ACTV INC /DE/, DEF 14A, 2000-04-17

ACTV INC /DE/
DEF 14A, 2000-04-17
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

ACTV, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[ ] Fee computed on table below per exchange Act Rules 14a-6 (i) (1) and 0-11.

(1) Title of each class of securities to which transaction applies:

- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- -------------------------------------------------------------------------------
(5) Total fee paid:

- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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ACTV, INC.
1270 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020

-------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 2000

-------------------

TO THE STOCKHOLDERS OF ACTV, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of ACTV, Inc. (the "Company") will be held at the Warwick Hotel, 65
West 54th Street, New York, New York 10019 on May 19, 2000, at 9:30 a.m., local
time for the following purposes:

1. To elect two Class I directors to hold office for a term of
three years;

2. To approve an amendment to the Company's Restated Certificate
of Incorporation to increase the number of authorized shares
of the Company's Common Stock, $.10 par value per share, from
65,000,000 to 200,000,000;

3. To approve the adoption of the Company's 2000 Stock Incentive
Plan;

4. To ratify the appointment of Deloitte & Touche, LLP, as the
Company's independent certified public accountants for the
ensuing year; and

5. To act upon such other business as may properly come before
the Meeting or any adjournment thereof.

Only Stockholders of record at the close of business on March 31, 2000
are entitled to notice of and to vote at the Meeting and any adjournments
thereof.

In order to ensure the presence of a quorum at the Meeting, it is
important that Stockholders representing a majority of the voting power of all
stock outstanding be present in person or represented by their proxies.
Therefore, whether you expect to attend the Meeting in person or not, please
vote your shares by proxy over the Internet (see the enclosed proxy card for
instructions) or sign, fill out, date and promptly return the enclosed proxy
card in the enclosed self-addressed, postage-paid envelope. If you attend the
Meeting and prefer to vote in person, you can revoke your proxy.

In addition, please note that abstentions and broker non-votes are each
included in the determination of the number of shares present and voting, for
purposes of determining the presence or absence of a quorum for the transaction
of business. Neither abstentions nor broker non-votes are counted as voted
either for or against a proposal.

Dated: April 17, 2000 By Order of the Board of Directors,

/s/ WILLIAM C. SAMUELS
------------------------------------
William C. Samuels
Chairman and Chief Executive Officer

<PAGE>

ACTV, INC.
1270 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020

----------------------

PROXY STATEMENT
-----------------------

ANNUAL MEETING OF STOCKHOLDERS

To Be Held at 9:30 a.m., at the Warwick Hotel,
65 West 54th Street, New York, New York 10019
on May 19, 2000

This Proxy Statement is furnished in connection with a solicitation of
proxies by the Board of Directors of ACTV, Inc. (the "Company") for use at the
Annual Meeting of Stockholders of the Company (the "Meeting") to be held at 9:30
a.m. at the Warwick Hotel, 65 West 54th Street, New York, New York 10019 on May
19, 2000, and at any adjournments thereof. Anyone giving a proxy may revoke it
at any time before it is exercised by giving the Chairman of the Board of
Directors of the Company written notice of the revocation, by submitting a proxy
bearing a later date, or by attending the Meeting and voting. This Proxy
Statement, the accompanying Notice of Meeting and form of proxy have been first
sent to the Stockholders on or about April 19, 2000.

All properly executed, unrevoked proxies on the enclosed form, if
returned prior to the Meeting, will be voted in the manner specified by the
Stockholder. If no specific instruction is given, the shares represented by the
proxy will be voted in accordance with the Board of Directors' recommendations.

OWNERSHIP OF SECURITIES

Only Stockholders of record at the close of business on March 31, 2000,
the date (the "Record Date") fixed by the Board of Directors in accordance with
the Company's By-Laws, are entitled to vote at the Meeting. As of the Record
Date, there were 49,685,396 issued and outstanding shares of common stock, $.10
par value per share (the "Common Stock").

Each outstanding share of Common Stock is entitled to one vote on all
matters properly coming before the Meeting. A majority of the shares of the
outstanding Common Stock is necessary to constitute a quorum for the Meeting.

<PAGE>

The following table sets forth information as of the Record Date
relating to the beneficial ownership of Common Stock by (1) each beneficial
owner of 5% or more of outstanding Common Stock of the Company, based upon
information filed by such owners with the Securities and Exchange Commission;
(2) each of the Company's directors; (3) each of the Company's named executive
officers, as defined under the Securities Exchange Act of 1934; and (4) all
directors and executive officers as a group. The table does not include options
that have not vested or are not exercisable within 60 days of the Record Date:

<S> <C> <C> <C>
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER(1) SHARES (2) OF CLASS
------------------------- --------------------- ----------

Liberty Media Corporation 13,000,000(3) 23.8%

William C. Samuels 3,337,475(4) 6.4%

David Reese 1,656,667(5) 3.2%

Bruce J. Crowley 929,133(6) 1.8%

Christopher C. Cline 188,788(7) *

Steven W. Schuster 30,500(8) *

William Frank 16,500(9) *

Melvyn Klein 0 0

All officers and directors as a 6,159,063 11.4%
group (7 persons) (2-9)

</TABLE>

* Indicates less than 1% of the total shares outstanding.

(1) Unless otherwise indicated, the address of each beneficial owner is
c/o ACTV, Inc., 1270 Avenue of the Americas, New York, New York 10020.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Includes options to purchase 5,000,000 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date. The address of Liberty Media Corporation is 8101 E. Prentice
Avenue, Suite 500, Englewood, Colorado 80111.
(4) Includes options to purchase 2,209,000 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date.
(5) Includes options to purchase 1,479,334 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date.
(6) Includes options to purchase 757,666 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date.
(7) Includes options to purchase 16,334 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date. Additionally, Mr. Cline is the trustee of the Company's 401(k)
Plan and votes the 144,899 shares included in the plan.
(8) Includes options to purchase 22,500 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date.
(9) Includes options to purchase 16,500 shares which are presently
exercisable or which become exercisable within 60 days of the Record
Date.

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<PAGE>

PROPOSAL NO. 1

ELECTION OF DIRECTORS

The By-Laws of the Company provide that the Board of Directors shall be
divided into three classes, designated as Class I, Class II and Class III. At
any Annual Meeting of Stockholders held after the initial election of all
Classes of directors, successors to the class of directors whose term expires at
that Annual Meeting shall be elected for a three year term.

Two Class I directors are proposed to be elected at the Meeting, each
to hold office for a period of three years, or until such director's successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Unless such
authority is withheld, it is intended that the accompanying proxy will be voted
in favor of the two persons named below, each of whom are now serving as Class I
Directors, unless the Stockholder indicates to the contrary on the proxy. The
Company expects that each of the nominees will be available for election, but if
neither of them is a candidate at the time the election occurs, it is intended
that such proxy will be voted for the election of another nominee to be
designated by the Board of Directors to fill any such vacancy or the number of
directors to be elected at this time may be reduced by the Board of Directors.

Class I Director Nominees - Term Expiring 2003.

Bruce Crowley, (42), Director since December 1995. Executive Vice
President of the Company since October 1995 and President of HyperTV Networks,
Inc., a subsidiary of the Company ("HyperTV Networks"), since December 1995. Mr.
Crowley joined the Company as President - Distance Learning in October 1994. He
had previously been employed by KDI Corporation. Mr. Crowley has a B.A. from
Colgate University and an M.B.A. from Columbia University.

Melvyn N. Klein, (57), Director since December 1999. He currently is
a general partner of GKH Partners, L.P., an investment partnership. Mr. Klein
is also a principal of Questor Management Company and director of Anixter
International, Bayou Steel Corporation and Hanover Compressor Corporation. He
received a B.A. from Colgate University and a J.D. from Columbia University.

Class II Incumbent Directors - Term Expiring 2001.

David Reese, (43), Director since 1992. President and Chief Operating
Officer since February 1999. Executive Vice President from November 1992 to
February 1999 and President of ACTV Entertainment, Inc., a subsidiary of the
Company ("ACTV Entertainment"), since November 1994. He has been employed by the
Company since December 1988, and served as the Company's Vice President of
Finance from September 1989 through November 1992. Mr. Reese is the chair of the
advisory board of Pennsylvania State University's School of Information Science
and Technology. He has a B.S. from Pennsylvania State University.

Steven W. Schuster, (44), Director since May 1996. Mr. Schuster has
been engaged in the practice of law for more than 16 years, since January 1996,
as a partner with the law firm of McLaughlin & Stern LLP. From June 1993 to
December 1995 he was a member of the law firm of Shane & Paolillo, P.C.
Mr. Schuster received his BA from Harvard University (1976) and his JD from New
York University School of Law.

Class III Incumbent Directors - Term Expiring 2002.

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<PAGE>

William C. Samuels, (57), Director since August 1989. Chairman of the
Board since November 1994 and Chief Executive Officer since August 1993. In
addition, Mr. Samuels is Chairman of the Board of both ACTV Entertainment and
HyperTV Networks, each subsidiaries of the Company. From August 1989 to February
1999, Mr. Samuels also served as President of the Company. He is a trustee of
Howard J. Samuels Institute at City College in New York, New York and is on the
Board of Directors of the Council of Economic Priorities. Mr. Samuels received a
J.D. from Harvard Law School and a B.S. from the Massachusetts Institute of
Technology.

William A. Frank, (50), Director since April 1996. He currently serves
as the Chief Operating Officer of Cognitive Arts Corp., a position he has held
since June 1997. Mr. Frank was formerly the Chief Executive Officer of Greenwich
Entertainment Group ("Greenwich"), against which an involuntary bankruptcy
petition was filed with the U.S. Bankruptcy Court in May 1997 and pursuant to
which Greenwich was liquidated. From 1991 to 1996, he also served as Chairman of
the Board of Directors of Corsearch, a data research company. Mr. Frank received
a B.S. from the University of Missouri.

Stockholder Vote Required

Election of each director requires the affirmative vote of the holders
of a plurality of the shares of Common Stock present in person or represented by
proxy at the Annual Meeting of Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION TO THE BOARD OF
DIRECTORS OF THE COMPANY OF EACH OF THE DIRECTOR NOMINEES.

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<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth all cash compensation for services rendered
in all capacities to the Company and its subsidiaries for the fiscal years ended
December 31, 1999, December 31, 1998, and December 31, 1997, paid to the
Company's Chief Executive Officer, and the three other most highly compensated
executive officers (the "Named Executive Officers") at the end of the above
fiscal years whose total compensation exceeded $100,000 per annum.

NAME AND PRINCIPAL POSITION LONG-TERM COMPENSATION
- --------------------------- ---------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
------------------- STOCK OPTIONS/SARS COMPEN-
YEAR SALARY BONUS AWARDS ------------ SATION
---- ------ ----- ---------- (1) -------
<S> <C> <C> <C> <C> <C> <C>
William C. Samuels , Chairman,
Chief Executive Officer (2) 1999 $295,000 $25,000 $3,123,376 0/0 $1,976,716
1998 $293,269 $75,000 525,000/0 $10,248
1997 $250,000 $75,000 0/100,000 $220,917
David Reese, President, Chief
Operating Officer (3) 1999 $245,000 $34,410 0/0 $900,254
1998 $243,269 $42,500 330,000/0
1997 $200,000 $20,000 0/50,000
Bruce Crowley, President,
HyperTV Networks, Inc. (4) 1999 $245,000 $37,000 0/0 $692,250
1998 $243,269 $35,000 201,000/0
1997 $200,000 $25,000 0/10,000
Christopher Cline, Senior Vice
President - New Business
Development and Finance (5) 1999 $150,000 $5,000 140,000/0 $704,733
1998 $135,000 $35,000 25,000/0
1997 $133,461 0/20,000

</TABLE>

(1) Does not include securities underlying additional options received during
1999 by certain Named Executive Officers pursuant to (i) an adjustment provision
of options issued in previous years; (ii) the exchange of options for SARs
surrendered; or (iii) the exchange of options for subsidiary common stock
options surrendered. (See below for more detailed information.)

(2) Mr. Samuels has served as Chief Executive Officer of the Company since
1993, Chairman of the Board since 1994, and a Director of the Company since
August 1, 1989. Mr. Samuels' "other compensation" for 1999 relates to the
payment of life insurance premiums, the exercise of SARs, and the forgiveness
of a loan made to purchase Common Stock. Of Mr. Samuels' other compensation
for 1999, 99% was paid in the form of unregistered Common Stock. His other
compensation for 1998 relates to the payment of life insurance premiums. His
other compensation for 1997 relates to the payment of life insurance premiums
and to the exercise of Stock Appreciation Rights ("SARs").

(3) Mr. Reese has been the Company's President and Chief Operating Officer since
February 1999 and previously its Executive Vice President from November 1992.
Mr. Reese has been President of ACTV Entertainment since

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<PAGE>

1994. Prior thereto he was the Company's Vice President of Finance from
September 1989 through November 1992. His other compensation for 1999 relates
to the payment of life insurance premiums, the exercise of SARs, and the
forgiveness of a loan made to purchase Common Stock. Of Mr. Reese's other
compensation for 1999, 99% was paid in the form of unregistered Common Stock.
His other compensation for 1998 relates to the payment of life insurance
premiums. His other compensation for 1997 relates to the payment of life
insurance premiums and to the exercise of SARs.

(4) Mr. Crowley has been President of HyperTV Networks, Inc. since December
1995, and prior thereto, the Company's President, Distance Learning since
October 1994. His other compensation for 1999 relates to the exercise of
SARs, and the forgiveness of a loan made to purchase Common Stock. Of
Mr. Crowley's other compensation for 1999, 100% was paid in the form of
unregistered Common Stock.

(5) Mr. Cline has been the Company's Senior Vice President - New Business
Development and Finance since December 1999. Prior thereto, he was the
Company's Chief Financial Officer since November 1993. His other compensation
for 1999 relates to the exercise of SARs and the forgiveness of a loan made
to purchase Common Stock. Of Mr. Cline's other compensation for 1999, 100%
was paid in the form of unregistered Common Stock.

OPTIONS GRANTS TO NAMED EXECUTIVE OFFICERS IN LAST FISCAL YEAR

The following tables set forth certain information with respect to all
outstanding stock options issued during 1999 to the Company's Named Executive
Officers. The Company did not grant SARs to any Named Executive Officers in
1999.

INDIVIDUAL GRANTS
-------------------
NUMBER OF POTENTIAL REALIZABLE
SECURITIES PERCENT OF TOTAL VALUE AT ASSUMED
UNDERLYING OPTIONS GRANTED ANNUAL RATES OF PRICE
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION APPRECIATION FOR OPTION
NAME GRANTED FISCAL YEAR PRICE DATE TERM
- ----- ------------ --------------- ------ ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
William Samuels 998,000(1) 1.50 12/31/03 $413,593 $913,933
837,000(1) 1.60 12/31/06 $545,189 $1,270,522
300,000(1) 1.50 12/31/03 $96,978 $208,845
250,000(2) 1.50 3/14/07 $184,479 $444,316
Total 2,385,000 35.7% 1.50 $1,240,239 $2,837,616
David Reese 596,000(1) 1.50 12/31/03 $246,996 $545,796
526,000(1) 1.60 12/31/06 $342,616 $798,440
189,000(1) 12/31/03 $61,096 $131,572
250,000(2) 1.50 3/14/07 $105,477 $233,564
Total 1,561,000 23.4% $756,185 $1,709,372
Bruce Crowley 363,000(1) 1.50 12/31/03 $150,435 $332,423
115,000(1) 12/31/03 $37,175 $80,057
320,000(1) 1.60 12/31/06 $208,435 $485,743
Total 798,000 12.0% $396,045 $898,223
Christopher Cline 100,000 $9.00 8/19/04 $248,653 $549,459
40,000 $6.50 3/15/05 $88,425 $200,606

</TABLE>

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<PAGE>

<S> <C> <C> <C> <C>
Total 140,000 2.1% $337,078 $750,065

</TABLE>

(1) Issued pursuant to anti-dilution provisions of stock options issued
in prior years.

(2) Granted with exchange provision in prior year by a subsidiary of
the Company; during 1999 exchanged for options to purchase the Company's Common
Stock.

In September of 1999, the Company exchanged all of its outstanding SARs
for stock options, issued pursuant to the Company's 1999 Stock Option Plan. Such
options have the same exercise price and vesting dates as the SARs for which
they were exchanged. The Company subsequently canceled its SAR plans.

The following tables set forth for the Named Executive Officers certain
information with respect to exercises of stock options and SARs during 1999 and
year-end 1999 stock option and SAR holdings.

SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE IN-THE-MONEY OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISE (#) REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ------------ -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
William Samuels 2,028,000/1,089,000 $92,654,250/$49,753,688
David Reese 1,332,333/686,667 $60,870,964/$31,372,099
Bruce Crowley 671,666/414,334 $30,686,740/$18,929,885
Christopher Cline 8,333 $13,333 173,001/160,667 $545,009/$6,147,806

</TABLE>

Aggregated SAR Exercises in Last Fiscal Year and SAR Year End Values (1)

SHARES
ACQUIRED ON VALUE SARS AT FISCAL YEAR END SARS AT FISCAL YEAR END
NAME EXERCISE (#) REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ------------ -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
William Samuels 132,476 $521,625 0/0 $0/$0
David Reese 104,000 $409,500 0/0 $0/$0
Bruce Crowley 104,000 $341,250 0/0 $0/$0
Christopher Cline 39,070 $597,520 0/0 $0/$0

</TABLE>

(1) The closing bid price of a share of the Company's Common Stock at December
31, 1999 was $45 11/16. The exercise price for all SARs was $1.50. The exercise
prices of the options held by Named Executive Officers at December 31, 1999
range from $1.50 to $9.00.

Director Compensation

Non-employee directors may be paid an honorarium for attending meetings
of the Board of Directors of the Company, in an amount that management
anticipates will not exceed $500 per meeting. There were no director fees paid
in 1999.

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company and Mr. Samuels entered into an employment agreement in
August 1995, as amended in October 1999. Mr. Samuels serves as Chairman of the
Board and Chief Executive Officer of the Company. Under the amended agreement,
Mr. Samuels will be paid a minimum annual salary of $295,000 and a bonus paid in
cash and/or in unregistered securities equal to 2% of the increase over a twelve
month period in the total market capitalization of the Company over the highest
base upon which a bonus has been paid. Mr. Samuels' employment

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<PAGE>

agreement contains non-competition provisions pursuant to which he agreed not to
engage in a business that is competitive with the Company during the term of his
employment agreement and for one year thereafter.

Mr. Samuels holds fully vested options to purchase 2,028,000 shares
of Common Stock at exercise prices of $1.50 and $1.60 per share as of
year-end 1999. Mr. Samuels also holds options to purchase an aggregate of
1,089,000 shares of Common Stock at an exercise price of $1.50 and $1.60 per
share, none of which were exercisable as of year-end 1999. Under certain
circumstances, a portion of such option shares may be adjusted to avoid
dilution. Mr. Samuels has also been granted options to purchase Class B
common shares of certain of its subsidiaries. In December 1999, Mr. Samuels
agreed to amend the exercise provisions of his options to purchase Class B
common shares. The amendments to the Class B Options restrict Mr. Samuels'
ability to exercise the Class B Options to allow exercise only in the event
of a change in control.

The Company and Mr. Reese entered into an employment agreement in
August 1995, as amended in October 1999. Under the amended agreement, Mr. Reese
will be paid a minimum annual base salary of $250,000. Mr. Reese's employment
agreement contains non-competition provisions pursuant to which he agreed not to
engage in a business that is competitive with the Company during the term of his
employment agreement and for one year thereafter.

Mr. Reese holds fully vested options to purchase 1,332,333 shares of
Common Stock at exercise prices of $1.50 and $1.60 per share as of year-end
1999, and options to purchase 686,667 shares at exercise prices of $1.50 and
$1.60 per share, none of which were vested as of year-end 1999. Under certain
circumstances, a portion of such option shares may be adjusted to avoid
dilution. The Company has also granted to Mr. Reese options to purchase Class
B common shares of certain of its subsidiaries. In December 1999, Mr. Reese
agreed to amend the exercise provisions of his options to purchase Class B
common shares. The amendments to the Class B Options restricts Mr. Reese's
ability to exercise the Class B Options to allow exercise only in the event
of a change in control.

The Company and Bruce Crowley entered into an employment agreement in
December 1995, as amended in October 1999. Mr. Crowley has agreed to serve as
President of HyperTV Networks at an annual base salary of $250,000. Mr.
Crowley's employment agreement contains non-competition provisions pursuant to
which he agreed not to engage in a business that is competitive with the Company
during the term of his employment agreement and for one year thereafter.

Mr. Crowley holds fully vested options to purchase 671,666 shares of
common stock at exercise prices of $1.50 and $$1.60 as of year-end 1999 and
options to purchase 414,334 shares of common stock at exercise prices of
$1.50 and $1.60 per share, none of which were vested as of year-end 1999.
Under certain circumstances, a portion of such option shares may be adjusted
to avoid dilution. The Company has also granted to Mr. Crowley options to
purchase Class B common shares of certain of its subsidiaries. In December
1999, Mr. Crowley agreed to amend the exercise provisions of his options to
purchase Class B common shares. The amendments to the Class B Options
restricts Mr. Crowley's ability to exercise the Class B Options to allow
exercise only in the event of a change in control.

Each of Mr. Samuels', Mr. Reese's, Mr. Cline and Mr. Crowley's
employment contracts contain a change of control provision whereby, in
certain circumstances, including the possibility that a person becomes the
owner of 30% or more of the outstanding securities of the employer, the
exercise price of all SARs is reduced to $.10 and 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. Additionally, if
any of Messrs. Samuels, Reese, Cline or Crowley is not retained upon the
occurrence of such event, he will receive a bonus not to exceed 2.7 times his
then current base salary.

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<PAGE>

At the time of issuance, all options to the Company's employees were
granted at an exercise price equal to or greater than the prevailing market
price for the Company's Common Stock.

BOARD COMPENSATION REPORT

Executive Compensation Policy

The Company's executive compensation policy is designed to attract,
motivate, reward and retain the key executive talent necessary to achieve the
Company's business objectives and contribute to the long-term success of the
Company. In order to meet these goals, the Company's compensation policy for its
executive officers focuses primarily on determining appropriate salary levels
and providing long-term stock-based incentives. To a lesser extent, the
Company's compensation policy also contemplates performance-based cash bonuses.
The Company's compensation principles for the Chief Executive Officer are
identical to those of the Company's other executive officers.

Cash Compensation. In determining its recommendations for adjustments
to officers' base salaries for fiscal 1999 the Company focused primarily on the
scope of each officer's responsibilities, each officer's contributions to the
Company's success in moving toward its long-term goals during the fiscal year,
the accomplishment of goals set by the officer and approved by the Board for
that year, the Company's assessment of the quality of services rendered by the
officer, comparison with compensation for officers of comparable companies and
an appraisal of the Company's financial position. In certain situations,
relating primarily to the completion of important transactions or developments,
the Company may also pay cash bonuses, the amount of which will be determined
based on the contribution of the officer and the benefit to the Company of the
transaction or development.

Equity Compensation. The grant of stock options and restricted stock
to executive officers constitutes an important element of long-term
compensation for the executive officers. The grant of stock options and
restricted stock increases management's equity ownership in the Company with
the goal of ensuring that the interests of management remain closely aligned
with those of the Company's Stockholders. The Board believes that stock
options and restricted stock in the Company provide a direct link between
executive compensation and stockholder value. By attaching vesting
requirements, stock options and restricted stock also create an incentive for
executive officers to remain with the Company for the long term. See "Stock
Option Plans."

COMPENSATION COMMITTEE AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors ("Committee") is
responsible for making all compensation decisions with respect to the executive
officers of the Company. The Committee consists of William Frank and Steven
Schuster, both of whom were elected to the Committee in July 1998. In 1999, the
Committee retained the independent compensation consulting firm of Lyons,
Benenson & Company Inc. ("LB & Co.") to review and evaluate the Company's
compensation structure and policies. Following that review, LB & Co. advised the
Company that its compensation structure and policies are appropriate and
competitive as compared with those of similarly situated companies.

Chief Executive Officer Compensation

As indicated above, the factors and criteria upon which the
compensation of William C. Samuels, the Chief Executive Officer, is based are
identical to the criteria used in evaluating the compensation packages of the
other executive officers of the Company. The Chief Executive Officer's
individual contributions to the Company included his leadership role in
establishing and retaining a strong management team, developing and implementing
the

-9-
<PAGE>

Company's business plans and attracting investment capital to the Company. In
addition, the Company reviewed compensation levels of chief executive officers
at comparable companies with the Company's industry.

Respectfully submitted,

William Samuels, Chairman
David Reese, Bruce Crowley, William Frank, Steven Schuster.

-10-
<PAGE>

Corporate Performance Graph

The following graph shows a comparison of cumulative total stockholder
returns from December 31, 1994 through December 31, 1999 for the Company, the
Nasdaq Stock Market-U.S. Index ("Nasdaq") and the Hambrecht & Quist Technology
Index ("H&Q").

DATES ACTV, INC. H&Q TECHNOLOGY NASDAQ STOCK MARKET-U.S.
-------------------- ----------------- --------------------- --------------------------

<S> <C> <C> <C> <C>
Dec-94 100.00 100.00 100.00
Jan-95 162.07 98.52 100.53
Feb-95 144.83 107.04 105.81
Mar-95 137.93 111.89 108.95
Apr-95 137.93 120.25 112.38
May-95 134.48 124.53 115.29
Jun-95 120.69 139.47 124.62
Jul-95 103.45 152.19 133.77
Aug-95 148.28 153.90 136.49
Sep-95 144.17 157.53 139.63
Oct-95 100.00 159.71 138.83
Nov-95 89.66 102.02 142.09
Dec-95 103.45 149.08 141.33
Jan-96 132.74 151.27 142.04
Feb-96 126.73 158.82 147.46
Mar-96 124.14 151.87 147.95
Apr-96 117.24 172.83 160.21
May-96 106.90 175.41 167.56
Jun-96 101.71 162.58 160.01
Jul-96 118.95 145.84 145.76
Aug-96 101.71 154.65 153.94
Sep-96 86.21 172.48 165.70
Oct-96 75.86 169.99 163.87
Nov-96 89.66 190.01 174.04
Dec-96 89.66 184.85 173.89
Jan-97 82.76 204.63 186.23
Feb-97 75.86 187.89 175.93
Mar-97 56.88 176.11 164.46
Apr-97 55.17 182.61 169.58
May-97 49.99 210.06 188.79
Jun-97 47.42 211.88 194.59
Jul-97 41.38 245.93 215.10
Aug-97 49.13 246.61 214.79
Sep-97 40.52 256.69 227.52
Oct-97 49.99 229.13 215.67
Nov-97 47.42 226.72 216.81
Dec-97 44.83 216.24 213.07
Jan-98 47.42 230.11 219.82
Feb-98 46.54 257.47 240.49
Mar-98 44.83 259.58 249.36
Apr-98 41.38 272.01 253.57
May-98 51.72 252.17 239.49

</TABLE>

-11-
<PAGE>

<S> <C> <C> <C> <C>
Jun-98 54.31 268.01 256.21
Jul-98 67.24 264.60 253.22
Aug-98 51.72 208.07 203.17
Sep-98 56.03 238.12 231.37
Oct-98 46.55 258.18 241.36
Nov-98 100.00 288.85 265.78
Dec-98 105.17 336.03 300.25
Jan-99 167.24 381.98 343.91
Feb-99 220.69 339.63 313.08
Mar-99 313.79 365.84 335.86
Apr-99 437.93 379.62 345.30
May-99 424.14 384.81 337.34
Jun-99 382.76 433.17 367.47
Jul-99 377.59 426.72 362.12
Aug-99 301.59 447.61 376.46
Sep-99 384.34 457.77 375.85
Oct-99 436.21 505.78 403.16
Nov-99 601.72 591.21 446.17
Dec-99 1,227.59 737.73 542.43

</TABLE>

The graph assumes that the value of the investment in the Company's
Common Stock, Nasdaq and H&Q was $100 on December 31, 1994 and that all
dividends were reinvested. No dividends have been declared or paid on the
Company's Common Stock.

Stock Options and Stock Appreciation Rights

Stock Option Plans

On August 9, 1989, the Board of Directors approved a 1989 Employee
Incentive Stock Option Plan (the "1989 ISO Plan") and a 1989 Non-Qualified Stock
Option Plan (the "1989 NQSO Plan" and collectively, with the 1989 ISO Plan, the
"Plans") and on October 20, 1989, the Stockholders authorized and approved the
adoption of the Plans. Michael J. Freeman is not eligible to participate in
either Plan. The 1989 ISO Plan, which is administered by the Board of Directors,
provides for the issuance of up to an aggregate of 100,000 shares of Common
Stock upon exercise of options granted to key employees. The 1989 ISO Plan
stipulates that the exercise price of options granted under the 1989 ISO Plan
may not be less than the fair market value on the date of the grant and, from
May 4, 1990, through May 4, 1992, could not be less than $5.50 per share.
Options granted under the 1989 ISO Plan are not exercisable for a period longer
than ten (10) years from the date of the grant. The 1989 ISO Plan generally
provides that at the time of exercise of any option the purchase price must be
delivered in cash, or at the option of the Board of Directors, or a committee
designated by the Board to administer the 1989 ISO Plan, through delivery of
shares of the Company's Common Stock equal in value to the option exercise
price, or by a combination thereof. Options under the 1989 ISO Plan may be
issued as "Incentive Stock Options" under federal tax laws. At of December 31,
1999, 96,500 options were granted under the 1989 ISO Plan (net of
cancellations), of which 85,317 had been exercised.

The 1989 NQSO Plan, which is administered by the Board of Directors,
provides for the issuance of up to an aggregate of 100,000 shares of Common
Stock upon exercise of options granted to employees, officers, directors,
consultants and independent contractors. The 1989 NQSO Plan grants the Board the
discretion to establish

-12-
<PAGE>

the option exercise price, and that the option exercise price may be less than
fair market value at the time of the grant of the option. Options granted under
the 1989 NQSO Plan shall expire on a date determined by the Board or the
Committee, but in no event later than three months after the termination of
employment or retainer. The 1989 NQSO Plan generally provides that the purchase
price must be delivered in cash, or if permitted by the Board or the Committee,
services rendered or by a combination thereof. At December 31, 1999, 91,500
options had been granted under the 1989 NQSO Plan (net of cancellations) of
which 81,750 had been exercised.

The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by
the Board of Directors in April 1996 and approved by the Stockholders in July
1996. The purpose of the 1996 Plan is to grant officers, employees and others
who provide significant services to the Company a favorable opportunity to
acquire Common Stock so that they have an incentive to contribute to its success
and remain in its employ. Under the 1996 Plan, the Company is authorized to
issue options for a total of 500,000 shares of Common Stock. At December 31,
1999, 483,484 options had been granted under the 1996 Plan (net of
cancellations), of which 181,001 had been exercised.

The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by
the Board of Directors in April 1998 and approved by the Stockholders in June
1998. The purpose of the 1998 Plan is to grant officers, employees and others
who provide significant services to the Company a favorable opportunity to
acquire Common Stock so that they have an incentive to contribute to its success
and remain in its employ. Under the 1998 Plan, the Company is authorized to
issue options to purchase up to 900,000 shares of Common Stock. At of December
31, 1999, 830,501 options were granted under the 1998 Plan (net of
cancellations), of which 87,167 had been exercised.

The Company's 1999 Stock Incentive Plan (the "1999 Plan") was adopted
by the Board of Directors on March 8, 1999. The 1999 Plan is intended to benefit
the Stockholders of the Company by providing a means to attract, retain and
reward individuals who can and do contribute to the longer-term financial
success of the Company. Further, the recipients of stock-based awards under the
1999 Plan should identify their success with that of the Company's Stockholders
and therefore will be encouraged to increase their proprietary interest in the
Company. All directors, executive officers, employees, consultants and other
persons who perform significant services for or on behalf of the Company are
eligible to participate in the 1999 Plan.

Under the 1999 Plan, the Company is authorized to issue options,
subject to adjustment, to purchase up to 1,500,000 shares of Common Stock. The
shares of Common Stock to be offered under the 1999 Plan shall not exceed the
sum of (i) 1,500,000; (ii) any shares available for future awards under the
Company's 1996 Plan and 1998 Plan as of the effective date of the 1999 Plan; and
(iii) any shares that are represented by awards previously granted whether under
a prior plan of the Company or otherwise, which are forfeited, expire or are
canceled without the delivery of shares or which result in the forfeiture of
shares back to the Company.

During 1999, the Company granted under the 1999 Plan options to
purchase 1,451,500 shares of Common Stock (net of cancellations), of which
218,000 were consolidated into the 1999 Plan from them Company's Stock
Appreciation Rights Plans. Options to purchase 10,000 shares of Common Stock
under the 1999 Plan were exercised.

As of December 31, 1999, the Company has also issued options to
purchase shares of Common Stock at varying prices, expiring at dates from 1999
to 2006, that are not part of the Plans. These include options to (i) Mr.
Samuels for 1,755,000 shares at $1.50 per share and options for 1,362,000 shares
at $1.60 per share; (ii) Mr. Reese for 1,176,000 shares at $1.50 per share and
856,000 shares at $1.60 per share; (iii) Mr. Crowley for 564,000 shares at $1.50
per share and 521,000 shares at $1.60 per share; and (iv) Mr. Cline for 8,334
shares at $1.50 per share.

1992 and 1996 Stock Appreciation Rights Plan

-13-
<PAGE>

The Company's 1992 Stock Appreciation Rights Plan (the "1992 SAR Plan")
was approved by the Company's Stockholders in December 1992. The Company 1996
Stock Appreciation Rights Plan (the "1996 SAR Plan") was approved by the
Company's Stockholders in July 1996. Both the 1992 SAR Plan and the 1996 SAR
Plan provides a means whereby employees, officers, directors, consultants and
independent contractors may acquire the right to participate in the appreciation
of the Common Stock of the Company pursuant to "SARs". Subject to adjustment,
the aggregate number of SARs that may be granted under the 1992 SAR Plan shall
not exceed 900,000. Subject to adjustment, 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. Both the 1992 SAR Plan and the 1996 SAR Plan were administered by
the Stock Appreciation Rights Committee (the "SAR Committee").

Upon exercise of a SAR, the holder will receive for each share for
which an 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
Common Stock, equal to the difference between (i) the fair market value per
share of the Common Stock on the date of exercise of the SAR and (ii) the value
of an 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.

As of December 31, 1999, there were no remaining outstanding SARs
issued under the 1992 SAR Plan and the 1996 SAR Plan. In September 1999, the
Company canceled the 1992 SAR Plan and the 1996 SAR Plan.

Section 401(k) Plan

During 1996, the Company adopted a Savings and Retirement Plan (the
"401(k) Plan") covering the Company's full-time employees, the 401(k) Plan is
intended to qualify under Section 401(k) of the Internal Revenue Code, so that
contributions to the 401(k) Plan by employees or by the Company, and the
investment earnings on such contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($9,500 in 1997) and to have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional matching contributions to the 401(k) Plan by the Company
on behalf of all participants in the 401(k) Plan.

Options Grants in Subsidiaries

During 1997, the Company issued to certain employees options to acquire
Class B Common Stock in certain of its subsidiaries (the "Class B Options"). The
options generally vest in increments and are exercisable over a ten-year period.
The Class B Common Shares in total represent not more than 20% of all authorized
common stock of each subsidiary. Each Class B Common Share carries
"super-voting" rights, entitling the holder to 25 votes per each Class B Common
Share.

To date, with respect to its operating subsidiaries, the Company has
issued a total of 1,000,000 Class B options for HyperTV Networks, 1,000,000
Class B options for ACTV Entertainment, and 500,000 Class B options in four
of its non-operating regional networks. Included in these totals are options
for 350,000, 350,000, 100,000, and 20,000 issued to Messrs. Samuels, Crowley,
Reese and Cline with respect to HyperTV Networks; 350,000, 350,000, 100,000
and 20,000 issued to Messrs. Samuels, Reese, Crowley and Cline with respect
to ACTV Entertainment; and 250,000 issued to Mr. Reese and 250,000 issued to
Mr. Samuels with respect to the Company's four non-operating regional
networks.

Each of the Class B options has been issued with an exercise price at
or above the fair market value per share upon issuance, based on an independent,
outside appraisal obtained by the Company.

-14-
<PAGE>

The Class B option holders have also entered into Stockholders'
agreements that limit their ability to sell shares acquired upon option exercise
and that grant a right of first refusal to the other option holders prior to any
contemplated sale of shares so acquired.

Each holder of Class B options of the Company's four non-operating
networks (assuming that any of such non-operating networks is capitalized with
at least $5 million) has the right to exchange such options into options of the
Company's Common Stock.

In December 1999, the holders of Class B Options to purchase Class B
Common Stock of ACTV Entertainment and HyperTV Networks agreed to amendments to
the exercise provisions of the Class B Options. The amendments to the Class B
Options restrict the holders' ability to exercise the Class B Options to allow
exercise only in the event of a change in control. A change in control is
defined as:

(i) A person (other than a person who is an officer or a director of
the Company 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 the Company's securities having 20% or
more of the combined voting power of the then outstanding voting securities of
the Company; and such person or group is deemed, in the sole discretion of the
independent members of the Board of Directors of the Company, to have interests
which are either not agreeable, compatible or in accordance with, or which are
in conflict with, the interests of the other holders of the voting securities of
the Company; and

(ii) At any time, a majority of the management-nominated slate of
candidates for the Board of Directors of the Company is not elected.

SECTION 16(a) REPORTING

As under the securities laws of the United States, the Company's
directors, its executive (and certain other) officers, and any persons holding
ten percent or more of the Company's Common Stock must report on their ownership
of the Company's Common Stock and any changes in that ownership to the
Securities and Exchange Commission and to the National Association of Securities
Dealers, Inc.'s Automated Quotation System. Specific due dates for these reports
have been established. During the year ended December 31, 1999 the Company
believes all reports on behalf of its executive officers and directors for all
transactions were filed on a timely basis. The Company does not believe that
Banca del Gottardo, a principal stockholder, filed all reports on its ownership
of the Company's Common Stock, on a timely basis, if at all.

MEETINGS OF THE BOARD OF DIRECTORS

There were seven meetings of the Company's Board of Directors during
1999 held on January 14 1999, March 8, 1999, April 7, 1999, June 3, 1999, August
12, 1999, October 6, 1999, and December 3, 1999. All of the Directors were
either present or participated by telephone conference call at such meetings,
except Bruce Crowley who was not present at and did not participate in either
the January 14, 1999 or June 3, 1999 meetings.

There were two unanimous written consents of the Company's Board of
Directors, pursuant to Section 141 of the General Corporation Law of Delaware,
during 1999 dated February 26, 1999 and March 8, 1999. The Company has a
Compensation Committee, consisting of Steven Schuster and William A. Frank.
During 1999, the Compensation Committee met four times on January 5, 1999, April
1, 1999, October 6, 1999 and December 30, 1999. The Compensation Committee
decides issues relating to compensation, including restricted stock awards,
stock options, grants and other compensation.

-15-
<PAGE>

Effective August 12, 1999, the Company's Board of Directors
delegated to the Compensation Committee the responsibility for administering
and consolidating all of the Company's stock option plans under the 1999 Plan.

The Company also has an Audit Committee, consisting of Steven Schuster
and William Frank. There was one meeting of the Company's Audit Committee during
1999, held on June 3, 1999. The Company does not currently have a Nominating
Committee.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In September 1998, Liberty Media invested $5 million in the Company and
in return for its investment received 2,500,000 shares of Common Stock and an
option to purchase an additional $5 million of Common Stock. Also in September
1998, the Company and Liberty Media created LMC IATV Events, LLC to license and
produce individualized marquee national or international pay-per-view events. In
connection with this venture, the Company granted LMC IATV Events an exclusive
license to produce and distribute pay-per-view events that incorporate the
Company's individualized programming enhancements.

In March 1999, Liberty Media exercised its option to purchase Common
Stock for $5 million and purchased additional Common Stock at $8.00 per share
for $4 million. The Company also issued warrants to Liberty Media which, if
fully exercised, would require Liberty Media to invest an additional $90 million
in the Company. These warrants are fully exercisable, have a weighted average
exercise price of $12.00 and expire in three equal tranches in March 2000, 2001
and 2004. In addition, Liberty Media has demand registration rights with respect
to the Common Stock (and Common Stock issuable on exercise of warrants) it
acquired in these transactions. On March 28, 2000, Liberty exercised the first
tranche of its warrants for 2,500,000 shares of the Company's unregistered
Common Stock.

In connection with Liberty Media's purchases of Common Stock of the
Company in 1998 and 1999, Liberty Media acquired the right to nominate members
to the Company/s Board based on the number of shares of Common Stock it actually
owns. The Company has agreed to use its reasonable best efforts to have Liberty
Media's nominees elected to the Company's Board.

William A. Frank is a director of the Company and was formerly the
Chief Executive Officer of Greenwich, a position he held from 1994 to 1997. In
January 1995, the Company granted an exclusive license to Greenwich for the use
of its programming technology in shopping malls, museums and entertainment
centers. In addition, the Company invested approximately $274,000 in Greenwich
Entertainment in 1996, in exchange for approximately 15% of Greenwich
Entertainment's outstanding common stock. During 1997, an involuntary bankruptcy
petition was filed against Greenwich Entertainment, and the company was
liquidated.

All current transactions between the Company and our officers,
directors and principal Stockholders or any affiliates thereof are, and in the
future such transactions will be, on terms no less favorable to the Company than
could be obtained from unaffiliated third-parties.

-16-
<PAGE>

PROPOSAL NO. 2

AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK FROM 65,000,000 TO 200,000,000
--------------------------

The Board has adopted a resolution unanimously approving and
recommending to the Company's Stockholders for their approval an amendment to
the Company's Certificate of Incorporation to provide for an increase in the
authorized number of shares of Common Stock from 65,000,000 to 200,000,000. The
text of the proposed amendment to the Company's Certificate of Incorporation is
attached hereto as Exhibit A.

As of the Record Date, there were 49,685,396 issued and outstanding
shares of Common Stock excluding 8,513,363 shares issuable upon the exercise of
options issued under the Company's Stock Option Plans and 5,625,000 shares of
Common Stock underlying warrants issued in private transactions.

The Board believes the increase in the authorized number of shares
of Common Stock is in the best interests of the Company and believes it
advisable to authorize such shares to have them available for any proper
corporate purpose including, without limitation, stock splits or dividends,
the issuance in private or public sales as a means of raising working
capital, as consideration to be paid by the Company for the acquisition of
other businesses and properties, and the implementation of employee benefit
plans.

The additional shares of Common Stock that would be available for
issuance if the proposed amendment is approved, could be issued for any proper
corporate purpose by the Board at any time without further stockholder approval,
subject to applicable law and to the rules of the Nasdaq Stock Market, Inc. that
apply to the Company as a result of the quotation of the Common Stock on the
Nasdaq National Market so long as the Common Stock is so quoted. Except as
described above, further authorization from the Company's Stockholders will not
be solicited prior to the issuance of Common Stock. The voting and equity
ownership rights of the Company's Stockholders may be diluted by such issuances.
Stockholders will not have preemptive rights to subscribe for shares of Common
Stock, unless the Company grants such rights at the time of issue. Other than
described above, the Company currently has no plans or proposals to issue any of
the additional shares of Common Stock.

The Board of Directors is required to make any determination to issue
shares of Common Stock based on its judgment as to the best interests of the
Company. Although the Board has no present intention of doing so, it could issue
shares of Common Stock (within the limits imposed by applicable laws and the
Nasdaq rules as described above) that could, depending on the circumstances,
make more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise. When in the
judgment of the Board of Directors such use would be in the best interest of the
Company, such shares could be used to create voting or other impediments or to
discourage persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers favorable to the Board in opposing such action.
The issuance of new shares of Common Stock also could be used to dilute the
stock ownership of a person or entity seeking to obtain control of the Company
should the Board consider the action of such entity or person not to be in the
best interest of the Company. Any such issuance could also have the effect of
diluting the earnings per share, book value per share and/or voting power of the
Common Stock.

The Company has no specific plans for the use of the shares of
Common Stock resulting from the increase in the authorized number of shares
of Common Stock.

-17-

<PAGE>

The approval of the proposed Amendment to the Certificate of
Incorporation to increase the authorized number of shares of Common Stock
requires the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting
of Stockholders.

THE BOARD BELIEVES THAT THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS IN THE BEST INTEREST OF THE COMPANY AND
UNANIMOUSLY RECOMMENDS A VOTE FOR ITS APPROVAL.

-18-

<PAGE>

PROPOSAL 3

ADOPTION OF THE COMPANY'S
2000 STOCK INCENTIVE PLAN

The Company's 2000 Stock Incentive Plan (the "2000 Plan") was adopted
by the Board of Directors on March 2, 1999. The 2000 Plan is intended to benefit
the Stockholders of the Company by providing a means to attract, retain and
reward individuals who can and do contribute to the longer-term financial
success of the Company. Further, the recipients of stock-based awards under the
2000 Plan should identify their success with that of the Company's Stockholders
and therefore will be encouraged to increase their proprietary interest in the
Company. Under the 2000 Plan, the Company is authorized to issue options for a
total of 4,000,000 additional shares of Common Stock.

Description of 2000 Plan

All directors, executive officers, employees, consultants and other
persons who perform significant services for or on behalf of the Company are
eligible to participate in the 2000 Plan.

The Company may grant under the 2000 Plan both incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and stock options that do not
qualify for incentive treatment under the Code ("Non-statutory Options").

A copy of the 2000 Plan is attached hereto as Appendix B. The following
summary of the 2000 Plan does not purport to be complete and is qualified in its
entirety by reference to the complete text of the 2000 Plan.

Administration.

The 2000 Plan shall be administered by a committee (the "Committee")
appointed by the Company's Board of Directors, consisting of two or more members
of the Company's Board, all of whom shall not be employees of the Company. The
Committee may delegate certain responsibilities and powers to any executive
officer or officers selected by it. Any such delegation may be revoked by the
Committee at any time.

Subject to the express provisions of the 2000 Plan, the Committee shall
have the authority to construe and interpret the 2000 Plan and all stock
options, stock appreciation rights, stock awards and cash awards entered into
pursuant to the Plan and to define the terms used therein, to prescribe, adopt,
amend and rescind rules and regulations relating to the administration of the
2000 Plan and to make all other determinations necessary or advisable for the
administration of the 2000 Plan. Subject to the express limitations of the 2000
Plan, the Committee shall designate the individuals from among the class of
persons eligible to participate in the 2000 Plan, who shall receive options and
other awards, whether an optionee will receive Incentive Stock Options or
Non-statutory Options, or both, and the amount, price, restrictions and all
other terms and provisions of such options (which need not be identical).

-19-
<PAGE>

Stock Subject to the Plan.

The stock to be offered under the 2000 Plan shall not exceed 4,000,000
shares of Common Stock with certain exceptions. Any shares delivered under the
2000 Plan which are forfeited back to the Company because of the failure to meet
an award contingency or condition shall again be available for delivery pursuant
to new awards granted under the 2000 Plan. Any shares covered by an award (or
portion of an award) granted under the 2000 Plan which is forfeited or canceled,
expires or is settled in cash, including the settlement of tax withholding
obligations using shares, shall be deemed not to have been delivered for
purposes of determining the maximum number of shares available for delivery
under the 2000 Plan. Likewise, if any stock option is exercised by tendering
shares, either actually or by attestation, to the Company as full or partial
payment for such exercise under the 2000 Plan, only the number of shares issued
net of the shares tendered shall be deemed delivered for purposes of determining
the maximum number of shares available for delivery under the 2000 Plan.
Further, Shares issued under the 2000 Plan through the settlement, assumption or
substitution of outstanding awards or obligations to grant future awards as a
condition of the Company acquiring another entity shall not reduce the maximum
number of shares of Common Stock available for delivery under the 2000 Plan. In
addition, shares available for delivery in settlement of awards under the 2000
Plan may be increased by the Board by the number of shares purchased or acquired
by the Company using amounts equivalent to the cash proceeds received by the
Company from the exercise of stock options, granted under any plan of the
Company, occurring after January 1, 2000.

Option and Award Prices

All options and awards denominated or made in shares of Common Stock
shall use as the per share price or exercise price the last sale price of a
share of the Common Stock of the Company as reported by the principal exchange
on which the shares are traded or listed for trading, on the applicable date as
determined by the Committee, or if shares are not traded on such date, the last
sale price on the next preceding day on which such shares are traded. The
applicable date shall be the day on which the award is granted (or other Plan
transaction occurs), except that the Committee may provide that the applicable
date may be (i) the day on which an award recipient was hired, promoted or such
similar singular event occurred, provided that the grant of such award occurs
within 90 days following such applicable date; or (ii) in the case of a stock
option or stock appreciation right granted retroactively in tandem with or as a
substitution for another previously granted stock option or stock appreciation
right, the applicable date for such prior award.

Types of Awards

The types of awards that may be granted under the 2000 Plan include:

1) Stock Options. A stock option may be in the form of an incentive
stock option or in another form that may or may not qualify for favorable
federal income tax treatment. The shares covered by a stock option may be
purchased by means of a cash payment or such other means as the Committee may
from time-to-time permit, including (i) tendering (either actually or by
attestation) shares valued using the market price at the time of exercise, (ii)
authorizing a third party to sell shares (or a sufficient portion thereof)
acquired upon exercise of a stock option and to remit to the Company a
sufficient portion of the sale proceeds to pay for all the shares acquired
through such exercise and any tax withholding obligations resulting from such
exercise; (iii) by converting shares subject to options granted pursuant to the
2000 Plan having a value equal to the exercise price of the options being
exercised on such terms and conditions as the Committee determines; or (iv) any
combination of the above. The exercise price on all options shall be the one
hundred percent (100%) of the option and award price described above.

2) Stock Appreciation Right. A stock appreciation right is a right to
receive a payment in cash, shares or a combination, equal to the excess of the
aggregate market price at time of exercise of a specified number of shares over
the aggregate exercise price of the stock appreciation right being exercised.
The longest term a stock appreciation right may be outstanding shall be 11
years. Such exercise price shall be based on one hundred percent

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<PAGE>

(100%) of the per share option and award price described above.

3) Stock Award. A stock award is a grant of shares or of a right to
receive shares (or their cash equivalent or a combination of both) in the
future. Stock awards shall be earned and vest in accordance with provisions
established by the Committee and shall be governed by whatever conditions,
restrictions and contingencies the Committee shall determine. These may include
continuous service and/or the achievement of performance goals. The performance
goals that may be used by the Committee for such awards shall consist of:
operating profits (including EBITDA), net profits, earnings per share, profit
returns and margins, revenues, market share, stockholder return and/or value,
stock price, working capital and growth rates for each of the foregoing.
Performance goals may be measured solely on a corporate, subsidiary or business
unit basis, or a combination thereof. Further, performance criteria may reflect
absolute entity performance or a relative comparison of entity performance to
the performance of a peer group of entities or other external measure of the
selected performance criteria. Profit, earnings and revenues used for any
performance goal measurement shall exclude: gains or losses on operating asset
sales or dispositions; asset write-downs; litigation or claim judgments or
settlements; effect of changes in tax law or rate on deferred tax liabilities;
accruals for reorganization and restructuring programs; uninsured catastrophic
property losses; the cumulative effect of changes in accounting principles; and
any extraordinary non-recurring items as described in Accounting Principles
Board Opinion No. 30 and/or in management's discussion and analysis of financial
performance appearing in the Company's annual report to Stockholders for the
applicable year.

4) Cash Award. A cash award is a right denominated in cash or cash
units to receive a cash payment, based on the attainment of pre-established
performance goals and, subject to whatever vesting period and such other
conditions, restrictions and contingencies as the Committee shall determine. The
performance goals that may be used by the Committee for such awards shall be
those set forth for stock awards above.

5) Deferred Stock Award. A deferred stock award is a grant of shares to
be received, under an award made at the end of a specified deferral period.
Shares of deferred stock may be awarded either alone or in addition to or in
tandem with other awards granted under the 2000 Plan. The Committee shall
determine the eligible persons to whom and the time or times at which the shares
of deferred stock shall be awarded, the number of shares to be awarded to any
person, the duration of the deferral period and the conditions under which,
receipt of the shares of deferred stock will be deferred, and all other terms
and conditions of the awards.

Amendment & Termination.

The 2000 Plan may be amended as the Board of Directors deems necessary
and appropriate to achieve the 2000 Plan's purpose provided the share and other
award limitations cannot be increased, and the minimum exercise prices and any
performance goal measurements cannot be changed, without approval by the
Company's Stockholders. The Board may suspend or terminate the 2000 Plan at any
time.

Stockholder Vote Required

Approval of the Company's 2000 Plan requires the affirmative vote of
the holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting of Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE COMPANY'S 2000 STOCK OPTION PLAN

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<PAGE>

PROPOSAL NO. 4

RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE, LLP
AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

The Board of Directors of the Company has adopted resolutions
appointing Deloitte & Touche, LLP as the Company's independent certified public
accountants for the ensuing year. Deloitte & Touche, LLP, which has served as
the Company's independent certified public accountants since 1989, is familiar
with the Company's operations, accounting policies and procedures and is, in the
Company's opinion, well-qualified to act in this capacity. A member of Deloitte
& Touche, LLP will be available to answer questions and will have the
opportunity to make a statement if he or she so desires at the Annual Meeting of
Stockholders.

Stockholder Vote Required

Ratification of the appointment of Deloitte & Touche, LLP as the
Company's independent certified public accountants requires the affirmative vote
of the holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting of Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.

OTHER MATTERS

The Board of Directors does not know of any matters other than those
referred to in the notice of meeting that will be presented for consideration at
the Meeting. However, it is possible that certain proposals may be raised at the
Meeting by one or more Stockholders. In such case, or if any other matter should
properly come before the Meeting, it is the intention of the person named in the
accompanying proxy to vote such proxy in accordance with his or her best
judgment.

SOLICITATION OF PROXIES

The cost of soliciting proxies will be borne by the Company.
Solicitations may be made by mail, personal interview, telephone, and telegram
by directors, officers and employees of the Company. The Company will reimburse
banks, brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy material to beneficial owners of
the Company's capital stock.

STOCKHOLDER PROPOSALS

Proposals of Stockholders of the Company that are intended to be
presented by such Stockholders at the Company's next Annual Meeting of
Stockholders must be received by the Company no later than January 1, 2001 in
order that they may be considered for inclusion in the Proxy Statement and form
of proxy relating to that Meeting.

ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION

Copies of the annual report (Form 10-K) of the Company for the year
ended December 31, 1999, as filed with the Securities and Exchange Commission
(without exhibits), and any amendments thereto, are available to

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<PAGE>

Stockholders free of charge by writing to ACTV, Inc., 1270 Avenue of the
Americas, New York, New York 10020.

By Order of the
Board of Directors
of ACTV, Inc.

/s/ WILLIAM C. SAMUELS
-------------------------
William C. Samuels
Chairman and Chief Executive Officer

April 17, 2000

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<PAGE>

APPENDIX A

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of ACTV, Inc.:

We have audited the accompanying consolidated balance sheets of ACTV, Inc. and
subsidiaries ("the Company") as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. 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, 1999 and 1998 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

March 3, 2000
New York, New York

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<PAGE>

ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31, DECEMBER 31,
1998 1999
---------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................. $5,188,770 $8,816,368
Accounts receivable-net................... 501,768 1,160,036
Education equipment inventory............. 110,405 -
Other..................................... 773,613 1,589,430
---------------- ---------------
Total current assets.................. 6,574,556 11,565,834
---------------- ---------------
Property and equipment-net..................... 2,365,775 3,392,219
---------------- ---------------

Other assets:
Patents and patents pending............... 832,336 8,142,928
Software development costs................ 1,098,756 2,183,950
Goodwill 2,214,816 1,788,444
Other..................................... 519,802 1,078,683
---------------- ---------------
Total other assets.................... 4,665,710 13,194,005
================ ===============
Total ........................... $13,606,041 $28,152,058
================ ===============
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses..... $955,686 $1,708,611
Deferred stock appreciation rights........ 2,000,062 -
Preferred dividends payable............... 200,305 -
---------------- -------------
Total current liabilities....... 3,156,053 1,708,611
Long-term note payable.................... 4,315,016 4,803,342
Put warrant............................... 1,371,624 -
Minority interest....................... - 2,000,593
Stockholders' equity (deficiency):
Preferred stock, $.10 par value, 1,000,000 shares
Authorized
Series A 120,000 shares authorized, issued
And outstanding 56,300 at December
31, 1998, none at December 31, 1999 5,630 -
Series B stock 6,110 shares authorized,
Issued and outstanding 5,018 at December
31, 1998, none at December 31, 1999 2,805,961 -
Common stock, $.10 par value, 65,000,000
Shares authorized: issued and outstand-
ing 29,759,459 at December 31, 1998,
42,167,997 at December 31, 1999....... 2,975,946 4,216,800
Additional paid-in capital................ 71,068,230 110,692,842
Loans receivable from stock sales......... (199,900) -
Accumulated deficit....................... (71,892,519) (95,270,130)
---------------- ---------------
Total stockholders' equity (deficiency) 4,763,348 19,639,512
---------------- ---------------
Total............................ $13,606,041 $28,152,058
================ ===============

</TABLE>

See Notes to Consolidated Financial Statements

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<PAGE>

ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997 1998 1999
- ------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Revenues................................. $1,650,955 $1,405,838 $2,117,938
--------------- --------------- -----------------

Costs and expenses:
Cost of sales........................ 471,956 218,514 174,032
Operating expenses.................... 1,360,838 2,004,996 3,241,086
Selling and administrative............ 6,880,311 9,862,086 17,036,576
Depreciation and amortization......... 327,681 1,106,359 1,576,664
Amortization of goodwill.............. 426,372 426,372 426,372
Stock appreciation rights............. (346,892) 2,000,062 1,950,330
--------------- --------------- -----------------
Total costs and expenses........... 9,120,266 15,618,389 24,405,060
--------------- --------------- -----------------
Loss from operations..................... (7,469,311) (14,212,551) (22,287,122)
--------------- --------------- -----------------
Interest income.......................... 116,870 184,285 448,757
Interest (expense)....................... - (932,247) (1,044,227)
--------------- --------------- -----------------
Interest (expense) income - net....... 116,870 (747,962) (595,470)
Minority interest - subsidiary preferred
stock dividend and accretion............. 3,006,242 5,428,638 -
Minority interest - subsidiary........... - - (588)
--------------- --------------- -----------------
Net (loss) .............................. (10,358,683) (20,389,151) (22,883,180)
Preferred stock dividends and -
Accretion................................ 479,173 494,431
--------------- --------------- -----------------
Net (loss) applicable to common

Stockholders............................. $(10,358,683) $(20,868,324) $(23,377,611)
=============== =============== =================

Basic and diluted (loss) per common share
$ (0.80) $ (0.98) $ (0.61)
=============== =============== =================

Weighted average number of common shares

outstanding.............................. 12,883,848 21,399,041 38,219,009
=============== =============== =================

</TABLE>

See Notes to Consolidated Financial Statements

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<PAGE>

ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss applicable to common
Stockholders.............................. $(10,358,683) $(20,868,324) $(23,377,611)
----------------- ----------------- -----------------
Adjustments to reconcile net loss to net
Cash used in operations:
Depreciation and amortization............. 754,053 1,532,731 2,003,036
Stock appreciation rights................. (701,517) 2,000,062 1,950,330
Amortization and accretion of deferred
expenses related to debt financing.... -- 241,565 864,147
Common stock issued for services.......... 443,125 2,016,023 6,383,560
Common stock issued for preferred
Dividends............................. 408,085 162,595 --
Note issued in lieu of cash interest
Payment............................... -- 686,641 --
Subsidiary preferred stock
dividends and accretions.......... 2,598,156 5,749,309 --
Preferred stock accretion................. -- 315,965 241,513
Other..................................... 43,188 -- --
Changes in assets and liabilities:
Accounts receivable....................... 63,960 (198,724) (658,268)
Education equipment inventory............. 99,747 127,352 110,405
Other assets.............................. (241,117) (307,426) (722,963)
Accounts payable and accrued expenses..... 287,504 (926,471) 506,558
----------------- ----------------- -----------------
Net cash used in operating
Activities........................ (6,603,499) (9,468,702) (12,699,293)
----------------- ----------------- -----------------
Cash flows from investing activities:
Investment in patents and patents
Pending........................... (50,000) (598,671) (7,515,343)
Purchases of property and equipment....... (2,159,576) (531,573) (1,956,209)
Investment in software development costs.. (686,227) (797,677) (1,438,654)
----------------- ----------------- -----------------
Net cash used in investing (2,895,803) (1,927,921) (10,910,206)
activities
Cash flows from financing activities:
Net proceeds from debt issuance........... -- 4,462,990 --
Net proceeds from put warrant issuance.... -- 1,371,624 --
Redemption of preferred stock............. -- (565,759) (5,792,538)
Net proceeds from preferred stock
Transactions............................ 2,045,163 -- 115,660
Net proceeds from subsidiary equity
Transactions............................ -- -- 2,000,593
Net proceeds from equity financing........ 1,487,460 10,762,461 30,913,383
----------------- ----------------- -----------------
Net cash provided by financing
activities 3,532,623 16,031,316 27,237,098
----------------- ----------------- -----------------
Net (decrease) increase in cash and cash
Equivalents............................... (5,966,679) 4,634,693 3,627,598
Cash and cash equivalents,

</TABLE>

-27-
<PAGE>

<S> <C> <C> <C>
beginning of period................... 6,520,756 554,077 5,188,770
----------------- ----------------- -----------------
Cash and cash equivalents,
end of period......................... $554,077 $5,188,770 $8,816,368
================= ================= =================

</TABLE>

See Notes to Consolidated Financial Statements.

ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

COMMON STOCK PREFERRED SERIES A PREFERRED SERIES B ADDITIONAL
- ------------------------------ ---------------------------- ---------------------- ------------------------ -------------- ------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL DEFICIT
------------------------------ ------------- -------------- ----------- ---------- -------- --------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances December 31,
1996
11,787,106 $1,178,711 - $ - - $ - $42,272,205 $(40,665,512)
------------- -------------- ----------- ---------- -------- --------------- -------------- --------
Issuance of shares in
connection with financings 733,333 73,333 86,200 8,620 3,447,778
Issuance of shares for
services 286,511 28,651 414,473
Issuance of shares in
connection with exchange of
preferred stock 1,795,661 179,566 1,994,980
Issuance of shares in
connection with exercise of
stock options 12,000 1,200 11,160
Net loss applicable to
Common stockholders (10,358,683)
------------- -------------- ----------- ---------- -------- --------------- -------------- --------
Balances December 31,
1997
14,614,611 $1,461,461 86,200 8,620 - $ - $48,140,596 $(51,024,195
------------- -------------- ----------- ---------- -------- --------------- -------------- ---------
Issuance of shares in
connection with financings 6,458,332 645,833 9,987,692
Issuance of Series B
preferred stock 5,018 2,805,961 2,527,723
Issuance of shares for
services 373,592 37,359 508,083
Issuance of shares in
connection with exchange o
preferred stock 5,857,406 585,741 (29,900) (2,990) 2,535,660
Issuance of share
connection with exercise of
stock options 1,662,452 166,245 2,282,323
Issuance of warrants and
shares in connection with
financing activities 793,066 79,307 5,086,153
Net loss applicable to
Common stockholders (20,389,151)
Preferred dividends (479,173)

</TABLE>

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<PAGE>

============= ============== =========== ========== ======== =============== ============== =========
<S> <C> <C> <C> <C> <C> <C> <C>
Balances December 31,
1998
29,759,459 $2,975,946 56,300 $5,630 5,018 $2,805,961 $71,068,230 $(71,892,519)
============= ============== =========== ========== ======== =============== ============== =========

</TABLE>

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<PAGE>

ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

6,355,771 635,577 12,816,409
Preferred stock redemption

(5,018) (2,805,961) (2,392,380)
Net loss applicable to

Common stockholders (22,883,180)
Preferred stock dividends (494,431)
and accretio
============= ============= =========== ========== ========= ============== =============== ===========
Balances December 31, 1999
42,167,997 $4,216,800 - - - - $110,692,842 $(95,270,130)
============= ============= =========== ========== ========= ============== =============== ===========

</TABLE>

See Notes to Consolidated Financial Statements.

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<PAGE>

ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION - ACTV, Inc. was incorporated on July 8, 1983. ACTV, Inc.,
including its subsidiaries (the "Company" or "ACTV"), is a digital media company
that has developed proprietary technologies, called Individualized Television
and HyperTV. Individualized Television enables television programmers and
advertisers to create individualized programming for digital television, and
HyperTV enhances regular television content with information and interactivity
available through the Internet.

PRINCIPLES OF CONSOLIDATION - The Company's consolidated financial
statements include the balances of its operating subsidiaries that are more than
50% owned and controlled. All significant intercompany transactions and account
balances are eliminated. Minority interest represents an outside stockholder's
49% ownership of the common stock of Digital ADCO.

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,
1997, 1998, and 1999 aggregated $286,883, $762,581, and $929,765, 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. In 1999, the inventory balance
of $110,405 was written-off due to a change of the Company's business.

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 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,
1998 and 1999, are net of accumulated amortization of $186,485, and $391,236,
respectively.

SOFTWARE DEVELOPMENT COSTS - The Company capitalizes costs incurred for
the development of software products where economic and technological
feasibility of such products 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, 1998 and 1999 is net
of accumulated amortization of $145,553, $249,662, 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. During 1999, we recognized $300,000 in revenues for
advertising spots provided to the Company for services rendered.

RESEARCH AND DEVELOPMENT - Research and development costs, which
represent primarily refinements to Individualized Programming, were $820,475 for
the year ended December 31, 1998, and $1,392,937 for the year ended December 31,
1999.

-31-
<PAGE>

EARNINGS PER SHARE - The Company adopted Statement of Financial
Accounting Standards, called SFAS, No. 128, EARNINGS PER SHARE, which
establishes standards for computing and presenting earnings per share, called
EPS, and simplifies the standards for computing EPS currently found in
Accounting Principles Board, called 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
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.

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
operations, 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, 1998, and December 31, 1999, reflect balances of $434,575, and $932
respectively, related to cash advances made to executive officers.

LONG-LIVED ASSETS - In accordance with SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of, the
Company reviews the carrying values of its long-lived assets and identifiable
intangibles for possible impairment whenever events or changes in circumstances
indicate that the carrying value of assets may not be recoverable. The Company
did not record impairment losses for the year ended December 31, 1999.

STOCK-BASED COMPENSATION - Effective December 31, 1997, the Company
adopted SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION ("SFAS No. 123").
In conjunction with the adoption, the Company will continue to apply the
intrinsic-value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees", with pro forma disclosure of net
loss and EPS as if the fair-value based method prescribed by SFAS No. 123 had
been applied.

USE OF ESTIMATES - The preparation of financial statements in conformity
with general accepted accounting principles requires Management to make
estimates and assumptions that effect the reported amount of assets and
liabilities and disclosures 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.

RECLASSIFICATIONS - Certain reclassifications have been made in the
December 31, 1997, and 1998 financial statements to conform to the December 31,
1999 presentation.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In June 1998, the FASB
issued 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,
2000; however, it may be adopted earlier. It cannot be applied

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<PAGE>

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.

2. NATURE OF OPERATIONS

The principal market for the Individualized Television is entertainment
programming distributed over digital television systems. The Company expects
Individualized Television to derive revenues from subscriber fees, advertising
sales, and software and services related to targeted advertising. The Company
derived all of its revenues for 1998 and 1999 from HyperTV, which is targeted at
the entertainment and education markets. The Company anticipates that the most
significant portion of future HyperTV revenues will be derived from the
entertainment market, for which the Company introduced a HyperTV application in
1999. The Company subsequently entered into HyperTV programming alliances for
this market with The Box Music Network, Showtime, New Line Television, and
Turner Entertainment Group. The Company expects the sources of revenue from the
entertainment market to be software licensing, data management services,
Internet advertising and commerce, content creation fees, and program hosting
fees. The Company expects to license third parties to perform much of the
program hosting and content creation business for HyperTV in the future.

Individual customers accounted for more than 10% of the Company's revenues
during the years ended 1999, 1998, and 1997. For the year ended December 31,
1999, individual clients accounted for the following percentages of sales: 14%,
14%, 15%, and 17%. For the year ended December 31, 1998, individual customers
accounted for the following percentages of sales: 14% and 40%. For the year
ended December 31, 1997, an individual customer accounted for the following
percentage of sales: 24%.

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, 1997, 1998, and 1999 consisted of
the following (at cost):

1997 1998 1999
---- ---- ----

<S> <C> <C> <C>
Machinery and equipment $2,931,682 $3,250,720 $4,748,831
Office furniture and fixtures 501,435 713,968 1,172,067
--------------------------------------------------
Total 3,433,117 3,964,688 5,920,898

Less accumulated depreciation 836,332 1,598,913 2,528,679
--------------------------------------------------
Total $2,596,785 $2,365,775 $3,392,219
==================================================

</TABLE>

5. FINANCING ACTIVITIES

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<PAGE>

COMMON STOCK FINANCING
During the years ended December 31, 1998 and 1999, the Company raised
approximately $10.8 and $18.9 million from sales of common stock to private
institutional investors and from the exercise of stock options and warrants,
totaling approximately $2.4 and $12.0 million.

PREFERRED STOCK FINANCING
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% exchangeable preferred stock issued by the Company's
wholly-owned subsidiary ($9.1 million in net proceeds). This exchangeable
preferred stock was 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 exchangeable preferred stock were 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 was applied for conversions. In addition, the Company had the
right to redeem the exchangeable 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 was exercisable by the Company only if the
closing price of the Company's common stock was above $9.00 for thirty
consecutive trading days prior to redemption.

The exchangeable preferred stock was 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 $2.5 million was recorded and included as minority
interest for the year ended December 31, 1997. As of December 31, 1998, all of
the exchangeable preferred stock had been converted.

In November 1998, ACTV issued 5,018 shares of Series B convertible
preferred stock ("Series B 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 the subsidiary exchangeable
preferred stock. The excess of the fair value of this consideration over the
carrying value of the exchangeable preferred stock for which the Series B Stock
was issued is included in Minority Interest--Subsidiary Preferred stock dividend
and accretion in the accompanying statement of operations. The Series B Stock
had a liquidation preference $1,000 per share and paid a dividend, in cash or
accumulated and paid in common stock upon conversion, of 10% per annum.

The Series B Stock was fully redeemable by ACTV at any time at a 10%
premium above face value plus accrued dividends. The holders of the Series B
Stock were prohibited from converting any shares into common stock through
November 13, 1999. Beginning November 13, 1999, the number of shares issued upon
conversion was to be determined by dividing the liquidation value of $1,000 plus
accrued dividends by the conversion price of $2.00 per common share. Beginning
February 13, 2000, the number of shares issued upon conversion was to be
determined by dividing the liquidation value of $1,000 plus accrued dividends by
the conversion price of $1.33 per common share. The beneficial conversion
feature related to the possible conversion of the Series B Stock at $1.33 per
share, which equaled $2,527,723 at the issuance date, was attributed to
additional paid-in-capital and was being accounted for as a charge to net loss
applicable to common stockholders over the period from issuance through February
13, 2000.

During May 1999, ACTV redeemed all of the outstanding Series B Stock
for a total of approximately $5.8 million. The Series B Stock had been
convertible into common stock at $2.00 per share beginning in November 1998.
ACTV effectively redeemed the Series B Stock at an equivalent of $2.20 per
common stock share, a price significantly less than the market price at the time
of the redemption. The redemption avoided the possible future issuance of more

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<PAGE>

than 2.8 million shares of common stock.

DEBT FINANCING
In January 1998, the ACTV subsidiaries, ACTV Entertainment, Inc. and
The Texas Individualized Television Network, Inc. ("Texas Network") 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 the Company's 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 notes, the
Company may 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. The Company chose 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 (The "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 the Company's 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.

For accounting purposes, the Company allocated approximately $1.4
million to the value of the Warrant, based on the market value of the Company's
common stock into which the Warrant was convertible at issuance. The Warrant was
included outside of Consolidated Stockholders' Equity (Deficiency) due to its
cash put feature and the notes were recorded at a value of proceeds received
less the value attributed to the Warrant. The difference between the recorded
value of the notes and their principal value was being amortized as additional
interest expense over the life of the notes. The Warrant was exchanged and
exercised for the Company's common stock during the first quarter of 1999.

The Company intends to repay the debt in full during the second quarter of 2000.

6. STOCKHOLDERS' EQUITY (DEFICIENCY)

At December 31, 1999, the Company had reserved shares of Common Stock for
issuance as follows:

<S> <C>
1989 Qualified Stock Option Plan 11,183
1989 Non-Qualified Stock Option Plan 9,750
1996 Qualified Stock Option Plan 302,483
1998 Qualified Stock Option Plan 743,334
1999 Qualified Stock Option Plan 1,399,500
Options granted outside of formal plans 14,166,588
----------
Total 16,632,838

</TABLE>

CONVERTIBLE PREFERRED STOCK
At December 31, 1999, the Company was authorized to issue 1,000,000
shares of blank check preferred stock, par value $0.10 per share, of which
120,000 shares were designated Series A Convertible Preferred Stock and 6,110
shares were designated Series B Stock. There were 86,200 and 56,300 shares of
Series A Preferred outstanding at December 31, 1997 and 1998, respectively.
Prior to December 31, 1999, the holders converted all of the outstanding shares
of Series A preferred stock and the Company cancelled the Series A designation.
There were

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<PAGE>

0 and 5,018 shares of Series B Stock issued and outstanding as of December 31,
1997 and 1998, respectively. The Company redeemed all of the Series B Stock in
May 1999 and cancelled the Series B Stock designation.

7. STOCK OPTIONS

During 1989, the Board of Directors approved an employee incentive
stock option plan. This plan provides for the granting to key employees of
options to purchase up to 100,000 shares of common stock. The 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, 1999, 96,500 options had been granted under this
plan (net of cancellations), of which 85,317 had been exercised.

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 of Directors or a committee appointed by the Board. The
Non-Qualified Plan provides for the granting to employees, officers, directors,
consultants and independent contractors of options to purchase up to 100,000
shares of common stock. 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 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, 1999, 91,500 options had
been granted under this plan (net of cancellations), of which 81,750 had been
exercised.

During 1996, the Board of Directors approved the Company's 1996 Stock
Option Plan (the "1996 Option Plan"). The 1996 Option Plan provides for grants
to employees and others who provide significant services to the Company of
options to purchase up to 500,000 shares of common stock. As of December 31,
1999, the Company had granted 483,484 options under the plan (net of
cancellations), of which 181,001 had been exercised.

During 1998, the Board of Directors approved the Company's 1998 Stock
Option Plan (the "1998 Option Plan"). The 1998 Option Plan provides for grants
to employees and others who provide significant services to us of options to
purchase up to 900,000 shares of common stock. As of December 31, 1999, the
Company had issued 830,501 options under the plan (net of cancellations), of
which 87,167 had been exercised.

During 1999, the Board of Directors approved the Company's 1999 Stock
Option Plan (the "1999 Option Plan"). The 1999 Option Plan provides for grants
to employees and others who provide a significant service to the Company of
options to purchase up to 1,500,000 shares of common stock. In addition, the
1999 Option Plan allows for options already issued to be consolidated under the
Option Plan. As of December 31, 1999, the Company had issued 1,451,500 options
under the 1999 Option Plan (net of cancellation), of which 218,000 were
consolidated into the plan from stock appreciation rights plans. As of December
31, 1999, 10,000 options had been exercised under the 1999 Option Plan.

At December 31, 1998, the Company also had outstanding options and
warrants not issued pursuant to a formal plan that were issued to directors,
certain employees, and consultants and pursuant to financing transactions for
the purchase of 14,166,588 shares of common stock. The prices of these options
and warrants range from $1.50 to $15.00 per share; they have expiration dates in
the years 2000 through 2007. The options and warrants granted are not part of
the stock option plans discussed above.

A summary of the status of the Company's stock options as of December 31, 1999,
1998 and 1997 is as follows:

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<PAGE>

1999 1998 1997
WGTD. WGTD. WGTD.
AVG. AVG. AVG.
1999 EXER 1998 EXER 1997 EXER
SHARES PRICE SHARES PRICE SHARES PRICE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
Of period 7,850,007 3,539,218 3,328,718
Options and warrants granted 14,759,501 $8.20 6,376,073 $1.91 339,683 $1.91
Options and warrants exercised 5,801,670 $1.98 1,844,951 $1.64 17,000 $0.73
Options and warrants terminated 175,000 $4.00 220,333 $2.86 112,183 $4.06
Outstanding at end
Of period 16,632,838 $7.44 7,850,007 $1.90 3,539,218 $1.81
Options and warrants exercisable at end
of period 9,369,330 $9.08 5,782,275 $1.99 2,363,134 $1.87

</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1999:

WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT AVERAGE EXERCISE
EXERCISE PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
- -------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
$0 to 4.00 6,638,338 5.2 Years $1.65 3,427,269 $1.69
$4.01 to 8.00 3,082,500 1.2 Years $7.65 2,500,000 $8.00
$8.01 to 12.00 1,842,500 3.7 Years $9.78 675,000 $10.85
$12.01 to 15.00 5,033,500 2.8 Years $14.00 5,000,000 $14.00
$15.01 to 25.00 36,000 4.9 Years $20.26 0 N/A

</TABLE>

The weighted average fair value of options granted during 1998 and 1999
was $.97 and $5.85 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 APB 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, 1997, 1998, and 1999 would have been
increased to the pro forma amounts indicated below:

NET LOSS TO COMMON STOCKHOLDERS 1997 1998 1999
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
As reported $10,358,683 $20,552,359 $23,377,611
Pro forma $10,574,807 $21,987,835 $25,780,428

</TABLE>

NET LOSS PER BASIC AND DILUTED COMMON SHARE
- -------------------------------------------
<S> <C> <C> <C>
As reported $0.80 $0.96 $0.61
Pro forma $0.82 $1.02 $0.67

</TABLE>

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<PAGE>

The Company estimated the fair value of options issued during 1997,
1998, and 1999 on the date of each grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: no dividend yield,
expected volatility for 1997, 1998, 1999 of 57.3%, 49.5%, and 94.4%,
respectively, and a risk free interest rate of 6% for all years.

8. STOCK APPRECIATION RIGHTS PLANS

The Company's 1992 Stock Appreciation Rights Plan ("SARs Plan") was
approved by the Company's stockholders in December 1992. Subject to adjustment
as set forth in the 1992 SARs Plan, the aggregate number of stock appreciation
rights to be granted could not exceed 900,000.

The Company's 1996 SARs Plan was adopted by the Board of Directors in
April 1996 and approved by the stockholders in July 1996. Subject to adjustment
as set forth in the 1996 SARs Plan, the aggregate number of SARs to be granted
pursuant to the 1996 SARs plan could not exceed 500,000; provided, however, that
at no time could there be more than an aggregate of 900,000 outstanding,
unexercised SARs granted pursuant to both the 1996 SARs Plan and the 1992 SARs
Plan. The 1996 SARs Plan imposed no limit on the number of recipients to whom
awards could be made. Both the 1992 and 1996 SARs Plans were administered by the
Stock Appreciation Rights Committee of the Company's Board of Directors.

SARs could not be exercised until six months from the date of grant. SARs
issued pursuant to the 1992 SARs Plan vested in five equal annual installments
beginning twelve months from the date of grant. SARs issued pursuant to the 1996
SARs Plan vested either in a lump sum or in such installments, which did not
need to be equal, as the Committee determined. If a holder of SARs ceased to be
an employee, director or consultant of the Company, or a subsidiary or
affiliate, other than by reason of the holder's death or disability, any SARs
that had not vested became void. Exercise of SARs also were subject to such
further restrictions (including limits on the time of exercise) as were
necessary 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 were 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 SARs the holder received for each share for which a
stock appreciation right was exercised, as determined by the SARs Committee in
its discretion, (a) shares of the Company's common stock, (b) cash, or (c) cash
and shares of 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 stock
appreciation right and (ii) the exercise price of a stock appreciation right,
which amount could be no less than the fair market value per share of common
stock on the date of grant of the SARs.

Under the 1992 SARs Plan, as of December 31, 1998, the Company had
granted 516,000 outstanding SARs (with an exercise price of $1.50 per share) to
ten employees. The SARs expired between 2001 and 2006. Under the 1996 SARs Plan,
as of December 31, 1998, the Company had granted 380,000 outstanding SARs (with
an exercise price of $1.50 per share) to six employees. The SARs expired between
2002 and 2006. During 1998, no SARs were exercised.

The Company's balance sheets at December 31, 1999 and December 31, 1998,
reflect expense accruals of $0 and $2.0 million, respectively, related to the
Company's SARs plan. No SARs were exercised for cash during the first three
quarters of 1999. In May 1999, Messrs. Samuels, Reese and Crowley agreed to
retroactively exercise their vested SARs for unregistered shares of common
stock, based upon the closing market price of $3 15/16 on January 4, 1999. As a
result, the SARs expense for the first three months of 1999 was approximately
$3.2 million less than it would have been otherwise. In September 1999, all
remaining SARs were converted into options that became part of the Company's
1999 Option Plan.

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<PAGE>

This conversion resulted in a current period expense of $1.3 million with an
additional charge of $381,000 to future periods when the corresponding options
vest. In September 1999, the Company exchanged all of the outstanding SAR for
stock options with the same exercise prices and vesting dates and cancelled its
SAR plans. To account for this exchange, for the year ended December 31, 1999,
the Company simultaneously incurred non-cash compensation expense of $1,254,000
as a component of selling and administrative expense and non-cash income of $2.6
million from the elimination of the SAR liability related. Additionally, the
Company incurred a $381,000 non-cash charge to deferred expenses for rights that
had not vested as of December 31, 1999.

9. INCOME TAXES

The Company accounts for income taxes in accordance with the provisions
of 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, 1997, December 31, 1998, and December 31, 1999 are as
follows:

-39-

<PAGE>

1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:

Operating loss carryforwards $16,131,213 $20,254,782 $27,388,791
Differences between book and tax basis of property 56,148 852,587 1,561,275
------------ ------------- -------------
16,187,361 21,107,369 28,950,066
Deferred tax liabilities:

Differences between book and tax basis of property (181,104) (454,618)
------------ ------------
(305,561) 16,000,257
20,652,751 28,644,505

Valuation Allowance (16,000,257) (20,652,751)
------------ ------------
(28,644,505)
------------
Net deferred tax asset $ 0 $ 0 $ 0
================= ================= ============

</TABLE>

The increase in the valuation allowance for the year ended December 31,
1998 and 1999, was approximately $4.7 and $8.0 million, respectively. There was
no provision or benefit for federal income taxes as a result of the net
operating loss in the current year.

Section 382 of the Internal Revenue Code of 1986, as amended, limits
the ability of a corporation that undergoes an "ownership change" to use its net
operating losses to reduce its tax liability. The February 2000 follow on
offering of our common stock may have triggered such an ownership change. In
that event, we would not be able use our pre-ownership-change net operating
losses in excess of the limitation imposed by Section 382. This limitation
generally would be calculated by multiplying the value of our stock immediately
before the ownership change by a specified rate, which was 5.72% for ownership
changes that took place during January 2000.

At December 31, 1998 and 1999, the Company has Federal net operating
loss carryovers of approximately $57.3 and $77.5 million, respectively. These
carryovers will expire between the years 1999 and 2014.

10. RETIREMENT PLAN

The Company maintains a Defined Contribution Retirement Plan, called the
Plan. Employees become eligible to participate in the Plan after one full year
of service. The Company contributes to the Plan based on the specific percentage
of the participant's eligible contribution, up to the lesser of 5% of the
participant's salary or $10,000, in the form of common stock. The participant
fully vests in the Company's contribution after five years of service.

11. COMMITMENTS

At December 31, 1999, future aggregate minimum lease commitments under
non-cancelable operating leases, which expire in 2000, 2001, 2005 and 2015, were
approximately $13,180,000. The leases contain customary escalation clauses,
based principally on real estate taxes. Rent expense related to these leases for
the years ended December 31, 1997, 1998, and 1999 aggregated $330,430, $422,729,
and $518,882 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 one year after termination of
employment with the Company. The Company is committed to expend a total of
approximately $2.3 per year under these agreements.

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<PAGE>

12. CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and receivables. The Company attempts to mitigate cash investment risks by
placing such investments in insured depository accounts and with financial
institutions that have high credit ratings. Concentrations of risk with respect
to trade receivables exist because of the relatively few companies or other
organizations (primarily educational or government bodies) with which the
Company currently does business. The Company attempts to limit these risks by
closely monitoring the credit of those to whom it is contemplating providing its
products, and continuing such credit monitoring activities and other collection
activities throughout the payment period. In certain instances, the Company will
further minimize concentrations of credit risks by requiring partial advance
payments for the products provided.

13. 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.

14. SEGMENT REPORTING

ACTV, Inc., develops and markets proprietary technologies for
individualized television programming ("Individualized Programming") and for
television/Internet convergence ("HyperTV"). Since its inception, the Company
has been engaged in the development of Individualized Programming, the
production of programs that use Individualized Programming and marketing and
sales of the various products and services incorporating Individualized
Programming. During 1996, the Company conceptualized and developed HyperTV for
the television/Internet convergence market. In 1997, the Company introduced to
the education market eSchool Section Online, which was the first commercial
application of HyperTV.

-41-

<PAGE>

Information concerning the Company's business segments in 1997, 1998, and 1999
is as follows:

1997 1998 1999
------------ ------------ ------------
REVENUES
- ------------
<S> <C> <C> <C>
Individualized Television $ -- $ -- $ --
HyperTV 1,650,955 1,405,838 2,117,938
Unallocated corporate -- --
------------ ------------ ------------
Total $ 1,650,955 $ 1,405,838 $ 2,117,938
------------ ------------ ------------
DEPRECIATION & AMORTIZATION
Individualized Television $ 172,123 $ 763,241 $ 891,729
HyperTV 29,622 206,338 450,406
Unallocated Corporate 552,309 563,151 660,901
------------ ------------ ------------
TOTAL $ 754,054 $ 1,532,730 $ 2,003,036
- --------------------------- ------------ ------------ ------------
INTEREST EXPENSE (INCOME)
- --------------------------
INDIVIDUALIZED TELEVISION $ (9,391) $ 850,770 $ 1,014,617
- -------------------------
HYPERTV (8,128) (8,405) 1,211
- ------
UNALLOCATED CORPORATE (99,351) 94,403 (420,358)
- --------------------------- ------------ ------------ ------------
TOTAL $ (116,870) $ 936,768 $ 595,470
- --------------------------- ------------ ------------ ------------
NET LOSS
- --------
Individualized Television $ 2,678,832 $ 5,273,173 $ 6,203,020
HyperTV 1,771,671 2,020,228 4,421,230
Unallocated corporate 5,908,180 13,574,923 12,753,361
------------ ------------ ------------
Total $ 10,358,683 $ 20,868,324 $ 23,377,611
------------ ------------ ------------
CAPITAL EXPENDITURES
- --------------------
Individualized Television $ 139,897 $ 947,710 $ 2,030,469
HyperTV 273,778 361,716 2,768,824
Unallocated corporate 2,482,128 618,495 6,110,909
------------ ------------ ------------
Total $ 2,895,803 $ 1,927,921 $ 10,910,202
------------ ------------ ------------
CURRENT ASSETS
- ---------------
Individualized Television $ 290,421 $ 1,449,763 $ 1,857,450
HyperTV 775,855 844,683 1,334,634
Unallocated corporate 337,255 4,280,110 8,373,750
------------ ------------ ------------
Total $ 1,403,531 $ 6,574,556 $ 11,565,834
------------ ------------ ------------
TOTAL ASSETS
- --------------
Individualized Television $ 3,105,174 $ 4,708,444 $ 6,244,009
HyperTV 1,023,170 1,250,825 4,712,644
Unallocated corporate 3,773,575 7,646,773 17,195,405
------------ ------------ ------------
Total $ 7,901,918 $ 13,606,042 $ 28,152,058
------------ ------------ ------------

</TABLE>

15. INVESTMENT AND ADJUSTMENTS

In January 1995, the Company invested $274,325 in the common stock
(approximately 15% of ownership interest) of a company, which had licensed the
Company's Individualized Programming for commercialization in special-purpose
theaters.

The Company also performed executive production services for this
company on a fee basis. During 1996, the Company recorded license fee and
production service revenue from the company of $16,789 and $199,666,
respectively.

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<PAGE>

At December 31, 1996, the Company had unpaid receivables pursuant to such
revenues of $82,746.

During 1997, the company 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.

16. INCENTIVE COMPENSATION PROVISIONS

For the year ended December 31, 1999, the Company incurred executive
compensation expense of $4.4 million. Approximately $1.3 million of the yearly
total was non-cash compensation attributable to the exchange of stock options
for stock appreciation rights, as described above. An additional component of
total compensation expense was approximately $3.1 million for the year, related
to an incentive compensation provision that is based on changes in the market
value of the Company's common stock during the twelve-month period ended March
31, 1999. The Company is accruing the total value of the award in four equal
quarterly amounts, beginning March 31, 1999, since it is payable in quarterly
installments that are contingent on continued employment of the executive
receiving this compensation. The Company paid approximately 55% of the award, in
the form of unregistered common stock.

17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The consolidated financial statements at December 31, 1998 and 1999,
reflect non-cash activity during the years ended December 31, 1998 and 1999,
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, 1998 and 1999, increased by $2.0 million for both
years. The stock issued in lieu of cash compensation for the years ended
December 31, 1998 and 1999 was $2.0 million and $6.4 million, respectively. The
notes issued in lieu of cash compensation for the years ended December 31, 1998
was $686,641. During the term of the notes issued in January 1998 by ACTV
subsidiaries, ACTV Entertainment, Inc. and the Texas Network, the Company may
pay any four semi-annual interest payments in kind rather than in cash. The
Company chose to make the first two semi-annual interest payments in kind
through issuance of notes (June 30, 1998 and December 31, 1998). The subsidiary
preferred stock dividends and accretions for the years ended December 31, 1998
was $5.7 million and the preferred stock dividends payable for the years ended
December 31, 1998 and 1999 increased by $162,595 and $115,660, respectively.

The Company made no cash payments of interest or income taxes during the
years ended December 31, 1997 and 1998. During the year ended December 31, 1999,
the Company made cash interest payments of $739,263, related to the $5.0 million
original fair value note, and no cash payments of income tax.

18. MINORITY INTEREST

In November 1999, the Company formed a company with Motorola Broadband
Communications Sector, formerly General Instrument Corporation, to develop
applications for the delivery of addressable advertising to cable subscribers
regardless of whether they have subscribed to an individualized television
service. The applications developed through this company, Digital ADCO, would
permit advertisers to deliver targeted messages to individual viewers based on
32 demographic information stored in their digital set-top boxes. The Digital
ADCO system would allow different advertisements to go to different households
watching the same television show. Under the terms of our agreement with
Motorola Broadband, the Company licensed five of the Company's patents to
Digital ADCO in exchange for 51% of the common stock of Digital ADCO. Motorola
Broadband has licensed six of its patents, and made a $5.0 million capital
commitment for 49% of Digital ADCO's common stock. Any capital contribution
after Motorola Broadband has fulfilled its initial $5.0 million commitment will
be made pro rata based on ownership interests. In November, the first $2.0
million

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<PAGE>

of $5.0 million was contributed to the company by General Instruments with $3.0
million to follow in the next twelve months.

19. SUBSEQUENT EVENTS

In February 2000, the Company completed a follow-on offering of 4.0
million common shares as well as 0.6 million common shares to cover the
over-allotments of the Company's underwriters, Credit Suisse First Boston, Bear
Stearns & Co. Inc., Lehman Brothers, and Salomon Smith Barney. The total common
shares of 4.6 million were priced to the public at $30 per share or $138
million. Underwriting discounts and commissions of $1.80 per share or $8.28
million were deducted resulting in net proceeds of $28.70 per share or $129.7
million. The Company intends to use the net proceeds from our sale of shares in
the offering to repay approximately $5.9 million of outstanding indebtedness;
and for general corporate purposes, including working capital requirements,
potential minority investments in strategic alliances and potential acquisition.

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<PAGE>

(a)2. FINANCIAL STATEMENT SCHEDULE

The following Financial Statement Schedule for the years ended December
31, 1999, December 31, 1998, and December 31, 1997 is filed as part of this
Annual Report. Schedule II - Valuation and Qualifying Accounts and Reserves

COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------------- --------- ---------

Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
- ----------- ------------------------ ------------------------ ----------

Year ended 12/31/97:

<S> <C> <C> <C> <C> <C>
Accounts receivable
allowance for doubtful
accounts $ 82,746 $ 43,188 -- $ 82,746 $ 43,188

Reserve for investment
losses $274,325 -- $274,325 -- --

Year ended 12/31/98:

Accounts receivable
allowance for doubtful
accounts $ 43,188 -- -- $ 43,188 --

Reserve for investment
losses -- -- -- -- --

Year ended 12/31/99:

Accounts receivable
allowance for doubtful
accounts $ -- -- -- -- --

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 1999.

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<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE AND INCORPORATED BY
REFERENCE. THE RESULTS DISCUSSED BELOW ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS TO BE EXPECTED IN ANY FUTURE PERIODS. TO THE EXTENT THAT THE INFORMATION
PRESENTED IN THIS DISCUSSION ADDRESSES 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. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" FOR FURTHER INFORMATION ABOUT FORWARD-LOOKING STATEMENTS.

OVERVIEW

Since our inception, the primary focus of our operating activities has
been to develop proprietary technologies that enable programmers and advertisers
to create individualized programming and programming enhancements--first for
television and later for the emerging area of television/Internet convergence.
We call our technologies for the television and television/Internet convergence
markets Individualized Television and HyperTV, respectively.

RESULTS OF OPERATIONS

Since we have engaged principally in the research and development of
Individualized Television and HyperTV, our historical results of operations are
not indicative of, and should not be relied upon as an indicator of, our future
performance.

COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

REVENUES. Revenues increased 51% to $2.1 million for the year ended
December 31, 1999, from $1.4 million for the year ended December 31, 1998, due
to an increase in HyperTV sales. Substantially all of our revenues in 1998 and
the majority of our revenues in 1999 were derived from sales of HyperTV
software, services and related computer hardware.

TOTAL COSTS AND EXPENSES. Total costs and expenses increased 56% to
$24.3 million for the year ended December 31, 1999, from $15.6 million for the
year ended December 31, 1998. Cost of sales decreased 20% to $174,032 for the
year ended December 31, 1999, from $218,574 for the year ended December 31,
1998, and cost of sales as a percentage of revenues decreased to 8% for the year
ended December 31, 1999 from 16% for the year ended December 31, 1998. The
decrease as a percentage of revenues was the result of an increase in
service-driven revenues in the recent year having proportionately less
associated direct costs. Total costs and expenses, excluding cost of sales,
increased 57% to $24.2 million for the year ended December 31, 1999, from $15.4
million for the year ended December 31, 1998. The increase was due principally
to significantly higher stock appreciation rights, which we refer to as SARs,
which resulted from a large increase in the market price of our common stock in
the first nine months of 1999. The SAR expense for both years ended December 31,
1998 and 1999 was $2.0 million. In September 1999, we exchanged all of our
outstanding SARs for stock options with the same exercise prices and vesting
dates. To account for this exchange, we simultaneously incurred non-cash
compensation expense of $1.3 million as a component of selling and
administrative expense and non-cash income of $2.6 million from the elimination
of our liability related to SARs. Additionally, we incurred a $381,000 non-cash
charge to deferred expenses for those SARs that have not vested. We also
incurred a $3.1 million charge related to an incentive compensation provision
that is based on changes in the market value of our common stock during the
twelve-month period ended March 31, 1999. We are accruing the total value of the
award in four equal quarterly amounts, beginning March 31, 1999, since it is
payable in quarterly installments that are contingent on continued employment by
us of the executive receiving this compensation. We have paid approximately 55%,
of the award in the form of our unregistered common stock. Selling and
administrative expense increased 73% to $17.0 million for the year

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<PAGE>

ended December 31, 1999, from $9.9 million for the year ended December 31, 1998,
due chiefly to non-cash employee compensation, paid in the form of stock.

INTEREST (EXPENSE) INCOME-NET. Interest expense increased 12% to
$1,044,227 for the year ended December 31, 1999, from $932,247 for the year
ended December 31, 1998. Interest expense is related to the $5.0 million notes
issued in January 1998 by one of our subsidiaries. We chose to pay the interest
due on the notes on June 30, 1998 and December 31, 1998 in kind rather than in
cash. Interest income increased 144% to $448,757 for the year ended December 31,
1999, from $184,285 for the year ended December 31, 1998. The increase was due
to higher average cash balances in 1999.

MINORITY INTEREST--SUBSIDIARY PREFERRED STOCK DIVIDEND AND ACCRETION.
For the year ended December 31, 1999, we had no accrual for or payments of
subsidiary preferred stock dividends, compared to accruals of $200,305 for the
year ended December 31, 1998, related to preferred stock issued by a subsidiary
of ours, which was accounted for as a minority interest. The subsidiary
preferred stock was retired in November 1998 in exchange for a combination of
our new Series B preferred stock, which was subsequently redeemed in full in May
1999, common stock and warrants. In addition, we paid all preferred dividends
during the year ended December 31, 1998 in the form of our common stock.

PREFERRED STOCK DIVIDEND AND ACCRETION. For the year ended December 31,
1999, we paid $494,431 in preferred stock dividends, related to our Series B
preferred stock, compared to no such preferred dividend payments during the
comparable 1998 period. The Series B preferred stock was issued in November 1998
and was redeemed in full in May 1999.

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to
common stockholders increased 12% to $23.4 million, or $0.61 per basic and
diluted share, for the year ended December 31, 1999, from $20.9 million, or
$0.98 per basic per basic and diluted share, for the year ended December 31,
1998.

COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

REVENUES. Revenues decreased 15% to $1.4 million for the year ended
December 31, 1998, from $1.7 million for the year ended December 31, 1997. The
decrease was the result of our product shift toward on-line learning software
and services in 1998 and away from video programming and related equipment. All
of our revenues during 1998 were derived from the on-line learning market,
compared to 20% in 1997.

TOTAL COSTS AND EXPENSES. Total costs and expenses increased 71% to
$15.6 million for the year ended December 31, 1998, from $9.1 million for the
year ended December 31, 1997. Cost of sales decreased 54% to $218,574 for the
year ended December 31, 1998, from $471,956 for the year ended December 31,
1997, and cost of sales as a percentage of revenues decreased to 16% in 1998
from 29% in 1997. The decrease as a percentage of revenues was due to a shift in
revenue mix from video programming and related equipment, which represented the
majority of revenues in 1997, to eSchool which has higher gross margins. Total
costs and expenses, excluding costs of sales, increased 78% to $15.4 million for
the year ended December 31, 1998, from $8.6 million for the year ended December
31, 1997. The increase was attributable to a number of factors, including a
large change in stock appreciation rights due to a higher common stock price at
December 31, 1998, a rise in both operating expenses and selling and
administrative expense principally from increased activity of our Texas-based
regional network operation and to higher depreciation and amortization expense.
Depreciation and amortization expense increased 103% to $1.5 million 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.

INTEREST (EXPENSE) INCOME-NET. We incurred interest expense of $932,247
for the year ended December 31, 1998, compared to no interest expense for the
year ended December 31, 1997. Interest expense is related to the $5.0

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<PAGE>

million notes issued in January 1998 by one of our subsidiaries. Interest income
increased 58% to $184,285 for the year ended December 31, 1998, from $116,870
for the year ended December 31, 1997. The increase resulted from higher
available average cash balances in the more recent year.

MINORITY INTEREST--SUBSIDIARY PREFERRED STOCK DIVIDEND AND ACCRETION.
For the years ended December 31, 1998 and 1997, we recorded $5.6 million and
$3.0 million, respectively, for dividends and accretion on subsidiary
convertible preferred stock issuances, which were accounted for as a minority
interest. All dividend payments were made in our common stock. The increase
during 1998 is the result principally of our redemption in full of the
subsidiary convertible preferred stock.

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to
common stockholders increased 101% to $20.9 million, or $0.98 per basic and
diluted share, for the year ended December 31, 1998, from $10.3 million, or
$0.80 per basic and diluted share, for the year ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have not generated revenues sufficient to fund
our operations, and we have incurred operating losses. Through December 31,
1999, we had an accumulated deficit of approximately $95.3 million. Our cash
position on December 31, 1999 was $8.8 million, compared to $5.2 million on
December 31, 1998.

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

During the year ended December 31, 1999 and 1998, we used $12.7 million
and $10.0 million, respectively, in cash for our operations. Despite the
increase in net loss in the more recent period, a higher percentage of this loss
was the result of non-cash charges. During the year ended December 31, 1998, we
used $10.0 million in cash for our operations, compared with $6.6 million for
the year ended December 31, 1997. The increase was due to both a higher
operating deficit as well as a net use of cash related to asset and liability
changes. During the years ended December 31, 1997 and 1996, we used $6.6 million
and $7.6 million, respectively, in cash for our operations. The decrease was due
to lower operating expenses and higher gross margins, which more than offset
higher selling and administrative expenses.

NET CASH USED IN INVESTING ACTIVITIES AND CAPITAL EXPENDITURES

With respect to investing activities, during the year ended December
31, 1999, we used cash of $10.9 million. These activities were related to the
acquisition of patents and investments in patents pending, computer hardware and
software development. With respect to investing activities during the year ended
December 31, 1998, we used cash of $1.9 million for patents, property and
equipment, and systems and software development. With respect to investing
activities during the year ended December 31, 1997, we used cash of $2.8
million, related principally to the purchase of equipment for a television
master control facility in Dallas, Texas and for the systems development related
to the incorporation of Individualized Television into the Motorola Broadband
cable set-top box and to eSchool.

NET CASH PROVIDED BY FINANCING ACTIVITIES

We met our cash needs in the year ended December 31, 1999 from sales of
our common stock to private investors, totaling approximately $18.9 million, and
from the exercise of stock options and warrants, totaling approximately $12.0
million. We met our cash needs in the year ended December 31, 1998 from sales of
our common stock totaling approximately $10.8 million to private investors,
including $5.0 million invested by Liberty Media. Liberty Media also received an
option to invest an additional $5.0 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

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1997 of our 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 other financing activities, for the year ended December
31, 1999, we redeemed all of our outstanding Series B preferred stock by paying
a total of approximately $5.8 million, which represents a 10% premium above the
stock's face value plus accrued dividends. Because the Series B preferred stock
was convertible into our common stock at $2.00 per share beginning in November
1999, we effectively redeemed the preferred stock by buying it at an equivalent
of $2.20 per common stock share, a price significantly less than the market
price of a share of our common stock at the time of the redemption. The
redemption avoided the possible future issuance of more than 2.8 million shares
of our common stock.

In November 1999, we formed a company with Motorola Broadband
Communications Sector, formerly General Instrument Corporation, to develop
applications for the delivery of addressable television advertising. Under the
terms of our agreement with Motorola Broadband, the Company licensed five of our
patents to Digital ADCO in exchange for 51% of the common stock of Digital ADCO.
Motorola Broadband has licensed six of its patents and made a $5.0 million
capital commitment for 49% of Digital ADCO's common stock. Any capital
contribution after Motorola Broadband has fulfilled its initial $5.0 million
commitment will be made pro rata based on ownership interests. In November, the
first $2.0 million of $5.0 million was contributed to the company by General
Instruments with $3.0 million to follow in the next twelve months.

In February 2000, we completed a follow-on offering of 4.0 million
common shares as well as 0.6 million common shares to cover the over-allotments
of our underwriters, Credit Suisse First Boston, Bear Stearns & Co. Inc., Lehman
Brothers, and Salomon Smith Barney. The total common shares of 4.6 million were
priced to the public at $30 per share or $138 million. Underwriting discounts
and commissions of $1.80 per share or $8.28 million were deducted resulting in
net proceeds of $28.70 per share or $129.7 million. We intend to use the net
proceeds from our sale of shares in the offering to repay approximately $5.9
million of outstanding indebtedness, and for general corporate purposes,
including working capital requirements, potential minority investments in
strategic alliances and potential acquisition.

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.

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 or business infrastructure.

IMPACT OF INFLATION

Inflation has not had any significant effect on our operating costs.

RECENT ACCOUNTING PRONOUNCEMENTS

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<PAGE>

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, called 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 a 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, 2000; however, it may be
adopted earlier. It cannot be applied retroactively to financial statements of
prior periods. We have not yet determined the impact, if any, the adoption of
SFAS No. 133 will have on its financial statements.

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APPENDIX B

ACTV, INC.

2000 STOCK INCENTIVE PLAN
-------------------------

1.THE PLAN

a) PURPOSE. This ACTV, Inc. 2000 Stock Incentive Plan (the "Plan") is intended
to benefit the stockholders of ACTV, Inc. (the "Company") by providing a means
to attract, retain and reward individuals who can and do contribute to the
longer-term financial success of the Company. Further, the recipients of
stock-based awards under the Plan should identify their success with that of the
Company's shareholders and therefore will be encouraged to increase their
proprietary interest in the Company.

b) EFFECTIVE DATE. To serve this purpose, the Plan will become effective upon
its approval by the affirmative vote of a majority of the votes cast at the
Company's 2000 Annual Meeting of Stockholders.

2. ADMINISTRATION

a) COMMITTEE. The Plan shall be administered by a Committee, appointed by the
Board of Directors of the Company (the "Board"), which shall consist of no less
than two of its members, all of whom shall not be employees of the Company (the
"Committee"). The Committee may delegate certain responsibilities and powers to
any executive officer or officers selected by it. Any such delegation may be
revoked by the Committee at any time.

b) POWERS AND AUTHORITY. The Committee's powers and authority include, but are
not limited to: (i) selecting individuals, who are either employees of the
Company and any subsidiary of the Company or other entity in which the Company
has a significant equity or other interest as determined by the Committee, or
non-employee members of the Board or independent consultants or other persons
who perform services for or on behalf of the Company, to receive awards; (ii)
determining the types and terms and conditions of all awards granted, including
performance and other earnout and/or vesting contingencies; (iii) permitting
transferability of awards to eligible third parties; (iv) interpreting the
Plan's provisions; and (v) administering the Plan in a manner that is consistent
with its purpose. The Committee's decision in carrying out the Plan and its
interpretation and construction of any provisions of the

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<PAGE>

Plan or any award granted or agreement or other instrument executed under it
shall be final and binding upon all persons. No members of the Board shall be
liable for any action or determination made in good faith in administering the
Plan.

c) AWARD PRICES. All awards denominated or made in shares of Common Stock of the
Company (the "Shares") shall use as the per Share price the last sale price of a
Share as reported by the principal exchange on which the Shares are traded or
listed for trading, on the applicable date as determined by the Committee, or if
Shares are not traded on such date, the last sale price on the next preceding
day on which such Shares are traded. The applicable date shall be the day on
which the award is granted (or other Plan transaction occurs), except that the
Committee may provide that the applicable date may be (i) the day on which an
award recipient was hired, promoted or such similar singular event occurred,
provided that the grant of such award occurs within 90 days following such
applicable date; or (ii) in the case of a stock option or stock appreciation
right granted retroactively in tandem with or as a substitution for another
previously granted stock option or stock appreciation right, the applicable date
for such prior award.

3. SHARES SUBJECT TO THE PLAN AND ADJUSTMENTS

a) MAXIMUM SHARES AVAILABLE FOR DELIVERY. Subject to adjustments under Section
3(d), the maximum number of Shares that may be delivered to participants and
their beneficiaries under the Plan shall be equal to the sum of (i) 4,000,000;
and (ii) any Shares that are represented by awards previously granted whether
under a prior plan of the Company or otherwise, which are forfeited, expire or
are canceled without the delivery of Shares or which result in the forfeiture of
Shares back to the Company. In addition, any Shares delivered under the Plan or
any prior plan of the Company which are forfeited back to the Company because of
the failure to meet an award contingency or condition shall again be available
for delivery pursuant to new awards granted under the Plan. Any Shares covered
by an award (or portion of an award) granted under the Plan or any prior plan of
the Company, which is forfeited or canceled, expires or is settled in cash,
including the settlement of tax withholding obligations using Shares, shall be
deemed not to have been delivered for purposes of determining the maximum number
of Shares available for delivery under the Plan. Likewise, if any stock option
is exercised by tendering Shares, either actually or by attestation, to the
Company as full or partial payment for such exercise under this Plan or any
prior plan of the Company, only the number of Shares issued net of the Shares
tendered shall be deemed delivered for purposes of determining the maximum
number of Shares available for delivery under the Plan. Further, Shares issued
under the Plan through the settlement, assumption or substitution of outstanding
awards or obligations to grant future awards as a condition of the Company
acquiring another entity shall not reduce the maximum number of Shares available
for delivery under the Plan. In addition, shares available for delivery in
settlement of awards under the Plan may be

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<PAGE>

increased by the Board by the number of shares purchased or acquired by the
Company using amounts equivalent to the cash proceeds received by the Company
from the exercise of stock options, granted under any plan of the Company,
occurring after January 1, 2000.

b) OTHER PLAN LIMITS. Subject to adjustment under Section 3(d), the following
additional maximums are imposed under the Plan. The maximum number of Shares
that may be issued in connection with stock options intended to comply with
Section 422 or any other similar provision of the Internal Revenue Code
("incentive stock options") shall be 4,000,000. If a payment under Section 4(d)
is made in Shares, the value of such Shares for determining this maximum
individual payment amount will be the closing price of a Share on the first day
of the applicable performance period. A specified performance period for
purposes of this performance goal payment limit shall not exceed a sixty (60)
consecutive month period.

c) PAYMENT SHARES. Subject to the overall limitation on the number of Shares
that may be delivered under the Plan, the Committee may, in addition to granting
awards under Section 4, use available Shares as the form of payment for
compensation, grants or rights earned or due under any other compensation plans
or arrangements of the Company, including those of any entity acquired by the
Company.

d) ADJUSTMENTS FOR CORPORATE TRANSACTIONS.

(i) The Committee may determine that a corporate transaction has affected the
price per Share such that an adjustment or adjustments to outstanding awards are
required to preserve (or prevent enlargement of) the benefits or potential
benefits intended at time of grant. For this purpose a corporate transaction
will include, but is not limited to, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares, or other
similar occurrence. In the event of such a corporate transaction, the Committee
shall, in such manner as the Committee deems equitable, adjust (i) the number
and kind of shares which may be delivered under the Plan pursuant to Sections
3(a) and 3(b); (ii) the number and kind of shares subject to outstanding awards;
and (iii) the exercise price of outstanding stock options and stock appreciation
rights.

(ii) In the event that the Company is not the surviving company of a merger,
consolidation or amalgamation with another company, or in the event of a
liquidation or reorganization of the Company, and in the absence of the
surviving corporation's assumption of outstanding awards made under the Plan,
the Committee may provide for appropriate adjustments and/or settlements of such
grants either at the time of grant or at a subsequent date. The Committee may
also provide for adjustments and/or settlements of outstanding awards as it
deems appropriate and consistent with the Plan's purpose in the event of any
other change-in-control of the Company.

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<PAGE>

4. TYPES OF AWARDS

a) GENERAL. An award may be granted singularly, in combination with another
award(s) or in tandem whereby exercise or vesting of one award held by a
participant cancels another award held by the participant. Subject to the
limitations of Section 2(c), an award may be granted as an alternative to or
replacement of an existing award under the Plan or under any other compensation
plans or arrangements of the Company, including the plan of any entity acquired
by the Company. The types of awards that may be granted under the Plan include:

b) STOCK OPTION. A stock option represents a right to purchase a specified
number of Shares during a specified period at a price per Share which is no less
than one hundred percent (100%) of the per Share amount stipulated by Section
2(c). A stock option may be in the form of an incentive stock option or in
another form that may or may not qualify for favorable federal income tax
treatment. The Shares covered by a stock option may be purchased by means of a
cash payment or such other means as the Committee may from time-to-time permit,
including (i) tendering (either actually or by attestation) Shares valued using
the market price at the time of exercise, (ii) authorizing a third party to sell
Shares (or a sufficient portion thereof) acquired upon exercise of a stock
option and to remit to the Company a sufficient portion of the sale proceeds to
pay for all the Shares acquired through such exercise and any tax withholding
obligations resulting from such exercise; (iii) by converting Shares subject to
Options granted hereunder having a value equal to the exercise price of the
Options being exercised on such terms and conditions as the Committee
determines; or (iv) any combination of the above.

c) STOCK APPRECIATION RIGHT. A stock appreciation right is a right to receive a
payment in cash, Shares or a combination, equal to the excess of the aggregate
market price at time of exercise of a specified number of Shares over the
aggregate exercise price of the stock appreciation right being exercised. The
longest term a stock appreciation right may be outstanding shall be 11 years.
Such exercise price shall be based on one hundred percent (100%) of the per
Share amount stipulated by Section 2(c).

d) STOCK AWARD. A stock award is a grant of Shares or of a right to receive
Shares (or their cash equivalent or a combination of both) in the future. Stock
awards shall be earned and vest in accordance with provisions established by the
Committee and shall be governed by whatever conditions, restrictions and
contingencies the Committee shall determine. These may include continuous
service and/or the achievement of performance goals. The performance goals that
may be used by the Committee for such awards shall consist of: operating profits
(including EBITDA), net profits, earnings per share, profit returns and margins,
revenues, market share, shareholder return and/or value, stock price, working
capital and growth rates for each of the foregoing. Performance goals may be
measured solely on a corporate, subsidiary or business unit basis, or a
combination thereof. Further, performance criteria may reflect

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absolute entity performance or a relative comparison of entity performance to
the performance of a peer group of entities or other external measure of the
selected performance criteria. Profit, earnings and revenues used for any
performance goal measurement shall exclude: gains or losses on operating asset
sales or dispositions; asset write-downs; litigation or claim judgments or
settlements; effect of changes in tax law or rate on deferred tax liabilities;
accruals for reorganization and restructuring programs; uninsured catastrophic
property losses; the cumulative effect of changes in accounting principles; and
any extraordinary non-recurring items as described in Accounting Principles
Board Opinion No. 30 and/or in management's discussion and analysis of financial
performance appearing in the Company's annual report to shareholders for the
applicable year.

e) CASH AWARD. A cash award is a right denominated in cash or cash units to
receive a cash payment, based on the attainment of pre-established performance
goals and, subject to whatever vesting period and such other conditions,
restrictions and contingencies as the Committee shall determine. The performance
goals that may be used by the Committee for such awards shall be those set forth
in Section 4(d).

f) DEFERRED STOCK AWARD. A Deferred Stock Award is a grant of Shares ("Deferred
Stock") to be received, under an award made pursuant to this Section 4(f) at the
end of a specified Deferral Period (as hereinafter defined). Deferred Stock may
be awarded either alone or in addition to or in tandem with other awards granted
under the Plan. The Committee shall determine the eligible persons to whom and
the time or times at which Deferred Stock shall be awarded, the number of shares
of Deferred Stock to be awarded to any person, the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of the
Deferred Stock will be deferred, and all the other terms and conditions of the
awards. The Committee may condition the grant of the Deferred Stock upon the
attainment of specified Performance Objectives or such other factors or criteria
as the Committee shall determine. Each Deferred Stock award shall be subject to
the following terms and conditions:

(i) Subject to the provisions of this Plan and Deferred Stock agreement
referred to in Section 4(f)(vii) below, Deferred Stock awards may not
be sold, assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 4(f)(vi) below, where
applicable), share certificates shall be delivered to the participant,
or his legal representative, in a number equal to the shares of Stock
covered by the Deferred Stock award.

(ii) As determined by the Committee at the time of award, amounts equal
to any dividends declared during the Deferral Period (or the Additional
Deferral Period referred to in Section 4(f)(vi) below, where
applicable) with respect to the number of shares covered by a Deferred
Stock award may be paid to the

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<PAGE>

participant currently or deferred and deemed to be reinvested in
additional Deferred Stock.

(iii) Subject to the provisions of the Deferred Stock agreement
referred to in Section 4(f)(vii) below and this Section 4, upon
termination of participant's employment with the Company or any
Subsidiary for any reason during the Deferral Period (or the Additional
Deferral Period referred to in Section 4(f)(b)(vi) below, where
applicable) for a given award, the Deferred Stock in question will vest
or be forfeited in accordance with the terms and conditions established
by the Committee at the time of grant.

(iv) The Committee may, after grant, accelerate the vesting of all or
any part of any Deferred Stock award and/or waive the deferral
limitations for all or any part of a Deferred Stock award.

(v) In the event of hardship or other special circumstances of a
participant whose employment with the Company or any Parent or
Subsidiary is involuntarily terminated (other than for Cause (as
hereinafter defined)), the Board or the Committee, as the case may be,
may waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder or pursuant to the Deferred Stock
agreement referred to in Section 4(f)(vii) below with respect to any or
all of the participant's Deferred Stock.

(vi) A participant may make a request to the Committee to defer the
receipt of an award (or an installment of an award) for an additional
specified period or until a specified date or until a specified event
(the "Additional Deferral Period"). Subject to any exceptions adopted
by the Committee such request must be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or
such installment).

(vii) Each Deferred Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
participant.

(viii) For purposes of this Plan, "Cause" shall mean (1) the conviction
of the participant of a felony under Federal law or the law of the
state in which such action occurred, or (2) engaging in conduct that
constitutes activity in competition with the Company. In addition, with
respect to an option granted to an employee of the Company or a
Subsidiary, for purposes of this Plan, "Cause" shall also include any
definition of "Cause" contained in any employment agreement between the
participant and the Company or Subsidiary, as the case may be.

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<PAGE>

5. AWARD SETTLEMENTS AND PAYMENTS

a) DIVIDENDS AND DIVIDEND EQUIVALENTS. An award may contain the right to receive
dividends or dividend equivalent payments that may be paid either currently or
credited to a participant's account. Any such crediting of dividends or dividend
equivalents or reinvestment in Shares may be subject to such conditions,
restrictions and contingencies as the Committee shall establish, including the
reinvestment of such credited amounts in Share equivalents.

b) PAYMENTS. Awards may be settled through cash payments, the delivery of
Shares, the granting of awards or combination thereof as the Committee shall
determine. Any award settlement, including payment deferrals, may be subject to
such conditions, restrictions and contingencies as the Committee shall
determine. The Committee may permit or require the deferral of any award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest, or dividend
equivalents, including converting such credits into deferred Share equivalents.

6. PLAN AMENDMENT AND TERMINATION

a) AMENDMENTS. The Board may amend this Plan as it deems necessary and
appropriate to better achieve the Plan's purpose provided, however, that: (i)
the Share and other award limitations set forth in Sections 3(a) and 3(b) cannot
be increased, (ii) the minimum stock option and stock appreciation right
exercise prices set forth in Sections 2(c) and 4(b) and (c) and the performance
measures set forth in Section 4(d) cannot be changed unless such a Plan
amendment is properly approved by the Company's stockholders.

b) PLAN SUSPENSION AND TERMINATION. The Board may suspend or terminate this Plan
at any time. Any such suspension or termination shall not of itself impair any
outstanding award granted under the Plan or the applicable participant's rights
regarding such award.

7. MISCELLANEOUS

(a) NO INDIVIDUAL RIGHTS. No person shall have any claim or right to be granted
an award under the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any employee or other person any right to continue to be
employed by or to perform services for the Company, any subsidiary or related
entity. The right to terminate the employment of or performance of services by
any Plan participant at any time and for any reason is specifically reserved to
the employing entity.

-57-
<PAGE>

b) UNFUNDED PLAN. The Plan shall be unfunded and shall not create (or be
construed to create) a trust or a separate fund or funds. The Plan shall not
establish any fiduciary relationship between the Company and any participant or
beneficiary of a participant. To the extent any person holds any obligation of
the Company by virtue of an award granted under the Plan, such obligation shall
merely constitute a general unsecured liability of the Company and accordingly
shall not confer upon such person any right, title or interest in any assets of
the Company.

c) OTHER BENEFIT AND COMPENSATION PROGRAMS. Unless otherwise specifically
determined by the Committee, settlements of awards received by participants
under the Plan shall not be deemed a part of a participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan or severance program. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate.

-58-
<PAGE>

d) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any award, and the Committee shall determine whether
cash shall be paid or transferred in lieu of any fractional Shares, or whether
such fractional Shares or any rights thereto shall be canceled.

e) GOVERNING LAW. The validity, construction and effect of the Plan and any
award, agreement or other instrument issued under it shall be determined in
accordance with the laws of the state of Delaware without reference to
principles of conflict of law.

<PAGE>

PROXY BY MAIL

Every properly signed proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, 3 AND 4.

This Proxy is solicited on behalf of ACTV, Inc.'s Board of Directors.

FOR WITHHELD
1. To elect two Class I directors ALL FOR ALL ABSTAIN
to hold office for a term of
three years.

Nominees:

01 Bruce Crowley
02 Melvyn Klein

INSTRUCTION: To withhold authority to vote for any individual, write that
nominee's name in the space provided below.

2. To approve the proposal to FOR AGAINST ABSTAIN
amend the Company,s Restated
Certificate of Incorporation

3. To adopt the Company's 2000 FOR AGAINST ABSTAIN
Stock Option Plan.

4. To ratify the appointment of FOR AGAINST ABSTAIN
Deloitte & Touche, LLP as
the Company's independent
certified public accountants.

5. In their discretion, upon such other matter or matters that
may properly come before the meeting, or any adjournments thereof.

The undersigned hereby acknowledges receipt of a copy of the
accompanying Notice of Meeting and Proxy Statement and hereby revokes any proxy
or proxies heretofore given.

Please mark, sign and mail your proxy promptly in the envelope provided.

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| IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS BELOW. |

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<PAGE>

| |
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Signaturee_______________________Signature_______________________ Date_________

Note: Please sign exactly as name appears in the Company's records. Joint owners
should each sign. When signing as attorney, executor or trustee, please give
title as such.

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| ^FOLD AND DETACH HERE AND READ THE REVERSE SIDE^ |

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LOGO VOTE BY INTERNET LOGO

ACTV, INC.

|_| You can now vote your shares electronically through the Internet.
|_| This eliminates the need to return the proxy card.
|_| Your electronic vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed, dated and returned the proxy card.

TO VOTE YOUR PROXY BY INTERNET
www.actv.com

Have your proxy card in hand when you access the above Website. You will be
prompted to enter the company number, proxy number and account number to create
an electronic ballot. Follow the prompts to vote your shares.

TO VOTE YOUR PROXY BY MAIL

Mark, sign and date your proxy card above, detach it and return it in the
postage-paid envelope provided.

PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED
ELECTRONICALLY

<PAGE>

GENERAL PROXY - ANNUAL MEETING OF STOCKHOLDERS OF ACTV, INC.

The undersigned hereby appoints William C. Samuels, with full power of
substitution, proxy to vote all of the shares of Common Stock of the undersigned
and with all of the powers the undersigned would possess if personally present,
at the Annual Meeting of Stockholders of ACTV, Inc., to be held at the Warwick
Hotel, 65 West 54th Street, New York, New York on May 19, 2000 at 9:30 a.m., and
at all adjournments thereof, upon the matters specified on the reverse side, all
as more fully described in the Proxy Statement dated April 5 2000 and with the
discretionary powers upon all other matters which come before the meeting or any
adjournment thereof.

(Continued, and to be marked, dated and signed, on the other side)

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^ FOLD AND DETACH HERE ^

<PAGE>

EXHIBIT A

ACTV, INC.

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

ACTV, INC, a corporation ("ACTV") organized and existing under and by
virtue of the General Corporation Law of the State of Delaware and whose
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on July 24, 1989, does hereby certify as follows:

FIRST: At a meeting duly called and held for such purpose, the
Board of Directors of ACTV unanimously adopted a resolution setting forth a
proposed amendment to the Certificate of Incorporation of ACTV declaring said
amendment to be advisable and directing that said amendment be submitted to the
stockholders of ACTV for their consideration thereof. The proposed amendment
provides for the amendment of provision Fourth of ACTV's Certificate of
Incorporation, whereby such provision Fourth shall be restated in its entirety
to be and read as follows:

FOURTH: (A) The aggregate number of shares of all classes of stock
which the Corporation shall have authority to issue is Two Hundred One Million
(201,000,000) shares, divided into classes as follows:

(1) Two Hundred Million (200,000,000) shares of Common
Stock, $0.10 per share (hereinafter called the "Common Stock"); and

(2) One Million (1,000,000) shares of Preferred Stock,
$0.10 per share (hereinafter called the "Preferred Stock"), to be issued in
series.

(B) The following is a statement of the designations,
powers, preferences, rights, qualifications and limitations or restrictions with
respect to the Preferred Stock of the Corporation:

The shares of Preferred Stock may be issued in one or more

<PAGE>

series, and each series shall be so designated as to distinguish the shares
thereof from the shares of all other series. Authority is hereby expressly
granted to the Board of Directors of the Corporation to fix, subject to the
provisions herein set forth, before the issuance of any shares of a particular
series, the number, designation and relative rights, preferences, and
limitations of the shares of such series including (a) voting rights, if any,
which may include the right to vote together as a single class with the Common
Stock and any other series of the Preferred Stock with the number of votes per
share accorded to shares of such series being the same as or different from that
accorded to such other shares, (b) the dividend rate per annum, if any, and the
terms and conditions pertaining to dividends and whether such dividends shall be
cumulative, (c) the amount or amounts payable upon any voluntary or involuntary
liquidation, (d) the redemption price or prices, if any, and the terms and
conditions of the redemption, (e) sinking fund provisions, if any, for the
redemption or purchase of such shares, (f) the terms and conditions on which
such shares are convertible, in the event the shares are to have conversion
rights, and (g) any other rights, preferences and limitations pertaining to such
series which may be fixed by the Board of Directors pursuant to the Delaware
General Corporation Law.

SECOND: Thereafter, pursuant to a resolution of ACTV's Board
of Directors, an Annual Meeting of the Stockholders of ACTV was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.

THIRD: The amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

FOURTH: The capital of ACTV shall not be reduced under or by
reason of said amendment.

<PAGE>

IN WITNESS WHEREOF, ACTV has caused its corporate seal to be hereunto
affixed and this certificate to be signed by its Secretary this ______ day of
___________ under penalties of perjury.

ACTV, INC.

By ___________________________
Day L. Patterson,
Sr. Vice President,
General Counsel and
Secretary

<PAGE>

PROXY BY MAIL

Every properly signed proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, 3 AND 4.

This Proxy is solicited on behalf of ACTV, Inc.'s Board of Directors.

FOR WITHHELD
ALL FOR ALL ABSTAIN
1. To elect two Class I directors
to hold office for a term of
three years.

Nominees:

01 Bruce Crowley
02 Melvyn Klein

INSTRUCTION: To withhold authority to vote for any individual, write that
nominee's name in the space provided below.

2. To approve the proposal to FOR AGAINST ABSTAIN
amend the Company's Restated
Certificate of Incorporation

3. To adopt the Company's 2000 FOR AGAINST ABSTAIN
Stock Incentive Plan.

4. To ratify the appointment of FOR AGAINST ABSTAIN
Deloitte & Touche, LLP as
the Company's independent
certified public accountants.

5. In their discretion, upon such other matter or matters that may
properly come before the meeting, or any adjournments thereof.

The undersigned hereby acknowledges receipt of a copy of the
accompanying Notice of Meeting and Proxy Statement and hereby revokes any proxy
or proxies heretofore given.

Please mark, sign and mail your proxy promptly in the envelope provided.

- -------------------------------------------------------------------------------
| IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS BELOW. |
- -------------------------------------------------------------------------------

Signature_______________________Signature_______________________Date_________

Note: Please sign exactly as name appears in the Company's records. Joint owners
should each sign. When signing

<PAGE>

as attorney, executor or trustee, please give title as such.

---------------------------------------------------

--------------------------------
| ^FOLD AND DETACH HERE AND READ THE REVERSE SIDE^ |
--------------------------------

LOGO VOTE BY INTERNET LOGO

ACTV, INC.

TO VOTE YOUR PROXY BY INTERNET
www.actv.com

TO VOTE YOUR PROXY BY MAIL

Mark, sign and date your proxy card above, detach it and return it in the
postage-paid envelope provided.

PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED
ELECTRONICALLY

<PAGE>

GENERAL PROXY - ANNUAL MEETING OF STOCKHOLDERS OF ACTV, INC.

The undersigned hereby appoints William C. Samuels, with full power of
substitution, proxy to vote all of the shares of Common Stock of the undersigned
and with all of the powers the undersigned would possess if personally present,
at the Annual Meeting of Stockholders of ACTV, Inc., to be held at the Warwick
Hotel, 65 West 54th Street, New York, New York on May 19, 2000 at 9:30 a.m., and
at all adjournments thereof, upon the matters specified on the reverse side, all
as more fully described in the Proxy Statement dated April 17, 2000 and with
discretionary powers upon all other matters which come before the meeting or any
adjournment thereof.

(Continued, and to be marked, dated and signed, on the other side)

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^ FOLD AND DETACH HERE ^