
By-laws, which are incorporated by reference as exhibits to the Registration
Statement of which this prospectus is a part.
COMMON STOCK
The holders of common stock elect all directors and are entitled to one
vote for each share held of record on all matters to be voted upon by
stockholders. Upon successful completion of this offering, [46,480,996] shares
of common stock will be issued and outstanding. Subject to preferences that may
be applicable to any outstanding preferred stock, all shares of common stock
participate equally in dividends, when and as declared by the Board of
Directors, and in net assets on liquidation. The shares of common stock have no
preference, conversion, exchange, preemptive or cumulative voting rights.
PREFERRED STOCK
Our Certificate of Incorporation authorizes the issuance of shares of
preferred stock in one or more series. The Board of Directors has the authority,
without any vote or action by the shareholders, to create one or more series of
preferred stock up to the limit of our authorized but unissued shares of
preferred stock and to fix the number of shares constituting such series and the
designation of such series, the voting powers (if any) of the shares of such
series and the relative, participating, option or other rights (if any), and any
qualifications, preferences, limitations or restrictions thereof, including,
without limitation, the dividend rate (and whether dividends are cumulative),
conversion rights, rights and terms of redemption (including sinking fund
provisions), and redemption price and liquidation preferences, and any other
rights, preferences and limitations pertaining to such series which may be fixed
by the Board of Directors pursuant to the General Corporation Law of the State
of Delaware. Upon completion of this offering, there will be no shares of
preferred stock outstanding.
ANTI-TAKEOVER PROVISIONS AFFECTING THE COMMON STOCK
STAGGERED BOARD
Our Board of Directors is divided into three classes, each class serving a
staggered three-year term. As a result, only one class of directors is elected
at our annual meeting, with the other classes continuing for the remainder of
their respective terms.
SPECIAL MEETINGS
Our Bylaws provide that a special meeting of stockholders may be called
only by the Chairman of the Board of Directors or upon the request of holders of
40% of the shares entitled to vote at such meeting.
OPTIONS IN SUBSIDIARIES
Our Board of Directors has authorized that certain of our direct and
indirect subsidiaries have two classes of common stock, designated as class A
and class B, and one class of preferred stock. In each such subsidiary, the
authorized number of shares of class B common stock is equivalent to 20% of the
total common stock authorized of that subsidiary. Options have been issued for
that full 20%. Each share of class B common stock has 25 votes, compared to one
vote for each share of the class A common stock.
<PAGE>
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 our subsidiaries. These options are only
exercisable in the following two circumstances:
- If a person, other than one of our officers or directors,
or an entity becomes the beneficial owner of 20% or more
of the combined voting power of our common stock, and the
independent members of the Board determine that the person
or entity will act in a manner inconsistent with the best
interests of our stockholders, or
- If a majority of the candidates nominated by management to
our Board is not elected.
The class B common stock, if issued, will have majority voting rights in
such subsidiaries. No class B common stock has been issued to date. If these
options are exercised, such officers, directors and employees will have majority
voting rights in our subsidiaries and, therefore, the ability to elect the Board
of Directors of each subsidiary and to control the business and affairs of each
subsidiary. The holders of the options to purchase class B common stock have
entered into shareholder agreements that grant Mr. Samuels the power to vote the
class B common stock when and if the options are exercised. Holders of the
options of class B common stock of certain subsidiaries also have the rights in
certain circumstances to exchange these options for options of shares of ACTV
common stock with an exercise price equal to the close of ACTV's common stock on
the conversion date. See "Risk Factors--We have anti-takeover defenses that
could delay or prevent an acquisition and could adversely affect the price of
our common stock" for a discussion of the potential risks to your investment in
our common stock.
Digital ADCO's capital structure, which presently consists of one class of
common stock and one class of preferred stock, is presently being changed by
ACTV and General Instrument to consist of two classes of common stock,
designated as Class A and Class B, and one class of preferred stock. It is
presently contemplated that the authorized number of shares of Class B common
stock will be one-third of the total authorized common stock of Digital ADCO,
that each share of Class B common stock will have 25 votes compared to one vote
for each share of Class A common stock, and that initially ACTV and General
Instrument will be the sole holders of the Class B common stock. No options have
been granted with respect to any Digital ADCO stock.
BLANK CHECK PREFERRED STOCK
The existence of authorized but unissued preferred stock may enable our
Board of Directors to render more difficult or discourage an attempt to obtain
control of us by means of a merger, tender offer, proxy contest or otherwise.
For example, if in the due exercise of its fiduciary obligations, our Board of
Directors were to determine that a takeover proposal is not in our best
interests, our Board of Directors could cause us to issue shares of preferred
stock without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group. In this regard, our
Certificate of Incorporation grants the Board of Directors broad power to
establish the rights and preferences of authorized and unissued preferred stock.
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above could decrease the amount of earnings and assets
available for distribution to holders of our common stock and adversely affect
the enjoyment of rights of such holders, including voting rights in the event a
particular series of preferred stock is given a disproportionately large number
of votes per share, and may have the effect of delaying, deferring or preventing
a change in control of us that may be favored by certain stockholders.
BOARD POLICY OF ACTV, INC.
Our policy is and has been "to license ACTV's technology and arrange joint
ventures for its use in a
<PAGE>
number of different industries." Our Board of Directors has previously adopted,
and has reaffirmed in 1999, a resolution which authorizes them to take all
necessary actions to use and exploit our proprietary and potential technologies
in the event a person or entity seeks to acquire or acquires 20% or more of our
common stock and the Board determines that the acquirer is likely to act
inconsistently with the best interests of our stockholders. 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 a 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 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 determined that Liberty Media was a suitable
investor pursuant to this policy. Liberty Media has agreed not to purchase
securities that would increase its interest in us above 26% of our outstanding
common stock.
Both the Board of Directors' policy noted above and the voting power of
our class B common stock in our subsidiaries may have an anti-takeover effect
and may be used to delay, discourage or prevent a change in control or
management of ACTV, Inc.
REGISTRATION RIGHTS
Through a series of transactions, we have issued to Liberty Media 8
million shares of unregistered common stock and outstanding warrants to purchase
5 million shares of unregistered common stock. The foregoing totals include
Liberty Media's March 28, 2000 exercise of one of its warrants for 2,500,000
shares of unregistered common stock of ACTV. Liberty Media has demand
registration rights that would require us to register any shares held by it upon
exercise of those warrants. Liberty Media has agreed not to exercise its demand
rights for a period of 90 days after February 3, 2000.
Through two transactions, one in 1997 and one in 1999, we issued to
General Instrument a total of 1 million shares of our unregistered common stock
and a warrant to purchase 625,000 shares of our unregistered common stock.
General Instrument has piggyback registration rights that allows it to join in
any registration of any securities we file with the Securities and Exchange
Commission. However, the underwriters of any offering of our securities can
delay the exercise of this right.
TRANSFER AGENT
Our transfer agent is Continental Stock Transfer & Trust Company, New
York, New York 10007.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 49,685,396 shares of common stock will
be outstanding, assuming no exercise of outstanding options and warrants. Of
these shares, 514,500 sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless held by an
"affiliate" of ours as that term is defined in Rule 144 under the Securities
Act. Approximately 9,500,000 shares of common stock outstanding prior to this
offering are "restricted securities," as such term is defined under Rule 144,
and an approximate total of an additional 5,700,000 shares would be
restricted securities should
<PAGE>
all of our warrantholders exercise their warrants. These shares are restricted
securities because they were issued in private transactions not involving a
public offering and may not be sold in the absence of registration other than in
accordance with Rule 144 or Rule 701 under the Securities Act or another
exemption from registration. This prospectus may not be used in connection with
any resale of shares of common stock acquired in this offering by our
affiliates.
We, our directors and executive officers, and our principle stockholders
have agreed not to offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, any additional
shares of our common stock or securities convertible into, exchangeable with or
exercisable for any shares of our common stock without the prior written consent
of Credit Suisse First Boston Corporation prior to May 3, 2000. These
contractual restrictions will apply even if the provisions of Rules 144, 144(k)
and 701 of the Securities Act would permit earlier sales. Accordingly, shares
subject to the lock-up agreements will not be salable until the agreements
expire or early waiver of the lock-up agreements by the underwriters, which, if
granted, could permit sales of a substantial number of shares and could
adversely affect the trading price of our shares. Such an early waiver may not
be accompanied by any advance public announcement by us.
In general, under Rule 144 as currently in effect, if a minimum of one
year has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of common stock are aggregated), including persons who may
be deemed our affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of
(1) one percent of the then-outstanding shares of common
stock, which equals 496,854 shares immediately after this
offering, and
(2) the average weekly trading volume during the four calendar
weeks preceding the date on which notice of the sale is
filed with the SEC.
Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current information
about us. In addition, under Rule 144(k), if a period of at least two years has
elapsed since the later of the date restricted securities were acquired from us
or the date they were acquired from an affiliate of ours, a stockholder who is
not an affiliate of ours at the time of sale and who has not been an affiliate
of ours for at least three months prior to the sale would be entitled to sell
shares of common stock in the public market without compliance with the
foregoing requirements under Rule 144. Rule 144 does not require the same person
to have held the securities for the applicable periods. The foregoing
description of Rule 144 is not intended to be a complete description.
In addition, any employee, director or officer of, or consultant to us who
acquired shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits our affiliates to sell their Rule 701 shares without
having to comply with the holding period restrictions of Rule 144, in each case,
commencing 90 days after the date of this prospectus.
A number of our stockholders and warrantholders are parties to agreements
with us that provide them with the right to require us to register the sale of
their shares or the shares issuable upon the exercise of their warrants,
respectively. The stockholders' rights cover approximately 9,500,000 shares of
our issued and outstanding common stock and the warrantholders' rights cover
approximately 5,700,000 of our authorized shares of common stock. Registration
of these shares of our common stock would permit the sale of these shares
without regard to the restrictions of Rule 144. See "Description of Capital
<PAGE>
Stock--Registration Rights" for a more detailed description of these
registration rights.
PLAN OF DISTRIBUTION
Up to 514,500 shares of common stock may be sold by the selling security
holders, the majority of whom acquired such shares from us in connection with
our acquisition of certain assets of CatchTV. We will not receive any of the
proceeds from any sales by selling security holders of their shares. See
"Selling Security Holders."
The selling security holders have advised us that the sale or distribution
of the common stock may be effected directly to purchasers by the selling
security holders as principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more transactions, including
crosses or block transactions, by any of the following methods:
- on the Nasdaq National Market;
- in the over-the-counter market;
- in transactions other than on any stock exchange or in
the over-the-counter market;
- through the writing of options on ACTV common stock; or
- by settlement of short sales of ACTV common stock.
The purchase price of the shares may be determined by the selling security
holder or by agreement between the selling security holder and underwriters,
brokers, dealers or agents o r purchasers. The price may be at:
- market prices prevailing at the time of sale;
- prices related to such prevailing market prices;
- varying prices determined at the time of sale; or
- negotiated or fixed prices.
If the selling security holders effect such transactions by selling common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling security holders or commissions from
purchasers of common stock for whom they may act as agent which may be in excess
of those customary in the types of transactions involved. The selling security
holders and any brokers, dealers or agents that participate in the distribution
of the common stock may be deemed to be underwriters, and any profit on the sale
of common stock by them and any discounts, concessions or commissions received
by any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act.
Because the selling security holders may each be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
selling security holders will be subject to prospectus delivery requirements
under the Securities Act. Furthermore, in the event of a "distribution" of its
shares, the selling security holder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Securities
Exchange Act of 1934 until its participation in that distribution is completed.
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At the time a particular offer of security holders' shares is made by or
on behalf of any of the selling security holders, to the extent such offer
constitutes a distribution under the Securities Act, a supplement to this
prospectus will be distributed, which will set forth the type and number of
securities being offered by such selling security holders and the terms of such
offering, including:
- the name or names and addresses of any underwriters,
dealers or agents;
- the purchase price paid by any underwriter for securities
purchased from the selling security holder; and
- any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling
price to the public.
We will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the security holders'
shares. However, all brokerage commissions, if any, attributable to the sale of
such shares by holders thereof will be borne by such holders.
The shares that may be offered from time to time by selling security
holders may be sold through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.
Under the Securities Exchange Act of 1934 and the regulations thereunder,
any person engaged in a distribution of the securities offered by this
prospectus may not simultaneously engage in market-making activities with
respect to shares of our common stock during the applicable two or nine days
"cooling off" period prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the selling security holders will
be subject to applicable provisions of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, including, without limitation, Regulation
M, in connection with transactions in the securities, which provisions may limit
the timing of purchases and sales of the securities by the selling security
holders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph "Twelfth" of our Restated Certificate of Incorporation contains
a provision, which as permitted by Delaware law, eliminates the personal
liability of directors to ACTV and its stockholders for monetary damages for
unintentional breach of a director's fiduciary duty to ACTV. This provision does
not permit any limitation on, or elimination of, the liability of a director
for:
- disloyalty to us or our stockholders;
- failing to act in good faith;
- for engaging in intentional misconduct or a knowing
violation of law;
- for obtaining an improper personal benefit; or
- for approving an illegal dividend or stock repurchase.
Our Restated Certificate of Incorporation and By-Laws require us to to
indemnify directors and officers against expenses, judgments, fines and amounts
paid in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative, other than a
derivative action, if they acted in good faith and in a manner they reasonably
believed to be in or not
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opposed to our best interests, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses incurred in connection with
defense or settlement of such an action. Moreover, Delaware law requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to us.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities, other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful defense of any
action, suit or proceeding, in connection with the securities being registered,
we will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in Securities Act and will be governed by the final adjudication of
such issue.
LEGAL MATTERS
Gersten, Savage & Kaplowitz, LLP, New York, New York will pass upon the
validity of the shares of common stock for us in connection with this offering.
EXPERTS
The consolidated financial statements of ACTV as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999
included in this prospectus and the related financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-3 regarding this offering
with the SEC. This prospectus, which is a part of the registration statement,
does not contain all of the information included in the registration statement,
and you should refer to the registration statement and its exhibits to read that
information. References in this prospectus to any of our contracts or other
documents are not necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document. You may read and copy the registration statement, the related exhibits
and the other materials we file with the SEC at the SEC's public reference room
in Washington, D.C. and at the SEC's regional offices in Chicago, Illinois and
New York, New York. You can also request copies of those documents, upon payment
of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The SEC also maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file with
the SEC; the site's address is www.sec.gov. You may also request a copy of these
filings, at no cost, by writing or telephoning us as follows: ACTV, Inc., 1270
Avenue of the Americas, New York, NY 10020, (212) 217-1600.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" in this prospectus other
information we file with them, which means that we can disclose important
information to you by referring you to those
<PAGE>
documents. The information incorporated by reference is an important part of
this prospectus; however, the information presented in this prospectus will be
deemed to supersede any earlier information contained in incorporated documents
filed with the SEC before the date of this prospectus. Information that we file
with the SEC after the date of this prospectus will automatically update and
supersede the information in this prospectus and any earlier filed or
incorporated information.
The following documents we have filed with the SEC are incorporated herein
by reference:
(1) our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999; and
(2) any future filings made with the SEC under Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act until we sell all
of the securities offered by this prospectus.
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
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