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Filed pursuant to Rule 424(b)(3)
Registration No. 333-49262
1,548,925 Shares
[LOGO]
ACTV, Inc.
Common Stock
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Security holders of ACTV, Inc. named under the caption "Selling Security
Holders", may from time to time, offer and sell up to 1,548,925 shares of our
common stock, par value $.10 per share, of which 26,216 shares and 1,107,773
shares may be sold upon the exercise of warrants and options held by the selling
security holders, respectively. 1,080,174 of the shares being registered
hereby, are shares of common stock issuable upon the exercise of options
which vest over the next 4 to 5 years. We will not receive any proceeds from
the sale of the common stock by the selling security holders, although we
will receive approximately $13,683,636.00 if all such warrants and options
are exercised by the selling security holders.
We have agreed with the selling security holders to register the shares
offered in this prospectus and we have agreed to pay certain fees and expenses
incident to such registration.
Our common stock is traded on The Nasdaq National Market under the symbol
"IATV." On November 1, 2000, the last reported sale price of our common stock on
The Nasdaq National Market was $9.75.
Investing in our common stock involves risks. See "Risk Factors" on page
6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November 15, 2000.
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TABLE OF CONTENTS
Page
Special Note Regarding Forward Looking Statements ......................... iv
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 6
Use of Proceeds ........................................................... 14
Dividend Policy ........................................................... 14
Material Changes .......................................................... 14
Selling Security Holders .................................................. 15
Description of Capital Stock .............................................. 20
Shares Eligible for Future Sale ........................................... 24
Plan of Distribution ...................................................... 26
Indemnification of Directors and Officers ................................. 28
Legal Matters ............................................................. 29
Experts ................................................................... 29
Where You Can Find More Information ....................................... 29
Incorporation by Reference ................................................ 29
ACTV, INC.
1,548,925 shares of Common Stock offered by Selling Security Holders
November 15, 2000
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information both included and incorporated by reference in this prospectus
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
The following are some of the important factors that could cause actual
results or outcomes to differ materially from those discussed in forward-looking
statements:
o the failure of viewers, producers and advertisers to accept our new
products;
o untimely and unsuccessful deployment of our new products;
o untimely or inadequate deployment of digital set-top boxes;
o the failure of programming distributors to offer and market our
products to their subscribers;
o the lack of acceptable content;
o our inability to compete with companies offering products and
services similar to ours;
o the success of other digital television formats;
o the effect of government regulation or legal proceedings relating to
our business;
o our failure to adequately protect our intellectual property rights
or the adverse impact of other companies' intellectual property
rights;
o our inability to respond to rapid technological change;
o our inability to successfully handle the challenges associated with
the growth of the Internet; and
o other matters discussed in the "Risk Factors" section of this
prospectus.
ACTV(R), HyperTV(R), Bottle Rocket(R) and eSchool(R) are registered
trademarks of ACTV, Inc.
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PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It may
not contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors, the financial statements and the documents incorporated by
reference into this prospectus.
ACTV
We are a digital media company that has developed proprietary
technologies, called One To One TV (also known as Individualized
Television) and HyperTV(R). One To One TV enables television programmers and
advertisers to create individualized programming for digital television. HyperTV
enhances standard television content with information and interactivity
delivered through the Internet. We believe that One To One TV is the only
technology that enables viewers to instantly customize their viewing experiences
by selecting from among multiple video channels without perceptible delay.
HyperTV is one of the first technologies to provide synchronized delivery of
television programming and Internet content.
We anticipate that the expansion of digital television transmission
systems, together with the new applications they enable, will revolutionize
television as we know it by turning passive viewing into an interactive
experience. Digital technology will allow telecasters, advertisers and digital
media companies to bring interactivity and Internet content to a mass audience.
We believe that our proprietary technologies uniquely position us to capitalize
on this anticipated digital television revolution.
Our goal is to establish One To One TV and HyperTV as industry standards.
To this end, we have built key strategic relationships with industry leaders,
including:
o Liberty Media Corporation, Liberty Livewire Corporation and
Liberty Digital Inc., our largest shareholder and a co-venturer;
o Motorola Broadband Sector, a shareholder and a co-investor; and
o iN DEMAND LLC, the nation's leading pay-per-view network.
One To One TV
One To One TV is a patented process for creating interactive and instantly
customized television content and advertising in response to viewer remote
control entries or to stored demographic information. One To One TV remembers a
viewer's inputs throughout a program and can later deliver tailored content to
the viewer based on those inputs. We create individualized programming by
simultaneously sending the viewer multiple television signals, related in time
and content, and switching among those signals without a visually perceptible
delay. With One To One TV, the viewer experiences the video, audio and graphics
of a single fluid programming stream, while the programming on the other signals
remains transparent. We expect One To One TV to generate revenues from
subscriber fees, advertising sales and software license fees and services
related to targeted advertising.
We believe that One To One TV is a core breakthrough for television
programming and advertising. For example:
o the viewer of a national or international pay-per-view sporting
event or of a regional sports telecast can select from features such
as a different view of the action, highlight packages, statistics or
instant replays;
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o a car commercial can ask viewers to identify the models that most
interest them and, based upon their answers, provide individualized
information about the identified models;
o neighbors watching the same television program can see entirely
different advertisements based upon demographic information stored
in their respective set-top boxes; and
o a child viewing a program can engage a favorite television character
in what seems to be a one-on-one dialogue.
We are initially targeting One To One TV, which is software-based, for
distribution through digital cable systems. To receive One To One TV, all the
cable subscriber needs is a digital set-top box with our software download. We
have agreements with leading manufacturers of digital set-top terminals--General
Instrument, Scientific-Atlanta and Pioneer--to achieve compatibility of our
software with their equipment.
We intend to develop the market for One To One TV on a national basis
through one of our joint ventures with Liberty Media and our co-investment with
General Instrument, a wholly-owned subsidiary of Motorola, Inc. Our joint
venture with Liberty Media, called LMC IATV Events, LLC, will license and
produce individualized national or international marquee pay-per-view events,
including sports, musical, theatrical and news events. iN DEMAND LLC, a
co-venturer with LMC IATV Events, will provide nationwide marketing and
distribution for LMC IATV Event's programming.
We have created a company with Motorola Broadband and OpenTV Corp., called
Digital ADCO, Inc., to develop and introduce a comprehensive end-to-end system
to allow digital cable, satellite and broadcast systems to offer targeted
advertising. By allowing advertisers to send commercials that reach target
audiences, we believe that Digital ADCO will improve dramatically the efficiency
of television advertising.
HyperTV
HyperTV is a patented process that enhances a television program or
advertisement with related and synchronized content delivered through the
Internet. HyperTV works by embedding a stream of Web page addresses into the
video or audio signal or by transmitting the addresses directly over the
Internet to the user's computer. The Web content is synchronized to what is
being shown on a particular television channel. HyperTV generates revenues from
software licensing and program hosting fees, on-line advertising sales,
e-commerce applications, event sponsorship, data management and content creation
fees.
We believe that HyperTV has potential applications for virtually all forms
of television programming and advertising. For instance:
o a music video network can send its viewers song lyrics, band member
biographies or trivia through the Internet in sync with its
television content;
o a network, televising a movie, can sell banner advertisements on the
Internet and generate revenues from the sale of movie-related
merchandise; and
o a HyperTV-enhanced automobile advertisement can deliver detailed
information from the manufacturer's website or link to local dealer
websites where viewers can schedule test drives.
Initially, HyperTV will serve the growing number of TV viewers who
simultaneously use the Internet to complement and enhance their TV viewing
experiences. Over half of all PCs in US households, or 22.6 million, are in the
same room as a television and of those, nearly all, or 21.8 million, use the
television and PC simultaneously at least some of the time, according to Media
Metrix. As digital set-top box technology becomes more sophisticated and
powerful and as more cable operators offer high-speed Internet access, we
anticipate
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that TV viewers will be able to experience both video and Internet content
delivered simultaneously to their television. We believe that our proprietary
HyperTV technology uniquely positions us to capitalize on this anticipated
convergence of television and Internet content.
Like One To One TV, HyperTV is a software-based system. We offer free
HyperTV software through downloads from our HyperTV.com website. We market
HyperTV to television networks and other television content and advertising
producers as a turnkey system consisting of user software, Web content creation
software and creative services, database management and analysis and program
hosting. We have already built our first program hosting facility capable of
delivering HyperTV-enhanced content to mass audiences and will scale up our
capacity as demand increases.
We entered into an agreement with The Box Music Network ("The Box"), which
reaches more than 40 million households worldwide, to create programming that
will integrate HyperTV with The Box's 24-hour-a-day interactive music television
programming. The network uniquely tailors programming for each of its 200
markets. Viewers within each market have the option to call in or go on-line to
request video for that market from a menu of up to 200 selections. HyperTV will
enable The Box to extend brand identity by synchronizing the delivery of
relevant Web material, Web-based advertising, messages, e-commerce and chat to
broaden the viewer experience and generate new revenue streams. We will share
the incremental on-line revenues and expenses equally with The Box. We commenced
distribution of The Box's enhanced programming in December 1999.
We have also worked with other TV networks and programmers to produce and
distribute HyperTV presentations, including:
o New Line Television, Inc. for pay-per-view exhibitions of Austin
Powers, The Spy Who Shagged Me;
o TBS Superstation for its Cyberbond: 15 Days of 007 movie festival;
o Starz Encore Group for its premier of the Sixth Sense;
o Turner Network television for the Screen Actors Guild Awards program
and the exhibition of a filmed concert tribute to Bob Marley;
o TBS Superstation for its Ripley's Believe It or Not and WCW Thunder
television programs; and
o Nickelodeon Online, a division of Viacom International, for its "TV
Land" channel.
In April 2000, we and Liberty Livewire, a unit of Liberty Media, created a
joint marketing venture called HyperTV with Livewire. Liberty Livewire, which is
the U.S. leader in audio and video post-production and location services, will
jointly offer with us, HyperTV with Livewire to clients in the feature film,
television and music video production businesses. In addition, Liberty Livewire
will provide content creation services and, through AT&T IP Services, a
scaleable hosting infastructure for HyperTV with Livewire. Pursuant to the
agreement creating HyperTV with Livewire, we received warrants to purchase 2.5
million shares of Liberty Livewire common stock.
Our Business Strategy
One To One TV
To make One To One TV a leading application for digital television, we
expect to:
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o Focus initially on marquee national event programming;
o Develop targeted advertising services through Digital ADCO;
o Gain broad distribution through cable, DBS and eventually broadcast
television; and
o Later expand into other types of television programming, including
regional sports.
HyperTV
Another business objective is to be a leading provider of software
applications, program hosting and creative services for the enhancement of
traditional television programming with information and interactivity available
through the Internet. Our strategies for accomplishing this objective include
the following:
o Develop early awareness and adoption of HyperTV products and
services in the existing market of viewers who simultaneously view
television and Internet content;
o Offer television content providers a turnkey solution for
television/Internet convergence;
o Form joint venture and license relationships with television and
video content providers to create and offer HyperTV programming that
enhances their standard telecasts;
o Create a HyperTV.com website to serve as a portal and programming
guide for HyperTV; and
o Establish a data warehouse for the benefit of programming partners
and advertisers.
With increases in digital broadband capacity and the deployment of the
next generation of digital set-top boxes, we expect that the market for the
integration of television programming and Internet content delivered to viewers
through a single device will begin to grow significantly. Our long term
objective is to be a leader in this market by providing powerful programming
tools for television networks, advertisers, cable networks and DBS through the
integration of One To One TV with HyperTV products and services.
Recent Events
On August 17, 2000, we completed the acquisition of all of the issued and
outstanding capital stock, stock options and warrants of Bottle Rocket, Inc., a
Delaware corporation, ("Bottle Rocket"), in consideration for: (i) 254,936
shares of our common stock; (ii) stock options to purchase up to 27,599 shares
of our common stock; and (iii) warrants to purchase up to 26,216 shares of our
common stock.
Our Address
Our principal executive offices are located at 1270 Avenue of the
Americas, Suite 2401, New York, New York 10020, and our telephone number is
(212) 217-1600. Our corporate website is located at www.actv.com. Information
contained at our website is not a part of this prospectus.
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The Offering
Common stock offered................... 1,548,925 shares
Common outstanding after the offering.. 52,486,851 shares
Use of proceeds........................ We will not receive any of the
proceeds from the sale of the common
stock by the selling security holders,
although we will receive approximately
$13,683,636.00 if all warrants and
options held by the selling security
holders are exercised.
Nasdaq National Market symbol.......... IATV
Risk Factors........................... An investment in our common stock
involves a high degree of risk. See
"Risk Factors" commencing on the next
page.
As of November 1, 2000 there were 50,937,926 shares of common stock
outstanding which includes 414,936 of the 1,548,925 shares of common stock being
registered hereby. The foregoing number excludes an aggregate of 1,133,989
shares of common stock issuable upon the exercise of options and warrants held
by the selling security holders. Such number does not include an aggregate
of 15,833,441 shares of common stock issuable upon the exercise of other stock
options and warrants outstanding.)
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RISK FACTORS
You should carefully consider the risks described below before buying
shares of our common stock in this offering. The risks and uncertainties
described below are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem immaterial may
impair our business operations. If any of the adverse events described in this
risk factors section actually occur, our business, results of operations and
financial condition could be materially adversely affected, the trading price of
our common stock could decline and you might lose all or part of your
investment. We have had operating losses and limited revenues to date and do not
expect to be profitable in the foreseeable future.
We have been operating at a loss each year since our inception, and we expect to
continue to incur substantial losses for at least the foreseeable future.
Net (loss) applicable to common stockholders for the years ended December
31, 1997, 1998 and 1999 and the six months ended ended June 30, 2000 was
approximately $10.4 million, $20.9 million, $23.4 million, and $12.7 million,
respectively. As of June 30, 2000 and December 31, 1999, we had an accumulated
deficit of approximately $110.7 million and $95.3 million, respectively. We also
have had limited revenues. Revenues for the years ended December 31, 1997, 1998
and 1999 and the six months ended June 30, 2000, were $1.7 million, $1.4
million, $2.1 million and $1.9 million, respectively. Further, we may not be
able to generate significant revenues in the future. In addition, we expect to
incur substantial operating expenses in order to fund the expansion of our One
To One TV and HyperTV businesses. As a result, we expect to continue to
experience substantial negative cash flow for at least the foreseeable future
and cannot predict when, or even if, we might become profitable.
Applications of One To One TV have not been commercially introduced and may not
be successful.
We have not generated any revenues from sales of our digital One To One TV
applications. Our One To One TV applications are new, the demand for and market
acceptance of which are uncertain. While we plan to initially commercialize our
digital individualized programming and advertising nationally through our
affiliations with LMC IATV Events, iN DEMAND and Motorola Broadband and have
conducted test marketing, we have not yet introduced One To One TV on a
commercial basis. One To One TV may not appeal to a sufficient number of
consumers for it to become commercially viable. Consumers also may be concerned
about security or privacy issues relating to the electronic transmission of
their personal information. We cannot assure you that applications of One To One
TV will generate sufficient revenues to achieve profitability. As a result of
these uncertainties, applications of One To One TV may not be successful.
Commercial acceptance of HyperTV is uncertain, and recent sales in the
entertainment market may not be an indicator of future sales.
HyperTV is new, and the demand for, and the market acceptance of it, are
uncertain. HyperTV may not appeal to a sufficient number of consumers for it to
become commercially viable. We have had a limited number of sales of HyperTV in
the entertainment and on-line education markets, and we cannot assure you that
our marketing or development efforts will significantly increase our sales in
these markets. As a result of these uncertainties, HyperTV may not be
successful.
Delivery of our digital programming is dependent upon the timely upgrade of
analog cable distribution systems and deployment of digital set-top boxes.
The success of One To One TV depends upon the evolving digital television
market. The speed with which cable operators both upgrade their current
programming distribution systems for digital distribution and deploy digital
set-top boxes directly affects the number of potential subscribers to our One To
One TV services. To have access to One To One, subscribers must have digital
set-top boxes that have been activated with our
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software. We cannot assure you that there will be a sufficient number of
potential subscribers with digital set-top boxes in the near future to justify
the deployment of our individualized programming.
We depend on third party distributors to offer and market applications of One To
One TV to their subscribers.
Because we will use third party cable or satellite operators' systems to
offer applications of One To One TV, our growth and future success depends
substantially upon our ability to convince these distributors to offer their
subscribers One To One TV. If operators determine that One To One TV is not
viable as a business proposition or if they determine that it does not meet
their business or operational expectations or strategies, they will not offer
applications of One To One TV to their subscribers. Factors that could affect
such a determination include:
o the availability of alternative programming which offers greater
financial benefits to the operators;
o government regulations which require the operators to carry certain
programming; and
o constraints on available channel capacity.
Most distributors of television programming have channel capacity limitations.
Traditional analog cable systems transmit significantly fewer channels of
programming than digital cable systems. Digital compression technology can
convert the bandwidth required for one analog channel into as many as twelve
digital channels of programming. Our individualized programming applications
currently require the bandwidth necessary for one analog channel through which
we will transmit four digital signals. We cannot assure you that distributors of
television programming will devote sufficient bandwidth to our individualized
programming in the future, even if they do increase channel capacity. In
addition, we have limited control over the manner in which cable operators
market and price our products to their subscribers, which may have a significant
impact on the overall consumer acceptance of One To One TV.
We depend on television programmers and advertisers enhancing their programming
and advertisements with our technology.
No television programmer or advertiser is obligated to use our One To One
TV or HyperTV technology in its programs or advertisements. Our future growth
and long-term success depend on our ability to convince television programmers
and advertisers to enhance their programs and advertisements with our One To One
TV or HyperTV technology. If our technology does not appeal to television
programmers, advertisers or consumers, or if they find our competitors'
technology more appealing, our business may not succeed. We have entered into a
limited number of agreements with television programmers to incorporate our
technologies. Ultimately, we depend on such programmers to maintain satisfactory
relationships and to negotiate favorable licensing agreements with the owners of
the programming rights, which are typically the sports teams, leagues,
conferences or networks responsible for the licensed event.
We are subject to intense competition from companies offering products and
services similar to ours.
The markets for digital television applications and television/Internet
convergence programming are extremely competitive, and we expect competition to
intensify in the future. In addition, these markets are new and quickly evolving
and are characterized by untested consumer demand and a lack of industry
standards. These markets are therefore subject to significant changes in the
products and services offered by existing market participants and the emergence
of new market participants. As a result, it is difficult to identify all of the
companies and technologies that compete with us or may compete with us in the
future in one or more of our lines of business. In addition, any one of these
competitors or future competitors may have significantly greater financial,
technical and marketing resources as well as better brand recognition than we
do. A number of
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companies offer products and services that contain comparable features to
certain discrete elements of One To One TV. For example, certain competitors
offer products that allow viewers to switch among different camera angles or to
replay portions of a program. HyperTV's competitors in the television/Internet
convergence programming and services markets include companies that offer, or
may soon offer, products and services that are competitive with some or all of
HyperTV's current or proposed products and services. We expect to face future
competition from computer and software companies, one or more of which may
extend the scope of their products to include functionality similar to that of
HyperTV. In addition, we also face competition from traditional broadcast and
cable television networks.
Competition with high definition television and multicasting may limit the
availability of One To One TV.
High definition television and multicasting are two major digital
television applications that will directly compete with us for use of the new
digital broadcast distribution capacity. High definition television provides
better color quality and sharper pictures than traditional television.
Multicasting is the transmission of multiple television programs through what
was a single analog television channel and is only available through digital
transmissions. It is too early to determine to what extent third party
distributors who can control access to their distribution system will prefer to
distribute high definition television or multicast programs to the exclusion of
our services. Also, it is too early to determine consumers' relative demand for
the improved color and sharper pictures offered by high definition television,
greater programming quantity offered by multicasting or the individualization of
content offered by One To One TV. In addition, consumers may resist the extra
cost of subscribing to services that offer our individualized programming. As a
result, there is a risk that other digital television applications will be
employed to the detriment of One To One TV.
We depend on equipment manufacturers to incorporate our technology.
The success of our products depends upon our relationships with digital
set-top box manufacturers, such as General Instrument, Scientific-Atlanta and
Pioneer, for distribution of digital set-top boxes compatible with our software.
In addition, General Instrument and Scientific-Atlanta, the two largest
suppliers of set-top boxes, also have arrangements with other providers of
similar products or products that may compete with our products. A supplier may
decide in the future to discontinue production of digital set-top boxes
compatible with our technology or to devote its attention to developing similar
technology with our competitors.
We may be unable to respond to rapid changes in technology.
The markets for digital television applications and television/Internet
convergence programming and services are characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of these products and services and their rapid
evolution require us to continually improve the performance, features and
reliability of our present and proposed products and services, particularly in
response to our competitors' product offerings. We cannot assure you that we
will have the resources or the ability to quickly, cost effectively or
adequately respond to these developments. There may be a limited time-frame for
consumer adoption of One To One TV and HyperTV applications, and we cannot
assure you that we will be successful in achieving widespread acceptance of our
products and services before competitors offer products and services with
features and performance similar to ours. In addition, the widespread adoption
of new Internet or television technologies or standards could require
substantial expenditures by us to modify or adapt our services and could
fundamentally affect the character and viability of our business model.
Our software products and services may contain unknown defects.
One To One TV, HyperTV or other applications offered by us may contain
design flaws or other defects. Design flaws and other defects--which may include
defects that make our products and services incompatible with the technology
employed in digital distribution systems, set-top boxes or the Internet--may
lead to delays
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in deployment of our products, additional costs, delayed or lost revenues, loss
of market share, failure to achieve market acceptance, diversion of development
resources and harm to our reputation.
We may experience capacity constraints and system failures as we deploy our
HyperTV points of presence.
Our first HyperTV point of presence, or POP, is at an early stage of
development. We cannot assure you that we or our subcontractor will be able to
handle anticipated traffic at our initial POP or increase the scale of our POP
system to handle significant commercial traffic and provide high quality
performance. Any of these problems in our systems could reduce consumer demand
for our products and have a material adverse effect on our business, financial
condition and results of operations.
We may have difficulty successfully managing our growth.
Our development activities and operations are expanding rapidly, and
significant further expansion will be necessary to meet our growing demands and
to take advantage of market opportunities. Expansion has placed and will
continue to place substantial strain on our managerial, operational and
financial resources and systems. To manage our growth, we must successfully
implement, improve and effectively utilize our operational and financial systems
while aggressively expanding our workforce. Some of our key personnel have been
with us for less than one year, and we will have to successfully hire and
integrate additional key personnel in the future. We must also maintain and
strengthen the breadth and depth of current strategic relationships while
rapidly developing new relationships. Our existing or anticipated operational
and financial systems may not be sufficient to support our growth, and our
management may not be able to effectively identify, manage and develop existing
and emerging market opportunities. If potential growth is not adequately
managed, our business will suffer.
We depend upon our key management and technical personnel, and their loss could
put us at a competitive disadvantage.
We largely depend upon the efforts of William C. Samuels, our Chairman of
the Board and Chief Executive Officer, David Reese, our President and Director
and the President of ACTV Entertainment, Inc., Bruce Crowley, our Vice Chairman
and Executive Vice President and Director and the President of HyperTV Networks,
Inc., and Kevin Liga our Executive Vice President and Chief Technology Officer.
We have entered into employment agreements with each of Messrs. Samuels, Reese,
Crowley and Liga, but these agreements do not ensure their continued employment
with our company. We do not maintain "key employee" insurance on the lives of
Messrs. Samuels, Reese, Crowley or Liga. Our success also depends on our ability
to attract, train and retain qualified personnel, specifically those with
product development skills. In particular, we must hire additional skilled
software engineers to further our research and development efforts. There is
currently a shortage of qualified senior technical personnel in the software
development field, and this shortage will likely continue. Consequently,
competition for such personnel is intense. We cannot assure you that we will
attract a sufficient number of qualified employees in the future to sustain and
grow our business, or that we will successfully motivate and retain the
employees we attract. If we cannot attract, motivate and retain qualified
professionals, our business may suffer.
Government legislation and regulations may adversely affect our business.
The media, telecommunications, broadcast and cable television industries
are subject to extensive regulation by federal, state and local governments and
governmental agencies. Federal, state and local governments and governmental
agencies continue to adopt legislation and regulations affecting these
industries which may affect our business, market participants with which we have
relationships or the acceptance of our products in general. Existing regulations
were substantially affected by the passage of the Telecommunications Act of
1996. For example, competition for channel space has increased as cable
operators have utilized available channel space to comply with "must-carry"
provisions, mandated retransmission consent agreements
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and "leased access" provisions. The outcome of pending federal and state
administrative proceedings may also affect the nature and extent of competition
that we will encounter. Increased regulation of the Internet might slow the
growth of Internet use, which could decrease demand for our services, increase
our cost of doing business or otherwise have a material adverse effect on our
business, financial condition and results of operations. Congress has recently
passed legislation regulating certain aspects of the Internet, including on-line
content, children's protection, copyright infringement, user privacy, taxation,
access charges, liability for third-party activities and jurisdiction. In
addition, federal, state and local governmental organizations as well as foreign
governments are considering other legislative and regulatory proposals that
would regulate the Internet. Areas of potential regulation include libel,
pricing, quality of goods and services, intellectual property ownership and
personal privacy. We collect and store personal information from users of our
One To One TV and HyperTV applications and plan to use such information to
develop our businesses and generate revenues, particularly with respect to
targeted advertising. Storage and use of such information is subject to state
and federal regulation. Storage and use of such information may also subject us
to privacy claims relating to our use and dissemination of personal information.
We do not know how courts will interpret laws governing the Internet or the
extent to which they will apply existing laws regulating issues such as property
ownership, libel and personal privacy to the Internet. Therefore, we are not
certain how new laws governing the Internet or other existing laws will affect
our business.
We face certain security and privacy risks.
A significant concern associated with communications and commerce through
our HyperTV applications is the need for secure transmission of confidential
information, such as credit card numbers, over public networks. A party who
gains unauthorized access to our system could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against these security
breaches or to alleviate problems caused by these breaches. In addition, the
information gathered during the One To One TV experience and stored in the
digital set-top boxes may be subject to personal privacy rights. A breach of
these rights by ourselves, cable operators or other third parties could expose
us to liability. We have no direct control over the confidentiality or security
measures of cable operators or other third parties. Any compromise of security
or misuse of private information could materially adversely affect our
reputation, business, operating results and financial condition and expose us to
a risk of loss or litigation and potential liability. Our insurance may not
cover claims of this type or may not be adequate to indemnify us for all
liability to which we may be exposed. Moreover, concerns over the security of
e-commerce transactions and the potential misuse of personal information may
inhibit the growth of HyperTV and One To One TV.
We may not be able to sell the shares of Livewire common stock issuable upon the
exercise of the Livewire warrant for the dollar amount equal to its recorded
value.
In April, 2000 we entered into a joint marketing agreement, "Hyper TV
with Livewire", with Liberty Livewire Corporation which will provide turnkey
convergence services, including application hosting, web authoring services,
data management, e-commerce, and other value added services for advertisers,
television programmers, studios and networks. In connection with signing this
joint marketing agreement, our wholly owned subsidiary, Hyper TV Networks,
Inc., received a warrant to acquire 2,500,000 shares of Livewire at $30 per
share. 500,000 of such shares become exercisable every year for each of the
first five years and may be exercised for a fifteeen year period. We have
recorded an asset in the amount of $76,016,175, the estimated value of the
warrant using the Black Scholes pricing model (see Note 12 to the June 30,
2000 consolidated financial statements). Our ability to realize this
investment will depend upon the value of Livewire shares over the 15 year
life of the warrant as well as decisions made by us regarding the exercise of
the warrant and the ultimate disposition of shares received upon exercise of
the warrant.
We may have liability for information retrieved and replicated on the Internet.
Because HyperTV users can download and redistribute materials that we may
not create ourselves and this material could be replicated by us or other
content providers, negligence, copyright or trademark infringement or other
legal claims could be made against us. Copyright and trademark laws are evolving
both domestically and internationally, and we are uncertain as to their
applicability to the HyperTV service and our possible role as both a technology
and content provider. The imposition of liability for information carried by us
would have a material adverse effect on our business, operating results and
financial condition.
Our efforts to protect our patents and proprietary information from competitors
may not be adequate.
We have obtained 19 patents covering certain aspects of One To One TV and
HyperTV and have patents pending with respect to other developments or
enhancements. However:
o the patents we own or have rights to, or that may be granted or
obtained in the future, may not be enforceable, may not provide us
with meaningful protection from competition or may be revoked
entirely;
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<PAGE>
o patents applied for may not be granted;
o products developed by us may infringe upon patents or rights of
others; and
o we may not possess the financial resources necessary to enforce
patent rights that we hold.
It is very difficult for us to police the unauthorized use of our products and
intellectual property rights. It may be possible for a third party to copy or
otherwise obtain and use our products or technology without our authorization or
to develop similar technology independently. Furthermore, our confidentiality
and invention rights agreements with our full-time employees, consultants and
advisors may not provide effective protection of our proprietary information in
the event of unauthorized use or disclosure of such information. In addition,
laws in many countries other than the United States do not afford us the same
protection of our intellectual property as do our United States patents.
Currently, there are companies offering competitive products that we believe may
be in violation of our patents and expect that companies in the future will
infringe on our intellectual property rights. We intend to aggressively defend
our intellectual property rights, which may involve both litigation and
extensive negotiations with companies we believe are infringing on such rights.
It is possible that we will commence legal action against one or more infringers
in the future to protect our intellectual property rights. If we commence
litigation to protect these rights, we expect the litigation will be extensive,
time-consuming and costly, and we cannot assure you that we will be successful.
Any licensing negotiations we pursue will also be extensive and costly because
the issues are very complex and subjective. We cannot assure you that these
negotiations will result in agreements that will be beneficial to our business
or provide us adequate protection of our rights.
Our business may be restricted or may be subject to litigation in the future as
a result of the intellectual property rights of others.
We may be unable to implement our current business plan or expand the
commercial uses of our products if other companies have already acquired or in
the future acquire patents or other intellectual property on which our
technology infringes. The patent application process is not public, and we
cannot assure you that another company has not applied for and will not obtain a
patent that blocks any patents we have pending. Furthermore, because many
companies might choose not to publicize their patents until they have a viable
commercial product or until they believe another company is infringing on their
patents, we cannot assure you that another company has not already obtained
patents that we are violating. As a result, as we expand our business and begin
the commercial deployment of our products, we may receive notices of claims of
infringement of other parties' property rights or claims for indemnification
resulting from infringement claims. Irrespective of the validity or the
successful assertion of such claims, we would incur significant costs and a
diversion of resources with respect to the defense of any claims brought. The
assertion of such infringement claims could result in injunctions preventing us
from distributing certain products, which could materially adversely affect our
business. If any claims or actions are asserted against us, we may seek to
obtain a license under a third party's intellectual property rights. However, a
license under such circumstances may not be available on reasonable terms, if at
all.
Our quarterly revenues and operating results are volatile and may cause our
stock price to fluctuate.
Our quarterly revenues and operating results have varied in the past and
will likely continue to vary from quarter to quarter as a result of a number of
factors including:
o the rate of deployment of our One To One TV service in any given
quarter by cable operators;
o the number of television programmers and advertisers using our
HyperTV products;
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<PAGE>
o the degree of positive or negative consumer response and publicity
to our initial product launches or any high profile offerings in a
quarter;
o the timing of significant expenses we must incur in order to expand
our businesses; and
o our ability to maintain our current relationships with Liberty Media
and its affiliates, iN DEMAND, Motorola Broadband and set-top box
manufacturers and to develop other strategic relationships.
Because we currently have relationships with only a few other companies that we
rely on for manufacturing, programming and distribution, and because we plan to
initially launch our products in narrow markets, any one of these factors could
have a significant effect on our revenues and earnings in a quarter. Any decline
in revenues or earnings or a greater than expected loss for any quarter could
materially adversely affect the price of our common stock, even if not
reflective of any long-term problems with our business.
External factors could adversely affect the market price of our common stock.
The market price of our common stock has been and may continue to be
volatile and could fluctuate significantly as a result of:
o general economic and stock market conditions;
o changes in financial estimates by securities analysts;
o earnings and other announcements by, and changes in market
evaluations of, providers of digital television products and
convergent media;
o changes in business or regulatory conditions affecting us;
o announcements by our competitors of technological innovations or new
products or services;
o sales, or the anticipation of sales, of substantial amounts of our
common stock in the public market after completion of this offering;
and
o trading volume of our common stock.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performances. For example, market prices for securities of Internet-related
companies and interactive technology companies have frequently reached elevated
levels. These levels may not be sustainable and may not bear any relationship to
these companies' operating performances. If the market price of our common stock
reaches an elevated level following this offering, it is likely to materially
decline. In the past, following periods of volatility in the market price of a
company's securities, that company's stockholders have often instituted
securities class action litigation against that company.
We may be unable to obtain additional financing necessary for our business.
We believe that as of the date of this prospectus, we have the necessary
resources to execute our current business plan. However, to the extent that we
enter new markets or digital set-top box deliveries are delayed, we will require
additional capital. We currently do not have any arrangements for additional
financing and cannot assure you that additional financing will be available on
acceptable terms, if at all. Additional equity financing may substantially
dilute your investment in our common stock, and debt financing, if available,
may involve significant restrictions on our financing and operating activities.
12
<PAGE>
Your investment may be substantially diluted upon exercise of outstanding
options and warrants.
As of November 1, 2000, we have granted options and warrants (excluding
the options and warrants granted to the selling security holders) to purchase an
aggregate of 15,883,441 shares of common stock that have not been exercised. To
the extent that the outstanding stock options and warrants are exercised, our
stockholders' interest in us will be diluted. Moreover, the terms upon which we
will be able to obtain additional equity capital may be adversely affected,
since the holders of the outstanding options and warrants can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on more favorable terms than those provided for in the
outstanding options and warrants. The aggregate exercise price of these options
is not material. See "Description of Capital Stock" for a more detailed
description of these options.
The sale or availability for sale of substantial amounts of our common stock
could adversely affect its market price.
Sales of substantial amounts of our common stock in the public market
after the completion of this offering, or the perception that such sales could
occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our
common stock. We cannot predict what effect, if any, market sales of shares held
by any other stockholder or the availability of these shares for future sale
will have on the market price of our common stock. See "Shares Eligible for
Future Sale" for a more detailed description of the restrictions on selling
shares of our common stock after this offering.
We have anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock.
Our policy is and has been to license our technology and arrange joint
ventures for its use in a number of different industries. In August 2000, our
Board of Directors adopted a Preferred Stock Rights Agreement, which gives our
Board of Directors certain options if a potential acquirer of 15% or more of our
common stock is deemed unlikely to further such policy or if such potential
acquirer acts inconsistently with the best interests of our stockholders. The
Preferred Stock Rights Agreement does not apply to existing holders of 15% or
more of our common stock. Pursuant to the Preferred Stock Rights Agreement, we
could distribute certain preferred stock purchase rights to our current
stockholders. These rights would become exercisable if an outside party became
the beneficial owner of 15% or more of our issued and outstanding common stock,
unless our Board of Directors determines to defer the exercise of, or redeem,
such rights. The potential acquirer's rights under the Preferred Stock Rights
Agreement will be null and void. Once exercisable, each preferred stock purchase
right would entitle the holder thereof to purchase .001 of share of our Series C
Preferred Stock at an exercise price of $0.00001 per share. Each share of our
Series C Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of our stockholders. Once issued our Board of
Directors could vote to
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<PAGE>
exchange the preferred stock purchase rights for shares of our common stock. A
potential acquirer may be discouraged from completing an acquisition if it could
not be assured of having control of us. For more information on these
provisions, see "Description of Capital Stock-- Antitakeover Provisions
Affecting the Common Stock". Our Board of Directors has also approved an
amendment to our Bylaws which provides that only a majority of the Board of
Directors or the Chairman of the Board may call a special meeting of the
stockholders. In addition, our certificate of incorporation permits our Board of
Directors to have us designate and issue, without stockholder approval,
preferred stock with voting, conversion and other rights and preferences that
could differentially and adversely affect the voting power or other rights of
the holders of our common stock. Our issuance of preferred stock or of rights to
purchase preferred stock could also be used to discourage an unsolicited
acquisition proposal. Our Preferred Stock Rights Agreement, Bylaws or the
issuance of the preferred stock could each make it more difficult and therefore
discourage an unsolicited takeover proposal such as a tender offer, proxy
contest or removal of incumbent management, even if such actions would be in the
best interest of our stockholders.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling security holders, although we will receive approximately
$13,683,636.00 if all of the warrants and options are exercised by the
selling security holders. If the warrants and options are exercised, we will
use the proceeds for the funding of potential acquisitions, working capital
and general corporate purposes. All proceeds from the sale of the selling
security holders shares will be for the account of the selling security
holders.
DIVIDEND POLICY
We have never paid or declared a dividend on our common stock. We intend,
for the foreseeable future, to retain all future earnings for use in our
business. The amount of dividends we pay in the future, if any, is within the
discretion of our Board of Directors and will depend upon our earnings, capital
requirements, financial condition and other relevant factors.
MATERIAL CHANGES
None.
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<PAGE>
SELLING SECURITY HOLDERS
All of the shares of our common stock offered under this prospectus may be
sold by the holders who have previously acquired their shares. We will not
receive any of the proceeds from the sales of shares offered under this
prospectus, although we will receive approximately $13,683,636.00 if all of
the warrants and options are exercised by the selling security holders.
1,080,174 of the 1,548,925 shares being registered hereby, are shares of
common stock issuable upon the exercise of options which vest over the next 4
to 5 years. All costs, expenses and fees in connection with the registration of
the selling security holders' shares will be borne by us. All brokerage
commissions, if any, attributable to the sale of shares by selling security
holders will be borne by such holders.
The selling security holders are offering a total of 1,548,925 shares of
our common stock. The following table sets forth:
o the name of each person who is a selling security holder;
o the position, office or affiliation that such person has had with us
during the past three years;
o the number of securities owned by each such person at the time of
this offering;
o the number of shares of common stock each such person will own after
the completion of this offering; and
o the percentage beneficially owned by each such person after the
completion of this offering
<TABLE>
<CAPTION>
Position, Beneficial
Office or ownership Beneficial
affiliation prior to this Shares included ownership
during the past offering in this after this
Name three years (1)(2) offering (1)(2) offering(2) Percentage
<S> <C> <C> <C> <C> <C>
Gregory W. Easley Employee 23,123 101,698 23,123 *
Kelly A. Moulton None 22,430 22,430 0 0
James Schoenburg Employee 12,174 532 11,642 *
Eric LaVanchy Employee 10,061 4,381 5,680 *
Norwood H. Davis, Jr. None 2,273 2,273 0 0
Spencer Grimes None 6,095 6,095 0 0
Steinberg Leachman
Ventures None 5,389 5,389 0 0
Rollingwood Investors LLC None 732 732 0 0
Scott Doyle Employee 0 155,075 0 0
Mark Ein None 976 976 0 0
John Penney Employee 0 128,575 0 0
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Chris Havener None 1,774 1,774 0 0
Joseph P. Dwyer Executive Vice 0 128,575 0 0
President and
Chief Financial
Officer
Richard and Heather
Taylor None 1,841 1,841 0 0
Joseph M. Alto None 920 920 0 0
Gerald D. Gains Revocable
Trust None 920 920 0 0
Barry Goldberg Employee 0 2,860 0 0
Ethan D. Leder None 920 920 0 0
Samuel O'Daniel None 920 920 0 0
Harold Pescovitz
Revocable Trust None 920 920 0 0
Daniel Turak Employee 0 70,372 0 0
Mark Pescovitz None 920 920 0 0
Shirley G. Pescovitz
Revocable Trust None 920 920 0 0
George Jostlin Employee 0 2,779 0 0
James M. Ballantine, III None 554 554 0 0
Margaret Butler None 227 227 0 0
Thomas D. Dale None 554 554 0 0
2000 William C. Samuels
Family Trust None 60,000 60,000 0 0
Anne Dobbs None 554 554 0 0
Warren C. Easley None 277 277 0 0
David Felger None 333 333 0 0
Daniel Felger None 111 111 0 0
Michael Felger None 111 111 0 0
John Flores Employee 0 27,779 0 0
Jack Forbes None 1,109 1,109 0 0
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
William Frank Executive Vice 0 112,860 0 0
President and
Director
David Foulk None 720 720 0 0
Kurt B. Harrison None 554 554 0 0
Timothy N. Hartzell None 554 554 0 0
Mark J. Hastings and
Louise P. Hastings None 554 554 0 0
John C. Wilcox Director 0 45,000 0 0
James Joyce and Claudia
Joyce None 554 554 0 0
John Miller None 832 832 0 0
Paul Finer Employee 0 67,860 0 0
Charles Peterson None 1,109 1,109 0 0
Mark Roberts None 277 277 0 0
Thomas Wolzien Director- 100,000 50,000 100,000 *
Subsidiary
Robert Samia None 554 554 0 0
Wilshaw Holdings, Ltd. None 2,772 2,772 0 0
David Williamson None 554 554 0 0
Mark Axelowitz None 432 432 0 0
Steven Schuster Director 31,166 30,000 31,166 *
Charles Bolton None 221 221 0 0
Kurt Butenhoff None 432 432 0 0
Roger Coleman and
Margaret Coleman None 221 221 0 0
Blount Edwards None 432 432 0 0
Seth Harrison None 432 432 0 0
Chih-Yuan Hsu None 4,246 4,246 0 0
Gary Kaplowitz None 432 432 0 0
Arthur I. Kronfeld None 854 854 0 0
David Lerner and Danielle
Lerner None 255 255 0 0
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Nexus Partners LLC None 854 854 0 0
Samford J. Schlesinger,
as Trustee of the
2000 William C.
Samuels Grantor Retained
Annuity Trust 1 through 5 None 100,000(3) 100,000(3) 0 0
Jim Love None 221 221 0 0
Harris R.L. Lydon, Jr. None 221 221 0 0
Michael Macchia None 432 432 0 0
Erick Maronak None 221 221 0 0
Steven Karas Employee 0 7,145 0 0
John Neill None 432 432 0 0
Bernadette Peters
Productions Defined
Benefit Plan None 432 432 0 0
Charles Riceman and Maria
Riceman None 488 488 0 0
David Rudnick Employee 0 128,575 0 0
Allan Rothstein None 432 432 0 0
David Schoekin None 221 221 0 0
Carl Sorenson None 221 221 0 0
Richard Steinberg None 432 432 0 0
Stillwell Holdings LLC None 432 432 0 0
Tracy Shea Employee 0 12,779 0 0
Eric Wittenberg None 221 221 0 0
Michael Wittenberg None 432 432 0 0
Irwin Zamore None 221 221 0 0
Sports International Ltd. None 75,265 75,265 0 0
Electronic Arts, Inc. None 93,305 93,305 0 0
Elizabeth Abrams None 481 231 250 *
Harvey Bojarsky None 962 462 500 *
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Will Foster None 231 231 0 0
Verne Newton Employee 0 7,145 0 0
Sarah Ransom None 139 139 0 0
Richard E. Lamb None 11,642 11,642 0 0
Edmund A. Moulton Employee 19,979 17,839 19,979 *
Anna Szarekjo None 116 116 0 0
Gilbert Chapman Employee 2,830 17,690 2,830 *
Andrew Friedman None 277 277 0 0
David Haut None 188 188 0 0
Mark Lazen None 139 139 0 0
Matthew Schwartz None 115 115 0 0
Matt Welton None 1,571 1,571 0 0
Tony Zito None 393 393 0 0
Kim McGalliard None 116 116 0 0
Carl Muckenhoupt None 116 116 0 0
Bill Stanton None 92 92 0 0
Parker Davis None 1,220 1,220 0 0
William J. Grimes None 1,330 1,330 0 0
Nathaniel Chapin None 499 499 0 0
Andrew Zarnett None 333 333 0 0
William J. Allard None 1,885 1,885 0 0
David Schreff None 1,053 1,053 0 0
Christopher Danne None 666 666 0 0
John Evans None 333 333 0 0
Gregory M. Cote None 333 333 0 0
Drake Associates None 333 333 0 0
Ted Rubin None 1,119 1,119 0 0
Steven Ehrlich None 333 333 0 0
David Steinberg None 887 887 0 0
</TABLE>
* Less than 1%
19
<PAGE>
(1) The number of shares of common stock shown as beneficially owned and
offered by the selling security holders includes: (i) 254,936 shares of
common stock issued to certain of the selling security holders pursuant to
our acquisition of Bottle Rocket in exchange for the issued and
outstanding shares of common and preferred stock of Bottle Rocket owned by
the selling security holders at the time of said acquisition, (ii) the
number of shares of common stock issuable upon the exercise of options to
purchase up to 27,599 shares of our common stock issued to certain selling
security holders in exchange for options of Bottle Rocket, (iii) the
number of shares of common stock issuable upon the exercise of warrants to
purchase up to 26,216 shares of our common stock issued to certain selling
security holders in exchange for warrants of Bottle Rocket, and (iv) the
number of shares of common stock issuable upon the exercise of options to
purchase up to 1,080,174 shares of our common stock issued to certain
selling security holders who are employees. The number of shares listed
above assumes that the selling security holders will exercise of all such
options and warrants held by them.
(2) Gives effect to the sale of all the shares of common stock being offered
hereby.
(3) Includes 20,000 shares of our common stock owned by each of the 5 Trusts.
DESCRIPTION OF CAPITAL STOCK
Our total authorized capital stock consists of 200,000,000 shares of
common stock, par value $0.10 per share, and 1,000,000 shares of preferred
stock, par value $0.10 per share. The following descriptions of capital stock
are qualified in all respects by reference to our Restated Certificate of
Incorporation and By-laws, which are incorporated by reference as exhibits to
the Registration Statement of which this prospectus is a part.
Common Stock
20
<PAGE>
The holders of common stock elect all directors and are entitled to one
vote for each share held of record on all matters to be voted upon by
stockholders. Upon successful completion of this offering, 52,486,851 shares of
common stock will be issued and outstanding. Subject to preferences that may be
applicable to any outstanding preferred stock, all shares of common stock
participate equally in dividends, when and as declared by the Board of
Directors, and in net assets on liquidation. The shares of common stock have no
preference, conversion, exchange, preemptive or cumulative voting rights.
Preferred Stock
Our Certificate of Incorporation authorizes the issuance of shares of
preferred stock in one or more series. The Board of Directors has the authority,
without any vote or action by the shareholders, to create one or more series of
preferred stock up to the limit of our authorized but unissued shares of
preferred stock and to fix the number of shares constituting such series and the
designation of such series, the voting powers (if any) of the shares of such
series and the relative, participating, option or other rights (if any), and any
qualifications, preferences, limitations or restrictions thereof, including,
without limitation, the dividend rate (and whether dividends are cumulative),
conversion rights, rights and terms of redemption (including sinking fund
provisions), and redemption price and liquidation preferences, and any other
rights, preferences and limitations pertaining to such series which may be fixed
by the Board of Directors pursuant to the General Corporation Law of the State
of Delaware. Upon completion of this offering, there will be no shares of
preferred stock outstanding.
Anti-takeover Provisions Affecting the Common Stock
Staggered Board
Our Board of Directors is divided into three classes, each class serving a
staggered three-year term. As a result, only one class of directors is elected
at our annual meeting, with the other classes continuing for the remainder of
their respective terms.
Special Meetings
Our Bylaws provide that a special meeting of stockholders may be called
only by a majority of our Board of Directors or the Chairman of the Board of
Directors.
Preferred Stock Rights Agreement
Our policy is and has been to license our technology and arrange joint
ventures for its use in a number of different industries. In August 2000, our
Board of Directors adopted a Preferred Stock Rights Agreement, which gives our
Board of Directors certain options if a potential acquirer of 15% or more of our
common stock is deemed unlikely to further such
21
<PAGE>
policy or if such potential acquirer acts inconsistently with the best interests
of our stockholders. The Preferred Stock Rights Agreement does not apply to
existing holders of 15% or more of our common stock. Pursuant to the Preferred
Stock Rights Agreement, we could distribute certain preferred stock purchase
rights to our current stockholders. These rights would become exercisable if an
outside party became the beneficial owner of 15% or more of our issued and
outstanding common stock, unless our Board of Directors determines to defer the
exercise of, or redeem, such rights. The potential acquirer's rights under the
Preferred Stock Rights Agreement will be null and void. Once exercisable, each
preferred stock purchase right would entitle the holder thereof to purchase .001
of share of our Series C Preferred Stock at an exercise price of $0.00001 per
share. Once issued our Board of Directors could vote to exchange the preferred
stock purchase rights for shares of our common stock.
As part of the Preferred Stock Rights Agreement, our Board of Directors
adopted a Certificate of Designation pursuant to which a series of 35,000 shares
of our preferred stock were designated as Series C Preferred Stock. No shares of
Series C Preferred Stock have been issued to date. Each share of Series C
Preferred Stock, if issued, shall entitle the holder thereof to 1,000 votes on
all matters submitted to a vote of our stockholders, with all shares of Series C
Preferred Stock voting together as one single class. Subject to the prior and
superior right of right of the holders of any shares of any series of preferred
stock ranking prior and superior to the shares of Series Preferred Stock, each
share of Series C Preferred Stock shall entitle the holder to receive when, as
and if declared by our Board of Directors out of funds legally available for
such purpose, quarterly dividends payable in cash on the last day of December,
March, June and September in each year (the "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share of fraction of share of Series C Preferred Stock. The dividend amount
per share shall be equal to 1,000 times the aggregate per share amount of all
cash dividends, and 1,000 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend payable
in shares of our common stock or a subdivision of the outstanding shares of our
common stock (by reclassification or otherwise), declared on our common stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of our Series C Preferred Stock. Upon our
liquidation or winding up, the holders of the shares of the Series C Preferred
Stock shall be entitled to receive an aggregate amount per share equal to 1,000
times the aggregate amount to be distributed per share to the holders of our
common stock plus an amount equal to ti any accrued and unpaid dividends on such
shares of Series C Preferred Stock. See "Risk Factors--We have anti-takeover
defenses that could delay or prevent an acquisition and could adversely affect
the price of our common stock" for a discussion of the potential risks to your
investment in our common stock.
Digital ADCO's capital structure consists of two classes of common stock,
designated as Class A and Class B, and one class of preferred stock. The
authorized number of shares of
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<PAGE>
Class B common stock will be one-third of the total authorized common stock of
Digital ADCO, with each share of Class B common stock entitling the holder
thereof to 25 votes compared to one vote for each share of Class A common stock.
ACTV and General Instrument are the sole holders of the Class B common stock and
OpenTV is the sole holder of the Class A Common Stock. No options have been
granted with respect to any Digital ADCO stock.
Blank Check Preferred Stock
The existence of authorized but unissued preferred stock may enable our
Board of Directors to render more difficult or discourage an attempt to obtain
control of us by means of a merger, tender offer, proxy contest or otherwise.
For example, if in the due exercise of its fiduciary obligations, our Board of
Directors were to determine that a takeover proposal is not in our best
interests, our Board of Directors could cause us to issue shares of preferred
stock without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group. In this regard, our
Certificate of Incorporation grants the Board of Directors broad power to
establish the rights and preferences of authorized and unissued preferred stock.
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above could decrease the amount of earnings and assets
available for distribution to holders of our common stock and adversely affect
the enjoyment of rights of such holders, including voting rights in the event a
particular series of preferred stock is given a disproportionately large number
of votes per share, and may have the effect of delaying, deferring or preventing
a change in control of us that may be favored by certain stockholders.
Board Policy of ACTV, Inc.
Our policy is and has been "to license ACTV's technology and arrange joint
ventures for its use in a number of different industries." Our Board of
Directors has previously adopted, and has reaffirmed in 1999, a resolution which
authorizes them to take all necessary actions to use and exploit our proprietary
and potential technologies in the event a person or entity seeks to acquire or
acquires 15% or more of our common stock and the Board determines that the
acquirer is likely to act inconsistently with the best interests of our
stockholders. The text of the Board Resolution is the following:
"Resolved, that it being in the best interests of ACTV, Inc. and its
shareholders, the Board of Directors hereby approves and adopts a plan
that, in the event that a majority of the Board of Directors determines
that an acquirer has acquired, or seeks to acquire, 20% or more of ACTV,
Inc. and that such acquirer is not a suitable acquirer in the opinion of
the majority of the Board of Directors since such acquirer will not
further our policy of acting as a broad licensor and joint venturer of our
proprietary and patented technologies, or is otherwise likely to act
inconsistently with the best interests of all of our shareholders, the
Board is authorized to take all
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necessary action to offer, by invitation, stock, joint ventures or
licenses to use and exploit ACTV's proprietary and patented technologies.
The Board is authorized, in its discretion, to employ an independent
investment banking firm for the purpose of evaluating various business
alternatives."
Our Board of Directors determined that Liberty Media was a suitable
investor pursuant to this policy. Liberty Media has agreed not to purchase
securities that would increase its interest in us above 26% of our outstanding
common stock.
Registration Rights
Through a series of transactions, we have issued to Liberty Media 8
million shares of unregistered common stock and outstanding warrants to purchase
5 million shares of unregistered common stock. The foregoing totals include
Liberty Media's March 28, 2000 exercise of one of its warrants for 2,500,000
shares of unregistered common stock of ACTV. Liberty Media has demand
registration rights that would require us to register any shares held by it upon
exercise of those warrants.
Through two transactions, one in 1997 and one in 1999, we issued to
General Instrument a total of 1 million shares of our unregistered common stock
and a warrant to purchase 625,000 shares of our unregistered common stock.
General Instrument has piggyback registration rights that allows it to join in
any registration of any securities we file with the Securities and Exchange
Commission. However, the underwriters of any offering of our securities can
delay the exercise of this right.
Transfer Agent
Our transfer agent is Continental Stock Transfer & Trust Company, New
York, New York 10007.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 52,486,851 shares of common stock will
be outstanding, assuming no exercise of other outstanding options and warrants
other than those . Of these shares, 1,548,925 sold in this offering will be
freely tradable without restriction (assuming all of the warrants and options
are exercised by the selling security holders) or further registration under
the Securities Act, unless held by an "affiliate" of ours as that term is
defined in Rule 144 under the Securities Act. Of the 1,548,925 shares being
registered hereby, 1,080,174 are shares of common stock issuable upon the
exercise of options which vest over the next 4 to 5 years. Approximately
11,987,541 shares of common stock outstanding prior to this offering are
"restricted securities," as such term is defined under Rule 144, and an
approximate total of an additional 5,700,000 shares would be restricted
securities should all of our warrantholders exercise their warrants. These
shares are restricted securities because they were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rule 144 or Rule 701 under the
Securities Act or another exemption from registration.
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This prospectus may not be used in connection with any resale of shares of
common stock acquired in this offering by our affiliates.
In general, under Rule 144 as currently in effect, if a minimum of one
year has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of common stock are aggregated), including persons who may
be deemed our affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of
(1) one percent of the then-outstanding shares of common stock, which
equals 524,869 shares immediately after this offering, and
(2) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the
SEC.
Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current information
about us. In addition, under Rule 144(k), if a period of at least two years has
elapsed since the later of the date restricted securities were acquired from us
or the date they were acquired from an affiliate of ours, a stockholder who is
not an affiliate of ours at the time of sale and who has not been an affiliate
of ours for at least three months prior to the sale would be entitled to sell
shares of common stock in the public market without compliance with the
foregoing requirements under Rule 144. Rule 144 does not require the same person
to have held the securities for the applicable periods. The foregoing
description of Rule 144 is not intended to be a complete description.
In addition, any employee, director or officer of, or consultant to us who
acquired shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits our affiliates to sell their Rule 701 shares without
having to comply with the holding period restrictions of Rule 144, in each case,
commencing 90 days after the date of this prospectus.
A number of our stockholders and warrantholders are parties to agreements
with us that provide them with the right to require us to register the sale of
their shares or the shares issuable upon the exercise of their warrants,
respectively. The stockholders' rights cover approximately 9,500,000 shares of
our issued and outstanding common stock and the warrantholders' rights cover
approximately 5,700,000 of our authorized shares of common stock. Registration
of these shares of our common stock would permit the sale of these shares
without regard to the restrictions of Rule 144. See "Description of Capital
Stock--Registration Rights" for a more detailed description of these
registration rights.
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PLAN OF DISTRIBUTION
Up to 1,548,925 shares of common stock may be sold by the selling security
holders, who have acquired such shares, or will acquire such shares upon the
exercise of warrants and options held by the selling security holders. We will
not receive any of the proceeds from the sale of the common stock by the selling
security holders, although we will receive approximately $13,683,636.00 if all
warrants and options are exercised by the selling security holders. See "Selling
Security Holders."
The selling security holders have advised us that the sale or distribution
of the common stock may be effected directly to purchasers by the selling
security holders as principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more transactions, including
crosses or block transactions, by any of the following methods:
(1) on the Nasdaq National Market;
(2) in the over-the-counter market;
(3) in transactions other than on any stock exchange or in the
over-the-counter market;
(4) through the writing of options on ACTV common stock; or
(5) by settlement of short sales of ACTV common stock.
The purchase price of the shares may be determined by the selling security
holders or by agreement between the selling security holder and underwriters,
brokers, dealers or agents or purchasers. The price may be at:
o market prices prevailing at the time of sale;
o prices related to such prevailing market prices;
o varying prices determined at the time of sale; or
o negotiated or fixed prices.
If the selling security holders effect such transactions by selling common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling security holders or commissions from
purchasers of common stock for whom they may act as agent which may be in excess
of those customary in the types of transactions involved. The selling security
holders and any brokers, dealers or agents that participate in the distribution
of the common stock may be deemed to be underwriters, and any profit on
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the sale of common stock by them and any discounts, concessions or commissions
received by any such underwriters, brokers, dealers or agents may be deemed to
be underwriting discounts and commissions under the Securities Act.
Because the selling security holders may each be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
selling security holders will be subject to prospectus delivery requirements
under the Securities Act. Furthermore, in the event of a "distribution" of its
shares, the selling security holder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Securities
Exchange Act of 1934 until its participation in that distribution is completed.
At the time a particular offer of security holders' shares is made by or
on behalf of any of the selling security holders, to the extent such offer
constitutes a distribution under the Securities Act, a supplement to this
prospectus will be distributed, which will set forth the type and number of
securities being offered by such selling security holders and the terms of such
offering, including:
o the name or names and addresses of any underwriters, dealers or
agents;
o the purchase price paid by any underwriter for securities purchased
from the selling security holder; and
o any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and the proposed selling price to the public.
We will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the security holders'
shares. However, all brokerage commissions, if any, attributable to the sale of
such shares by holders thereof will be borne by such holders.
The shares that may be offered from time to time by selling security
holders may be sold through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.
Under the Securities Exchange Act of 1934 and the regulations thereunder,
any person engaged in a distribution of the securities offered by this
prospectus may not simultaneously engage in market-making activities with
respect to shares of our common stock during the applicable two or nine days
"cooling off" period prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the selling security holders will
be subject to applicable provisions of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, including, without limitation, Regulation
M, in connection with transactions in the securities, which provisions may limit
the timing of purchases and sales of the securities by the selling security
holders.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph "Twelfth" of our Restated Certificate of Incorporation contains
a provision, which as permitted by Delaware law, eliminates the personal
liability of directors to ACTV and its stockholders for monetary damages for
unintentional breach of a director's fiduciary duty to ACTV. This provision does
not permit any limitation on, or elimination of, the liability of a director
for:
o disloyalty to us or our stockholders;
o failing to act in good faith;
o for engaging in intentional misconduct or a knowing violation of
law;
o for obtaining an improper personal benefit; or
o for approving an illegal dividend or stock repurchase.
Our Restated Certificate of Incorporation and By-Laws require us to
indemnify directors and officers against expenses, judgments, fines and amounts
paid in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative, other than a
derivative action, if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to our best interests, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses incurred in
connection with defense or settlement of such an action. Moreover, Delaware law
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to us.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities, other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful defense of any
action, suit or proceeding, in connection with the securities being registered,
we will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in Securities Act and will be governed by the final adjudication of
such issue.
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LEGAL MATTERS
Gersten, Savage & Kaplowitz, LLP, New York, New York will pass upon the
validity of the shares of common stock for us in connection with this offering.
EXPERTS
The consolidated financial statements of ACTV as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999,
which are incorporated by reference in this prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-3 regarding this offering
with the SEC. This prospectus, which is a part of the registration statement,
does not contain all of the information included in the registration statement,
and you should refer to the registration statement and its exhibits to read that
information. References in this prospectus to any of our contracts or other
documents are not necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document. You may read and copy the registration statement, the related exhibits
and the other materials we file with the SEC at the SEC's public reference room
in Washington, D.C. and at the SEC's regional offices in Chicago, Illinois and
New York, New York. You can also request copies of those documents, upon payment
of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The SEC also maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file with
the SEC; the site's address is www.sec.gov. You may also request a copy of these
filings, at no cost, by writing or telephoning us as follows: ACTV, Inc., 1270
Avenue of the Americas, New York, NY 10020, (212) 217-1600.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" in this prospectus other
information we file with them, which means that we can disclose important
information to you by
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referring you to those documents. The information incorporated by reference is
an important part of this prospectus; however, the information presented in this
prospectus will be deemed to supersede any earlier information contained in
incorporated documents filed with the SEC before the date of this prospectus.
Information that we file with the SEC after the date of this prospectus will
automatically update and supersede the information in this prospectus and any
earlier filed or incorporated information.
The following documents we have filed with the SEC are incorporated herein
by reference:
(1) our Annual Report on Form 10-K for the fiscal year ended December
31, 1999;
(2) our Quarterly Report on Form 10-Q for the Quarter Ended March 31,
2000;
(3) our Quarterly Report on Form 10-Q for the Quarter Ended June 30,
2000;
(4) our Amendment No. 1 to our Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000;
(5) our Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2000; and
(6) any future filings made with the SEC under Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act until we sell all of the securities
offered by this prospectus.
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
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