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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
ACTV, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-2907258
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1270 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
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(212) 217-1600 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 16, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on The Nasdaq Stock Market closing price
of $30.06 on March 16, 2000) was $1,202,428,391.
As of March 16, 2000, there were 47,147,838 shares of the registrant's
common stock outstanding.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements,
which are other than statements of historical facts. These statements are
subject to uncertainties and risks including, but not limited to, product and
service demand and acceptance, changes in technology, economic conditions, the
impact of competition and pricing, government regulation, and other risks
defined in this document and in statements filed from time to time with the
Securities and Exchange Commission. All such forward-looking statements are
expressly qualified by these cautionary statements and any other cautionary
statements which may accompany the forward looking statements. ACTV, Inc.
disclaims any obligations to update any forward-looking statements to reflect
events or circumstances after the date hereof.
INTRODUCTORY NOTE
The term "Company" used herein refers to ACTV, Inc. and its subsidiaries
ACTV Entertainment, Inc. and HyperTV Networks, Inc.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are 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. HyperTV enhances standard television content with
information and interactivity delivered through the Internet. We believe that
Individualized Television is the only technology that enables viewers to
instantly and seamlessly customize their viewing experiences. HyperTV is one of
the first technologies to provide synchronized delivery of television
programming and Internet content.
INDUSTRY BACKGROUND
INDIVIDUALIZED TELEVISION
Although television programming is produced for national, regional and local
audiences, it has not been commercially exploited as an individualized services
medium. According to Paul Kagan Associates, Inc., Carmel, CA, over 97% of U.S.
households have televisions and approximately 69% of those households subscribe
to cable television services. We do not believe that there is currently any
television service, widely available to consumers, providing individualized
programming. Historically, two factors have limited development of
individualized programming: (1) the shortage of channel capacity in a typical
cable system and (2) the lack of digital technology available to provide such
individualized services. However, advances in digital transmission and set-top
box technology have begun to eliminate these barriers to providing
individualized programming.
The development of compression technology and the digital transmission of
television signals allows for the transmission of a greater number of channels
with better audio and video quality. The resulting expansion of channel capacity
allows a cable or Direct Broadcast Satellite ("DBS") broadcaster to offer a
wider variety of programming choices, including individualized programming.
Traditional analog cable systems typically offer a limited number of programming
channels. Current digital compression technology, however, allows the conversion
of each analog channel into as many as twelve digital channels of programming.
Many major U.S. cable operators are therefore converting significant portions of
their systems from analog to digital.
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The technology necessary to provide individualized services will become
increasingly available as cable subscribers have increased access to digital
set-top boxes. Kagan estimates that nearly 5.1 million U.S. cable subscribers
had digital set-top boxes at year-end 1999, projecting the number to grow to
approximately 28 million in 2003, and 47 million in 2008. We believe that sales
of digital set-top boxes will increase rapidly as prices decrease. Forrester
Research, Inc. estimates that prices for digital set-top boxes will decline from
$400 to $200 by 2001 as chip vendors reduce the cost of the decoders and tuners
that are the main components of the set-top boxes.
DBS is a digital television transmission system. We believe that in the
future our Individualized Television service may expand to DBS platforms. Kagan
has estimated that DBS had approximately 11 million subscriber households at the
end of 1999, and projects an increase in this number to approximately
15 million in 2003, and 18 million in 2008.
Advertising represents a critical application of Individualized Television
programming. According to Veronis Suhler & Associates, advertisers spent
approximately $48.5 billion on television advertising in the United States in
1998. Although traditional television broadcasting, cable and DBS systems do not
provide an integrated means for viewers to respond to programs and
advertisements, the Direct Marketing Association, Inc. ("DMA") estimates that
approximately $105.8 billion of goods and services were purchased through direct
response television programming and advertising in 1999. The DMA predicts that
this amount will grow to approximately $159.8 billion in 2004. (Reprinted from
Economic Impact: US Direct & Interactive Marketing Today 1999 with permission
from the Direct Marketing Association, Inc.) Many advertisers are using
television advertisements to generate requests for product information, which in
turn serve as sales leads for their products and services. Today, most direct
response television purchases and requests for information require a telephone
call, causing advertisers to incur a significant cost per transaction. We
believe that television viewers, advertisers and merchants will respond
favorably to a simple, immediate, inexpensive and automated method enabling them
to participate in television commerce.
We believe that sports programming also represents a compelling application
of Individualized Television. Participatory and spectator sports are among the
leading pastimes in the United States, as evidenced by the popularity of sports
media and the amount of money consumers spend on sports events, products and
related services. Further, according to industry sources, sports television
programming in the United States consistently draws large audiences, with sports
broadcasts comprising five of the top ten most widely viewed broadcasts since
1960. According to Kagan, in 1998, broadcast network sports television
programming attracted $3.7 billion in advertising. In addition, the Sporting
Goods Manufacturers Association estimates that sales (wholesale value) in the
United States of sports equipment, athletic footwear and sports apparel reached
$45.6 billion in 1998.
HYPERTV
The Internet has grown rapidly over the past several years and is now a
medium used by millions of people for entertainment, education, e-commerce and
multimedia content. Jupiter Communications projects that by 2001, more than
50 million U.S. households will have Internet connectivity, and by 2002, the
on-line population will rival that of U.S. consumers of cable television and
newspapers at 62 million. In addition, The National Center for Education
Statistics estimates that over 80% of public schools have access to the
Internet. We believe such rapid growth is attributable mainly to the increasing
number of personal computers, technological innovations providing easier, faster
and cheaper access to the Internet and the proliferation of content and services
available on the Internet. Growing use of the Internet and the World Wide Web
has created opportunities for television content providers and their advertising
customers to reach and interact with millions of Internet users.
The increasing popularity of the Internet and the established popularity of
television have led a growing number of home computer users to simultaneously
access Internet content while they watch
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television. 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.
Due to its interactive nature, the Internet is an emerging medium that
competes with traditional television because of its ability to provide
customized, targeted programming and advertising to consumers and to generate
cost-effective results for certain advertisers. According to Jupiter
Communications, approximately 45% of Internet users maintain that they watch
less television because of time spent on-line. To combat this migration and gain
on-line market share, broadcasters and cable programmers have begun and are
expected to continue promoting companion on-line programming during shows and
using commercial airtime to drive viewers to far more lucrative on-line
programming. We believe we are well positioned to take advantage of this shift
in consumer media consumption and that the convergence of television and
Internet content promises significant opportunities for enhanced entertainment
programming.
We believe that the opportunities for television programmers to generate
additional advertising revenues are increasing due to the growing recognition by
advertisers of the potential advantages of Internet-based advertising over
advertising in traditional media. Unlike radio, television and print, the
Internet is highly interactive, creating enhanced opportunities for advertisers
to focus their marketing efforts on specific user groups to directly distribute
targeted information to consumers on an individualized basis and to receive
timely feedback from customers and potential customers. Forrester Research
estimates that the amount of Web advertising worldwide will grow from
$3.3 billion in 1999 to over $33.1 billion by the year 2003. Additionally, as
merchants take advantage of the Internet to deliver a guided selling experience
on-line, integrating intelligent product recommendations, real-time customer
service and simplified buying procedures, more consumers are expected to engage
in e-commerce. International Data Corporation estimates that the number of
consumers making purchases on the Web will grow from 30.8 million in 1998 to
182.6 million in 2003 and that the total value of consumer goods and services
purchased over the Web will increase from $14.9 billion to $177.7 billion over
the same five-year period. The combination of growth in on-line advertising and
e-commerce enhances the Internet's value as a commerce medium.
OUR BUSINESS STRATEGY
INDIVIDUALIZED TELEVISION
One of our business objectives is to make Individualized Television a
leading application for digital television by achieving widespread use of
Individualized Television programming in all programming genres and advertising.
Our strategies for accomplishing this objective include:
- PROMOTE NATIONAL AWARENESS OF INDIVIDUALIZED TELEVISION THROUGH OUR
LIBERTY MEDIA AND IN DEMAND JOINT VENTURES. LMC IATV Events LLC, our
joint venture with Liberty Media, plans to license and produce
individualized national or international marquee pay-per-view events,
including sports, musical, theatrical and news events. Through LMC IATV's
venture with iN DEMAND, we expect to showcase Individualized Television to
a national audience leveraging iN DEMAND's marketing and distribution
capabilities.
- DEVELOP TARGETED ADVERTISING SERVICES THROUGH DIGITAL ADCO, INC. We
believe that advertisers are looking for more efficient ways to reach
their targeted audiences. We have created a company with Motorola
Broadband Communications Sector, formerly General Instrument Corporation,
to develop applications that will enable the digital television industry
to provide this efficiency to advertisers. The company, called Digital
ADCO, Inc., will provide the means for television distributors to insert
advertisements into a digital programming stream without noticeable
interruption and deliver to their viewers targeted commercial messages
based on demographic or geographic information or on the viewers' purchase
behavior. Both we and Motorola Broadband
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have licensed certain of our intellectual property to the company, and
have contributed management personnel and technical knowledge to launch
the business. In addition, Motorola Broadband has made a $5 million
capital commitment to the company.
- FOCUS INITIALLY ON SPORTS PROGRAMMING DELIVERED THROUGH PAY-PER-VIEW
EVENTS AND REGIONAL NETWORKS. We believe that the features available
through Individualized Television for sports telecasts, such as a
different view of the action, highlight packages, statistics or instant
replays will lead viewers to associate Individualized Television with a
distinctive experience and result in rapid consumer acceptance of our
service, products and technology. In addition, focusing on sports
programming is more cost-efficient than a more diverse programming
line-up, enabling us to attain profitability with a relatively smaller
subscriber base.
- GAIN BROAD DISTRIBUTION OF INDIVIDUALIZED TELEVISION. We intend to gain
broad distribution of Individualized Television through digital
distribution systems, including cable, DBS and eventually broadcast
television, by concentrating our efforts on the following activities:
- TARGETING CABLE OPERATORS WITH SIGNIFICANT DIGITAL SYSTEMS. Initially,
we plan to distribute our programming through cable systems that
currently offer, or have indicated they will soon be offering, digital
set-top boxes to their subscribers.
- DEVELOPING SOFTWARE COMPATIBLE WITH DBS SET-TOP BOXES. To increase the
potential market for Individual Television subscribers, we intend to
expand the compatibility of our Individualized Television software to
the greatest number of digital set-top boxes, including those deployed
in DBS.
- EXPAND INDIVIDUALIZED TELEVISION PROGRAMMING INTO OTHER TYPES OF
TELEVISION PROGRAMMING AND INTERNATIONAL MARKETS. Once we have developed
programming for marquee events, advertising and regional sports, we intend
to expand into other types of individualized programming, such as music,
game shows, news and children's programming and into international
markets. We may license content from producers of such programming or
enter into ventures with such entities when opportunities arise, either
telecasting individualized versions of this new programming on our
existing network or creating networks tailored to such new programming.
Additionally, we may license our technology to programmers to allow them
to create individualized versions of their content.
HYPERTV
One of our business objectives is to be a leading provider of software,
hosting and creative services for enhancing television programming with
information and interactivity available through the Internet. Our strategies for
accomplishing this objective include:
- DEVELOP EARLY AWARENESS AND ADOPTION OF HYPERTV PRODUCTS AND SERVICES. By
aggressively rolling out our HyperTV products and services, we intend to
establish a leading position in the existing market of U.S. households
that simultaneously use a television set and computer located in the same
room. We believe that our ability to address the existing convergent
market provides us with a unique opportunity to develop awareness and
adoption of HyperTV products and services, in contrast to some of our
competitors that are focused solely on the future market for
television/Internet convergence programming that can be received on a
single device. We expect to leverage the HyperTV brand, installed user
base and content we develop in the current market to the future
single-device market.
- OFFER TELEVISION CONTENT PROVIDERS A TURNKEY SOLUTION FOR
TELEVISION/INTERNET CONVERGENCE. We offer networks and other TV content
providers a turnkey solution for television/ Internet convergence. We
supply TV programmers with the elements needed to enhance their television
programming with simultaneously delivered Web content, including user
software, Web content creation
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software, and data capture, analysis and reporting. We also supply Web
content creation creative and program hosting services, but expect in the
future to license third parties much of the business of providing these
services.
- FORM RELATIONSHIPS WITH, OR ACQUIRE, CONTENT OR SOFTWARE PROVIDERS TO
CREATE HYPERTV-ENHANCED TELECASTS. We intend to make equity investments
in, or enter into joint ventures and license agreements with, content and
software providers to create and offer HyperTV programming that enhances
standard telecasts. Through such alliances and acquisitions, we expect to
broaden the experience of the viewer and generate new revenue streams for
us and our partners, co-venturers and licensors.
- EXPAND OUR HYPERTV.COM WEBSITE. We intend to expand the HYPERTV.COM
website to serve as an Internet portal that will provide a guide and
connections to all available HyperTV programming and a central source for
downloading HyperTV software.
- ESTABLISH A DATA WAREHOUSE. We intend to establish a data warehouse to
compile, aggregate and analyze user information. We will make such data
available to our programming partners and advertisers as a fee-based
service. We expect this enhanced data to be of significant value to
HyperTV licensees and programming partners in gaining feedback on their
television viewing audience. This information will also provide us with a
unique measure of the market for enhanced television programming and may
help us to attract new licensees and programming partners.
- EXPAND HYPERTV INTO OTHER FORMS OF MEDIA. We intend to use our HyperTV
products and services to enhance other video delivery systems, including
video streamed over the Internet for broadband applications and video
delivered from DVDs or CD-ROMs. In addition, we will seek to form
relationships with radio stations and other providers of streamed audio on
the Internet to enhance their content using HyperTV.
With increases in digital broadband capacity and the deployment of the next
generation of digital set-top boxes, we expect that the market for the
integration of television programming and Internet content delivered to viewers
through a single device will begin to grow significantly. Our long-term
objective is to be a leader in this market by providing powerful programming
tools for television networks, advertisers, cable networks and DBS through the
integration of Individualized Television with HyperTV products and services.
INDIVIDUALIZED TELEVISION
OVERVIEW
Individualized Television is a patented process for creating interactive and
instantly customized television content and advertising in response to viewer
remote control entries or to stored demographic information. Individualized
Television remembers a viewer's inputs throughout a program and can later
deliver tailored content to the viewer based on those inputs. We create
individualized programming by simultaneously sending the viewer multiple
television signals, related in time and content, and switching among those
signals without a visually perceptible delay. With Individualized Television,
the viewer experiences the video, audio and graphics of a single fluid
programming stream, while the programming on the other signals remains
transparent.
In addition, Individualized Television offers advertisers the opportunity to
convey more effectively their messages. Advertisers can use Individualized
Television to target viewers based on demographic information stored in digital
set-top boxes or on viewers' inputs in response to basic questions about
themselves or the products advertised. We expect Individualized Television to
generate revenues from subscriber fees, advertising sales and sales of software
and services related to targeted advertising.
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We believe that Individualized Television is a core breakthrough for
television programming and advertising. For example
- the viewer of a national or international pay-per-view sporting event or a
regional sports telecast can select from features such as a different view
of the action, highlight packages, statistics or instant replays;
- a car commercial can ask viewers to identify the models that most interest
them and, based upon their answers, provide individualized information
about the identified models;
- neighbors watching the same television program can see entirely different
advertisements based upon demographic information stored in their
respective set-top boxes; and
- a child viewing a program can engage a favorite television character in
what seems to be a one-on-one dialogue.
TECHNOLOGY
We create individualized programming by allowing the viewer to select from a
number of frame-synchronized video, graphics and/or audio signals delivered
simultaneously to their digital set-top box. The viewer sees and hears only one
of the signals at a given moment while the others remain transparent. Each
viewer interacts with the programming individually by making selections using
the standard cable remote control that comes with a digital set-top box. An
unlimited number of viewers can make selections simultaneously. In response to
the viewer's keyed inputs, the individualized programming seamlessly switches
from one signal to another, providing each viewer with programming appropriate
to the input. The individualized programming signal is not interrupted when a
viewer switches between programming elements because, unlike channel switches on
the television, the switch occurs with frame accuracy and no perceptible delay.
Our Individualized Television software in the digital set-top box maintains a
"memory" of the viewer's choices and can automatically switch from one digital
video, audio and graphics stream to another based on the viewer's earlier input.
At appropriate points during an Individualized Television program, the set-top
box will make these automatic switches, recall information, create graphics
and/or implement other pre-programmed instructions. The viewer's individually
selected preferences, inputs, or information maintained in the set-top box's
memory determine the particular program seen by each viewer.
CONTENT
We intend to develop applications of Individualized Television for both
national and regional markets. For national distribution of Individualized
Television, we formed a joint venture with Liberty Media, called LMC IATV
Events, LLC, to license and produce individualized marquee pay-per-view events,
including sports, musical, theatrical and news events for national or
international distribution. We have granted LMC IATV Events an exclusive license
to produce and distribute these pay-per-view events incorporating our
individualized programming enhancements. In exchange for granting this license,
we received a one-third equity interest in the net profits of the joint venture
and have no obligation to make capital contributions.
Subsequently LMC IATV Events entered into a joint venture with iN DEMAND,
LLC (formerly known as Viewer's Choice, LLC), to create a cable and satellite
pay-per-view programming venture. Through this venture, with iN DEMAND's
marketing and distribution capabilities, we expect to showcase Individualized
Television to a national audience. iN DEMAND, the nation's leading pay-per-view
network, serves over 1,700 affiliated systems with approximately 27 million
addressable households and 112 million channel subscribers nationwide. Its five
stockholders include AT&T/TCI Communications, Inc., Time Warner
Entertainment-Advance/Newhouse Partnership, Comcast Programming Ventures, Inc.,
MediaOne of Delaware, Inc. and Cox Communications Holdings, Inc.
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Viewer's Choice was renamed iN DEMAND on January 1, 2000. The joint venture is
founded on a long-term agreement between the parties, which plan to produce and
distribute a minimum of four marquee events each year, beginning in early 2000,
depending on the licensing of suitable initial events. The events will be
available for viewers to purchase and watch, as long as they have digital cable
boxes or satellite receivers that support our Individualized Television
technology. The pay-per-view events could include U.S. professional team
championships and all-star competitions, international sporting events and
large-scale rock concerts.
Advertisers can use Individualized Television in several ways to reach a
targeted audience. During an individualized program, we can ask viewers to
respond to basic questions about themselves or to choose among alternative
product models. Based on these responses or choices, we can send the most
appropriate advertisement to each viewer. For instance, an Individualized
Television enhanced car commercial could "ask" viewers to identify specific
models that most interest them and based on their answers, the car commercial
would "respond" with detailed information about that specific model. Viewers who
make no selection will receive an advertisement selected by the advertiser.
Viewers' responses are stored in their digital set-top boxes' memory. Based on
this information, the advertiser can subsequently provide appropriate follow-up
content such as premium offers, additional information or more targeted
commercial messages. Alternatively, relying on demographic information about the
digital television household stored in the set-top box, the advertiser can
deliver to each household, among a set of alternative advertisements, the
commercial that best targets its customers. In this case, what viewers see is
determined not by their selections or responses but by demographic information.
In November 1999, we formed a company with Motorola Broadband to develop
applications for the delivery of addressable advertising to cable subscribers
regardless of whether or not they are subscribers receiving Individualized
Television service. The applications developed through this company, called
Digital ADCO, Inc., will permit advertisers to deliver targeted messages to
individual viewers based on demographic information stored in their digital
set-top boxes. The Digital ADCO system will allow different advertisements to go
to different households watching the same television show.
Under the terms of our agreement with Motorola Broadband, we have licensed
five of our patents to Digital ADCO in exchange for 51% of the common stock of
Digital ADCO, and Motorola Broadband has licensed six of its patents plus made a
$5 million capital commitment for 49% of Digital ADCO's common stock. Any
capital contribution after Motorola Broadband has fulfilled its initial
$5 million commitment will be made pro rata based on ownership interests. We
anticipate that Digital ADCO will generate revenues from three major sources:
software license fees, fees for inserting digital codes into commercials to
identify their target audiences, and advertisement handling fees.
We have entered into a master license agreement, expiring in June 2003, that
sets forth the framework for negotiating with each of FOX Sports Net's 19 owned
or affiliated regional sports networks to provide content for a planned
individualized sports programming service. FOX Sports Net, which reaches more
than 72 million homes nationwide, features professional basketball, hockey and
baseball games, as well as college sports events. To date, we have entered into
licensing agreements with the following five regional sports networks FOX Sports
Net Southwest, FOX Sports Net West, FOX Sports Net Northwest, Sunshine Network
and FOX Sports Net Bay Area.
Although we chose to focus our initial commercialization efforts on marquee
events, advertising and regional sports, we believe that our Individualized
Television system will have universal applications. It is our objective to
expand our Individualized Television to include many other genres of television
programming. We believe that Individualized Television can become a standard for
interactive digital television programming distributed through cable systems,
DBS, and digital broadcast television.
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PRODUCTION
We expect to bear the incremental content, transmission, delivery and master
control costs incurred in connection with the production and distribution of
individualized programming for pay-per-view events and regional networks.
Currently, we have a state-of-the-art master control facility in Irving, Texas.
Our master control receives multiple video/audio feeds via fiber lines from the
programmers that produce the standard telecasts to which we add individualized
elements. We intend to construct or lease similar facilities for creating and
distributing individualized programming for each of our future regional sports
networks.
DISTRIBUTION
We are initially targeting Individualized Television, which is
software-based, for distribution through digital cable systems. To offer
Individualized Television, a cable operator needs only to have our software
downloaded to the set-top boxes of its digital subscribers. All the cable
subscriber needs to receive our service is a digital set-top box with our
software download. We have agreements with the leading manufacturers of digital
set-top terminals--Motorola Broadband, Scientific-Atlanta and Pioneer--to
achieve compatibility of our software with their equipment. Motorola Broadband
and Scientific-Atlanta shipped 98.3% of the digital set-top boxes delivered in
1998 and are projected to ship 95.9% of the digital set-top boxes in 2000,
according to Kagan. All of Motorola Broadband's digital terminals are compatible
with our software. By the time Scientific-Atlanta's digital set-top boxes are
deployed in the United States in any significant quantity, we expect that our
software will be compatible with these terminals as well.
For our pay-per-view event business, iNDemand will provide distribution of
Individualized Television programming, through an exclusive United States
distribution agreement. iN DEMAND is the nation's leading pay-per-view network,
serving over 1,700 affiliated systems with approximately 27 million addressable
households. Its five stockholders include AT&T / TCI Communications, Inc., Time
Warner Entertainment-Advance/Newhouse Partnership, Comcast Programming
Ventures, Inc., MediaOne of Delaware, Inc., and Cox Communications
Holdings, Inc.
The initial distribution of our regional sports programming will be provided
by cable operators that are currently upgrading their service from analog to
digital transmission and deploying digital set-top boxes. The service may be
carried part-time or full-time and may be carried as a single service or in any
tier or package of services. As of this date, neither the final pricing nor
launch dates have been agreed upon.
To support Individualized Television, we do not require any communication
capability from the set-top box back to the cable operator's system, also known
as a "back channel." There is no additional memory or hardware necessary to
upgrade a digital set-top terminal for delivering the individualized programming
to subscribers.
HYPERTV
OVERVIEW
HyperTV is a patented process that enhances a television program or
advertisement with related and synchronized content delivered through the
Internet. We believe that HyperTV has potential applications for virtually all
forms of television programming and advertising. For instance:
- a music video network can send its viewers song lyrics, band member
biographies or trivia through the Internet in sync with its television
content;
- a network, televising a movie, can sell banner advertisements on the
Internet and generate revenues from the sale of movie-related merchandise;
and
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- 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. As digital set-top box technology becomes more sophisticated and
powerful and as more cable operators offer high speed Internet access, we
anticipate that subscribers will be able to experience both video and Internet
content delivered simultaneously to their televisions. We believe that our
proprietary HyperTV technology uniquely positions us to capitalize on this
anticipated convergence of television and Internet content.
TECHNOLOGY
Like Individualized Television, HyperTV is a software-based system. We offer
free HyperTV software through direct or indirect downloads from our HYPERTV.COM
website. HyperTV works either 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.
Because HyperTV is software-based and platform independent, it can operate
on any of today's most popular computer operating systems, including, Windows,
Macintosh or UNIX. HyperTV supports both analog and digital television systems,
so programmers and users do not have to upgrade their existing systems to use
HyperTV enhanced television content.
ENTERTAINMENT
We believe that the most significant portion of HyperTV's future revenues
will come from the entertainment market, where we believe the sources of revenue
will be software licensing, data management services, on-line advertising sales,
e-commerce applications, event sponsorship, and program hosting and content
creation fees. We expect in the future to license third parties to perform much
of the program hosting and content creation service business for HyperTV.
We have recently entered into an agreement with The Box Music Network ("The
Box"), which reaches more than 40 million households worldwide, to create
programming that will integrate HyperTV with their 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 a video for that market from a menu of up to 200 selections.
HyperTV will enable The Box to extend brand identity by synchronizing the
delivery of relevant Web material, Web-based advertising, messages, e-commerce
and chat to broaden the viewer experience and generate new revenue streams. We
will share the incremental on-line revenues and expenses equally with The Box.
We commenced distribution of The Box's enhanced programming in December 1999.
We have also worked with other TV networks and programmers to produce and
distribute HyperTV presentations, including
- SHOWTIME Online, Inc. for its STARGATE science fiction program
- New Line Television, Inc. for pay-per-view exhibitions of AUSTIN POWERS,
THE SPY WHO SHAGGED ME
- TBS Superstation for its CYBERBOND: 15 DAYS OF 007 movie festival
- Turner Network Television for the Screen Actors Guild Awards program and
the exhibition of a filmed concert tribute to Bob Marley
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DATA MANAGEMENT
In order to receive HyperTV events, viewers must register for the free
download of the HyperTV plug-in. This registration requires viewers to provide
their names, addresses, birthdates, e-mail addresses and other demographic and
personal interests information. As our servers deliver HyperTV content through
the Internet, we can capture and store information about the users' interactions
with such content in a relational database. This captured information can
include the user's viewing time, click-stream, survey and advertisement
responses, chat participation and e-commerce activities. Analysis of the
resulting database allows programmers, advertisers and other businesses to
understand and profile their viewer base and to build a one-to-one relationship
with each end-user, subject to the user's consent.
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. For program hosting, we intend to create multiple
Internet access facilities, called points of presence or POPs, each consisting
of large-scale computer servers and related equipment, whose architecture and
software are optimized to deliver HyperTV to mass audiences. We have built our
first POP, which is located at the Northeast data center of Exodus
Communications, Inc. As the demand for HyperTV program hosting increases, we
plan to scale up our delivery capacity either by building additional POPs or,
more likely, by contracting for the requisite network capacity and technical
services from third party vendors. We also plan to create a Web portal site at
WWW.HYPERTV.COM which will, among other things, provide a guide and connections
to all available HyperTV programming and a central source for downloading
HyperTV software and software tools.
EDUCATION
In mid-1997, we launched the first application of HyperTV, called
eSchool-Registered Trademark-, designed for the education market. eSchool uses
HyperTV technology to integrate educational video with relevant Internet content
and chat functionality. In addition, eSchool gives educators tools to assess a
student's performance and record the results of the assessment.
Using eSchool software, students can receive traditional video lessons
through frames in their Web browsers or from a television in the classroom.
Simultaneously, eSchool provides separate frames in the Web browser that display
websites with supporting information, a dialogue with a teacher or other
students during a live lesson and a "playlist" of websites received to permit
navigation from one to another. eSchool content creation software allows an
instructor to easily select and order the addresses of the websites and related
questions to be included in the playlist. The website addresses and questions
can be assigned times and sent automatically to students during a pre-recorded
program or in a live lesson. The instructor can have any website address or
question sent to the students at any time.
EQUIPMENT SUPPLIERS
We do not intend to manufacture set-top converters, terminals, video servers
or other devices in connection with Individualized Television or HyperTV. In
addition, we do not intend to manufacture any computer or networking equipment
needed to build our planned HyperTV POPs. This equipment will be supplied to us
or to third parties pursuant to agreements with third party equipment suppliers.
In 1996, we signed a non-exclusive, royalty-free manufacturing agreement
with Motorola Broadband for Motorola Broadband's MPEG-2 digital set-top
terminals. Working with us and with Motorola Broadband, Sarnoff Corporation
effected the integration of individualized programming into these terminals. We
and Motorola Broadband also agreed to jointly market our Individualized
Television application, which operates with Motorola Broadband's digital systems
and consumer set-top terminals.
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We have also entered into a non-exclusive, royalty free joint marketing and
development agreement with Scientific-Atlanta to integrate our Individualized
Television programming software with Scientific-Atlanta's advanced digital
set-top boxes, including the Explorer 2000. In addition, we and Pioneer agreed
to integrate our Individualized Television programming software into Pioneer's
digital set-top box software applications to enable reception of Individual
Television through digital set-top boxes that operate using systems developed by
Pioneer. We may grant licenses similar to those granted to Motorola Broadband,
Scientific-Atlanta and Pioneer to other manufacturers that are selected by the
future distributors of Individualized Programming.
PATENTS AND OTHER INTELLECTUAL PROPERTY
We have sought to protect the proprietary features of our individualized
programming technologies and HyperTV technologies through patents, copyrights,
confidentiality agreements and trade secrets both in the United States and
overseas. As of the present time, the United States Patent and Trademark Office
has issued 19 patents to us that are currently in force. We also have additional
patents pending. The patents expire at various dates from 2003 to 2016.
Corresponding patents for some of the above U.S. patents have been granted or
are pending in Canada, Japan, Australia and the European Patent Office. We
believe such patents will strengthen our competitive position in these
countries.
There can be no assurance that our patents are enforceable, or, if
challenged, that we can successfully defend them, particularly in view of the
high cost of patent litigation, nor can there be any assurance that we will
derive any competitive advantages from them. To the extent that patents are not
issued for any other products developed by us, we would be subject to more
competition. The issuance of patents may be insufficient to prevent competitors
from essentially duplicating our products by designing around the patented
aspects. In addition, we cannot assure you that our products will not infringe
on patents owned by others, licenses to which may not be available to us, nor
that competitors will not develop functionally similar products outside the
protection of any patents we have or may obtain.
The inventors named on all of our issued patents have assigned to us all
right, title and interest in and to the above U.S. patents and any corresponding
foreign patents or applications based thereon. We require that each of our full
time employees, consultants and advisors execute a confidentiality and
assignment of proprietary rights agreement upon the commencement of employment
or a consulting relationship. These arrangements generally provide that all
inventions, ideas and improvements made or conceived by the individual arising
out of the employment or consulting relationship are our exclusive property.
These agreements generally also require all such information be kept
confidential and not disclosed to third parties, except with our consent or in
specified circumstances. We cannot assure, however, that these agreements will
provide effective protection for our proprietary information in the event of
unauthorized use or disclosure of such information.
WOLZIEN PROCESS
In April 1999, we acquired a patent from Thomas R. Wolzien for on-line media
applications, which we call the Wolzien Process, that expands the functionality
of HyperTV. While HyperTV enables content producers and advertisers to "push"
synchronized Internet content to television viewers, the Wolzien Process
provides the means, based on prompts from television or radio programming, for
users to "pull" relevant content from the Internet to augment that programming
or to communicate directly with an on-line provider. We intend to develop the
Wolzien Process both on a stand-alone basis and in conjunction with the HyperTV
Process. Other applications for the Wolzien Process include real time radio
broadcasting, both analog and digital, and recorded video programming on VCR's,
CD-ROM or DVD players.
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The terms of the patent acquisition agreements provide that the Wolzien
patent and the HyperTV patents will be jointly licensed and all revenue from
such joint licenses will be shared equally between our subsidiary, Media Online
Services, and us. However, Media Online Services has granted us a worldwide
royalty-free license to use the Wolzien patent in our Individualized Television
and eSchool products and services. As consideration for the Wolzien patent,
Thomas R. Wolzien received, among other considerations, an option exercisable at
any time for $49,900 to acquire a 49% interest in Media Online Services.
RESEARCH AND DEVELOPMENT
We devote a substantial portion of our resources to developing new products,
enhancing existing products, expanding and improving our Individualized
Television and HyperTV technologies and strengthening our technological
expertise. During the years ended December 31, 1996, 1997, 1998, 1999, we
expended approximately $1.2 million, $551,328, $820,475, and $1,392,937,
respectively, on outside research and development. We intend to continue to
devote substantial resources to research and development for the next several
years. As of December 31, 1999, approximately 16 employees, or 28% of our work
force, were primarily engaged in research and development activities.
COMPETITION
The markets for digital television applications and television/Internet
convergence programming is extremely competitive, and we expect competition to
intensify in the future. The markets for digital television applications and
television/Internet convergence programming 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 determine what companies and
technologies are competing with us or may compete with us in the future in one
or more of our businesses.
We believe our competitors in the television/Internet convergence
programming and services markets include RespondTV, Liberate Technologies, Mixed
Signals, More.com, NTN, OpenTV, Inc., Spiderdance, Inc., Starwave's Enhanced TV,
Wink Communications, Inc. and Worldgate Communications, Inc. We also face
competition from other traditional broadcast and cable television networks. Many
of these competitors are currently offering (or may soon offer) services that
will compete with some or all of our current and proposed HyperTV products and
services. In addition, we compete with companies such as Apple, Microsoft
Corporation's WebTV, Motorola Broadband, RealNetworks, Inc., Source Media, Inc.
and Veon that provide applications which enable video content to be "streamed"
over the Internet. Many of these applications could be extended and compete with
some or all of our existing or proposed HyperTV applications.
We do not believe that there are currently any competitors offering products
comparable to Individualized Television. But there are a number of companies,
including NDS Group plc, who are offering products and services that are similar
to different portions of our Individualized Television service. Furthermore, we
expect to face competition in the future from traditional television and cable
broadcasters such as ABC, CBS, CNN, FOX and NBC. Some of these broadcasters have
in the past and may in future develop and broadcast their own
television/Internet convergence programming or programming that is similar to
Individualized Television.
GOVERNMENT REGULATION
We believe that neither our present or future implementation of
Individualized Television is subject to any direct substantial government
regulation. However, the broadcast industry in general, and cable
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television, DBS and wireless communication in particular, are subject to
substantial government regulation.
TELEVISION Pursuant to federal legislation enacted in 1992, which we call
the 1992 Cable Act, the Federal Communications Commission substantially
re-regulated the cable television industry in various areas including rate
regulation, competitive access to programming, "must carry" and retransmission
consent for broadcast stations. These rules, among other things, restrict the
extent to which a cable system may profit from, or recover costs associated
with, adding new program channels, impose certain carriage requirements with
respect to television broadcast stations, limit exclusivity provisions in
programming contracts and require prior notice for channel additions, deletions
and changes. The United States Congress and the FCC also have under
consideration, and may in the future adopt, new laws, regulations and policies
regarding a wide variety of matters which could, directly or indirectly,
materially adversely affect our operations.
INTERNET Increased regulation of the Internet might slow the growth in use
of the Internet, 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 regarding the use of the Internet,
including children's protection, copyright infringement, user privacy, taxation,
access charges and liability for third-party activities. 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
products and services, intellectual property ownership and personal privacy. We
collect and store significant personal information from users of our
Individualized Television and HyperTV applications and plan to use such
information to develop our businesses, particularly with respect to targeted
advertising, or otherwise generate revenues. 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 are unable to predict the outcome of future federal legislation or
regulatory proposals or the impact of any current or future laws or regulations
on our operations. There can be no assurance that we will be able to comply with
any future laws or regulations that may be imposed on our operations.
EMPLOYEES
At December 31, 1999, we employed 87 full-time employees. We are not subject
to any collective bargaining agreements. We believe that our relationships with
our employees are generally satisfactory.
ITEM 2. PROPERTY--OFFICES AND FACILITIES
We maintain our principal and executive offices at Rockefeller Center, 1270
Avenue of the Americas, New York, New York, where we lease approximately 10,600
square feet. Our lease for 2,600 square feet and for 8,000 square feet of this
space extends through February 2000 and January 2001 respectively. We also lease
office and technical space in four other facilities, one each in New York, New
York, Dallas, Texas, Houston, Texas and Los Angeles, California. None of these
leases extends beyond December 31, 1999. We lease approximately 12,000 square
feet at 233 Park Avenue South, New York, New York, where most of our HyperTV
operations are located, and we have committed to lease 20,000 square feet next
door at 225 Park Avenue South. This lease commitment extends through 2015. Our
lease at 233 Park Avenue South terminates at such time as we occupy the space at
225 Park Avenue South. We expect to be able to move into 225 Park Avenue South
early in 2001. We have also
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committed to lease approximately 8,000 square feet of office space in
Branchburg, New Jersey for ACTV's and Digital ADCO's technical and research
facilities. That lease commitment extends into 2005.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which ACTV is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 20, 1999 we held an Annual Meeting of Stockholders for which we
solicited votes by proxy. The following is a brief description of the matters
voted upon at the meeting and a statement of the number of votes cast for and
against, and the number of abstentions as to each matter.
1. Election of directors:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
William Samuels............................................. 26,926,845 44,863
William Frank............................................... 26,915,170 56,538
</TABLE>
2. To approve the adoption of the ACTV's 1999 Stock Option Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- -------- --------
<S> <C> <C>
25,325,428.. 994,092 652,188
</TABLE>
3. To ratify the appointment of Deloitte & Touche, LLP as independent auditors
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- -------- --------
<S> <C> <C>
26,922,888.. 21,658 27,162
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
ACTV's common stock is traded on The Nasdaq Stock Market under the symbols
"IATV". The following table sets forth the high and low bid prices for Common
Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
1999 QUARTER HIGH LOW
- ------------ -------- --------
<S> <C> <C>
First....................................................... 11.44 3.81
Second...................................................... 25.25 9.25
Third....................................................... 16.44 8.88
Fourth...................................................... 51.75 13.25
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTER HIGH LOW
- ------------ -------- --------
<S> <C> <C>
First....................................................... 2.13 1.50
Second...................................................... 2.50 1.38
Third....................................................... 2.97 1.50
Fourth...................................................... 4.50 1.56
</TABLE>
On March 16, 2000, there were approximately 374 holders of record of ACTV's
47,147,838 outstanding shares of common stock.
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<PAGE>
On March 16, 2000, the high and low bid prices of the common stock as
reported by Nasdaq were $28.06 and $31.38, respectively.
ACTV has not paid cash dividends since its organization. We plan to use
earnings, if any, to fund growth and do not anticipate the declaration or the
payment of cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $ 1,312 $ 1,476 $ 1,651 $ 1,406 $ 2,118
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales.................... 334 647 472 219 174
Operating expenses............... 1,261 1,956 1,361 2,005 3,241
Selling and administrative....... 4,998 6,333 6,880 9,862 17,037
Depreciation and amortization.... 687 420 328 1,106 1,577
Amortization of goodwill......... 426 426 426 426 426
Loss on investment............... -- 274 -- -- --
Stock appreciation rights........ 567 184 (347) 2,000 1,950
---------- ---------- ---------- ---------- ----------
Total costs and expenses....... 8,237 10,240 9,120 15,618 24,405
---------- ---------- ---------- ---------- ----------
Loss from operations............... (6,961) (8,764) (7,469) (14,212) (22,287)
Interest (expense) income--net..... 40 159 116 (748) (595)
Minority interest--subsidiary
preferred stock dividend and
accretion........................ -- 1,695 3,006 5,429 --
---------- ---------- ---------- ---------- ----------
Minority interest--subsidiary...... -- -- -- -- (588)
Net (loss) before extraordinary
item............................. (6,921) (10,300) (10,359) (20,389) (22,883)
---------- ---------- ---------- ---------- ----------
Net (loss)......................... (6,827) (10,300) (10,359) (20,389) (22,883)
Preferred stock dividends and
accretion........................ -- -- -- 479 494
---------- ---------- ---------- ---------- ----------
Net (loss) applicable to common
stockholders..................... $ (6,827) $ (10,300) $ (10,359) $ (20,868) $ (23,378)
========== ========== ========== ========== ==========
Loss per common share before
extraordinary item............... $ (0.68) $ (0.88) $ (0.80) $ (0.98) $ (0.61)
========== ========== ========== ========== ==========
Basic and diluted (loss) per common
share............................ $ (0.67) $ (0.88) $ (0.80) $ (0.98) $ (0.61)
========== ========== ========== ========== ==========
Weighted average number of common
shares outstanding............... 10,162,128 11,739,768 12,883,848 21,399,041 38,219,009
Balance Sheet Data:
Cash and cash equivalents.......... $ 3,532 $ 6,521 $ 554 $ 5,189 $ 8,816
Working capital (deficiency)....... 2,397 5,094 (1,082) 3,419 9,857
Total assets....................... 8,551 11,693 7,902 13,606 28,152
Long-term debt (including current
portion)......................... -- -- -- 4,315 4,803
Preferred stock of a
subsidiary(1).................... -- 1,675 3,006 5,429 --
Total stockholders' equity
(deficiency)..................... 6,894 9,201 (1,613) 4,763 19,640
</TABLE>
- ------------------------
(1) In 1998, we converted the preferred stock into equity. See Note 5 to our
consolidated financial statements for the year ended December 31, 1999.
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ITEM 7. 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 in operating expenses during 1999 of $1.2 million or 62% is due
principally to the expansion of the Company's HyperTV business, including the
introduction of HyperTV to the entertainment market in 1999.
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
ended December 31, 1999, from $9.9 million for the year ended
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December 31, 1998, due chiefly to non-cash employee compensation, paid in the
form of stock and to greater expenses related to HyperTV.
We continue to innovate in the areas of software development and
intellectual properties. Accordingly, our Depreciation and amortization expense
increased approximately $.5 million or 43%.
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.
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
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$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 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
19
<PAGE>
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 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.
20
<PAGE>
We believe that our internal systems, relating to both computer hardware and
software, will function properly with respect to dates in the year 2000 and
beyond. In addition, we believe that our proprietary software either sold
directly to third parties or incorporated in products sold to third parties is
year 2000 compliant. Having performed an assessment of the potential year 2000
problem, we do not expect to incur significant costs related to year 2000
issues. However, there is general uncertainty regarding the year 2000 problem
and its effect on the overall business environment. We cannot determine at this
time whether the year 2000 problem will have a material impact on our operations
or financial condition as the result of significant disruptions to the U.S.
economy or business infrastructure.
IMPACT OF INFLATION
Inflation has not had any significant effect on our operating costs.
RECENT ACCOUNTING PRONOUNCEMENTS
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 14 in this report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
We intend to file with the Securities and Exchange Commission within
90 days of the end of December 31, 1999 a definitive proxy statement pertaining
to our annual meeting of stockholders to be held in May 2000. Information
regarding our directors and executive officers will appear under the caption
"Election of Directors" in the proxy statement and is incorporated in this
report by reference.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear under the caption
"Executive Compensation" in the proxy statement and is incorporated in this
report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will appear under the caption "Ownership of Securities" in the proxy
statement and is incorporated in this report by reference.
ITEM 13. CERTAIN TRANSACTIONS
Information regarding certain transactions will appear under the caption
"Certain Transactions" in the proxy statement and is incorporated in this report
by reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS
AND REPORTS ON FORM 8-K:
(a)1. FINANCIAL STATEMENTS:
See the Consolidated Financial Statements beginning on Page 23 hereafter,
which is incorporated by reference.
22
<PAGE>
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
23
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
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 outstanding 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
24
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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 sharese
outstanding....................................... 12,883,848 21,399,041 38,219,009
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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 preferred 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 activities........... (2,895,803) (1,927,921) (10,910,206)
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, 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.
26
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED SERIES A PREFERRED SERIES B ADDITIONAL
----------------------- ----------------------- ------------------------ ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL
---------- ---------- ------------ -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances December 31,
1996.................. 11,787,106 $1,178,711 -- $ -- -- $ -- $ 42,272,205
---------- ---------- ------------ ------ ----------- ---------- ------------
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...
---------- ---------- ------------ ------ ----------- ---------- ------------
Balances December 31,
1997.................. 14,614,611 $1,461,461 86,200 8,620 -- $ -- $ 48,140,596
---------- ---------- ------------ ------ ----------- ---------- ------------
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 of preferred
stock................. 5,857,406 585,741 (29,900) (2,990) 2,535,660
Issuance of shares in
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...
Preferred dividends.....
========== ========== ============ ====== =========== ========== ============
Balances December 31,
1998.................. 29,759,459 $2,975,946 56,300 $5,630 5,018 $2,805,961 $ 71,068,230
========== ========== ============ ====== =========== ========== ============
Issuance of common
shares................ 4,059,783 405,978 18,503,996
Issuance of shares for
services provided..... 931,294 93,129 10,696,587
Issuance of shares in
connection with
exchange of preferred
stock................. 1,061,690 106,169 (56,300) (5,630)
Issuance of shares in
connection with
exercise of stock
options, stock
appreciation rights
and warrants.......... 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...
Preferred stock
dividends and
accretion.............
---------- ---------- ------------ ------ ----------- ---------- ------------
Balances December 31,
1999.................. 42,167,997 $4,216,800 -- -- -- -- $110,692,842
========== ========== ============ ====== =========== ========== ============
<CAPTION>
DEFICIT
------------
<S> <C>
Balances December 31,
1996.................. $(40,665,512)
------------
Issuance of shares in
connection with
financings............
Issuance of shares for
services..............
Issuance of shares in
connection with
exchange of preferred
stock.................
Issuance of shares in
connection with
exercise of stock
options...............
Net loss applicable to
common stockholders... (10,358,683)
------------
Balances December 31,
1997.................. $(51,024,195)
------------
Issuance of shares in
connection with
financings............
Issuance of Series B
preferred stock.......
Issuance of shares for
services..............
Issuance of shares in
connection with
exchange of preferred
stock.................
Issuance of shares in
connection with
exercise of stock
options...............
Issuance of warrants and
shares in connection
with financing
activities............
Net loss applicable to
common stockholders... (20,389,151)
Preferred dividends..... (479,173)
============
Balances December 31,
1998.................. $(71,892,519)
============
Issuance of common
shares................
Issuance of shares for
services provided.....
Issuance of shares in
connection with
exchange of preferred
stock.................
Issuance of shares in
connection with
exercise of stock
options, stock
appreciation rights
and warrants..........
Preferred stock
redemption............
Net loss applicable to
common stockholders... (22,883,180)
Preferred stock
dividends and
accretion............. (494,431)
------------
Balances December 31,
1999.................. $(95,270,130)
============
</TABLE>
See Notes to Consolidated Financial Statements.
27
<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.
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
28
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
29
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The
Company has not yet determined the impact, if any, the adoption of SFAS No. 133
will have on its financial statements.
RECLASSIFICATIONS--Certain reclassifications have been made in the
December 31, 1997, and 1998 financial statements to conform to the December 31,
1999 presentation.
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.
30
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
4. PROPERTY AND EQUIPMENT--NET
Property and equipment--net at December 31, 1997, 1998, and 1999 consisted
of the following (at cost):
<TABLE>
<CAPTION>
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
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
31
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
5. FINANCING ACTIVITIES (CONTINUED)
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 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.
32
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
5. FINANCING ACTIVITIES (CONTINUED)
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:
<TABLE>
<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 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.
33
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
7. STOCK OPTIONS (CONTINUED)
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.
34
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
7. STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
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:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES 12/31/99 LIFE PRICE AT 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
35
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
7. STOCK OPTIONS (CONTINUED)
December 31, 1997, 1998, and 1999 would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
NET LOSS TO COMMON STOCKHOLDERS
As reported......................................... $10,358,683 $20,552,359 $23,377,611
Pro forma........................................... $10,574,807 $21,987,835 $25,780,428
NET LOSS PER BASIC AND DILUTED COMMON SHARE
As reported......................................... $ 0.80 $ 0.96 $ 0.61
Pro forma........................................... $ 0.82 $ 1.02 $ 0.67
</TABLE>
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.
36
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
8. STOCK APPRECIATION RIGHTS PLANS (CONTINUED)
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. 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
37
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
9. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
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 sponsors a 401(k) savings plan for employees who have completed
at least one full year of service. The Company has a policy of matching employee
401(k) deferrals dollar for dollar up to the first 5% of each participating
employee's annual compensation.
Percentage vesting of the matching contributions is based on an employee's
term of service with the Company, starting at 20% for employees with more than
two years of service, and increasing ratably to 100% for employees with more
than six years of service.
To date, the Company has made all such contributions in the form of its
common stock. For the 401(k) plan years 1997, 1998 and 1999, the Company
contributed the common stock equivalent of $86,192, $132,162, and $154,565
respectively.
38
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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.
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-Registered Trademark- Online, which was the first
commercial application of HyperTV.
39
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
14. SEGMENT REPORTING (CONTINUED)
Information concerning the Company's business segments in 1997, 1998, and
1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
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>
40
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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. 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
41
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
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 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.
(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.
42
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
19. SUBSEQUENT EVENTS (CONTINUED)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
---------- ----------------------- ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended 12/31/97:
Accounts receivable allowance for
doubtful accounts...................... $ 82,746 $43,188 -- $82,746 $43,188
Reserve for investment losses............ $274,325 -- $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.
43
<PAGE>
(a)3. EXHIBITS (inapplicable items omitted):
<TABLE>
<S> <C>
3.1.a Restated Certificate of Incorporation of ACTV, Inc. *
3.1.b Amendment to Certificate of Incorporation of ACTV, Inc. **
3.1.c Deleted.
3.2 By-Laws of ACTV, Inc. *
9.1 Deleted.
9.2 Deleted.
10.1 First Amendment dated January 13, 1997 to Lease dated
January 23, 1996 by and between ACTV, Inc., as the Tenant,
and Rockefeller Center Properties, as the Landlord. ****
10.2 Form of 1989 Employee Incentive Stock Option Plan. *
10.3 Form of Amendment No. 1 to 1989 Employee Incentive Stock
Option Plan. *
10.4 Form of 1989 Employee Non-qualified Stock Option Plan. *
10.5 Form of Amendment No. 1 to 1989 Employee Non-qualified Stock
Option Plan. *
10.8 1996 Non-qualified Stock Option Plan. ****
10.9 1992 Stock Appreciation Rights Plan. ****
10.10 1996 Stock Appreciation Rights Plan. ****
10.11 Deleted--replaced by 10.40.
10.12 Deleted--replaced by 10.41.
10.13 Deleted--replaced by 10.42.
10.14 Master Programming License Agreement dated December 2, 1996,
by and between ACTV, Inc. and Liberty/Fox Sports, LLC. ****
10.15 Enhancement License Agreement dated December 4, 1996, by and
between ACTV, Inc. and Prime Ticket Networks, L.P., d/b/a
Fox Sports West. ++, ****
10.16 Enhancement License Agreement dated February 28, 1997, by
and between ACTV, Inc. and ARC Holding, Ltd., d/b/a Fox
Sports Southwest. ++, ****
10.17 Agreement dated March 30, 1995 between General Instrument
Corporation and ACTV, Inc.***
10.18 Technical Services Agreement dated May 1995 between the
David Sarnoff Research Center, Inc. and ACTV, Inc. ***
10.19 Deleted.
10.21(a) Deleted.
10.21(b) Deleted.
10.21(c) Option Agreement dated September 29, 1995 between ACTV, Inc.
and Richard H. Bennett. ***
10.21(d) Assignment dated September 29, 1995 between ACTV, Inc. and
Richard H. Bennett. ***
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
10.21(e) Deleted--replaced by 10.44(a).
10.21(f) Deleted.
10.21(h) Deleted--replaced by 10.44(b).
10.21(j) Deleted--replaced by 10.44(c).
10.22 Deleted--expired.
10.23(a) Deleted--replaced by 10.43(a).
10.23(b) Deleted--replaced by 10.43(b).
10.23(c) Deleted--replaced by 10.43(c).
10.23(d) Deleted.
10.23(e) Deleted.
10.23(f) Deleted.
10.23(g) Deleted.
10.24(a) Stock Option Agreement, dated March 14, 1997, by and between
HyperTV Networks, Inc. and William C. Samuels. +
10.24(b) Stock Option Agreement, dated March 14, 1997, by and between
HyperTV Networks, Inc. and Bruce Crowley. +
10.24(c) Stock Option Agreement, dated October 1, 1997, by and
between HyperTV Networks, Inc. and William Samuels. +
10.24(d) Stock Option Agreement, dated October 1, 1997, by and
between HyperTV Networks, Inc. and Bruce Crowley. +
10.24(e) Stock Option Agreement, dated March 14, 1997, between
HyperTV Networks, Inc. and David Reese. ++++
10.25(a) Stock Option Agreement by and between ACTV Entertainment,
Inc. and William Samuels dated March 14, 1997 and amended
January 14, 1998. +
10.25(b) Stock Option Agreement by and between ACTV Entertainment,
Inc. and David Reese dated March 14, 1997 and amended
January 14, 1998. +
10.25(c) Stock Option Agreement, dated March 14, 1997, between ACTV
Entertainment, Inc. and Bruce Crowley. ++++
10.26(a) Stock Option Agreement by and between Florida Individualized
Television Network, Inc. and William Samuels dated June 3,
1997 and amended January 14, 1998. +
10.26(b) Stock Option Agreement by and between Northwest
Individualized Television Network, Inc. and William Samuels
dated June 3, 1997 and amended January 14, 1998. +
10.26(c) Stock Option Agreement by and between New York
Individualized Television Network, Inc. and William Samuels
dated June 3, 1997 and amended January 14, 1998. +
10.26(d) Stock Option Agreement by and between San Francisco
Individualized Television Network, Inc. and William Samuels
dated June 3, 1997 and amended January 14, 1998. +
10.26(e) Stock Option Agreement by and between Los Angeles
Individualized Television Network, Inc. and William Samuels
dated March 14, 1997 and amended January 14, 1998. +
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
10.26(f) Deleted--superceded by 10.26(f)1.
10.26(f)1 Stock option agreement dated as of March 14, 1997, and
amended on January 14, 1998 and January 4, 1999, among Texas
Individualized Television Network, Inc., ACTV, Inc. and
William Samuels. ++++
10.26(g) Stock Option Agreement by and between Florida Individualized
Television Network, Inc. and David Reese dated June 3, 1997
and amended January 14, 1998. +
10.26(h) Stock Option Agreement by and between Northwest
Individualized Television Network, Inc. and David Reese
dated June 3, 1997 and amended January 14, 1998. +
10.26(i) Stock Option Agreement between New York Individualized
Television Network, Inc. and David Reese dated June 3, 1997
and amended January 14, 1998. +
10.26(j) Stock Option Agreement between San Francisco Individualized
Television Network, Inc. and David Reese dated June 3, 1997
and amended January 14, 1998. +
10.26(k) Stock Option Agreement between Los Angeles Individualized
Television Network, Inc. and David Reese dated March 14,
1997 and amended January 14, 1998. +
10.26(l) Deleted--superceded by 10.26(l)1.
10.26(l)1 Stock option agreement dated as of August 18, 1999 among
ACTV, David Reese and Texas Individualized Television
Network, Inc. ++++
10.27 ACTV Entertainment Shareholder Agreement dated March 14,
1997 and amended January 14, 1998. +
10.28 HyperTV Networks Shareholder Agreement dated March 14, 1997.
+
10.29 HyperTV Networks Additional Shareholder Agreement dated
October 1, 1997. +
10.30 Deleted--replaced by 10.45
10.31 Deleted--replaced by 10.46
10.32 The Los Angeles Individualized Television Network, Inc.
Sublicense Agreement dated March 14, 1997 between ACTV
Entertainment and The Los Angeles Individualized Television
Network, Inc. +
10.33 The San Francisco Individualized Television Network, Inc.
Sublicense Agreement dated January 1, 1989 between ACTV
Entertainment and The San Francisco Individualized
Television Network, Inc. +
10.34 The Texas Individualized Television Network, Inc. Sublicense
Agreement dated March 14, 1997 between ACTV Entertainment
and The Texas Individualized Television Network, Inc. +
10.35 The Los Angeles Individualized Television Network, Inc.
Service Agreement dated March 14, 1997 between ACTV, Inc.,
ACTV Entertainment and The Los Angeles Individualized
Television Network, Inc. +
10.36 The San Francisco Individualized Television Network, Inc.
Service Agreement dated January 1, 1998 between ACTV, Inc.,
ACTV Entertainment and The San Francisco Individualized
Television Network, Inc. +
10.37 The Texas Individualized Television Network, Inc. Service
Agreement dated March 14, 1997 between ACTV, Inc., ACTV
Entertainment and The Texas Individualized Television
Network, Inc. +
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
10.38 Form of Note Purchase Agreement of the Texas Individualized
Television Network dated as of January 13, 1998 *****
10.39 Deleted.
10.40 Deleted--superceded by 10.40.1.
10.40.1 Amended employment agreement dated as of August 1, 1995
between ACTV, Inc. and William Samuels. ++++
10.41 Deleted--superceded by 10.41.1.
10.41.1 Employment agreement dated as of August 1, 1995, as amended
October 6, 1999, between ACTV, Inc. and David Reese. ++++
10.42 Deleted--superceded by 10.42.1.
10.42.1 Employment agreement dated as of August 1, 1995, as amended
October 6, 1999, between ACTV, Inc. and Bruce Crowley. ++++
10.43(a) Deleted--superceded by 10.51.
10.43(b) Deleted--superceded by 10.52.
10.43(c) Deleted--superceded by 10.53.
10.44(a) Deleted--superceded by 10.44(a)1.
10.44(a)1 Amended stock option agreement dated December 1, 1995
between ACTV, Inc. and William Samuels. ++++
10.44(b) Deleted--superceded by 10.44(b)1.
10.44(b)1 Amended stock option agreement dated December 1, 1995
between ACTV, Inc. and David Reese. ++++
10.44(c) Deleted--superceded by 10.44(c)1.
10.44(c)1 Amended stock option agreement dated December 1, 1995
between ACTV, Inc. and Bruce Crowley. ++++
10.45 Amended license agreement dated March 8, 1999, between ACTV,
Inc. and ACTV Entertainment, Inc., amending and restating in
full the agreement dated March 14, 1997. +++
10.46 Amended license agreement dated March 8, 1999, between ACTV,
Inc. and HyperTV Networks, Inc., amending and restating in
full the agreement dated March 13, 1997. +++
10.47 Patent assignment and license agreement between ACTV, Inc.
and Earthweb, Inc. dated December 1, 1997. +++
10.48 Deleted--superceded by 10.48.1.
10.48.1 Employment agreement dated January 1, 1999, as amended as of
January 1, 2000, between ACTV, Inc. and Christopher Cline.
++++
10.49 Amendment dated as of December 4, 1999 to HyperTV Networks,
Inc. Option Agreements, between HyperTV Networks, Inc. and
various officers and employees thereof, including William
Samuels, David Reese and Bruce Crowley. ++++
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
10.50 Amendment dated as of December 4, 1999 to ACTV
Entertainment, Inc. Option Agreements, between ACTV
Entertainment, Inc. and various officers and employees
thereof, including William Samuels, David Reese and Bruce
Crowley. ++++
10.51 Amended stock option agreement dated February 21, 1998
between ACTV, Inc. and William C. Samuels. ++++
10.52 Amended stock option agreement dated February 21, 1998
between ACTV, Inc. and Bruce Crowley. ++++
10.53 Amended stock option agreement dated February 21, 1998
between ACTV, Inc. and David Reese. ++++
10.54 Lease dated as of December 1, 1999 between 225 Fourth, LLC,
as landlord, and ACTV, Inc., as tenant. ++++
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
<TABLE>
<C> <S>
* Incorporated by reference from Form S-1 Registration
Statement (File No. 33-34618)
** Incorporated by reference to ACTV, Inc.'s Form 10-K for the
year ended December 31, 1993.
*** Incorporated by reference from Form S-1 Registration
Statement (File No. 33-63879) which became effective on
February 12, 1996.
**** Incorporated by reference to ACTV, Inc.'s Form 10-K for the
year ended December 31, 1996.
***** Incorporated by reference from the Exhibits to Schedule 13D
filed by Value Partners, Ltd. on January 23, 1998.
****** Incorporated by reference from Form S-3 Registration
Statement filed on December 30, 1998.
+ Incorporated by reference to ACTV, Inc.'s Form 10-K for the
year ended December 31, 1997.
++ Certain information contained in this exhibit has been
omitted and filed separately with the Commission along with
an application for non-disclosure of information pursuant to
Rule 24b-2 of the Securities Act of 1933, as amended.
+++ Incorporated by reference to ACTV, Inc.'s Form 10-K for the
year ended December 31, 1998.
++++ Filed herewith.
</TABLE>
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of New York
and State of New York on the 17th day of March 2000.
<TABLE>
<S> <C> <C>
ACTV, Inc.
By: /s/ WILLIAM C. SAMUELS
---------------------------------
William C. Samuels
Chairman and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM C. SAMUELS Chairman of the Board, Chief Executive March 17, 2000
- ------------------------ Officer, President and Director
William C. Samuels
/s/ DAVID REESE President, Chief Operating Officer, March 17, 2000
- ------------------------ President--ACTV Entertainment, Inc.,
David Reese and Director
/s/ BRUCE CROWLEY Executive Vice President, March 17, 2000
- ------------------------ President--HyperTV Networks, Inc.
Bruce Crowley and Director
/s/ CHRISTOPHER C. Senior Vice President, Chief March 17, 2000
CLINE Financial Officer
- ------------------------ and Secretary
Christopher C. Cline
/s/ WILLIAM FRANK Director March 17, 2000
- ------------------------
William Frank
/s/ MELVYN N. KLEIN Director March 17, 2000
- ------------------------
Melvyn N. Klein
/s/ STEVEN W. SCHUSTER Director March 17, 2000
- ------------------------
Steven W. Schuster
</TABLE>
II-6
<PAGE>
Amended 12-04-99
OPTION AGREEMENT
OPTION AGREEMENT, dated as of March 14, 1997, between, ACTV Net, Inc., a
Delaware corporation (the "Corporation") and David Reese (the "Holder").
WHEREAS, the Corporation desires to grant to the Holder, the right and
option to purchase shares (the "Option Shares") of Class B Common Stock, $.01
par value per share (the "Class B Stock"), of the Corporation, on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. The Corporation hereby grants to the Holder an option (the
"Option") to purchase from the Corporation 100,000 Option Shares, at a
purchase price of $1.90 per Option Share (the "Option Price"). The Holder's
right and option to purchase the Option Shares shall vest, subject to
subsection 1(d) and Section 6, as follows: (i) 34,000 Option Shares vest July
1, 1997, (ii) 22,000 Option Shares vest on January 1, 1998; (iii) 22,000
Option Shares vest on July 1, 1998; (iv) 22,000 Option Shares vest on January
1, 1999, (each an "Installment") at the option Price, so long as the Holder
is employed by the Corporation. Said right shall be cumulative. With respect
to each Installment, the "Option Period" shall commence on the date said
Installment vests and terminate on October 1, 2007.
b. Except as limited by Section 5, an Installment may be
exercised, in whole or part, by the Holder by delivery to the Corporation, at
any time during the Option Period, of a written notice (the "Option Notice"),
which Option Notice shall state the Holder's intention to exercise the
Option, the date on which the Holder proposes to purchase the Option Shares
(the "Closing Date") and the number of Option Shares to be purchased on the
Closing Date, which Closing Date shall be no later than 30 days nor earlier
than 10 days following the date of the Option Notice. Upon receipt by the
Corporation of an Option Notice from the Holder, the Holder shall be
obligated to purchase that number of Option Shares to be purchased on the
Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to
the terms of this Option Agreement shall be made on the Closing Date at the
offices of the Corporation. Delivery of the stock certificate or other
instrument registered in the name of the Holder, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
Holder on the Closing Date against the delivery to the Corporation of a
certified or bank check in the full amount of the aggregate purchase price
therefor.
<PAGE>
d. Should ACTV, Inc. ("ACTV") undergo a Change in Control, as
defined below, or should another corporation which can exercise control over
the Corporation sell or attempt to sell all or substantially all of the
assets of said Corporation, or should more than 50% of its voting power be
acquired by a party which is not affiliated with or controlled by ACTV, then
all of the Holder's rights to exercise the Option for all the Option Shares
shall be accelerated so that the Installments to purchase all Option Shares
shall be fully vested at the time of said event and the exercise price shall
reduce to $.10 per share. A Change in Control shall be the occurrence of any
one of the following events:
(i) A person (other than a person who is an officer or a
Director of ACTV 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 ACTV's securities
having 30% or more of the combined voting power of then outstanding
securities of ACTV that may be cast for the election of directors of ACTV;
(ii) At any time, a majority of the Board-nominated slate of
candidates for the Board of ACTV is not elected;
(iii) ACTV consummates a merger in which it is not the
surviving entity;
(iv) Substantially all ACTV's assets are sold; or
(v) ACTV's stockholders approve the dissolution or
liquidation of ACTV.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder
hereby represents and warrants to the Corporation that in the event the Holder
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Holder understands the Option Shares will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and that they must
be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or the transaction is exempt from registration. The
certificate or certificates representing any Option Shares shall bear the
following restrictive legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933; OR (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER
2
<PAGE>
SUCH ACT (OR SIMILAR RULE UNDER THE SECURITIES ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THEN AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE. IN ADDITION, THIS CERTIFICATE OF STOCK AND THE SHARES
REPRESENTED HEREBY ARE HELD SUBJECT TO THE TERMS AND CONDITIONS
CONTAINED IN AN AGREEMENT BY AND AMONG THE SHAREHOLDERS OF THE
CORPORATION AND THE CORPORATION DATED AS OF MARCH 6, 1997, AND ALL
AMENDMENTS THERETO, AND MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH THE TERMS AND PROVISIONS THEREOF. A COPY OF SUCH AGREEMENT WILL BE
FURNISHED BY THE CORPORATION UPON REQUEST."
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any time during
the Option Period, there shall be any capital reorganization,
reclassification of the Common Stock (the term "Common Stock" shall mean the
Company's Class A Common Stock and/or the Class B Stock) (other than a change
in par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), the consolidation or merger of the Corporation with
or into another corporation or of the sale of all or substantially all or
substantially all the properties and assets of the Corporation as an entirety
to any other corporation or person, the unexercised and fully vested portion
of this Option shall, after such reorganization, reclassification,
consolidation, merger or sale, be exercisable for the kind and number of
shares of stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such merger or to
which such properties and assets shall have been sold to which the Holder
would have been entitled if the Holder had held shares of Class B Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this
Section 3 shall similarly apply to successive reorganization,
reclassifications, consolidations, mergers and sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and
shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. The Option Price shall be subject to adjustment from time to
time as follows:
If, at any time during the Option Period, the number of shares of Common
Stock outstanding is altered by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up or combination of shares of Common
Stock, then, immediately
3
<PAGE>
following the record date fixed for the determination of holders of shares of
Common Stock, entitled to receive such subdivision or split-up or
combination, the Option Price shall be appropriately increased or decreased
and the number of shares of Common Stock issuable upon the exercise hereof
shall be increased or decreased, pursuant to the formula set forth in
Section 4.c.
c. Upon each adjustment of the Option Price pursuant to the
provisions of this Section 4, the number of shares of Common Stock issuable
upon the exercise thereof shall be adjusted to the nearest full share of
Common Stock by multiplying a number equal to the Option Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable immediately prior to such adjustment and dividing the product so
obtained by the adjusted Option Price.
d. Should additional shares of Class A Common Stock, $.01 par
value, over and above the 4,000,000 shares presently authorized, be issued
after the effective date of this Option Agreement, then the number of shares
issuable upon exercise of this Option shall be increased by the same
percentage that the total number of issued Class A Common Stock has been
increased.
e. The Corporation will use it best efforts to amend its
certificate of incorporation to authorize additional Class B Stock should the
number of shares of Class B Stock issuable upon exercise of the Option be
increased in accordance with the terms of this agreement.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to subsection 5(b),
the Option granted hereby shall terminate and the Option shall no longer be
exercisable after March 14, 2007.
b. OPTION RIGHTS UPON DEATH, DISABILITY, RESIGNATION. If a holder
dies or becomes disabled while employed by the Corporation, ACTV, Inc. or any
affiliate or subsidiary of ACTV, Inc. (collectively, the "ACTV Group"), or
resigns from employment with the ACTV Group prior to his complete exercise
of the Option, the Holder (or his heirs) may exercise his Option at any time
during the option period, to the extent that the Holder was entitled to
exercise the Option at the date such event, and the Class B Stock underlying
the Option shall convert into Class A Stock on the second anniversary of the
occurrence of such death, disability or resignation.
SECTION 6. TERMINATION OF EMPLOYMENT. In the event that the Holder is
terminated from employment with the ACTV Group for any reason during the
Option Period, the (i) all Options granted to the Holder hereunder shall
become vested and immediately exercisable at an exercise price of $.10 per
share adjusted for any stock splits
4
<PAGE>
and capital reorganizations having a similar effect, subsequent to the
effective date hereof, (ii) all Options may be exercised at any time during
the Option Period and (iii) anything herein to the contrary notwithstanding,
the Shares underlying the Option, whether exercised prior or subsequent to the
termination shall not convert to Class A Stock except as set forth in the
applicable Shareholder Agreement.
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the
Corporation. This Agreement and all the rights hereunder shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, approved assigns and approved transferees.
SECTION 8. NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to the Corporation:
ACTV Net, Inc.
1270 Avenue of the Americas
New York, NY 10020
Attention: President
If to the Holder, to:
David Reese
30 Maclay Road
Montville, New Jersey 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing
such communication is posted.
SECTION 9. GOVERNING LAW. This agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral
negotiations, commitments, representations and agreement.
5
<PAGE>
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV NET, INC.
By: /s/ Illegible
-------------
AGREED TO AND ACCEPTED BY
HOLDER:
/s/ David Reese
- --------------------------------------
Signature
/s/ Davis Reese
- --------------------------------------
Print Name
6
<PAGE>
OPTION AGREEMENT
OPTION AGREEMENT, dated as of March 14, 1997, between ACTV
Entertainment, Inc., a Delaware corporation (the "Corporation") and Bruce
Crowley (the "Holder").
WHEREAS, the Corporation desires to grant to the Holder, the right and
option to purchase shares (the "Option Shares") of Class B Common Stock, $.01
par value per share (the "Class B Stock"), of the Corporation, on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. The Corporation hereby grants to the Holder an option (the
"Option") to purchase from the Corporation 100,000 Option Shares, at a
purchase price of $.10 per Option Share (the "Option Price"). The Holder's
right and option to purchase the Option Shares shall vest, subject to
subsection 1(d) and Section b, as follows: (i) 34,000 Option Shares vest
July 1, 1997, (ii) 22,000 Option Shares vest on January 1, 1998; (iii) 22,000
Option Shares vest July 1, 1998; (iv) 22,000 Option Shares vest January 1,
1999 (each an "Installment") at the Option Price, so long as the Holder is
employed by the Corporation. Said right shall be cumulative. With respect to
each Installment, the "Option Period" shall commence on the date said
Installment vests and terminate on March 14, 2007.
b. Except as limited by Section 5, an Installment may be exercised,
in whole or part, by the Holder by delivery to the Corporation, at any time
during the Option Period, of a written notice (the "Option Notice"), which
Option Notice shall state the Holder's intention to exercise the Option, the
date on which the Holder proposes to purchase the Option Shares (the "Closing
Date") and the number of Option Shares to be purchased on the Closing Date,
which Closing Date shall be no later than 30 days nor earlier than 10 days
following the date of the Option Notice. Upon receipt by the Corporation of
an Option Notice from the Holder, the Holder shall be obligated to purchase
that number of Option Shares to be purchased on the Closing Date set forth in
the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the
offices of the Corporation. Delivery of the stock certificate or other
instrument registered in the name of the Holder, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
Holder on the Closing Date against the delivery to the Corporation of a
certified or bank check in the full amount of the aggregate purchase price
therefor.
d. Should ACTV, Inc. ("ACTV") undergo a Change in Control, as
defined below, or should another corporation which can exercise control over
the Corporation sell or attempt to sell all or substantially all of the
assets of said Corporation, or should more than 50% of its voting power be
acquired by a party which is not affiliated with or controlled by ACTV, then
all of the Holder's rights to exercise the Option for all the Option Shares
shall be accelerated so that the Installments to purchase all Option Shares
shall be fully vested at the time of said event at the exercisable price of
$.10 per share. A Change in Control shall be the occurrence of any one of
the following events:
(i) A person (other than a person who is an officer or a
Director of ACTV 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 ACTV's
securities having 30% or more of the combined voting power of then
outstanding securities of ACTV that may be cast for the election of directors
of ACTV;
(ii) At any time, a majority of the Board-nominated slate of
candidates for the Board of ACTV is not elected;
(iii) ACTV consummates a merger in which it is not the
surviving entity;
(iv) Substantially all ACTV's assets are sold; or
(v) ACTV's stockholders approve the dissolution or liquidation
of ACTV.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The
Holder hereby represents and warrants to the Corporation that in the event
the Holder acquires any Option Shares, such Option Shares will be acquired
for his own account, for investment and not with a view to the distribution
thereof. The holder understands the Option Shares will not be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and that
they must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or the transaction is exempt from
registration. The certificate or certificates representing any Option Shares
shall bear the following restrictive legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933; OR (ii) TO THE EXTENT APPLICABLE, RULE 144
UNDER
<PAGE>
SUCH ACT (OR SIMILAR RULE UNDER THE SECURITIES ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAN AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE. IN ADDITION, THIS CERTIFICATE OF STOCK AND THE SHARES
REPRESENTED HEREBY ARE HELD SUBJECT TO THE TERMS AND CONDITIONS
CONTAINED IN AN AGREEMENT BY AND AMONG THE SHAREHOLDERS OF THE
CORPORATION AND THE CORPORATION DATED AS OF MARCH 6, 1997, AND ALL
AMENDMENTS THERETO, AND MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH THE TERMS AND PROVISIONS THEREOF. A COPY OF SUCH AGREEMENT
WILL BE FURNISHED BY THE CORPORATION UPON REQUEST."
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any time during
the Option Period, there shall be any capital reorganization,
reclassification of the Common Stock (the term "Common Stock" shall mean the
Company's Class A Common Stock and/or the Class B Stock) (other than a change
in par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), the consolidation or merger of the Corporation with
or into another corporation or of the sale of all or substantially all the
properties and assets of the Corporation as an entirety to any other
corporation or Person, the unexercised and fully vested portion of this
Option shall, after such reorganization, reclassification, consolidation,
merger or sale, be exercisable for the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger or to which such
properties and assets shall have been sold to which the Holder would have
been entitled if the Holder had held shares of Class B Stock issuable
upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this
Section 3 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers and sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and
shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. The Option Price shall be subject to adjustment from time to
time as follows:
If, at any time during the Option Period, the number of shares of Common
Stock outstanding is altered by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up or combination of shares of Common
Stock, then, immediately
3
<PAGE>
following the record date fixed for the determination of holders of shares of
Common Stock, entitled to receive such subdivision or split-up or
combination, the Option Price shall be appropriately increased or decreased
and the number of shares of Common Stock issuable upon the exercise hereof
shall be increased or decreased, pursuant to the formula set forth in
Section 4.c.
c. Upon each adjustment of the Option Price pursuant to the
provisions of this Section 4, the number of shares of Common Stock issuable
upon the exercise thereof shall be adjusted to the nearest full share of
Common Stock by multiplying a number equal to the Option Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable immediately prior to such adjustment and dividing the product so
obtained by the adjusted Option Price.
d. Should additional shares of Class A Common Stock, $.01 par
value, over and above the 4,000,000 shares presently authorized, be issued
after the effective date of this Option Agreement, then the number of shares
issuable upon exercise of this Option shall be increased by the same
percentage that the total number of issued Class A Common Stock has been
increased.
e. The Corporation will use it best efforts to amend its
certificate of incorporation to authorize additional Class B Stock should the
number of shares of Class B Stock issuable upon exercise of the Option be
increased in accordance with the terms of this agreement.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to subsection 5(b),
the Option granted hereby shall terminate and the Option shall no longer be
exercisable after March 14, 2007.
b. OPTION RIGHTS UPON DEATH, DISABILITY, RESIGNATION. If a Holder
dies or becomes disabled while employed by the Corporation, ACTV, Inc. or any
affiliate or subsidiary of ACTV, Inc. (collectively, the "ACTV Group"), or
resigns from employment with the ACTV Group prior to his complete exercise
of the Option, the Holder (or his heirs) may exercise his Option at any time
during the option period, to the extent that the Holder was entitled to
exercise the Option at the date such event, and the Class B Stock underlying
the Option shall convert into Class A Stock on the second anniversary of the
occurrence of such death, disability or resignation.
SECTION 6. TERMINATION OF EMPLOYMENT. In the event that the Holder is
terminated from employment with the ACTV Group for any reason during the
Option Period, the (i) all Options granted to the Holder hereunder shall
become vested and immediately exercisable at an exercise price of $.10 per
share adjusted for any stock splits
4
<PAGE>
and capital reorganizations having a similar effect, subsequent to the
effective date hereof, (ii) all Options may be exercised at any time during
the Option Period and (iii) anything herein to the contrary notwithstanding,
the Shares underlying the Options, whether exercised prior or subsequent to the
termination shall not convert to Class A Stock except as set forth in the
applicable Shareholder Agreement.
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the
Corporation. This Agreement and all the rights hereunder shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, approved assigns and approved transferees.
SECTION 8. NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to the Corporation:
ACTV Entertainment, Inc.
1270 Avenue of the Americas
New York, NY 10020
Attention: President
If to the Holder, to:
Bruce Crowley
257 West 17th Street, Apt. 4C
New York, New York 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing
such communication is posted.
SECTION 9. GOVERNING LAW. This agreement shall be governed by,
and construed in accordance with the laws of the State of Delaware.
SECTION 10. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral
negotiations, commitments, representations and agreement.
5
<PAGE>
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement
to be executed and delivered as of the date first above written.
ACTV ENTERTAINMENT, INC.
By: /s/ D Reese
----------------------------
AGREED TO AND ACCEPTED BY
HOLDER:
/s/ Bruce Crowley
- -------------------------
Signature
Bruce Crowley
- -------------------------
Print Name
6
<PAGE>
Exhibit 10.26(f)1
Exchanged Agreement
OPTION AGREEMENT
OPTION AGREEMENT, dated as of March 14, 1997, and amended on January 14,
1998 and January 4, 1999, between The Texas Individualized Television
Network, Inc. ("Texas") a Delaware corporation and ACTV, Inc. (the
"Corporation") and William Samuels (the "Holder").
WHEREAS, the Holder has exercised his right on January 4, 1999 to
exchange his Class B Common Stock options in Texas for an equal number of
ACTV, Inc. options on the terms and subject to conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. The Corporation hereby grants to the Holder a fully vested
option (the "Option") to purchase from the Corporation 250,000 Option Shares,
at a purchase price of $1.50 per Option Share (the "Option Price"). The
"Option Period" shall commence on the date hereof and terminate on March 14,
2007.
b. Except as limited by Section 5, the Option may be exercised, in
whole or part, by the Holder by delivery to the Corporation, at any time
during the Option Period, of a written notice (the "Option Notice"), which
Option Notice shall state the Holder's intention to exercise the Option, the
date on which the Holder proposes to purchase the Option Shares (the "Closing
Date") and the number of Option Shares to be purchased on the Closing Date,
which Closing Date shall be no later than 30 days nor earlier than 10 days
following the date of the Option Notice. Upon receipt by the Corporation of
an Option Notice from the Holder, the Holder shall be obligated to purchase
that number of Option Shares to be purchased on the Closing Date set forth in
the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the
offices of the Corporation. Delivery of the stock certificate or other
instrument registered in the name of the Holder, evidencing the Option Shares
being purchased on the Closing Date, shall be made by the Corporation to the
Holder on the Closing Date against the delivery to the Corporation of a
certified or bank check in the full amount of the aggregate purchase price
therefor.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder
hereby represents and warrants to the Corporation that in the event the
Holder acquires any Option Shares, such Option Shares will be acquired for
his own account,
<PAGE>
for investment and not with a view to the distribution thereof. The holder
understands the Option Shares will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"), and that they must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or the transaction is exempt from registration. The
certificate or certificates representing any Option Shares shall bear the
following restrictive legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933; OR (ii) TO THE EXTENT APPLICABLE, RULE 144
UNDER SUCH ACT (OR SIMILAR RULE UNDER THE SECURITIES ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL,
IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAN AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT IS AVAILABLE. IN ADDITION, THIS CERTIFICATE OF STOCK AND SHARES
REPRESENTED HEREBY AND HELD SUBJECT TO THE TERMS AND CONDITIONS
CONTAINED IN AN AGREEMENT BY AND AMONG THE SHAREHOLDERS OF THE
CORPORATION AND THE CORPORATION DATED AS OF MARCH 6, 1997, AND ALL
AMENDMENTS THERETO, AND MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH THE TERMS AND PROVISIONS THEREOF. A COPY OF SUCH AGREEMENT
WILL BE FURNISHED BY THE COPRPORATION UPON REQUEST."
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any time during
the Option Period, there shall be any capital reorganization,
reclassification of the Common Stock (the term "Common Stock" shall mean the
Company's Class A Common Stock and/or the Class B Stock) (other than a change
in par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), the consolidation or merger of the Corporation with
or into another corporation or of the sale of all or substantially all the
properties and assets of the Corporation as an entirety to any other
corporation or person, the unexercised and fully vested portion of this
Option shall, after such reorganization, reclassification, consolidation,
merger or sale, be exercisable for the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger or to which such
properties and assets shall have been sold to which the Holder would have
been entitled if the Holder had held shares of Class B Stock issuable upon
the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this
Section 3 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers and sales.
<PAGE>
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option during
the Option Period shall be cumulative as to all prior dates of calculation
and shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. The Option Price shall be subject to adjustment from time
to time as follows;
If, at any time during the Option Period, the number of shares of
Common Stock outstanding is altered by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up or combination of shares of
Common Stock, then, immediately following the record date fixed for the
determination of holders of shares of Common Stock, entitled to receive such
subdivision or split-up or combination, the Option Price shall be
appropriately increased or decreased and the number of shares of Common Stock
issuable upon the exercise hereof shall be increased or decreased, pursuant
to the formula set forth in Section 4.c.
c. Upon each adjustment of the Option Price pursuant to the
provisions of this Section 4, the number of shares of Common Stock issuable
upon the exercise hereof shall be adjusted to the nearest full share of
Common Stock by multiplying a number equal to the Option Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable immediately prior to such adjustment and dividing the product so
obtained by the adjusted Option Price.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to subsection
5(b), the Option granted hereby shall terminate and the Option shall no
longer be exercisable after March 14, 2007.
b. OPTION RIGHTS UPON DEATH, DISABILITY, RESIGNATION. If a
Holder dies or becomes disabled while employed by the Corporation or resigns
from employment with the Corporation prior to his complete exercise of the
Option, the Holder (or his heirs) may exercise his Option at any time during
the option period, to the extent that the Holder was entitled to exercise the
Option at the date of such event.
SECTION 6. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the
<PAGE>
rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, approved assigns and approved
transferees.
SECTION 7. NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to the Corporation:
ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
Attention: Christopher C. Cline
With a copy to:
Gersten, Savage, Kaplowitz & Fredericks
101 East 52 Street
New York, NY 10022
Attention: Jay Kaplowitz
If to the Holder, to:
William Samuels
2 East 75th Street
New York, NY 10021
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have given on the third
business day following the day on which the piece of mail containing such
communication is posted.
SECTION 8. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with the laws of the State of Delaware.
SECTION 9. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and amends the previous option agreement dated March 14,
1997 and amended January 14, 1998 with Texas and supersedes all previously
written or oral negotiations, commitments, representations and agreement.
<PAGE>
SECTION 10. AMENDMENTS AND MODIFICATIONS. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, INC.
By: /s/ Christopher C. Cline
------------------------
Christopher C. Cline
AGREED TO AND ACCEPTED BY
HOLDER:
/s/ WC Samuels
- --------------------------------------
Signature
- --------------------------------------
<PAGE>
Exhibit 99.1
ACTV OPTION AGREEMENT
Dated as of August 18, 1999
WHEREAS, THE TEXAS INDIVIDUALIZED TELEVISION NETWORK. INC., a Delaware
corporation ("TexNet"), and DAVID REESE ("Holder") are parties to that certain
Option Agreement dated as of March 14, 1997 (as amended January 14, 1998, the
"TexNet Option Agreement"), granting to Holder the right and option to purchase
250,000 shares (the "TexNet Option Shares") of TexNet's Class B common stock,
par value $.01 per share (the "TexNet Class B Stock"), at a price of $ 1.50 per
TexNet Option Share;
WHEREAS, Subsection 1(d) of the TexNet Option Agreement provides that the
option granted thereunder to purchase the TexNet Option Shares may, after
January 1, 1999, be exchanged, in whole or in part, for an option to purchase
from ACTV. INC., a Delaware corporation ("ACTV"), an equal number of shares,
i.e., 250,000 shares (the ACTV Option Shares"), of ACTV's common stock, par
value $.10 per share (the "ACTV Common Stock"), at a price of $1.50 per ACTV
Option Share;
WHEREAS, the Holder desires to effect the foregoing exchange effective the
date hereof on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged. TexNet,
the Holder and ACTV hereby agree as follows:
SECTION 1. Option to Purchase Common Stock.
a. ACTV hereby grants to the Holder a fully-vested option (the "Option")
to purchase from ACTV two hundred fifty thousand (250,000) ACTV Option Shares at
a purchase price of $1.50 per ACTV Option Share (the "ACTV Option Price"). The
"Option Period" shall commence on the date hereof and shall terminate in its
entirety on (and shall thereupon cease to be exercisable, in any respect, from
and after) March 14, 2007.
b. Except as limited by Section 5 hereof, the Option may be exercised, in
whole or part, by the Holder by delivery to ACTV, at any time during the Option
Period, of a written notice (the "Option Notice"), which Option Notice shall
state the Holder's intention to exercise the Option, the date on which the
Holder proposes to purchase the ACTV Option Shares (the "Closing Date") and the
number of ACTV Option Shares to be purchased on the Closing Date, which Closing
Date shall be no later than 30 days nor earlier than 10 days following the date
of the Option Notice. Upon receipt by ACTV of an Option Notice from the Holder,
the Holder shall be obligated to purchase that number of ACTV Option Shares to
be purchased on the Closing Date set forth in the Option Notice.
<PAGE>
c. The purchase and sale of ACTV Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of ACTV. Delivery of the stock certificate or other instrument registered in the
name of the Holder, evidencing the ACTV Option Shares being purchased on the
Closing Date, shall be made by ACTV to the Holder on the Closing Date against
the delivery to ACTV of a certified or bank check in the full amount of the
aggregate purchase price therefor.
SECTION 2. Representations and Warranties of The Holder. The Holder hereby
represents and warrants to ACTV that in the event the Holder acquires any ACTV
Option Shares, such ACTV Option Shares will be acquired for his own account, for
investment and not with a view to the distribution thereof. The Holder
understands the ACTV Option Shares will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), and that they must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or the transaction is exempt from registration. The certificate
or certificates representing any Option Shares shall bear the following
restrictive legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT'), AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR ACTV, INC. ("ACTV"), THAT AN EXEMPTION FROM REGISTRATION FOR
SUCH SALE, OFFER, TRANSFER, HYPOTHECATION OR OTHER ASSIGNMENT IS AVAILABLE
UNDER THE SECURITIES ACT. IN ADDITION, THIS STOCK CERTIFICATE OF STOCK AND
THE SHARES REPRESENTED HEREBY ARE HELD SUBJECT TO THE TERMS AND CONDITIONS
CONTAINED IN THAT CERTAIN AGREEMENT BY AND AMONG ACTV AND ITS SHAREHOLDERS
DATED AS OF MARCH 6,1997. AS AMENDED, AND MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH THE TERMS AND PROVISIONS THEREOF. A COPY OF SUCH AGREEMENT
WILL BE FURNISHED BY ACTV UPON WRITTEN REQUEST.
SECTION 3. Reorganization; Mergers; Sales; Etc. If, at any time during the
Option Period, there shall be any capital reorganization, reclassification of
the ACTV Common Stock (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a stock dividend
or subdivision, split-up or combination of shares), the consolidation or merger
of ACTV with or into another corporation or the sale of all or substantially all
the properties and assets of ACTV as an entirety to any other corporation or
person, the unexercised and fully vested portion of this Option shall, after
such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of ACTV or of the corporation resulting from such consolidation or
surviving such merger or to which such properties and assets shall have been
sold to which the Holder
<PAGE>
would have been entititled if the Holder had held shares of ACTV Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. Adjustment of Option Shares and Option Price.
a. The number of ACTV Option Shares subject to this Option during
the Option Period shall be cumulative as to all prior dates of calculation and
shall be adjusted for any stock dividend, subdivision, split-up or combination
of ACTV Common Stock.
b. The Option Price shall be subject to adjustment from time to time
as follows:
If, at any time during the Option Period, the number of shares of ACTV
Common Stock outstanding is altered by a stock dividend payable in shares of
ACTV Common Stock or by a subdivision or split-up or combination of shares of
ACTV Common Stock, then, immediately following the record date fixed for the
determination of holders of shares of ACTV Common Stock entitled to receive such
subdivision or split-up or combination, the Option Price shall be appropriately
increased or decreased and the number of shares of ACTV Common Stock issuable
upon the exercise hereof shall be increased or decreased, pursuant to the
formula set forth in Section 4.c.
c. Upon each adjustment of the Option Price pursuant to the
provisions of this Section 4. the number of shares of ACTV Common Stock issuable
upon the exercise hereof shall be adjusted to the nearest full share of ACTV
Common Stock by multiplying a number equal to the Option Price in effect
immediately prior to such adjustment by the number of shares of ACTV Common
Stock issuable immediately prior to such adjustment and dividing the product so
obtained by the adjusted Option Price.
SECTION 5. Termination of the Options.
a. Termination of Options in General. Subject to subsection 5(b),
the Option granted hereby shall terminate and the Option shall no longer be
exercisable in any respect after March 14, 2007.
b. Option Rights Upon Death, Disability, Resignation. If the Holder
dies or becomes disabled while employed by ACTV or resigns from ACTV's
employment prior to his complete exercise of the Option, the Holder (or his
heirs) may exercise his Option at any time during the Option Period, to the
extent that the Holder was entitled to exercise the Option at the date such of
such event.
SECTION 6. Transfer of Option; Successors and Assigns. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of ACTV. This
Agreement and all the rights
<PAGE>
hereunder shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, approved assigns and approved transferees.
SECTION 7. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to ACTV, to:
ACTV, Inc.
Attn: Day L. Patterson,
Law Department
1270 Avenue of the Americas
New York, NY 10020
If to TexNet, to:
The Texas Individualized Television Network, Inc.
Attn: Day L. Patterson,
Law Department
1270 Avenue of the Americas
New York, NY 10020
And if to the Holder, to:
Mr. David Reese
30 Maclay Road
Montville, NJ 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communications shall be deemed to have given on the third
business day following the day on which the piece of mail containing such
communication is posted.
SECTION 8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 9. Entire Agreement. This Agreement (i) contains the entire
agreement between ACTV and the Holder with respect to the transactions
contemplated herein, (ii) supercedes and replaces the TexNet Option Agreement,
which agreement shall be deemed terminated hereby as of, and of no further force
or effect from and after, the date hereof, and (iii) supersedes all previously
written or oral negotiations, commitments, representations and agreements.
<PAGE>
SECTION 10. Amendments and Modifications. This Agreement, or any provision
hereof, may not be amended, changed or modified without the prior written
consent of each of ACTV and the Holder; provided, that clause (ii) of Section 9
hereof may not be amended or modified in any respect without the prior written
consent of all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement
to be executed and delivered as of the date first set forth above.
ACTV, INC.
By: /s/ Day L. Patterson
-------------------------
Day L. Patterson,
Sr. Vice President
and General Counsel
THE TEXAS INDIVIDUALIZED
TELEVISION NETWORK, INC.
By: /s/ Christopher C. Cline
-------------------------
Christopher C. Cline,
Secretary/Treasurer
AGREED TO ACCEPTED BY HOLDER:
/s/ David Reese
- ---------------
DAVID REESE
("Holder")
<PAGE>
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995,
between ACTV, INC., a Delaware corporation, having an office at 1270 Avenue of
the Americas, New York, New York 10020 (hereinafter referred to as "Employer")
and WILLIAM C. SAMUELS, an individual residing at 139 East 19th Street, New
York, New York 10003 (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ,
Employee as Chairman of the Board of Directors and Chief Executive Officer of
Employer; and
WHEREAS, Employee is willing to continue to be employed as the
Chairman of the Board of Directors and Chief Executive Officer of Employer in
the manner provided for herein, and to perform the duties of the Chairman of the
Board of Directors and Chief Executive Officer of Employer upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. EMPLOYMENT OF CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER. Employer hereby employs Employee as Chairman of the Board of
Directors and Chief Executive Officer of Employer.
2. TERM.
a. Subject to Section 10 below and further subject to
Section 2(b) below, the term of this Agreement shall end on December 31, 2003.
Each 12 month period from January 1 through December 31 during the term hereof
shall be referred to as an "Annual Period." During the term hereof, Employee
shall devote substantially all of his business time and efforts to Employer and
its subsidiaries and affiliates.
b. Subject to Section 10 below, unless the Board of
Directors of the Company (the "Board") of Employer shall determine to the
contrary and shall so notify Employee in writing on or before the end of any
Annual Period, then at the end of each Annual Period, starting December 31,
1999, the term of this Agreement shall be automatically extended for one (1)
additional Annual Period to be added at the end of the then current term of this
Agreement.
<PAGE>
3. DUTIES. The Employee shall perform those functions
generally performed by persons of such title and position, shall attend all
meetings of the stockholders and the Board, shall perform any and all related
duties and shall have any and all powers as may be prescribed by resolution of
the Board, and shall be available to confer and consult with and advise the
officers and directors of Employer at such times that may be required by
Employer. Employee shall report directly and solely to the Board.
4. COMPENSATION.
a. (i) Employee shall be paid a minimum of
$295,000 for each Annual Period, commencing January 1, 1998. Employee shall be
paid periodically in accordance with the policies of the Employer during the
term of this Agreement, but not less than monthly.
(ii) Employee is eligible for quarterly
bonuses, if any, which will be determined and paid in accordance with policies
set from time to time by the Compensation Committee of the Board.
(iii)Employee shall be entitled to a leased
car of his choice, the cost of which shall reduce the total cash compensation
paid under section 4 (a)(i).
b. (i) In the event of a "Change of Control"
whereby
(A) A person (other than a person who is an
officer or a Director of Employer on the effective date hereof), including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes, or obtains the right to become, the beneficial owner of Employer
securities having 30% or more of the combined voting power of then outstanding
securities of the Employer that may be cast for the election of directors of the
Employer;
(B) At any time, a majority of the
Board-nominated slate of candidates for the Board is not elected;
(C) Employer consummates a merger in which
it is not the surviving entity;
(D) Substantially all Employer's assets are
sold; or
(E) Employer's stockholders approve the
dissolution or liquidation of Employer; then
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<PAGE>
(ii) (A) All stock options, warrants and
stock appreciation rights ("Rights") granted by Employer to Employee under any
plan or otherwise prior to the effective date of the Change of Control, shall
become vested, accelerate and become immediately exercisable; at an exercise
price of 10(cent) per stock appreciation right if applicable; and in addition
the employee, at his option, shall receive a special compensation payment for
the exercise cost of all vested options upon exercising those options any time
within twelve months after the effective date of the change of control, adjusted
for any stock splits and capital reorganizations having a similar effect,
subsequent to the effective date hereof. In the event Employee owns or is
entitled to receive any unregistered securities of Employer, then Employer shall
use its best efforts to effect the registration of all such securities as soon
as practicable, but no later than 120 days after the effective date of the
registration statement; provided, however, that such period may be extended or
delayed by Employer for one period of up to 60 days if, upon the advice of
counsel at the time such registration is required to be filed, or at the time
Employer is required to exercise its best efforts to cause such registration
statement to become effective, such delay is advisable and in the best interests
of Employer because of the existence of non-public material information, or to
allow Employer to complete any pending audit of its financial statements;
(B) Any outstanding principle and interest
on loans to Employee pursuant to Section 4.g.(ii), below, shall be recalculated
and reconstituted as if the rights were exercised under 4(b)(ii).
(C) If upon said Change of Control,
Employee is not retained as Chief Executive Officer or substantially similar
position of Employer or the surviving entity, as applicable, under terms and
conditions substantially similar to those herein, then in addition, Employee
shall be eligible to receive a one-time bonus, equal on an after-tax basis to
two times his then current annual base salary. To effectuate this provision, the
bonus shall be "grossed-up" to include the amount necessary to reimburse
Employee for his federal, state and local income tax liability on the bonus and
on the "gross-up" at the respective effective marginal tax rates. In no event
shall this bonus exceed 2.7 times Employee's then current base salary. Said
bonus shall be paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health
insurance program available to Employer's executive officers.
d. Employer shall maintain a life, accidental death
and dismemberment insurance policy on Employee for the benefit of a beneficiary
named by Employee in an amount not less
-3-
<PAGE>
than $2,000,000. Ownership of the policy shall be assigned to Employee upon
termination of Employee's employment under this Agreement.
e.(i) A bonus plan shall be instituted for Employee
which shall take account of the efforts of Employee in generating value to
Employer's shareholders. Under said plan, Employee shall be entitled to an
annual bonus payable for each 12 month period commencing April 1, 1995 in cash
and/or unregistered securities of Employer, at the option of the Compensation
Committee of the Board, equal to 2% of the increase for said 12 month period in
the total market capitalization of Employer calculated upon the excess of the
total of the average daily closing price (if applicable) of each class of
Employer's shares for the last 90 days of the 12 month period, multiplied by the
number of shares of each class outstanding as reported by Employer's Certified
Public Accountants, (the "90 Day Average") over the Base, which shall be the
greater of $50,000,000 or the highest previous 90 Day Average against which a
bonus was paid under this bonus plan, if any. Should the Compensation Committee
elect hereunder to pay Employee in unregistered securities, said securities
shall be valued at 60% of the most recent 90 Day Average. Should Employer's
shares no longer be publicly traded, the current 90 Day Average shall be
determined by a 3 person panel, 1 person appointed each by Employer and Employee
and 1 appointed by the former 2.
The Employee shall be entitled to receive
compensation under this plan for five fiscal years following expiration or
termination of this employment contract, except that if Employee is terminated
for cause as defined in Section 10.a.(i) hereof or resigns under section 10
(b)(ii) then said compensation shall continue for three fiscal years.
Furthermore, in certain years the Employee's
right to retain the entire amount of the bonus paid to the Employee under this
Section 4(e)(i) may be subject to forfeiture upon the termination of the
Employee's employment with Employer under either Section 10(a)(i) or 10(b)(ii)
hereof during a defined time period mutually agreed upon between the
Compensation Committee and the Employee.
(ii) Employee shall also be entitled to participate
pari passu in any other program established by Employer pursuant to which any
executive officers receive a share of the profits of Employer.
f. Employee shall have the right to participate in
any other employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly
forbids it, all Rights which may become exercisable
-4-
<PAGE>
during the term hereof shall be paid for in cash only if Employee so elects,
otherwise they may be paid for
(i) by the transfer by Employee to Employer of so
much of Employee's Rights which, when valued at the highest trading price of the
underlying securities of Employer during the previous six months, will offset
the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at
the lowest rate, if any, required to be charged by any governmental authority,
to accrue and become due and payable with the principle, in an amount no greater
than the exercise price, given by Employee to Employer and secured solely by the
shares of stock being paid for thereby, which Note shall become due and payable
at the earlier of the expiration hereof or, on a pro rata basis, the sale by
Employee of all or part of the Rights or underlying stock which constitute
security for the Note; or
(iii) by any combination of cash and (ii) or (iii),
above.
5. BOARD OF DIRECTORS. Employer agrees that so long as this
Agreement is in effect, Employee will be nominated to the Board as part of
management's slate of Directors.
6. EXPENSES. Employee shall be reimbursed for all of his
actual out-of-pocket expenses incurred in the performance of his duties
hereunder, provided such expenses are acceptable to Employer, which approval
shall not be unreasonably withheld, for business related travel and
entertainment expenses, and that Employee shall submit to Employer reasonably
detailed receipts with respect thereto.
7. VACATION. Employee shall be entitled to receive four (4)
weeks paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
8. SECRECY. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
9. COVENANT NOT TO COMPETE. Subject to, and limited by,
Section 11(b), Employee will not, at any time, anywhere in the world, during the
term of this Agreement, and for one (1)
-5-
<PAGE>
year thereafter, either directly or indirectly, engage in, with or for any
enterprise, institution, whether or not for profit, business, or company,
competitive with the business(as identified herein) of Employer as such business
may be conducted on the date thereof, as a creditor, guarantor, or financial
backer, stockholder, director, officer, consultant, advisor, employee, member,
inventor, producer, director, or otherwise of or through any corporation,
partnership, association, sole proprietorship or other entity; provided, that an
investment by Employee, his spouse or his children is permitted if such
investment is not more than four percent (4%) of the total debt or equity
capital of any such competitive enterprise or business and further provided that
said competitive enterprise or business is a publicly held entity whose stock is
listed and traded on a national stock exchange or through the NASDAQ Stock
Market. As used in this Agreement, the business of Employer shall be deemed to
include the development and implementation of individualized television
technology or programs.
10. TERMINATION.
A. TERMINATION BY EMPLOYER
(i) Employer may terminate this Agreement
upon written notice for Cause. For purposes hereof, "Cause" shall mean (A)
engaging by the Employee in conduct that constitutes activity in competition
with Employer; (B) the conviction of Employee for the commission of a felony;
and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 10(a)(i), Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date Employee receives the notice from the Board) to
correct the acts or omissions so complained of. In no event shall alleged
incompetence of Employee in the performance of Employee's duties be deemed
grounds for termination for Cause.
(ii) Employer may terminate Employee's
employment under this Agreement if, as a result of any physical or mental
disability, Employee shall fail or be unable to perform his duties under this
Agreement for any consecutive period of 90 days during any twelve-month period.
If Employee's employment is terminated under this Section 10(a)(ii): (A) for the
first six months after termination, Employee shall be paid 100% of his full
compensation under Section 4(a) of this Agreement at
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<PAGE>
the rate in effect on the date of termination, and in each successive 12 month
period thereafter Employee shall be paid an amount equal to 67% of his
compensation under Section 4(a) of this agreement at the rate in effect on the
date of termination; (B) Employer's obligation to pay life insurance premiums on
the policy referred to in Section 4(d) shall continue in effect until five years
after the date of termination; and (C) Employee shall continue to be entitled,
insofar as is permitted under applicable insurance policies or plans, to such
general medical and employee benefit plans (including profit sharing or pension
plans) as Employee had been entitled to on the date of termination. Any amounts
payable by Employer to Employee under this paragraph shall be reduced by the
amount of any disability payments payable by or pursuant to plans provided by
Employer and actually paid to Employee.
(iii) This agreement automatically shall
terminate upon the death of Employee, except that Employee's estate shall be
entitled to receive any amount accrued under Section 4(a) and the pro-rata
amount payable under Section 4(e) for the period prior to Employee's death and
any other amount to which Employee was entitled of the time of his death.
B. TERMINATION BY EMPLOYEE
(i) Employee shall have the right to
terminate his employment under this Agreement upon 30 days' notice to Employer
given within 90 days following the occurrence of any of the following events (A)
through (F) or within three years following the occurrence of event (G):
(A) Employee is not elected or
retained as Chairman of the Board of Directors, President and Chief Executive
Officer of Employer.
(B) Employer acts to materially
reduce Employee's duties and responsibilities hereunder. Employee's duties and
responsibilities shall not be deemed materially reduced for purposes hereof
solely by virtue of the fact that Employer is (or substantially all of its
assets are) sold to, or is combined with, another entity, provided that Employee
shall continue to have the same duties and responsibilities with respect to
Employer's interactive business, and Employee shall report directly to the chief
executive officer and/or board of directors of the entity (or individual) that
acquires Employer or its assets.
(C) Employer acts to change the
geographic location of the performance of Employee's duties from the New York
Metropolitan area. For purposes of this Agreement, the New York Metropolitan
area shall be deemed to be the area within 30 miles of midtown Manhattan.
(D) A Material Reduction (as
hereinafter defined) in Employee's rate of base compensation, or Employee's
other benefits. "Material Reduction" shall mean a ten percent (10%)
differential;
-7-
<PAGE>
(E) A failure by Employer to obtain
the assumption of this Agreement by any successor;
(F) A material breach of this
Agreement by Employer, which is not cured within thirty (30) days of written
notice of such breach by Employer;
(G) A Change of Control.
(ii) Anything herein to the contrary notwithstanding, Employee may terminate
this Agreement upon thirty (30) days written notice.
c. If Employer shall terminate Employee's employment
other than due to his death or disability or for Cause (as defined in Section
10(a)(i) of this Agreement), or if Employee shall terminate this Agreement under
Section 10(b)(i), Employer's obligations under Section 4 shall be absolute and
unconditional and not subject to any offset or counterclaim and Employee shall
continue to be entitled to receive all amounts provided for by Section 4 and all
additional employee benefits under Section 4 regardless of the amount of
compensation he may earn with respect to any other employment he may obtain.
11. CONSEQUENCES OF BREACH BY EMPLOYER;
EMPLOYMENT TERMINATION
a. If this Agreement is terminated pursuant to
Section 10(b)(i) hereof, or if Employer shall terminate Employee's employment
under this Agreement in any way that is a breach of this Agreement by Employer,
the following shall apply:
(i) Employee shall receive as a bonus, and in
addition to his salary continuation pursuant to Section 10.c., above, a cash
payment equal to the Employee's total base salary as of the date of termination
hereunder for the remainder of the term plus an additional amount to pay all
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination;
except that if this Agreement is terminated pursuant to Section 10(b)(i)(G),
then Employee shall not be entitled to receive a bonus under this Section
11.a.(i) but shall instead receive a lump-sum payout of Employee's total base
salary for the remainder of the term plus an additional amount to pay all
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination.
(ii) Employee shall be entitled to payment
of any previously declared bonus and additional compensation as provided in
Section 4(a), (b) and (e) above.
<PAGE>
b. In the event of termination of Employee's
employment pursuant to Section 10(b)(i) of this Agreement, the provisions of
Section 9 shall not apply to Employee.
12. REMEDIES
Employer recognizes that because of Employee's
special talents, stature and opportunities in the interactive television
industry, and because of the special creative nature of and compensation
practices of said industry and the material impact that individual projects can
have on an interactive television company's results of operations, in the event
of termination by Employer hereunder (except under Section 10(a)(i) or (iii), or
in the event of termination by Employee under Section 10(b)(i) before the end of
the agreed term, Company acknowledges and agrees that the provisions of this
Agreement regarding further payments of base salary, bonuses and the
exercisability of Rights constitute fair and reasonable provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts' Employee might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement.
13. EXCISE TAX. In the event that any payment or benefit
received or to be received by Employee in connection with a termination of his
employment with Employer would constitute a "parachute payment" within the
meaning of Code Section 280G or any similar or successor provision to 280G
and/or would be subject to any excise tax imposed by Code Section 4999 or any
similar or successor provision then Employer shall assume all liability for the
payment of any such tax and Employer shall immediately reimburse Employee on a
"grossed-up" basis for any income taxes attributable to Employee by reason of
such Employer payment and reimbursements.
14. ARBITRATION. Any controversies between Employer and
Employee involving the construction or application of any of the terms,
provisions or conditions of this Agreement, save and except for any breaches
arising out of Sections 8 and 9 hereof, shall on the written request of either
party served on the other be submitted to arbitration. Such arbitration shall
comply with and be governed by the rules of the American Arbitration
Association. An arbitration demand must be made within one (1) year of the date
on which the party demanding arbitration first had notice of the existence of
the claim to be arbitrated, or the right to arbitration along with such claim
shall be considered to have been waived. An arbitrator shall be selected
according to the procedures of the American Arbitration Association. The cost of
arbitration shall be born by the losing party or in such proportions as the
arbitrator shall decide. The arbitrator shall
<PAGE>
have no authority to add to, subtract from or otherwise modify the provisions of
this Agreement, or to award punitive damages to either party.
15. ATTORNEYS' FEES AND COSTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
16. ENTIRE AGREEMENT; SURVIVAL. This Agreement, which was
modified October 6, 1999, contains the entire agreement between the parties with
respect to the transactions contemplated herein and supersedes, effective as of
the date hereof any prior agreement or understanding between Employer and
Employee with respect to Employee's employment by Employer. The unenforceability
of any provision of this Agreement shall not effect the enforceability of any
other provision. This Agreement may not be amended except by an agreement in
writing signed by the Employee and the Employer, or any waiver, change,
discharge or modification as sought. Waiver of or failure to exercise any rights
provided by this Agreement and in any respect shall not be deemed a waiver of
any further or future rights.
b. The provisions of Sections 4, 8, 9,
10(a)(ii), 10(a)(iii), 10(c), 11, 12, 13, 14, 15, 18, 19 and 20 shall survive
the termination of this Agreement.
17. ASSIGNMENT. This Agreement shall not be assigned to other
parties.
18. GOVERNING LAW. This Agreement and all the amendments
hereof, and waivers and consents with respect thereto shall be governed by the
internal laws of the state of New York, without regard to the conflicts of laws
principles thereof.
19. NOTICES. All notices, responses, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
return receipt requested; or
c. received by the addressee as sent be express
delivery service (receipt requested) in each case to the appropriate addresses,
telex numbers and telefax numbers as the party may designate to itself by notice
to the other parties:
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(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: Day Patterson
Telefax: (212) 459-9548
Telephone: (212) 217-1600
Gersten, Savage, Kaplowitz LLP
101 East 52 Street
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
William C. Samuels
139 East 19th Street
New York, New York 10003
20. SEVERABILITY OF AGREEMENT. Should any part of this
Agreement for any reason be declared invalid by a court of competent
jurisdiction, such decision shall not affect the validity of any remaining
portion, which remaining provisions shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portions of this Agreement without including any such
part, parts or portions which may, for any reason, be hereafter declared
invalid.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the day and year first above written.
ACTV, INC.
By:
-----------------------------------
Day L. Patterson
Senior Vice President and
General Counsel
------------------------------------
WILLIAM C. SAMUELS
11
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EXHIBIT 10.41.1
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995, and amended
October 6, 1999, by and between ACTV, INC., a Delaware corporation, having an
office at 1270 Avenue of the Americas, New York, New York 10020 (hereinafter
referred to as "Employer") and DAVID REESE, an individual residing at 30 Maclay
Road, Montville, New Jersey 07045 (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ, Employee as
its President and Chief Operating Officer; and
WHEREAS, Employee is willing to continue to be employed as the President
and Chief Operating Officer of ACTV, Inc. in the manner provided for herein, and
to perform the duties of the President and Chief Operating Officer of ACTV, Inc.
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth it is agreed as follows:
1. EMPLOYMENT OF PRESIDENT AND CHIEF OPERATING OFFICER OF ACTV, INC.
Employer hereby employs Employee as its President and Chief Operating Officer of
ACTV, Inc.
2. TERM. Subject to Section 9 below, the term of this Agreement shall
commence on August 1, 1995 and end on December 31, 2000. Each 12 month period
from January 1 through December 31 during the term hereof shall be referred to
as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
3. DUTIES. The Employee shall perform any and all duties and shall have any
and all powers as may be prescribed by the Chairman and Chief Executive Officer
and shall be available to confer and consult with and advise the officers and
directors of Employer at such times that may be required by Employer. Employee
shall report directly and solely to the Chairman and Chief Executive Officer.
<PAGE>
4. COMPENSATION.
a. (i) Employee shall be paid a minimum of $245,000 for each Annual
Period, commencing January 1, 1998. Employee shall be paid periodically in
accordance with the policies of the Employer during the term of this Agreement,
but not less than monthly.
(ii) Employee is eligible for quarterly bonuses, if any, which will be
determined and paid in accordance with policies set from time to time by the
Board.
(iii)Employee shall be entitled to a leased car of his choice, the cost
of which shall reduce the total cash compensation paid under section 4 (a)(i).
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is an officer or a Director of
Employer on the effective date hereof), including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or obtains the
right to become, the beneficial owner of Employer securities having 30% or more
of the combined voting power of then outstanding securities of the Employer that
may be cast for the election of directors of the Employer;
(B) At any time, a majority of the Board-nominated slate of candidates
for the Board is not elected;
(C) Employer consummates a merger in which it is not the surviving
entity;
(D) Substantially all Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or liquidation of
Employer; then
(ii) (A) All stock options, warrants and stock appreciation rights
("Rights") granted by Employer to Employee under any plan or otherwise prior to
the effective date of the Change of Control, shall become vested, accelerate and
become immediately exercisable; at an exercise price of 10(cent) per stock
appreciation right if applicable; and in addition the employee, at his option,
shall receive a special compensation payment for the exercise cost of all vested
options upon exercising those options any time within twelve months after the
effective date of the change of control, adjusted for any stock splits and
capital reorganizations having a similar effect, subsequent to the effective
date hereof. In the event Employee owns or is entitled to receive any
unregistered
2
<PAGE>
securities of Employer, then Employer shall use its best efforts to effect the
registration of all such securities as soon as practicable, but no later than
120 days after the effective date of the registration statement; provided,
however, that such period may be extended or delayed by Employer for one period
of up to 60 days if, upon the advice of counsel at the time such registration is
required to be filed, or at the time Employer is required to exercise its best
efforts to cause such registration statement to become effective, such delay is
advisable and in the best interests of Employer because of the existence of
non-public material information, or to allow Employer to complete any pending
audit of its financial statements;
(B) Any outstanding principle and interest on loans to Employee pursuant
to Section 4.g.(ii), below, shall be recalculated and reconstituted as if the
rights were exercised under 4 (b) (ii).
(C) If upon said Change of Control, (i) a new Chief Executive Officer of
Employer is appointed and (ii) Employee is not retained in his immediately prior
position or a substantially similar position with Employer or the surviving
entity, as applicable, then in addition, Employee shall be eligible to receive a
one-time bonus, equal on an after-tax basis to two times his then current annual
base salary. To effectuate this provision, the bonus shall be "grossed-up" to
include the amount necessary to reimburse Employee for his federal, state and
local income tax liability on the bonus and on the "gross-up" at the respective
effective marginal tax rates. In no event shall this bonus exceed 2.7 times
Employee's then current base salary. Said bonus shall be paid within thirty (30)
days of the Change of Control.
c. Employer shall include Employee in its health insurance program
available to Employer's executive officers.
d. Employer shall maintain a life, accidental death and dismemberment
insurance policy on Employee for the benefit of a beneficiary named by Employee
in an amount not less than $2,000,000. Ownership of the policy shall be assigned
to Employee upon termination of Employee's employment under this Agreement.
e. Employee shall also be entitled to participate pari passu in any
other program established by Employer pursuant to which any executive officers
receive a share of the profits of Employer.
f. Employee shall have the right to participate in any other employee
benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly forbids it, all
Rights which may become exercisable during the term hereof shall be paid for in
cash only if Employee so elects, otherwise they may be paid for.
3
<PAGE>
(i) by the transfer by Employee to Employer of so much of Employee's
Rights which, when valued at the highest trading price of the underlying
securities of Employer during the previous six months, will offset the price of
the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at the lowest rate,
it any, required to be charged by any governmental authority, to accrue and
become due and payable with the principle, in an amount no greater than the
exercise price, given by Employee to Employer and secured solely by the shares
of stock being paid for thereby, which Note shall become due and payable at the
earlier of the expiration hereof or, on a pro rata basis, the sale by Employee
of all or part of the Rights or underlying stock which constitute security for
the Note; or
(iii) by any combination of cash and (ii) or (iii), above.
5. EXPENSES. Employee shall be reimbursed for all of his actual
out-of-pocket expenses incurred in the performance of his duties hereunder,
provided such expenses are acceptable to Employer, which approval shall not be
unreasonably withheld, for business related travel and entertainment expenses,
and that Employee shall submit to Employer reasonably detailed receipts with
respect thereto.
6. VACATION. Employee shall be entitled to receive four (4) weeks paid
vacation time after each year of employment upon dates agreed upon by Employer.
Upon separation of employment, for any reason, vacation time accrued and not
used shall be paid at the salary rate of Employee in effect at the time of
employment separation.
7. SECRECY. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
8. COVENANT NOT TO COMPETE. Subject to, and limited by, Section 10(b),
Employee will not, at any time, anywhere in the world, during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business (as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by
4
<PAGE>
Employee, his spouse or his children is permitted if such investment is not more
than four percent (4%) of the total debt or equity capital of any such
competitive enterprise or business and further provided that said competitive
enterprise or business is a publicly held entity whose stock is listed and
traded on a national stock exchange or through the NASDAQ Stock Market. As used
in this Agreement, the business of Employer shall be deemed to include the
development and implementation of individualized television technology or
programs.
9. TERMINATION.
A. TERMINATION BY EMPLOYER
(i) Employer may terminate this Agreement upon written notice for
Cause. For purposes hereof, "Cause" shall mean (A) engaging by the Employee in
conduct that constitutes activity in competition with Employer; (B) the
conviction of Employee for the commission of a felony; and/or (C) the habitual
abuse of alcohol or controlled substances. Notwithstanding anything to the
contrary in this Section 9(a)(i), Employer may not terminate Employee's
employment under this Agreement for Cause unless Employee shall have first
received notice from the Board advising Employee of the specific acts or
omissions alleged to constitute Cause, and such acts or omissions continue after
Employee shall have had a reasonable opportunity (at least 10 days from the date
Employee receives the notice from the Board) to correct the acts or omissions so
complained of.
(ii) Employer may terminate Employee's employment under this
Agreement if, as a result of any physical or mental disability, Employee shall
fail or be unable to perform his duties under this Agreement for any consecutive
period of 90 days during any twelve-month period. If Employee's employment is
terminated under this Section 9(a)(ii): (A) for the first six months after
termination, Employee shall be paid 100% of his full compensation under Section
4(a) of this Agreement at the rate in effect on the date of termination, and in
each successive 12 month period thereafter Employee shall be paid an amount
equal to 67% of his compensation under Section 4(a) of this agreement at the
rate in effect on the date of termination; (B) Employer's obligation to pay life
insurance premiums on the policy referred to in Section 4(d) shall continue in
effect until five years after the date of termination; and (C) Employee shall
continue to be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit plans (including
profit sharing or pension plans) as Employee had been entitled to on the date of
termination. Any amounts payable by Employer to Employee under this paragraph
shall be reduced by the amount of any disability payments payable by or pursuant
to plans provided by Employer and actually paid to Employee.
(iii) This agreement automatically shall terminate upon the death of
Employee, except that Employee's
5
<PAGE>
estate shall be entitled to receive any amount accrued under Section 4(a) and
the pro-rata amount payable under Section 4(e) for the period prior to
Employee's death and any other amount to which Employee was entitled of the time
of his death.
b. Termination by Employee
(i) Employee shall have the right to terminate his employment under
this Agreement upon 30 days' notice to Employer given within 90 days following
the occurrence of any of the following events (A) through (D) or within three
years following the occurrence of event (E):
(A) Employer acts to change the geographic location of the of
Employee's duties from the New York Metropolitan area. For purposes of this
Agreement, the New York Metropolitan area shall be deemed to be the area within
30 miles of midtown Manhattan.
(B) A Material Reduction (as hereinafter defined) in Employee's
rate of base compensation, or Employee's other benefits. "Material Reduction"
shall mean a ten percent (10%) differential;
(C) A failure by Employer to obtain the assumption of this
Agreement by any successor;
(D) A material breach of this Agreement by Employer, which is not
cured within thirty (30) days of written notice of such breach by Employer;
(E) A Change of Control.
(ii) Anything herein to the contrary notwithstanding, Employee may
terminate this Agreement upon thirty (30) days written notice.
c. If Employer shall terminate Employee's employment other than due to
his death or disability or for Cause (as defined in Section 9(a)(i) of this
Agreement), or if Employee shall terminate this Agreement under Section 9(b)(i),
Employer's obligations under Section 4 shall be absolute and unconditional and
not subject to any offset or counterclaim and Employee shall continue to be
entitled to receive all amounts provided for by Section 4 and all additional
employee benefits under Section 4 regardless of the amount of compensation he
may earn with respect to any other employment he may obtain.
10. CONSEQUENCES OF BREACH BY EMPLOYER;
EMPLOYMENT TERMINATION
a. If this Agreement is terminated pursuant to Section 9(b)(i) hereof,
or if Employer shall terminate Employee's
6
<PAGE>
employment under this Agreement in any way that is a breach of this Agreement by
Employer, the following shall apply:
(i) Employee shall receive as a bonus, and in addition to his salary
continuation pursuant to Section 9.c., above, a cash payment equal to the
Employee's total base salary as of the date of termination hereunder for the
remainder of the term plus an additional amount to pay all federal, state and
local income taxes thereon on a grossed-up basis as heretofore provided, payable
within 30 days of the date of such termination; except that if this Agreement is
terminated pursuant to Section 9.(b)(i)(E), then Employee shall not be entitled
to receive a bonus under this Section 10.a.(i) but shall instead receive a
lump-sum payout of Employee's total base salary for the remainder of the term
plus an additional amount to pay all federal, state and local income taxes
thereon on a grossed-up basis as heretofore provided, payable within 30 days of
the date of such termination.
(ii) Employee shall be entitled to payment of any previously declared
bonus and additional compensation as provided in Section 4(a), (b) and (e)
above.
b. In the event of termination of Employee's employment pursuant to
Section 9(b)(i) of this Agreement, the provisions of Section 8 shall not apply
to Employee.
11. REMEDIES
Employer recognizes that because of Employee's special talents, stature
and opportunities in the interactive television industry, and because of the
special creative nature of and compensation practices of said industry and the
material impact that individual projects can have on an interactive television
company's results of operations, in the event of termination by Employer
hereunder (except under Section 9(a)(i) or (iii), or in the event of termination
by Employee under Section 9(b)(i) before the end of the agreed term, Company
acknowledges and agrees that the provisions of this Agreement regarding further
payments of base salary, bonuses and the exercisability of Rights constitute
fair and reasonable provisions for the consequences of such termination, do not
constitute a penalty, and such payments and benefits shall not be limited or
reduced by amounts' Employee might earn or be able to earn from any other
employment or ventures during the remainder of the agreed term of this
Agreement.
12. EXCISE TAX. In the event that any payment or benefit received or to
be received by Employee in connection with a termination of his employment with
Employer would constitute a "parachute payment" within the meaning of Code
Section 280G or any similar or successor provision to 280G and/or would be
subject to any excise tax imposed by Code Section 4999 or any similar or
successor provision then Employer shall assume all
7
<PAGE>
liability for the payment of any such tax and Employer shall immediately
reimburse Employee on a "grossed-up" basis for any income taxes attributable to
Employee by reason of such Employer payment and reimbursements.
13. ARBITRATION. Any controversies between Employer and Employee involving
the construction or application of any of the terms, provisions or conditions of
this Agreement, save and except for any breaches arising out of Sections 7 and 8
hereof, shall on the written request of either party served on the other be
submitted to arbitration. Such arbitration shall comply with and be governed by
the rules of the American Arbitration Association. An arbitration demand must be
made within one (1) year of the date on which the party demanding arbitration
first had notice of the existence of the claim to be arbitrated, or the right to
arbitration along with such claim shall be considered to have been waived. An
arbitrator shall be selected according to the procedures of the American
Arbitration Association. The cost of arbitration shall be born by the losing
party or in such proportions as the arbitrator shall decide. The arbitrator
shall have no authority to add to, subtract from or otherwise modify the
provisions of this Agreement, or to award punitive damages to either party.
14. ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
15. ENTIRE AGREEMENT; SURVIVAL. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and supersedes, effective as of the date hereof any prior agreement or
understanding between Employer and Employee with respect to Employee's
employment by Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This Agreement may
not be amended except by an agreement in writing signed by the Employee and the
Employer, or any waiver, change, discharge or modification as sought. Waiver of
or failure to exercise any rights provided by this Agreement and in any respect
shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9(a)(ii), 9(a)(iii), 9(c), 10,
11, 12, 13, 14, 17, 18 and 19 shall survive the termination of this Agreement.
16. ASSIGNMENT. This Agreement shall not be assigned to other parties.
17. GOVERNING LAW. This Agreement and all the amendments hereof, and
waivers and consents with respect thereto
8
<PAGE>
shall be governed by the internal laws of the state of New York, without regard
to the conflicts of laws principles thereof.
18. NOTICES. All notices, responses, demands or other communications under
this Agreement shall be in writing and shall be deemed to have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt confirmed), provided that a
copy is mailed by registered or certified mail, return receipt requested; or
c. received by the addressee as sent be express delivery service
(receipt requested) in each case to the appropriate addresses, telex numbers and
telefax numbers as the party may designate to itself by notice to the other
parties:
(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: Day Patterson
Telefax: (212) 459-9548
Telephone: (212) 217-1600
Gersten, Savage, Kaplowitz LLP
101 East 52nd Street
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
David Reese
30 Maclay Road
Montville, New Jersey 07045
19. SEVERABILITY OF AGREEMENT. Should any part of this Agreement for
any reason be declared invalid by a court of competent jurisdiction, such
decision shall not affect the validity of any remaining portion, which remaining
provisions shall remain in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated, and it is hereby declared
the intention of the parties that they would have executed the remaining
portions of this Agreement without
9
<PAGE>
including any such part, parts or portions which may, for any reason, be
hereafter declared invalid.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
ACTV, INC.
By:
-------------------------------------
WILLIAM C. SAMUELS
Chairman
-------------------------------------
DAVID REESE
President
10
<PAGE>
Exhibit 10.42.1
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995,
and amended October 6, 1999, by and between ACTV, INC., a Delaware corporation,
having an office at 1270 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as "Employer") and BRUCE CROWLEY, an individual
residing at 257 West 17th Street, New York, New York 10011 (hereinafter referred
to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ,
Employee as its Executive Vice President and President of HyperTV Networks,
Inc.; and
WHEREAS, Employee is willing to continue to be employed as the
Executive Vice President of Employer and President of HyperTV Networks, Inc. in
the manner provided for herein, and to perform the duties of the Executive Vice
President of Employer and President of HyperTV Networks, Inc. upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. EMPLOYMENT OF EXECUTIVE VICE PRESIDENT OF ACTV, INC. AND
PRESIDENT OF HYPERTV NETWORKS, INC. Employer hereby employs Employee as
Executive Vice President of ACTV Inc. and as President of HyprTV Networks, Inc.
2. TERM. Subject to Section 9 below, the term of this
Agreement shall commence on August 1, 1995 and end on December 31, 2000. Each 12
month period from January 1 through December 31 during the term hereof shall be
referred to as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
3. DUTIES. The Employee shall perform any and all duties and
shall have any and all powers as may be prescribed by the Chairman of ACTV, Inc.
and shall be available to confer and consult with and advise the officers and
directors of Employer at such times that may be required by Employer. Employee
shall report directly and solely to the Chairman or his designee.
<PAGE>
4. COMPENSATION.
a. (i) Employee shall be paid a minimum of $245,000
for each Annual Period, commencing January 1, 1998. Employee shall be paid
periodically in accordance with the policies of the Employer during the term of
this Agreement, but not less than monthly.
(ii) Employee is eligible for quarterly
bonuses, if any, which will be determined and paid in accordance with policies
set from time to time by the Board.
(iii)Employee shall be entitled to a leased
car of his choice, the cost of which shall reduce the total cash compensation
paid under section 4 (a)(i).
b. (i) In the event of a "Change of Control" whereby
(A) A person (other than a person who is an
officer or a Director of Employer on the effective date hereof), including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes, or obtains the right to become, the beneficial owner of Employer
securities having 30% or more of the combined voting power of then outstanding
securities of the Employer that may be cast for the election of directors of the
Employer;
(B) At any time, a majority of the
Board-nominated slate of candidates for the Board is not elected;
(C) Employer consummates a merger in which
it is not the surviving entity;
(D) Substantially all Employer's assets are
sold; or
(E) Employer's stockholders approve the
dissolution or liquidation of Employer; then
(ii) (A) All stock options, warrants and
stock appreciation rights ("Rights") granted by Employer to Employee under any
plan or otherwise prior to the effective date of the Change of Control, shall
become vested, accelerate and become immediately exercisable; at an exercise
price of 10(cent) per stock appreciation right if applicable; and in addition
the employee, at his option, shall receive a special compensation payment for
the exercise cost of all vested options upon exercising those options any time
within twelve months after the
<PAGE>
effective date of the change of control, adjusted for any stock splits and
capital reorganizations having a similar effect, subsequent to the effective
date hereof. In the event Employee owns or is entitled to receive any
unregistered securities of Employer, then Employer shall use its best efforts to
effect the registration of all such securities as soon as practicable, but no
later than 120 days after the effective date of the registration statement;
provided, however, that such period may be extended or delayed by Employer for
one period of up to 60 days if, upon the advice of counsel at the time such
registration is required to be filed, or at the time Employer is required to
exercise its best efforts to cause such registration statement to become
effective, such delay is advisable and in the best interests of Employer because
of the existence of non-public material information, or to allow Employer to
complete any pending audit of its financial statements;
(B) Any outstanding principle and
interest on loans to Employee pursuant to Section 4.g.(ii), below, shall be
recalculated and reconstituted as if the rights were exercised under 4 (b)(ii).
(C) If upon said Change of Control,
(i) a new Chief Executive Officer of Employer is appointed and (ii) Employee is
not retained in his immediately prior position or a substantially similar
position with Employer or the surviving entity, as applicable, then in addition,
Employee shall be eligible to receive a one-time bonus, equal on an after-tax
basis to two times his then current annual base salary. To effectuate this
provision, the bonus shall be "grossed-up" to include the amount necessary to
reimburse Employee for his federal, state and local income tax liability on the
bonus and on the "gross-up" at the respective effective marginal tax rates. In
no event shall this bonus exceed 2.7 times Employee's then current base salary.
Said bonus shall be paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health
insurance program available to Employer's executive officers.
d. After January 1, 1999, Employer shall maintain a
life, accidental death and dismemberment insurance policy on Employee for the
benefit of a beneficiary named by Employee in an amount not less than $750,000.
Ownership of the policy shall be assigned to Employee upon termination of
Employee's employment under this Agreement.
e. Employee shall also be entitled to participate
pari passu in any other program established by
<PAGE>
Employer pursuant to which any executive officers receive a share of the profits
of Employer.
f. Employee shall have the right to participate in
any other employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly
forbids it, all Rights which may become exercisable during the term hereof shall
be paid for in cash only if Employee so elects, otherwise they may be paid for.
(i) by the transfer by Employee to Employer of so
much of Employee's Rights which, when valued at the highest trading price of the
underlying securities of Employer during the previous six months, will offset
the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at
the lowest rate, it any, required to be charged by any governmental authority,
to accrue and become due and payable with the principle, in an amount no greater
than the exercise price, given by Employee to Employer and secured solely by the
shares of stock being paid for thereby, which Note shall become due and payable
at the earlier of the expiration hereof or, on a pro rata basis, the sale by
Employee of all or part of the Rights or underlying stock which constitute
security for the Note; or
(iii) by any combination of cash and (ii) or (iii),
above.
5. EXPENSES. Employee shall be reimbursed for all of his
actual out-of-pocket expenses incurred in the performance of his duties
hereunder, provided such expenses are acceptable to Employer, which approval
shall not be unreasonably withheld, for business related travel and
entertainment expenses, and that Employee shall submit to Employer reasonably
detailed receipts with respect thereto.
6. VACATION. Employee shall be entitled to receive four (4)
weeks paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
7. SECRECY. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer
<PAGE>
or (b) any trade secrets, new product developments, patents, programs or
programming, especially unique processes or methods.
8. COVENANT NOT TO COMPETE. Subject to, and limited by,
Section 10(b), Employee will not, at any time, anywhere in the world, during the
term of this Agreement, and for one (1) year thereafter, either directly or
indirectly, engage in, with or for any enterprise, institution, whether or not
for profit, business, or company, competitive with the business (as identified
herein) of Employer as such business may be conducted on the date thereof, as a
creditor, guarantor, or financial backer, stockholder, director, officer,
consultant, advisor, employee, member, inventor, producer, director, or
otherwise of or through any corporation, partnership, association, sole
proprietorship or other entity; provided, that an investment by Employee, his
spouse or his children is permitted if such investment is not more than four
percent (4%) of the total debt or equity capital of any such competitive
enterprise or business and further provided that said competitive enterprise or
business is a publicly held entity whose stock is listed and traded on a
national stock exchange or through the NASDAQ Stock Market. As used in this
Agreement, the business of Employer shall be deemed to include the development
and implementation of individualized television technology or programs.
9. TERMINATION.
a. TERMINATION BY EMPLOYER
(i) Employer may terminate this Agreement
upon written notice for Cause. For purposes hereof, "Cause" shall mean (A)
engaging by the Employee in conduct that constitutes activity in competition
with Employer; (B) the conviction of Employee for the commission of a felony;
and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 9(a)(i), Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date Employee receives the notice from the Board) to
correct the acts or omissions so complained of.
(ii) Employer may terminate Employee's
employment under this Agreement if, as a result of any physical or mental
disability, Employee shall fail or be unable to perform his duties under this
Agreement for any consecutive period of 90 days during any twelve-month period.
If Employee's employment is
<PAGE>
terminated under this Section 9(a)(ii): (A) for the first six months after
termination, Employee shall be paid 100% of his full compensation under Section
4(a) of this Agreement at the rate in effect on the date of termination, and in
each successive 12 month period thereafter Employee shall be paid an amount
equal to 67% of his compensation under Section 4(a) of this agreement at the
rate in effect on the date of termination; (B) Employer's obligation to pay life
insurance premiums on the policy referred to in Section 4(d) shall continue in
effect until five years after the date of termination; and (C) Employee shall
continue to be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit plans (including
profit sharing or pension plans) as Employee had been entitled to on the date of
termination. Any amounts payable by Employer to Employee under this paragraph
shall be reduced by the amount of any disability payments payable by or pursuant
to plans provided by Employer and actually paid to Employee.
(iii) This agreement automatically shall
terminate upon the death of Employee, except that Employee's estate shall be
entitled to receive any amount accrued under Section 4(a) and the pro-rata
amount payable under Section 4(e) for the period prior to Employee's death and
any other amount to which Employee was entitled of the time of his death.
b. TERMINATION BY EMPLOYEE
(i) Employee shall have the right to
terminate his employment under this Agreement upon 30 days' notice to Employer
given within 90 days following the occurrence of any of the following events (A)
through (D) or within three years following the occurrence of event (E):
(A) Employer acts to change the
geographic location of the performance of Employee's duties from the New York
Metropolitan area. For purposes of this Agreement, the New York Metropolitan
area shall be deemed to be the area within 30 miles of midtown Manhattan.
(B) A Material Reduction (as
hereinafter defined) in Employee's rate of base compensation, or Employee's
other benefits. "Material Reduction" shall mean a ten percent (10%)
differential;
(C) A failure by Employer to obtain
the assumption of this Agreement by any successor;
<PAGE>
(D) A material breach of this
Agreement by Employer, which is not cured within thirty (30) days of written
notice of such breach by Employer;
(E) A Change of Control.
(ii) Anything herein to the contrary
notwithstanding, Employee may terminate this Agreement upon thirty (30) days
written notice.
c. If Employer shall terminate Employee's employment
other than due to his death or disability or for Cause (as defined in Section
9(a)(i) of this Agreement), or if Employee shall terminate this Agreement under
Section 9(b)(i), Employer's obligations under Section 4 shall be absolute and
unconditional and not subject to any offset or counterclaim and Employee shall
continue to be entitled to receive all amounts provided for by Section 4 and all
additional employee benefits under Section 4 regardless of the amount of
compensation he may earn with respect to any other employment he may obtain.
10. CONSEQUENCES OF BREACH BY EMPLOYER;
EMPLOYMENT TERMINATION
a. If this Agreement is terminated pursuant to
Section 9(b)(i) hereof, or if Employer shall terminate Employee's employment
under this Agreement in any way that is a breach of this Agreement by Employer,
the following shall apply:
(i) Employee shall receive as a bonus, and
in addition to his salary continuation pursuant to Section 9.c., above, a cash
payment equal to the Employee's total base salary as of the date of termination
hereunder for the remainder of the term plus an additional amount to pay all
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination;
except that if this Agreement is terminated pursuant to Section 9.(b)(i)(E),
then Employee shall not be entitled to receive a bonus under this Section
10.a.(i) but shall instead receive a lump-sum payout of Employee's total base
salary for the remainder of the term plus an additional amount to pay all
federal, state and local income taxes thereon on a grossed-up basis as
heretofore provided, payable within 30 days of the date of such termination.
(ii) Employee shall be entitled to payment
of any previously declared bonus and additional compensation as provided in
Section 4(a), (b) and (e) above.
<PAGE>
b. In the event of termination of Employee's
employment pursuant to Section 9(b)(i) of this Agreement, the provisions of
Section 8 shall not apply to Employee.
11. REMEDIES
Employer recognizes that because of Employee's
special talents, stature and opportunities in the interactive television
industry, and because of the special creative nature of and compensation
practices of said industry and the material impact that individual projects can
have on an interactive television company's results of operations, in the event
of termination by Employer hereunder (except under Section 9(a)(i) or (iii), or
in the event of termination by Employee under Section 9(b)(i) before the end of
the agreed term, Company acknowledges and agrees that the provisions of this
Agreement regarding further payments of base salary, bonuses and the
exercisability of Rights constitute fair and reasonable provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts' Employee might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement.
12. EXCISE TAX. In the event that any payment or benefit
received or to be received by Employee in connection with a termination of his
employment with Employer would constitute a "parachute payment" within the
meaning of Code Section 280G or any similar or successor provision to 280G
and/or would be subject to any excise tax imposed by Code Section 4999 or any
similar or successor provision then Employer shall assume all liability for the
payment of any such tax and Employer shall immediately reimburse Employee on a
"grossed-up" basis for any income taxes attributable to Employee by reason of
such Employer payment and reimbursements.
13. ARBITRATION. Any controversies between Employer and
Employee involving the construction or application of any of the terms,
provisions or conditions of this Agreement, save and except for any breaches
arising out of Sections 7 and 8 hereof, shall on the written request of either
party served on the other be submitted to arbitration. Such arbitration shall
comply with and be governed by the rules of the American Arbitration
Association. An arbitration demand must be made within one (1) year of the date
on which the party demanding arbitration first had notice of the existence of
the claim to be arbitrated, or the right to arbitration along with such claim
shall be considered to have been waived. An arbitrator shall be selected
according to the procedures of the American Arbitration Association. The cost
<PAGE>
of arbitration shall be born by the losing party or in such proportions as the
arbitrator shall decide. The arbitrator shall have no authority to add to,
subtract from or otherwise modify the provisions of this Agreement, or to award
punitive damages to either party.
14. ATTORNEYS' FEES AND COSTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
15. ENTIRE AGREEMENT; SURVIVAL. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated herein and supersedes, effective as of the date hereof any prior
agreement or understanding between Employer and Employee with respect to
Employee's employment by Employer. The unenforceability of any provision of this
Agreement shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed by the
Employee and the Employer, or any waiver, change, discharge or modification as
sought. Waiver of or failure to exercise any rights provided by this Agreement
and in any respect shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9(a)(ii),
9(a)(iii), 9(c), 10, 11, 12, 13, 14, 17, 18 and 19 shall survive the termination
of this Agreement.
16. ASSIGNMENT. This Agreement shall not be assigned to other
parties.
17. GOVERNING LAW. This Agreement and all the amendments
hereof, and waivers and consents with respect thereto shall be governed by the
internal laws of the state of New York, without regard to the conflicts of laws
principles thereof.
18. NOTICES. All notices, responses, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
return receipt requested; or
<PAGE>
c. received by the addressee as sent be express
delivery service (receipt requested) in each case to the appropriate addresses,
telex numbers and telefax numbers as the party may designate to itself by notice
to the other parties:
(i) if to the Employer:
ACTV, Inc. and ACTV Net, Inc.
1270 Avenue of the Americas
New York, New York, 10020
Attention: Day Patterson
Telefax: (212) 459-9548
Telephone: (212) 262-2570
Gersten, Savage, Kaplowitz LLP
101 East 52nd Street
New York, New York 10022
Attention: Jay Kaplowitz, Esq.
Telefax: (212) 980-5192
Telephone: (212) 752-9700
(ii) if to the Employee:
Bruce Crowley
257 West 17th Street
New York, New York 10011
19. SEVERABILITY OF AGREEMENT. Should any part of this
Agreement for any reason be declared invalid by a court of competent
jurisdiction, such decision shall not affect the validity of any remaining
portion, which remaining provisions shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portions of this Agreement without including any such
part, parts or portions which may, for any reason, be hereafter declared
invalid.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the day and year first above written.
ACTV, INC.
By:
-------------------------
WILLIAM C. SAMUELS
Chairman
-------------------------
BRUCE CROWLEY
<PAGE>
Exhibit 10.44(a)1
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, between ACTV, Inc., a Delaware
corporation (the "Corporation") and William C. Samuels (the "Employee").
The Corporation desires to grant to the Employee the right and option to
purchase up to 1,473,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 1,473,000
vested Option Shares, excluding options previously exercised, at a purchase
price of $1.50 per Option Share (the "Option Price"). With respect to the
Option, the "Option Period" shall commence on the date hereof and terminate on
December 31, 2003.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the terms of
this Option Agreement shall be made on the Closing Date at the offices of the
Corporation. Delivery of the Stock certificate or other instrument registered in
the name of the Employee, evidencing the Option Shares being purchased on the
Closing Date, shall be made by the Corporation to the holder of this Option on
the Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any time during the
Option Period, there shall be any capital reorganization, reclassification of
Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which the Employee would have been entitled if the
Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option during the Option
Period shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. The Option Price shall be subject to adjustment from time to time as
follows:
(1) If, at any time during the Option Period, the number of shares of
Common Stock outstanding is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then,
immediately following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the
2
<PAGE>
Option Price shall be appropriately decreased so that the number of shares of
Common Stock issuable upon the exercise hereof shall be increased in proportion
to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of shares of
Common Stock outstanding is decreased by a combination of outstanding shares of
Common Stock, then, immediately following the record date for such combination,
the Option Price shall be appropriately increased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be decreased in
proportion to such decrease in outstanding shares.
SECTION 5. TERMINATION OF THE OPTIONS.
A. TERMINATION OF OPTIONS IN GENERAL. Subject to subsections (b) - (c) of
this Section, the Option granted hereby shall terminate and the Option shall no
longer be exercisable after of December 31, 2003.
B. OPTION RIGHTS UPON DISABILITY. If an Employee becomes disabled while
employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
C. DEATH OF THE OPTIONEE. In the event that an Employee shall die while he
is an employee of the Corporation and prior to his complete exercise of the
Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. PIGGYBACK REGISTRATION.
a. If, at any time commencing up to December 31, 2003, the Corporation
proposes to register any of its securities under the Securities Act (other than
in connection with a merger or pursuant to Form S-8 or other comparable Form) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of such registration statement, to the Employee of its intention to
do so. If the Employee notifies the Corporation within ten (10) days after
receipt of any such notice of his desire to include any Option Shares, owned by
him (on a fully vested basis) in such proposed registration statement, the
Corporation shall afford the Employee the opportunity to have any of his Option
Shares registered under such registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement; provided that (i) such
3
<PAGE>
inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the Corporation shall
have the right at any time after it shall have given written notice pursuant to
this Section 6 (irrespective of whether a written request for inclusion of any
Option Shares shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares under
this Agreement shall be paid by the Corporation, including, without limitation,
printing expenses, fees and disbursements of counsel for the Corporation,
expenses of any audits to which the Corporation shall agree or which shall be
necessary to comply with governmental requirements in connection with any such
registration, all registration and filing fees for the Option Shares under
federal and state securities laws, and expenses of complying with the securities
or blue sky laws of any jurisdictions; provided, however, the Corporation shall
not be liable for (a) any discounts or commissions to any underwriter; (b) any
stock transfer taxes incurred with respect to Option Shares sold in the offering
or (c) the fees and expenses of counsel for Employee, provided that the
Corporation will pay, the costs and expenses of Employee's counsel when the
Corporation's counsel is representing all selling security holders.
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. NOTICES. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
4
<PAGE>
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Day Patterson, Senior Vice President, General Counsel
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
William C. Samuels
139 East 19th Street
New York, NY 10003
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. ENTIRE AGREEMENT. This amended agreement which includes
December 31, 1999 updated information, contains the entire agreement between the
parties hereto with respect to the transactions contemplated herein and
supersedes all previously written or oral negotiations, commitments,
representations and agreements.
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or any provision
hereof, may not be amended, changed or modified without the prior written
consent of each of the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement to
be executed and delivered as of the date first above written.
ACTV, Inc.
By:
--------------------------------------
Day Patterson
Senior Vice President,
General Counsel
Agreed:
-----------------------------------
William C. Samuels
<PAGE>
Exhibit 10.44(b)1
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, between ACTV, Inc., a Delaware
corporation (the "Corporation") and David Reese (the "Employee").
The Corporation desires to grant to the Employee the right and option to
purchase up to 926,000 shares (the "Option Shares") of Common Stock (the "Common
Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 926,000
vested Option Shares, excluding options previously exercised, at a purchase
price of $1.50 per Option Share (the "Option Price"). With respect to the
Option, the "Option Period" shall commence on the date hereof and terminate on
December 31, 2003.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the terms of
this Option Agreement shall be made on the Closing Date at the offices of the
Corporation. Delivery of the Stock certificate or other instrument registered in
the name of the Employee, evidencing the Option Shares being purchased on the
Closing Date, shall be made by the Corporation to the holder of this Option on
the Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any time during the
Option Period, there shall be any capital reorganization, reclassification of
Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which the Employee would have been entitled if the
Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option during the Option
Period shall be adjusted for any stock dividend, subdivision, split-up or
combination of Common Stock.
b. The Option Price shall be subject to adjustment from time to time as
follows:
(1) If, at any time during the Option Period, the number of shares of
Common Stock outstanding is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then,
immediately following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the
2
<PAGE>
Option Price shall be appropriately decreased so that the number of shares of
Common Stock issuable upon the exercise hereof shall be increased in proportion
to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of shares of
Common Stock outstanding is decreased by a combination of outstanding shares of
Common Stock, then, immediately following the record date for such combination,
the Option Price shall be appropriately increased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be decreased in
proportion to such decrease in outstanding shares.
SECTION 5. TERMINATION OF THE OPTIONS.
A. TERMINATION OF OPTIONS IN GENERAL. Subject to subsections (b) - (c) of
this Section, the Option granted hereby shall terminate and the Option shall no
longer be exercisable after of December 31, 2003.
B. OPTION RIGHTS UPON DISABILITY. If an Employee becomes disabled while
employed by the Corporation or any affiliate or subsidiary, the Board of
Directors or the Stock Option Committee of the Corporation, will allow the
Option to be fully exercised, to the extent that the Employee was entitled to
exercise the Option at the date of his disability.
C. DEATH OF THE OPTIONEE. In the event that an Employee shall die while he
is an employee of the Corporation and prior to his complete exercise of the
Option, the Option may be exercised in whole or in part only: (i) by the
Employee's estate or on behalf of such person or persons to whom the Employee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Employee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option.
SECTION 6. PIGGYBACK REGISTRATION.
a. If, at any time commencing up to December 31, 2003, the Corporation
proposes to register any of its securities under the Securities Act (other than
in connection with a merger or pursuant to Form S-8 or other comparable Form) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of such registration statement, to the Employee of its intention to
do so. If the Employee notifies the Corporation within ten (10) days after
receipt of any such notice of his desire to include any Option Shares, owned by
him (on a fully vested basis) in such proposed registration statement, the
Corporation shall afford the Employee the opportunity to have any of his
3
<PAGE>
Option Shares registered under such registration statement, the Corporation
shall afford the Employee the opportunity to have any of his Option Shares
registered under such registration statement; provided that (i) such inclusion
does not pose any significant legal problem and (ii) if such registration
statement is filed pursuant to an underwritten public offering, the underwriter
approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the Corporation shall
have the right at any time after it shall have given written notice pursuant to
this Section 6 (irrespective of whether a written request for inclusion of any
Option Shares shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
c. Employee will cooperate with the Corporation in all respects in
connection with this Agreement, including, timely supplying all information
reasonably requested by the Corporation and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option Shares under
this Agreement shall be paid by the Corporation, including, without limitation,
printing expenses, fees and disbursements of counsel for the Corporation,
expenses of any audits to which the Corporation shall agree or which shall be
necessary to comply with governmental requirements in connection with any such
registration, all registration and filing fees for the Option Shares under
federal and state securities laws, and expenses of complying with the securities
or blue sky laws of any jurisdictions; provided, however, the Corporation shall
not be liable for (a) any discounts or commissions to any underwriter; (b) any
stock transfer taxes incurred with respect to Option Shares sold in the offering
or (c) the fees and expenses of counsel for Employee, provided that the
Corporation will pay, the costs and expenses of Employee's counsel when the
Corporation's counsel is representing all selling security holders.
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. NOTICES. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
4
<PAGE>
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Day Patterson, Senior Vice President, General Counsel
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
David Reese
30 Maclay Road
Montville, NJ 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. ENTIRE AGREEMENT. This amended agreement which includes
December 31, 1999 updated information, contains the entire agreement between the
parties hereto with respect to the transactions contemplated herein and
supersedes all previously written or oral negotiations, commitments,
representations and agreements.
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or any provision
hereof, may not be amended, changed or modified without the prior written
consent of each of the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement to
be executed and delivered as of the date first above written.
ACTV, Inc.
By:
------------------------------------------------------
Day Patterson
Senior Vice President,
General Counsel
Agreed:
--------------------------------------------------
David Reese
6
<PAGE>
Exhibit 10.44(c)1
OPTION AGREEMENT
OPTION AGREEMENT dated December 1, 1995, between ACTV, Inc., a Delaware
corporation (the "Corporation") and Bruce Crowley (the "Employee").
The Corporation desires to grant to the Employee the right and option
to purchase up to 564,000 shares (the "Option Shares") of Common Stock (the
"Common Stock"), of the Corporation, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. Subject to Section 5 hereof, the Corporation hereby grants to the
Employee an option (the "Option") to purchase from the Corporation 564,000
vested Option Shares, excluding options previously exercised, at a purchase
price of $1.50 per Option Share (the "Option Price"). With respect to the
Option, the "Option Period" shall commence on the date hereof and terminate on
December 31, 2003.
b. The Option may be exercised by the Employee by delivery to the
Corporation, at any time commencing one year from the date hereof, of a written
notice (the "Option Notice"), which Option Notice shall state the Employee's
intention to exercise the Option, the date on which the Employee proposes to
purchase the Option Shares (the "Closing Date") and the number of Option Shares
to be purchased on the Closing Date, which Closing Date shall be no later than
30 days nor earlier than 10 days following the date of the Option Notice. Upon
receipt by the Corporation of an Option Notice from the Employee, the Employee
shall be obligated to purchase that number of Option Shares to be purchased on
the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired pursuant to the
terms of this Option Agreement shall be made on the Closing Date at the offices
of the Corporation. Delivery of the Stock certificate or other instrument
registered in the name of the Employee, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Employee
hereby represents and warrants to the Corporation that in the event the Employee
acquires any Option Shares, such Option Shares will be acquired for his own
account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any time during
the Option Period, there shall be any capital reorganization, reclassification
of Common Stock (other than a change in par value or from par value to nor par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which the Employee would have been entitled if the
Employee had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 3 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option during
the Option Period shall be adjusted for any stock dividend, subdivision,
split-up or combination of Common Stock.
b. The Option Price shall be subject to adjustment from time
to time as follows:
(1) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, immediately following the record date fixed for the determination
of holders of shares of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the
2
<PAGE>
Option Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon the exercise hereof shall be increased
in proportion to such increase in outstanding shares.
(2) If, at any time during the Option Period, the number of
shares of Common Stock outstanding is decreased by a combination of outstanding
shares of Common Stock, then, immediately following the record date for such
combination, the Option Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to subsections
(b) - (c) of this Section, the Option granted hereby shall terminate and the
Option shall no longer be exercisable after of December 31, 2003.
b. OPTION RIGHTS UPON DISABILITY. If an Employee becomes
disabled while employed by the Corporation or any affiliate or subsidiary, the
Board of Directors or the Stock Option Committee of the Corporation, will allow
the Option to be fully exercised, to the extent that the Employee was entitled
to exercise the Option at the date of his disability.
c. DEATH OF THE OPTIONEE. In the event that an Employee shall
die while he is an employee of the Corporation and prior to his complete
exercise of the Option, the Option may be exercised in whole or in part only:
(i) by the Employee's estate or on behalf of such person or persons to whom the
Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option.
SECTION 6. PIGGYBACK REGISTRATION.
a. If, at any time commencing up to December 31, 2003, the
Corporation proposes to register any of its securities under the Securities Act
(other than in connection with a merger or pursuant to Form S-8 or other
comparable Form) it will give written notice by registered mail, at least thirty
(30) days prior to the filing of such registration statement, to the Employee of
its intention to do so. If the Employee notifies the Corporation within ten (10)
days after receipt of any such notice of his desire to include any Option
Shares, owned by him (on a fully vested basis) in such proposed registration
statement, the Corporation shall afford the Employee the opportunity to have any
of his Option Shares registered under such registration statement, the
Corporation shall afford the Employee the opportunity to have any of his
3
<PAGE>
Option Shares registered under such registration statement; provided that (i)
such inclusion does not pose any significant legal problem and (ii) if such
registration statement is filed pursuant to an underwritten public offering, the
underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6, the
Corporation shall have the right at any time after it shall have given written
notice pursuant to this Section 6 (irrespective of whether a written request for
inclusion of any Option Shares shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in all
respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the Option
Shares under this Agreement shall be paid by the Corporation, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This Agreement
(including the Option) and all rights hereunder shall not be transferable at any
time without the prior written consent of the Corporation. This Agreement and
all the rights hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and transferees.
SECTION 8. NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
4
<PAGE>
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Day Patterson, Senior Vice President, General
Counsel
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
Bruce Crowley
257 west 17th Street
New York, NY 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York.
SECTION 10. ENTIRE AGREEMENT. This amended agreement which includes
December 31, 1999 updated information, contains the entire agreement between the
parties hereto with respect to the transactions contemplated herein and
supersedes all previously written or oral negotiations, commitments,
representations and agreements.
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or any
provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
----------------------------
Day Patterson
Senior Vice President,
General Counsel
Agreed:
--------------------------
Bruce J. Crowley
<PAGE>
Exhibit 10.48.1
ACTV, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January 1, 1999, and amended as of
January 1, 2000, by and between ACTV, INC., a Delaware corporation, having an
office at 1270 Avenue of the Americas, Suite 2401, New York, New York 10020
(hereinafter referred to as "Employer"), and CHRISTOPHER C. CLINE, an individual
residing at 514 West End Avenue, New York, New York 10024 (hereinafter referred
to as "Employee")
W I T N E S S E T H:
WHEREAS, Employer employs, and desires to continue to employ,
Employee as its Senior Vice President - New Business Development and Finance and
Chief Financial Officer; and
WHEREAS, Employee is willing to continue to be employed as, and is
willing to continue to perform the duties of, the Senior Vice President - New
Business Development and Finance and Chief Financial Officer of Employer in the
manner provided for herein and upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. Employment by ACTV, Inc. Employer hereby employs Employee as
Senior Vice President - New Business Development and Finance and Chief Financial
Officer of Employer.
2. Term. Subject to Section 9 below, the term of this Agreement
shall commence on January 1, 1999 and end on December 31, 2004. Each 12-month
period from January 1st through December 31st during the term hereof shall be
referred to as an "Annual Period." During the term hereof, Employee shall,
whether in the foregoing position or in such other position as Employer may then
be employing him, devote substantially all of his business time and efforts to
Employer and its subsidiaries and affiliates.
<PAGE>
3. Duties. The Employee shall perform any and all duties and shall
have any and all powers as may be prescribed by Employer's Chairman and Chief
Executive Officer and shall be available to confer and consult with and advise
the officers and directors of Employer at such times that may be required by
Employer. Employee shall report directly and solely to the Chairman or his
designee.
4. Compensation.
a. (i) Employee shall be paid a minimum of $150,000 for the
initial Annual Period, commencing January 1, 1999, and shall be paid a minimum
of $200,000 for each subsequent Annual Period, commencing January 1, 2000.
Employee shall be paid periodically in accordance with the policies of the
Employer during the term of this Agreement, but not less than monthly.
(ii) Employee is eligible for bonuses, if any, which
will be determined and paid in accordance with policies set from time to time by
the Board.
(iii) Employee shall be entitled to a leased car of his
choice, the cost of which shall reduce the total cash compensation paid under
section 4 (a) (i)
b. (i) In the event of a "Change of Control" whereby:
(A) A person (other than a person who is an officer or a
Director of Employer on the effective date hereof) including a "group" as
defined in Section 13(d) (3) of the Securities Exchange Act of 1934, becomes, or
obtains the right to become, the beneficial owner of Employer securities having
30% or more of the combined voting power of then outstanding securities of the
Employer that may be cast for the election of directors of the Employer;
(B) At any time, a majority of the Board-nominated slate
of candidates for the Board is not elected;
(C) Employer consummates a merger in which it is not the
surviving entity;
(D) Substantially all Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or
liquidation of Employer; then
<PAGE>
(ii) (A) All stock options, warrants and stock
appreciation rights ("Rights") granted by Employer to Employee under any plan or
otherwise prior to the effective date of the Change of Control, shall become
vested, accelerate and become immediately exercisable; at an exercise price of
10(cent) per stock appreciation right if applicable; and in addition the
employee, at his option, shall receive a special compensation payment for the
exercise cost of all vested options upon exercising those options any time
within twelve months after the effective date of the change of control, adjusted
for any stock splits and capital reorganizations having a similar effect
subsequent to the effective date hereof. In the event Employee owns or is
entitled to receive any unregistered securities of Employer, then Employer shall
use its best efforts to effect the registration of all such securities as soon
as practicable, but no later than 120 days after the effective date of the
registration statement; provided, however, that such period may be extended or
delayed by Employer for one period of up to 60 days if, upon the advice of
counsel at the time such registration is required to be filed, or at the time
Employer is required to exercise its best efforts to cause such registration
statement to become effective, such delay is advisable and in the best interests
of Employer because of the existence of non-public material information, or to
allow Employer to complete any pending audit of its financial statements;
(B) If upon said Change of Control, (i) a new
Chief Executive Officer of Employer is appointed and (ii) Employee is not
retained in his immediately prior position or a substantially similar position
with Employer or the surviving entity, as applicable, then in addition, Employee
shall be eligible to receive a one-time bonus, equal on an after-tax basis to
his then current annual base salary. To effectuate this provision, the bonus
shall be "grossed-up" to include the amount necessary to reimburse Employee for
his federal, state and local income tax liability on the bonus and on the
"gross-up" at the respective effective marginal tax rates. Said bonus shall be
paid within thirty (30) days of the Change of Control.
c. Employer shall include Employee in its health insurance
program available to Employer's executive officers.
d. After January 1, 2000, Employer shall maintain a life,
accidental death and dismemberment insurance policy on Employee for the benefit
of a beneficiary named by Employee in an amount not less than $750,000.
Ownership of the policy shall be assigned to Employee upon termination of
Employee's employment under this Agreement.
<PAGE>
e. Employee shall also be entitled to participate pari passu
in any other program established by Employer pursuant to which any executive
officers receive a share of the profits of Employer.
f. Employee shall have the right to participate in any other
employee benefit plans established by Employer.
g. Unless a pre-existing plan of Employer expressly forbids
it, all Rights which may become exercisable during the term hereof shall be paid
for in cash only if Employee so elects, otherwise they may be paid for:
(i) by the transfer by Employee to Employer of so much of
Employee's Rights which, when valued at the highest trading price of the
underlying securities of Employer during the previous six months, will offset
the price of the Rights then being exercised;
(ii) by means of a non-recourse Note with interest at the
lowest rate, it any, required to be charged by any governmental authority, to
accrue and become due and payable with the principal, in an amount no greater
than the exercise price, given by Employee to Employer and secured solely by the
shares of stock being paid for thereby, which Note shall become due and payable
at the earlier of the expiration hereof or, on a pro rata basis, the sale by
Employee of all or part of the Rights or underlying stock which constitute
security for the Note; or
(iii) by any combination of cash and (ii) or (iii), above.
5. Expenses. Employee shall be reimbursed for all of his actual
out-of-pocket expenses incurred in the performance of his duties hereunder,
provided such expenses are acceptable to Employer, which approval shall not be
unreasonably withheld, for business related travel and entertainment expenses,
and that Employee shall submit to Employer reasonably detailed receipts with
respect thereto.
6. Vacation. Employee shall be entitled to receive three (3) weeks
paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already
<PAGE>
constituting information available to the public) concerning (a) internal
affairs or proprietary business operations of Employer or (b) any trade secrets,
new product developments, patents, programs or programming, especially unique
processes or methods.
8. Covenant Not to Compete. Employee acknowledges and confirms that
the Company is placing its confidence and trust in Employee. Accordingly,
Employee covenants and agrees that he will not, during the term of his
employment, and for a period of one (1) year thereafter, either directly or
indirectly, engage in any business, either directly or indirectly (whether as a
creditor, guarantor, financial backer, stockholder, director, officer,
consultant, advisor, employee, member, inventor, producer, or otherwise) , with
or for any company, enterprise, institution, organization or other legal entity
(whether a sole proprietorship, a corporation, a partnership, a limited
liability company, an association, or otherwise, and whether or not for profit),
which is in competition with the ACTV Business (as defined herein) . As used in
this Agreement, the term "ACTV Business" shall mean the invention, development,
application, implementation, extension, operation and/or management by ACTV
and/or any ACTV affiliate of any invention, software, technology, business,
service or product of ACTV and/or any ACTV affiliate, including without
limitation the convergence and digital television technologies commonly referred
to by ACTV as "Individualized Television", "HyperTV" and "eSchool"
Furthermore, Employee will not during the term of his
employment, and for a period of one (1) year thereafter, individually or through
any entity, directly or indirectly, become an employee, consultant, advisor,
director, officer, producer, partner or joint or co-venturer of or to, or enter
into any contract, agreement or arrangement with, any entity or business venture
of any kind to or of which ACTV and/or any ACTV affiliate is a licensor or
licensee or with which ACTV and/or any ACTV affiliate is a joint or co-venturer,
partner or otherwise engaged in any on-going business relationship or
discussions or negotiations with a view to entering into such a relationship to
provide services or products, without the express prior written consent of ACTV.
Employee hereby acknowledges and agrees that the ACTV Business
extends throughout the United States, and that --given the nature of the ACTV
Business -- ACTV and/or any ACTV affiliate can be harmed by competitive conduct
anywhere in the United States. Employee therefore agrees that the covenants not
to compete contained in this Section 8 shall be applicable in and throughout the
United States, as well as throughout such additional non-U.S. areas in which
ACTV and/or any ACTV affiliate may
<PAGE>
be (or has prepared written plans to be) doing business as of the date of
termination of Employee's employment. Employee further warrants and represents
that, because of his varied skill and abilities, he does not need to compete
with the ACTV Business, and that this Agreement will therefore not prevent him
from earning a livelihood. Employee acknowledges that the restrictions contained
in this Section 8 constitute reasonable protections for ACTV and its affiliates
in light of the foregoing and in light of the promises to Employee contained
herein. Employee and the Company hereby agree that, if the period of time or the
scope of the restrictive covenant not to compete contained in this Section 8
shall be adjudged unreasonable by any proper arbiter of a dispute hereunder,
then the period of time and/or scope shall be reduced accordingly, so that this
covenant may be enforced in such scope and during such period of time as is
judged by such arbiter to be reasonable.
9. Termination.
(i) For Cause. Employer may terminate this Agreement
upon written notice for Cause. For purposes hereof, "Cause" shall mean (A)
engaging by the Employee in conduct that constitutes activity in competition
with Employer; (B) the conviction of Employee for the commission of a felony;
and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 9(a) (i) Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date Employee receives the notice from the Board) to
correct the acts or omissions so complained of.
(ii) Without Cause. Employer may terminate this
Agreement without cause with no notice to Employee. In the event Employee is
terminated without cause, Employee shall receive severance pay equal to six
months.
(iii) Disability. Employer may terminate Employee's
employment under this Agreement if, as a result of any physical or mental
disability, Employee shall fail or be unable to perform his duties under this
Agreement for any consecutive period of 90 days during any twelve-month period.
If Employee's employment is terminated under this Section 9(a) (iii) (A) for the
first six months after termination, Employee shall be paid 100% of his full
compensation under Section 4(a) of this Agreement at the rate in effect on the
date of termination, and in each successive 12 month period thereafter Employee
shall be paid an amount equal to 67% of his compensation under Section
<PAGE>
4(a) of this agreement at the rate in effect on the date of termination; (B)
Employer's obligation to pay life insurance premiums on the policy referred to
in Section 4(d) shall continue in effect until five years after the date of
termination; and (C) Employee shall continue to be entitled, insofar as is
permitted under applicable insurance policies or plans, to such general medical
and employee benefit plans (including profit sharing or pension plans) as
Employee had been entitled to on the date of termination. Any amounts payable by
Employer to Employee under this paragraph shall be reduced by the amount of any
disability payments payable by or pursuant to plans provided by Employer and
actually paid to Employee.
(iv) Death. This Agreement shall automatically terminate
upon the death of Employee, except that Employee's estate shall be entitled to
receive any amount accrued under Section 4(a) and the pro-rata amount payable
under Section 4(e) for the period prior to Employee's death and any other amount
to which Employee was entitled of the time of his death.
10. Arbitration. Any controversies between Employer and Employee
involving the construction or application of any of the terms, provisions or
conditions of this Agreement, save and except for any breaches arising out of
Sections 7 and 8 hereof, shall on the written request of either party served on
the other be submitted to arbitration. Such arbitration shall comply with and be
governed by the rules of the American Arbitration Association. An arbitration
demand must be made within one (1) year of the date on which the party demanding
arbitration first had notice of the existence of the claim to be arbitrated, or
the right to arbitration along with such claim shall be considered to have been
waived. An arbitrator shall be selected according to the procedures of the
American Arbitration Association. The cost of arbitration shall be born by the
losing party or in such proportions as the arbitrator shall decide. The
arbitrator shall have no authority to add to, subtract from or otherwise modify
the provisions of this Agreement, or to award punitive damages to either party.
11. Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
12. Entire Agreement; Survival. This Agreement contains the entire
agreement between the parties with respect to Employer's employment of Employee
and supersedes, effective as of the date hereof any prior agreement or
understanding between
<PAGE>
Employer and Employee with respect to Employee's employment by Employer (other
than that certain Confidentiality/Non-Disclosure Agreement dated as of November
1, 1993 between Employer and Employee, which agreement shall continue in full
force and effect in accordance with the respective terms thereof) . The
unenforceability of any provision of this Agreement shall not affect the
enforceability of any other provision. This Agreement may not be amended except
by an agreement in writing signed by the Employee and the Employer, or any
waiver, change, discharge or modification as sought. Waiver of or failure to
exercise any rights provided by this Agreement and in any respect shall not be
deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9 (a) (iii), 9(a) (iv),
14, 15 and 16 shall survive the termination of this Agreement.
13. Assignment. This Agreement shall not be assigned to other
parties.
14. Governing Law. This Agreement and all the amendments hereof, and
waivers and consents with respect thereto shall be governed by the internal laws
of the state of New York, without regard to the conflicts of laws principles
thereof.
15. Notices. All notices, responses, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been given
when
a. delivered by hand;
b. sent be telex or telefax, (with receipt confirmed),
provided that a copy is simultaneously mailed by registered or certified mail,
return receipt requested; or
c. received by the addressee as sent be express delivery
service (receipt requested), in each case to the appropriate addresses, telex
numbers and telefax numbers as the party may designate to itself by notice to
the other parties:
(i) if to the Employer:
ACTV, Inc.
1270 Avenue of the Americas, Suite 2401
New York, New York, 10020
Attention: William C. Samuels
Telefax: (212) 459-9548
Telephone: (212) 217-1600
<PAGE>
With a copy to:
ACTV, Inc.
1270 Avenue of the Americas, Suite 2401
New York, New York, 10020
Attention: Day L. Patterson - Law Dept.
Telefax: (212) 459-9548
Telephone: (212) 217-1600
(ii) if to the Employee:
Mr. Christopher C. Cline
514 West End Avenue, #7A
New York, NY 10024
16. Severability of Agreement. Should any part of this Agreement for
any reason be declared invalid by a court of competent jurisdiction, such
decision shall not affect the validity of any remaining portion, which remaining
[ILLEGIBLE] shall remain in full force and effect as if this [ILLEGIBLE] been
executed with the invalid portion thereof eliminate [ILLEGIBLE] is hereby
declared the intention of the parties that [ILLEGIBLE] have executed the
remaining portions of this Agreement [ILLEGIBLE] including any such part, parts
or portions which may, [ILLEGIBLE] reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the undersigned have execu[ILLEGIBLE] agreement
as of the day and year first above written.
ACTV, INC.
By: /s/ William C. Samuels
--------------------------
William C. Samuels,
Chairman and CEO
/s/ Christopher C. Cline
------------------------------
CHRISTOPHER C. CLINE
<PAGE>
Exhibit 10.49
AMENDMENT
DATED AS OF DECEMBER 4, 1999
TO
HYPERTV NETWORKS, INC.
OPTION AGREEMENTS
---------------------------------
This Amendment is dated as of December 4, 1999 (the "Amendment") and amends all
of those certain Option Agreements (collectively, the "Option Agreements")
between HyperTV Networks, Inc. (formerly ACTV Net, Inc.), a Delaware corporation
(the "Com-pany"), and each and any of the seven individuals named on the
signature pages hereof (each a "Holder" and collectively the "Holders"), of
which Option Agreements four are dated as of March 14, 1997 and five are dated
as of October 1, 1997.
WHEREAS, the Company has, by means of the foregoing separate Option Agreements,
granted to each Holder the right and option (the "Option") to purchase such
number of shares (the "Option Shares") of the Class B Common Stock, par value
$.01 per share (the "Class B Common Stock"), of the Company as is specified in
such Holder's respective Option Agreement(s), on the terms and conditions set
forth therein;
WHEREAS, the Company's parent corporation, ACTV, Inc. ("ACTV"), is presently
pur-suing an underwritten public offering (the "Public Offering") of its common
stock (the "Common Stock"), and as a holder of securities of ACTV or of one of
its operating sub-sidiaries each Holder has an interest in the successful
completion of the Public Offering; and
WHEREAS, the parties to the Option Agreements wish to amend the terms and
condi-tions thereof;
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. AMENDMENTS. Each of the Option Agreements is hereby amended as follows:
A. The second sentence of subsection 1(a) of each of the four Option Agreements
dated as of March 14, 1997, and the second sentence of subsection 1(a) of such
of the two Op-tion Agreements dated as of October 1, 1997 that presently include
the clause "subject to subsection 1(d) and Section 6" in that second sentence,
are hereby amended by deleting therefrom the clause "subject to subsection 1(d)
and Section 6" and by substituting in place thereof the clause "subject to
Section 6", as a consequence of which amendment that second sentence shall
commence with the words "The Holder's right and option to purchase the Option
Shares shall vest, subject to Section 6, as follows:".
<PAGE>
- 2 -
B. Subsection 1(b) of each of the four Option Agreements dated as of March 14,
1997, and subsection 1(b) of each of such two of the Option Agreements dated as
of October 1, 1997 that contain a Section 6 entitled "Termination of
Employment", is hereby amended by deleting from the beginning of the first
sentence thereof the clause "Except as limited by Section 5," and by
substituting in place thereof the clause "Except as limited by sub-section 1(d),
Section 5 and Section 6,"; and subsection 1(b) of each of the remaining three
Option Agreements dated as of October 1, 1997 (none of which three Option
Agreements contains a Section 6 entitled "Termination of Employment") is hereby
amended by deleting from the beginning of the first sentence thereof the clause
"Except as limited by Section 5," and by substituting in place thereof the
clause "Except as limited by subsection 1(d) and Section 5,".
C. The four Option Agreements dated as of March 14, 1997, and such two of the
Option Agreements dated as of October 1, 1997 that contain a subsection 1(d),
are each hereby amended by deleting therefrom subsection 1(d) in its entirety,
and substituting in place thereof a new subsection 1(d), such new subsection
1(d) to be and read as follows; and such three of the Option Agreements dated as
of October 1, 1997 that presently omit any subsection 1(d) are each hereby
further amended by adding and inserting a new subsec-tion 1(d) therein, such new
subsection 1(d) to be and read as follows:
d. The Option may only be exercised upon a "Change in Control" (as such
term is hereinafter defined). In the event that any other provision of
this Option Agree-ment shall conflict in any respect with the foregoing
restriction upon the exercise of the Option, the foregoing restriction
shall be controlling. For purposes hereof, a "Change in Control" shall
be deemed to have occurred upon either one of the following events:
(i) the Board of Directors of ACTV, Inc. ("ACTV") shall
determine that any person (other than a person who is an
officer or director of ACTV on the effective date hereof),
including any "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, has acquired, or is seek-ing
to acquire, either (a) ACTV securities having 20% or more of
the com-bined voting power of the then outstanding voting
securities of ACTV or (b) the right to acquire ACTV securities
having 20% or more of the combined voting power of the then
outstanding voting securities of ACTV; and, as to either (a)
or (b), such person or group is deemed, in the sole discretion
of a majority of the independent members of the ACTV Board of
Directors, (x) to have interests which are either not
agreeable, compati-ble or in accordance with, or which are in
conflict with, the interests of the other holders of the
voting securities of ACTV or (y) is not a suitable ac-quiror
because such person or group is unlikely to further ACTV's
policy of acting as a broad licensor and/or joint venturer of
ACTV's intellectual property, including ACTV's patents, and
ACTV's related technology; or
<PAGE>
- 3 -
(ii) a majority of the management-nominated slate of
candidates for the ACTV Board of Directors shall not have been
elected.
D. The four Option Agreements dated as of March 14, 1997, and such two of the
Option Agreements dated as of October 1, 1997 that contain a Section 6 entitled
"Termination of Employment", are each hereby amended by deleting from Section 6
thereof the words "In the event that the Holder is terminated from employment
with the ACTV Group for any reason during the Option Period, then (i)" and by
substituting in place thereof the words "In the event that the Holder is
terminated from employment with the ACTV Group for any reason during the Option
Period, then upon a Change in Control (i)".
2. "SUNSET" CLAUSE. The parties hereto hereby expressly agree that this
Amendment shall expire and be deemed null and void AB INITIO, and the amendment
effected by Section 1 hereof shall be considered to be of no force and effect
such that the original language of Section 1(d) of the Option Agreements shall
be restored, in the event that a registration statement under the Securities Act
of 1933, as amended, in connection with the Public Offering is not declared
effective by the Securities and Exchange Commission by the date 120 calendar
days after the date hereof.
3. SCOPE LIMITED. Except as expressly contemplated by Section 1 hereof, the
Option Agreements are not amended or restated, and the interpretation or
operation of any provision thereof is not affected or amended, in any way by
this Amendment.
4. DEFINITIONS IN ORIGINAL. The capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Option Agreements.
5. EFFECT OF PRIOR AMENDMENT. The prior amendment to the Option Agreements, that
prior amendment being Amendment No.1 dated as of December 3, 1999, is hereby
termi-nated and rendered of no force or effect, and is hereby superseded in its
entirety by this Amendment, effective as of the date hereof.
6. AMENDMENT BINDING. This instrument may be executed in one or more
counterparts, all of which taken together shall be deemed to constitute one and
the same instrument, and shall be binding upon each Holder that shall execute
any such counterpart, and each such Holder's respective successors and assigns,
without regard to whether or not all (or any) of the other Holders shall have
theretofore executed (or shall thereafter execute) any such counterpart.
[SIGNATURES ON NEXT PAGE.]
<PAGE>
- 4 -
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first set forth above.
ACTV ENTERTAINMENT, INC. THE HOLDERS
By:
--------------------------------- -------------------------------
Day L. Patterson, Cindi Baker
Sr. Vice President
-------------------------------
Christopher C. Cline
-------------------------------
R. James Crook
-------------------------------
Bruce J. Crowley
-------------------------------
David Reese
-------------------------------
William C. Samuels
-------------------------------
Craig D. Ullman
<PAGE>
Exhibit 10.50
AMENDMENT
DATED AS OF DECEMBER 4, 1999
TO
ACTV ENTERTAINMENT, INC.
OPTION AGREEMENTS
---------------------------------
This Amendment is dated as of December 4, 1999 (the "Amendment") and amends all
of those certain Option Agreements (collectively, the "Option Agreements")
between ACTV Entertainment, Inc., a Delaware corporation (the "Company"), and
each and any of the seven individuals named on the signature pages hereof (each
a "Holder" and collectively the "Holders"), of which Option Agreements four are
dated as of March 14, 1997 (certain of which were amended January 14, 1998), one
is dated as of January 14, 1998, and two are dated as of January 15, 1998.
WHEREAS, the Company has, by means of the foregoing separate Option Agreements,
granted to each Holder the right and option (the "Option") to purchase such
number of shares (the "Option Shares") of the Class B Common Stock, par value
$.01 per share (the "Class B Common Stock"), of the Company as is specified in
such Holder's respective Option Agreement, on the terms and conditions set forth
therein;
WHEREAS, the Company's parent corporation, ACTV, Inc. ("ACTV"), is presently
pur-suing an underwritten public offering (the "Public Offering") of its common
stock (the "Common Stock"), and as a holder of securities of ACTV or of one of
its operating sub-sidiaries each Holder has an interest in the successful
completion of the Public Offering; and
WHEREAS, the parties to the Option Agreements wish to amend the terms and
condi-tions thereof;
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. AMENDMENTS. Each of the Option Agreements is hereby amended as follows:
A. Subsection 1(a) of each of the four Option Agreements dated as of March 14,
1997 (certain of which were amended January 14, 1998) and of the one Option
Agreement dated as of January 14, 1998 is hereby amended by deleting from the
second sentence thereof the clause "subject to subsection 1(d) and Section 6",
and by substituting in place thereof the clause "subject to Section 6", as a
consequence of which amendment that second sentence shall commence with the
words "The Holder's right and option to purchase the Option Shares shall vest,
subject to Section 6, as follows:".
<PAGE>
- 2 -
B. Subsection 1(b) of each of the four Option Agreements dated as of March 14,
1997 (certain of which were amended January 14, 1998) and of the one Option
Agreement dated as of January 14, 1998 is hereby amended by deleting from the
beginning of the first sentence thereof the clause "Except as limited by Section
5," and by substituting in place thereof the clause "Except as limited by
subsection 1(d), Section 5 and Section 6,"; and subsection 1(b) of each of the
two Option Agreements dated as of January 15, 1998 is hereby amended by deleting
from the beginning of the first sentence thereof the clause "Except as limited
by Section 5," and by substituting in place thereof the clause "Except as
limited by subsection 1(d) and Section 5,".
C. Each of the four Option Agreements dated as of March 14, 1997 (whether or not
amended January 14, 1998), and the one Option Agreement dated as of January 14,
1998, is hereby amended by deleting therefrom subsection 1(d) in its entirety,
and inserting in place thereof a new subsection 1(d), such new subsection 1(d)
to be and read as follows, and each of the two Option Agreements dated as of
January 15, 1998 is hereby further amended by adding and inserting a new
subsection 1(d) therein, such new subsection 1(d) to be and read as follows:
d. The Option may only be exercised upon a "Change in Control" (as such
term is hereinafter defined). In the event that any other provision of
this Option Agree-ment shall conflict in any respect with the foregoing
restriction upon the exercise of the Option, the foregoing restriction
shall be controlling. For purposes hereof, a "Change in Control" shall
be deemed to have occurred upon either one of the following events:
(i) the Board of Directors of ACTV, Inc. ("ACTV") shall
determine that any person (other than a person who is an
officer or director of ACTV at the date hereof), including any
"group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, has acquired, or is seeking to ac-quire,
either (a) ACTV securities having 20% or more of the combined
voting power of the then outstanding voting securities of ACTV
or (b) the right to acquire ACTV securities having 20% or more
of the combined voting power of the then outstanding voting
securities of ACTV; and, as to either (a) or (b), such person
or group is deemed, in the sole discretion of a majority of
the independent members of the ACTV Board of Directors, (x) 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
ACTV or (y) is not a suitable acquiror because such person or
group is unlikely to further ACTV's policy of acting as a
broad licensor and/or joint venturer of ACTV's intellectual
property, in-cluding ACTV's patents, and ACTV's related
technology; or
(ii) a majority of the management-nominated slate of
candidates for the ACTV Board of Directors shall not have been
elected.
<PAGE>
- 3 -
D. Section 6 of each of the four Option Agreements dated as of March 14, 1997
(certain of which were amended January 14, 1998) and of the one Option Agreement
dated as of January 14, 1998 is hereby amended by deleting therefrom the words
"In the event that the Holder is terminated from employment with the ACTV Group
for any reason during the Option Period, then (i)" and by substituting in place
thereof the words "In the event that the Holder is terminated from employment
with the ACTV Group for any reason during the Option Period, then upon a Change
in Control (i)".
2. "SUNSET" CLAUSE. The parties hereto hereby expressly agree that this
Amendment shall expire and be deemed null and void AB INITIO, and the amendment
effected by Section 1 hereof shall be considered to be of no force and effect
such that the original language of Section 1(d) of the Option Agreements shall
be restored, in the event that a registration statement under the Securities Act
of 1933, as amended, in connection with the Public Offering is not declared
effective by the Securities and Exchange Commission by the date 120 calendar
days after the date hereof.
3. SCOPE LIMITED. Except as expressly contemplated by Section 1 hereof, the
Option Agreements are not amended or restated, and the interpretation or
operation of any provision thereof is not affected or amended, in any way by
this Amendment.
4. DEFINITIONS IN ORIGINAL. The capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Option Agreements.
5. EFFECT OF PRIOR AMENDMENT. The prior amendment to the Option Agreements, that
prior amendment being Amendment No.1 dated as of December 3, 1999, is hereby
termi-nated and rendered of no force or effect, and is hereby superseded in its
entirety by this Amendment, effective as of the date hereof.
6. AMENDMENT BINDING. This instrument may be executed in one or more
counterparts, all of which taken together shall be deemed to constitute one and
the same instrument, and shall be binding upon each Holder that shall execute
any such counterpart, and each such Holder's respective successors and assigns,
without regard to whether or not all (or any) of the other Holders shall have
theretofore executed (or shall thereafter execute) any such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first set forth above.
ACTV ENTERTAINMENT, INC. THE HOLDERS
By:
--------------------------- --------------------------------
Name: David Alworth
Title:
<PAGE>
- 4 -
-------------------------------
Richard Barron
-------------------------------
Christopher C. Cline
-------------------------------
Bruce J. Crowley
-------------------------------
Brent Imai
-------------------------------
David Reese
-------------------------------
William C. Samuels
<PAGE>
Exhibit 10.51
OPTION AGREEMENT
OPTION AGREEMENT dated February 21, 1998, between ACTV, Inc.,
a Delaware corporation (the "Corporation") and William C. Samuels (the
"Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 1,362,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. Subject to Section 5 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 1,362,000 Option Shares, at a purchase price of $1.60 per Option
Share (the "Option Price"). The Employee's right and option to purchase the
Option Shares shall vest annually commencing January 1, 2000 until January 1,
2002, with respect to installments of 454,000 Option Shares at the Option Price,
so long as the Employee is employed by the Corporation. Said right shall be
cumulative so that as of January 1, 2002, Optionee shall have the fully vested
right to purchase 1,362,000 Option Shares. In the event that the Employee's
employment with the Corporation terminates prior to January 1 of any year, the
Employee shall not have the right or option to purchase any part of the
installment of 454,000 Option Shares that would have otherwise vested on such
January 1. With respect to the Option, the "Option Period" shall commence on the
date hereof and terminate on December 31, 2006.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing
<PAGE>
Date, shall be made by the Corporation to the holder of this Option on the
Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option
during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock
b. If, at any time through December 31, 2001 of the
Option Period, the Corporation issues any previously unissued Common Stock over
and beyond the number of shares outstanding February 21, 1998, then the number
of shares subject to the Option shall be adjusted such that the holder thereof
shall have the right to exercise the Option for the same percentage of the
issued and outstanding Common Stock of the
2
<PAGE>
Corporation as he held option shares on February 21, 1998.
c. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, immediately following the record date fixed for the
determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period, the
number of shares of Common Stock outstanding is decreased by a combination of
outstanding shares of Common Stock, then, immediately following the record date
for such combination, the Option Price shall be appropriately increased so that
the number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to
subsections (b) - (c) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2006, except in the case of death or disability.
b. OPTION RIGHTS UPON DISABILITY. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, will allow the Option to be fully exercised, to the extent that the
Employee was entitled to exercise the Option at the date of his disability.
c. DEATH OF THE OPTIONEE. In the event that an
Employee shall die while he is an employee of the Corporation and prior to his
complete exercise of the Option, the Option may be exercised in whole or in part
only: (i) by the Employee's estate or on behalf of such person or persons to
whom the Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option.
3
<PAGE>
SECTION 6. PIGGYBACK REGISTRATION.
a. If, at any time commencing January 1, 2000 and
expiring December 31, 2006, the Corporation proposes to register any of its
securities under the Securities Act (other than in connection with a merger or
pursuant to Form S-8 or other comparable Form) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of such
registration statement, to the Employee of its intention to do so. If the
Employee notifies the Corporation within ten (10) days after receipt of any such
notice of his desire to include any Option Shares, owned by him (on a fully
vested basis) in such proposed registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement; provided that (i) such inclusion does not pose any significant legal
problem and (ii) if such registration statement is filed pursuant to an
underwritten public offering, the underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6,
the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
4
<PAGE>
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Day Patterson, Senior Vice President,
General Counsel
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
William C. Samuels
139 East 19th Street
New York, New York 10003
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with the laws of the State of New York.
5
<PAGE>
SECTION 10. ENTIRE AGREEMENT. This Agreement, which includes
December 31, 1999 updated information, contains the entire agreement between the
parties hereto with respect to the transactions contemplated herein, and
supersedes all previously written or oral negotiations, commitments,
representations and agreement.
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or
any provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-------------------------------
Day Patterson
Senior Vice President,
General Counsel
Agreed:
----------------------------
William C. Samuels
6
<PAGE>
Exhibit 10.52
OPTION AGREEMENT
OPTION AGREEMENT dated February 21, 1998, between ACTV, Inc.,
a Delaware corporation (the "Corporation") and Bruce Crowley (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 521,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. Subject to Section 5 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 521,000 Option Shares, at a purchase price of $1.60 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares shall vest annually commencing January 1, 2000 until January 1, 2002,
with respect to installments of 173,667 in 2000 and 173,666 in 2001 and 2002
Option Shares at the Option Price, so long as the Employee is employed by the
Corporation. Said right shall be cumulative so that as of January 1, 2002,
Optionee shall have the fully vested right to purchase 521,000 Option Shares. In
the event that the Employee's employment with the Corporation terminates prior
to January 1 of 2001 or 2002, the Employee shall not have the right or option to
purchase any part of the installment of 173,666 Option Shares that would have
otherwise vested on such January 1. With respect to the Option, the "Option
Period" shall commence on the date hereof and terminate on December 31, 2006.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing
<PAGE>
Date, shall be made by the Corporation to the holder of this Option on the
Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option
during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. If, at any time through December 31, 2001 of the
Option Period, the Corporation issues any previously unissued Common Stock over
and beyond the number of shares outstanding February 21, 1998, then the number
of shares subject to the Option shall be adjusted such that the holder thereof
shall have the right to exercise the Option for the same percentage of the
issued and outstanding Common Stock of the
2
<PAGE>
Corporation as he held option shares on February 21, 1998.
c. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, immediately following the record date fixed for the
determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period, the
number of shares of Common Stock outstanding is decreased by a combination of
outstanding shares of Common Stock, then, immediately following the record date
for such combination, the Option Price shall be appropriately increased so that
the number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to
subsections (b) - (c) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2006 or one year after the date of termination of employment, except in the case
of death or disability.
b. OPTION RIGHTS UPON DISABILITY. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, will allow the Option to be fully exercised, to the extent that the
Employee was entitled to exercise the Option at the date of his disability.
c. DEATH OF THE OPTIONEE. In the event that an
Employee shall die while he is an employee of the Corporation and prior to his
complete exercise of the Option, the Option may be exercised in whole or in part
only: (i) by the Employee's estate or on behalf of such person or persons to
whom the Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option.
3
<PAGE>
SECTION 6. PIGGYBACK REGISTRATION.
a. If, at any time commencing January 1, 2000 and
expiring December 31, 2006, the Corporation proposes to register any of its
securities under the Securities Act (other than in connection with a merger or
pursuant to Form S-8 or other comparable Form) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of such
registration statement, to the Employee of its intention to do so. If the
Employee notifies the Corporation within ten (10) days after receipt of any such
notice of his desire to include any Option Shares, owned by him (on a fully
vested basis) in such proposed registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement; provided that (i) such inclusion does not pose any significant legal
problem and (ii) if such registration statement is filed pursuant to an
underwritten public offering, the underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6,
the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
4
<PAGE>
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Day Patterson, Senior Vice President, General Counsel
With a copy to:
Jay Kaplowitz, Esquire
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
Bruce Crowley
257 West 17th Street, Apt. 4C
New York, New York 10011
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with the laws of the State of New York.
5
<PAGE>
SECTION 10. ENTIRE AGREEMENT. This Agreement, which includes
December 31, 1999 updated information, contains the entire agreement between the
parties hereto with respect to the transactions contemplated herein, and
supersedes all previously written or oral negotiations, commitments,
representations and agreement.
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or
any provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-------------------------------
Day Patterson
Senior Vice President,
General Counsel
Agreed:
-------------------------------
Bruce Crowley
6
<PAGE>
Exhibit 10.53
OPTION AGREEMENT
OPTION AGREEMENT dated February 21, 1998, between ACTV, Inc.,
a Delaware corporation (the "Corporation") and David Reese (the "Employee").
The Corporation desires to grant to the Employee the right and
option to purchase up to 856,000 shares (the "Option Shares") of Common Stock
(the "Common Stock"), of the Corporation, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the receipt of $1.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. OPTION TO PURCHASE COMMON STOCK.
a. Subject to Section 5 hereof, the Corporation
hereby grants to the Employee an option (the "Option") to purchase from the
Corporation 856,000 Option Shares, at a purchase price of $1.60 per Option Share
(the "Option Price"). The Employee's right and option to purchase the Option
Shares shall vest annually commencing January 1, 2000 until January 1, 2002,
with respect to installments of 285,334 in 2000 and 285,333 in 2001 and 2002
Option Shares at the Option Price, so long as the Employee is employed by the
Corporation. Said right shall be cumulative so that as of January 1, 2002,
Optionee shall have the fully vested right to purchase 856,000 Option Shares. In
the event that the Employee's employment with the Corporation terminates prior
to January 1 of 2001 and 2002, the Employee shall not have the right or option
to purchase any part of the installment of 285,333 Option Shares that would have
otherwise vested on such January 1. With respect to the Option, the "Option
Period" shall commence on the date hereof and terminate on December 31, 2006.
b. The Option may be exercised by the Employee by
delivery to the Corporation, at any time commencing one year from the date
hereof, of a written notice (the "Option Notice"), which Option Notice shall
state the Employee's intention to exercise the Option, the date on which the
Employee proposes to purchase the Option Shares (the "Closing Date") and the
number of Option Shares to be purchased on the Closing Date, which Closing Date
shall be no later than 30 days nor earlier than 10 days following the date of
the Option Notice. Upon receipt by the Corporation of an Option Notice from the
Employee, the Employee shall be obligated to purchase that number of Option
Shares to be purchased on the Closing Date set forth in the Option Notice.
c. The purchase and sale of Option Shares acquired
pursuant to the terms of this Option Agreement shall be made on the Closing Date
at the offices of the Corporation. Delivery of the Stock certificate or other
instrument registered in the name of the Employee, evidencing the Option Shares
being purchased on the Closing
<PAGE>
Date, shall be made by the Corporation to the holder of this Option on the
Closing Date against the delivery to the Corporation of a check in the full
amount of the aggregate purchase price therefor.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The
Employee hereby represents and warrants to the Corporation that in the event the
Employee acquires any Option Shares, such Option Shares will be acquired for his
own account, for investment and not with a view to the distribution thereof. The
Employee understands that except as set forth in Section 6 hereof, the Option
Shares will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4 (2)
thereof and that they must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or the transaction is except from
registration.
SECTION 3. REORGANIZATION; MERGERS; SALES; ETC. If, at any
time during the Option Period, there shall be any capital reorganization,
reclassification of Common Stock (other than a change in par value or from par
value to nor par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another corporation or
of the sale of all or substantially all the properties and assets of the
Corporation as an entirety to any other corporation or person, the unexercised
and fully vested portion of this Option shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which the Employee
would have been entitled if the Employee had held shares of Common Stock
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. The provisions of this Section
3 shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
SECTION 4. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE.
a. The number of Option Shares subject to this Option
during the Option Period shall be cumulative as to all prior dates of
calculation and shall be adjusted for any stock dividend, subdivision, split-up
or combination of Common Stock.
b. If, at any time through December 31, 2001 of the
Option Period, the Corporation issues any previously unissued Common Stock over
and beyond the number shares outstanding February 21, 1998, then the number of
shares subject to the Option shall be adjusted such that the holder thereof
shall have the right to exercise the Option for the same percentage of the
issued and outstanding Common Stock of the
<PAGE>
Corporation as he held option shares on February 21, 1998.
c. The Option Price shall be subject to adjustment
from time to time as follows:
(1) If, at any time during the Option Period, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, immediately following the record date fixed for the
determination of holders of shares of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Option Price shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
exercise hereof shall be increased in proportion to such increase in outstanding
shares.
(2) If, at any time during the Option Period, the
number of shares of Common Stock outstanding is decreased by a combination of
outstanding shares of Common Stock, then, immediately following the record date
for such combination, the Option Price shall be appropriately increased so that
the number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
SECTION 5. TERMINATION OF THE OPTIONS.
a. TERMINATION OF OPTIONS IN GENERAL. Subject to
subsections (b) - (c) of this Section, the Option granted hereby shall terminate
and the Option shall no longer be exercisable after the earlier of December 31,
2006 or one year after the date of termination of employment, except in the case
of death or disability.
b. OPTION RIGHTS UPON DISABILITY. If an Employee
becomes disabled while employed by the Corporation or any affiliate or
subsidiary, the Board of Directors or the Stock Option Committee of the
Corporation, will allow the Option to be fully exercised, to the extent that the
Employee was entitled to exercise the Option at the date of his disability.
c. DEATH OF THE OPTIONEE. In the event that an
Employee shall die while he is an employee of the Corporation and prior to his
complete exercise of the Option, the Option may be exercised in whole or in part
only: (i) by the Employee's estate or on behalf of such person or persons to
whom the Employee's rights pass under his Will or by the laws of descent and
distribution, (ii) to the extent that the Employee was entitled to exercise the
Option at the date of his death, and (iii) prior to the expiration of the term
of the Option.
<PAGE>
SECTION 6. PIGGYBACK REGISTRATION.
a. If, at any time commencing January 1, 2000 and
expiring December 31, 2006, the Corporation proposes to register any of its
securities under the Securities Act (other than in connection with a merger or
pursuant to Form S-8 or other comparable Form) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of such
registration statement, to the Employee of its intention to do so. If the
Employee notifies the Corporation within ten (10) days after receipt of any such
notice of his desire to include any Option Shares, owned by him (on a fully
vested basis) in such proposed registration statement, the Corporation shall
afford the Employee the opportunity to have any of his Option Shares registered
under such registration statement, the Corporation shall afford the Employee the
opportunity to have any of his Option Shares registered under such registration
statement; provided that (i) such inclusion does not pose any significant legal
problem and (ii) if such registration statement is filed pursuant to an
underwritten public offering, the underwriter approves such inclusion.
b. Notwithstanding the provisions of this Section 6,
the Corporation shall have the right at any time after it shall have given
written notice pursuant to this Section 6 (irrespective of whether a written
request for inclusion of any Option Shares shall have been made) to elect not to
file any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
c. Employee will cooperate with the Corporation in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Corporation and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Option Shares. In addition, Employee will comply with all applicable
provisions of state and federal securities laws, including rule 10b-6 and will
not, during the course of a distribution, purchase any of the securities being
distributed.
d. All expenses incurred in any registration of the
Option Shares under this Agreement shall be paid by the Corporation, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Corporation, expenses of any audits to which the Corporation shall agree or
which shall be necessary to comply with governmental requirements in connection
with any such registration, all registration and filing fees for the Option
Shares under federal and state securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions; provided, however, the
Corporation shall not be liable for (a) any discounts or commissions to any
underwriter; (b) any stock transfer taxes incurred with respect to Option Shares
sold in the offering or (c) the fees and expenses of counsel for Employee,
provided that the Corporation will pay, the costs and expenses of Employee's
counsel when the Corporation's counsel is representing all selling security
holders.
<PAGE>
SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This
Agreement (including the Option) and all rights hereunder shall not be
transferable at any time without the prior written consent of the Corporation.
This Agreement and all the rights hereunder shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
transferees.
SECTION 8. NOTICES. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If the Corporation, to:
ACTV, Inc.
1270 Avenue of the Americas - Suite 2401
New York, New York 10020
Attention: Day Patterson, Senior Vice President,
General Counsel
With a copy to:
Jay Kaplowitz
Gersten, Savage, Kaplowitz & Fredericks
101 East 52nd Street
New York, New York 10022
If to the Employee, to:
David Reese
30 Maclay Road
Montville, New Jersey 07045
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following the day on which the piece of mail containing such
communication is posted.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with the laws of the State of New York.
<PAGE>
SECTION 10. ENTIRE AGREEMENT. This Agreement, which includes
December 31, 1999 updated information, contains the entire agreement between the
parties hereto with respect to the transactions contemplated herein, and
supersedes all previously written or oral negotiations, commitments,
representations and agreement.
SECTION 11. AMENDMENTS AND MODIFICATIONS. This Agreement, or
any provision hereof, may not be amended, changed or modified without the prior
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be executed and delivered as of the date first above written.
ACTV, Inc.
By:
-----------------------------------
Day Patterson
Senior Vice President,
General Counsel
Agreed:
--------------------------------
David Reese
<PAGE>
Exhibit 10.54
225 FOURTH, LLC
Landlord
TO
ACTV, INC.
Tenant
-----------------------------------
Lease
-----------------------------------
Dated as of December 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 PREMISES; TERM; USE ............................................. 1
1.01 DEMISE ............................................................ 1
1.02 TERM .............................................................. 2
1.03 POSSESSION DATE ................................................... 2
1.04 TENANT DELAY ...................................................... 3
1.05 USE ............................................................... 3
1.06 TEMPORARY SPACE ................................................... 4
1.07 ADDITIONAL 19TH FLOOR SPACE ....................................... 5
ARTICLE 2 RENT ............................................................ 6
2.01 RENT .............................................................. 6
2.02 FIXED RENT ........................................................ 6
2.03 ADDITIONAL CHARGES ................................................ 7
2.04 TAX PAYMENTS ...................................................... 7
2.05 [INTENTIONALLY OMITTED] ........................................... 9
2.06 TAX PROVISIONS .................................................... 9
2.07 ELECTRIC CHARGES .................................................. 10
2.08 MANNER OF PAYMENT ................................................. 12
2.09 SECURITY .......................................................... 12
2.10 EXPENSE ESCALATION ................................................ 15
ARTICLE 3 LANDLORD COVENANTS .............................................. 16
3.01 LANDLORD SERVICES ................................................. 16
ARTICLE 4 LEASEHOLD IMPROVEMENTS; TENANT COVENANTS ........................ 19
4.01 INITIAL IMPROVEMENTS .............................................. 19
4.02 ALTERATIONS ....................................................... 22
4.03 LANDLORD'S AND TENANT'S PROPERTY .................................. 25
4.04 ACCESS AND CHANGES TO BUILDING .................................... 26
4.05 REPAIRS ........................................................... 26
4.06 COMPLIANCE WITH LAWS .............................................. 27
4.07 TENANT ADVERTISING ................................................ 28
4.08 RIGHT TO PERFORM TENANT COVENANTS ................................. 28
4.09 IMPROVEMENTS TO TEMPORARY SPACE ................................... 29
ARTICLE 5 ASSIGNMENT AND SUBLETTING ....................................... 29
5.01 ASSIGNMENT; ETC ................................................... 29
5.02 LANDLORD'S OPTION RIGHT ........................................... 30
5.03 ASSIGNMENT AND SUBLETTING PROCEDURES .............................. 33
5.04 GENERAL PROVISIONS ................................................ 35
5.05 ASSIGNMENT AND SUBLEASE PROFITS ................................... 36
ARTICLE 6 SUBORDINATION; DEFAULT; INDEMNITY ............................... 37
6.01 SUBORDINATION ..................................................... 37
6.02 ESTOPPEL CERTIFICATE .............................................. 39
6.03 DEFAULT ........................................................... 39
6.04 RE-ENTRY BY LANDLORD .............................................. 40
6.05 DAMAGES ........................................................... 41
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6.06 OTHER REMEDIES .................................................... 42
6.07 RIGHT TO INJUNCTION ............................................... 42
6.08 CERTAIN WAIVERS: WAIVER OF TRIAL BY JURY .......................... 42
6.09 NO WAIVER ......................................................... 42
6.10 HOLDING OVER ...................................................... 43
6.11 ATTORNEYS' FEES ................................................... 43
6.12 NONLIABILITY AND INDEMNIFICATION .................................. 43
6.13 PROTEST OF LANDLORD CHARGES ....................................... 44
ARTICLE 7 INSURANCE; CASUALTY; CONDEMNATION ............................... 44
7.01 COMPLIANCE WITH INSURANCE STANDARDS ............................... 44
7.02 TENANT'S INSURANCE ................................................ 45
7.03 SUBROGATION WAIVER ................................................ 46
7.04 CONDEMNATION ...................................................... 46
7.05 CASUALTY .......................................................... 47
ARTICLE 8 MISCELLANEOUS PROVISIONS ........................................ 49
8.01 NOTICE ............................................................ 49
8.02 BUILDING RULES .................................................... 49
8.03 SEVERABILITY ...................................................... 50
8.04 CERTAIN DEFINITIONS ............................................... 50
8.05 QUIET ENJOYMENT ................................................... 50
8.06 LIMITATION OF LANDLORD'S LIABILITY ................................ 50
8.07 COUNTERCLAIMS ..................................................... 51
8.08 SURVIVAL .......................................................... 51
8.09 CERTAIN REMEDIES .................................................. 51
8.10 NO OFFER .......................................................... 51
8.11 CAPTIONS; CONSTRUCTION ............................................ 51
8.12 AMENDMENTS ........................................................ 52
8.13 BROKER ............................................................ 52
8.14 MERGER ............................................................ 52
8.15 SUCCESSORS ........................................................ 52
8.16 APPLICABLE LAW .................................................... 52
8.17 NO DEVELOPMENT RIGHTS ............................................. 52
8.18 SIGNAGE ........................................................... 53
8.19 BUILDING ACCESS ................................................... 53
ARTICLE 9 RENEWAL RIGHT ................................................... 53
9.01 RENEWAL RIGHT ..................................................... 53
9.02 RENEWAL RENT AND OTHER TERMS ...................................... 54
ARTICLE 10 EXPANSION SPACE ................................................ 56
10.01 EXPANSION SPACE .................................................. 56
10.02 ES INCLUSION DATE ................................................ 60
10.03 SERVICES ......................................................... 60
10.04 ALTERNATE SPACE .................................................. 60
</TABLE>
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<PAGE>
EXHIBITS
A Description of Land
B Premises Floor Plan
B-1 Temporary Space Floor Plan
B-2 Additional 19th Floor Space Floor Plan
C Rules and Regulations
D [Intentionally Omitted]
E General Tenant Cleaning Services
F Landlord's Work
G Landlord's Temporary Space Work
H Form of Subordination, Non-Disturbance and Attornment Agreement
I Form of Letter of Credit
J [Intentionally Omitted]
K Tenant's Financial Statement
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Definition Where Defined
- ---------- -------------
<S> <C>
19th Floor ............................................... Section 1.01
19th Floor Rent .......................................... Section 2.02
19th Floor Mezzanine ..................................... Section 1.01
19th Floor Mezzanine Rent ................................ Section 2.02
AAA ...................................................... Section 2.05
ADA ...................................................... Section 4.06
Additional Charges ....................................... Section 2.03
Additional Rent for Electricity .......................... Section 2.07
Additional 19th Floor Space .............................. Section 1.07
Aetna .................................................... Section 6.01
Affiliate ................................................ Section 5.01
Alterations .............................................. Section 4.02
Alternate Space .......................................... Section 10.04
Annual Rent .............................................. Section 9.02
Assignment Consideration ................................. Section 5.05
Alteration Plans ......................................... Section 4.02
Base Tax Amount .......................................... Section 2.04
Base Wage Rate ........................................... Section 4.01
Base Tax Year ............................................ Section 2.04
Broker ................................................... Section 8.13
Building A ............................................... Recitals
Building B ............................................... Recitals
Building ................................................. Recitals
Business Days ............................................ Section 3.01
Business Hours ........................................... Section 3.01
Casualty ................................................. Section 7.05
Contractors .............................................. Section 4.01
Control .................................................. Section 5.01
Curing Party ............................................. Section 4.08
ES Election Period ....................................... Section 10.01
ES Inclusion Date ........................................ Section 10.02
ES Minimum Security Amount ............................... Section 10.01
Expansion Notice ......................................... Section 10.01
Expansion Option ......................................... Section 10.01
Expansion Space .......................................... Section 10.01
Expansion Space Alterations .............................. Section 10.01
Expansion Space Letter of Credit ......................... Section 10.01
Expansion Space Security Deposit ......................... Section 10.01
Expansion Space Tax Share ................................ Section 10.01
Expansion Space Work Contribution ........................ Section 10.01
Expiration Date .......................................... Section 10.01
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Definition Where Defined
- ---------- -------------
<S> <C>
Fair Market Rent ......................................... Section 9.02
First Temporary Space .................................... Section 1.06
First Temporary Space Occupancy Date ..................... Section 1.06
Fixed Rent ............................................... Section 2.02
Fixtures ................................................. Section 4.03
Improvements and Betterments ............................. Section 4.03
Indemnified Party ........................................ Section 6.12
Interest Rate ............................................ Section 2.09
Land ..................................................... Recitals
Landlord ................................................. Introduction;
......................................................... Section 8.04
Landlord's Contribution .................................. Section 4.01
Landlord's Determination ................................. Section 9.02
Landlord's Initial Work .................................. Section 4.01
Landlord Services ........................................ Section 3.01
Landlord's Temporary Space Work .......................... Section 4.09
Laws ..................................................... Section 4.06
Lease .................................................... Recitals
Local 32B - 32J .......................................... Section 2.10
Material Alteration ...................................... Section 4.02
Minimum Equity Amount .................................... Section 2.09
Minimum Security Amount .................................. Section 2.09
Multiplication Factor .................................... Section 2.10
New Tenant ............................................... Section 6.10
Original Premises ........................................ Section 1.01
Other Sublease Consideration ............................. Section 5.05
Premises ................................................. Section 1.01
Porters .................................................. Section 2.10
Possession Date .......................................... Section 1.03
Project .................................................. Recitals
Pro Rata Share ........................................... Section 4.01
Realty Advisory Board .................................... Section 2.10
Renewal Notice ........................................... Section 9.01
Renewal Option ........................................... Section 9.01
Renewal Term ............................................. Section 9.01
Rent ..................................................... Section 2.01
Rent Notice .............................................. Section 9.02
Rental Value ............................................. Section 9.02
Rent Commencement Date ................................... Section 2.02
Rules and Regulations .................................... Section 3.01
Second Temporary Space ................................... Section 1.06
Successor Landlord ....................................... Section 6.01
Superior Lease ........................................... Section 6.01
Superior Lessor .......................................... Section 6.01
Superior Mortgage ........................................ Section 6 01
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Definition Where Defined
- ---------- -------------
<S> <C>
Superior Mortgagee ....................................... Section 6.01
Tax Payment .............................................. Section 2.04
Tax Year ................................................. Section 2.04
Taxes .................................................... Section 2.04
Temporary Space Vacancy Date ............................. Section 1.06
Tenant ................................................... Introduction
Tenant Delay ............................................. Section 1.04
Tenant's Basic Cost ...................................... Section 5.05
Tenant's Initial Improvements ............................ Section 4.01
Tenant's Notice .......................................... Section 9.02
Tenant's Offer Notice .................................... Section 5.02
Tenant's Plans ........................................... Section 4.01
Tenant's Property ........................................ Section 4.03
Tenant's Tax Share ....................................... Section 2.04
Term ..................................................... Section 1.02
Termination Date ......................................... Section 1.06
Termination Notice ....................................... Section 1.06
Transfer Notice .......................................... Section 5.03
Wage Increase Charge ..................................... Section 2.10
Wage Rate ................................................ Section 2.10
</TABLE>
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<PAGE>
LEASE (this "Lease"), dated as of December 1, 1999, between 225
FOURTH, LLC ("Landlord"), a Delaware limited liability company whose address is
c/o Orda Management Corporation, 225 Park Avenue South, New York, New York 10003
and ACTV, Inc. ("Tenant"), a Delaware corporation whose address is 1270 Sixth
Avenue, New York, New York prior to the commencement of the Term, and thereafter
Tenant's address shall be that of the Building.
W I T N E S S E T H
WHEREAS, Landlord is willing to lease to Tenant and Tenant is
willing to hire from Landlord, on the terms hereinafter set forth, certain space
in the office building located at Block 874, Lot 1 in New York, New York and
commonly known as 225 Park Avenue South, New York, New York (the "Building A")
and in the office building located at Block 874, Lot 4 in New York, New York and
commonly known as 233 Park Avenue South (the "Building B"; collectively Building
A and Building B are referred to as the "Building") on the land more
particularly described in Exhibit A (the "Land"; the Land and the Buildings and
all plazas, sidewalks and curbs adjacent thereto are collectively called the
"Project").
NOW, THEREFORE, Landlord and Tenant agree as follows:
ARTICLE 1
Premises; Term; Use
1.01 Demise. (a) Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord, subject to the terms and conditions of this Lease, the
entire 19th floor (the "19th Floor") and the 19th Floor Mezzanine (the "19th
Floor Mezzanine"; together with the 19th Floor, the "Original Premises" or the
"Premises") substantially as shown on the plan annexed as Exhibit B. Landlord
and Tenant agree that the 19th Floor is conclusively deemed to contain 19,713
rentable square feet; the 19th Floor Mezzanine is conclusively deemed to contain
2,022 square feet; and the Original Premises is conclusively deemed to contain
21,735 rentable square feet.
(b) Tenant acknowledges that the 19th Floor Mezzanine shall be
demised as storage space; provided, however, that if Tenant, at Tenant's cost
and expense, obtains a Certificate of Occupancy for the 19th Floor Mezzanine for
a use other than storage space, and Tenant, at Tenant's cost and expense, brings
the 19th Floor Mezzanine into compliance with any and all applicable Laws
(hereinafter defined), including, without limitation, ADA (hereinafter defined),
then Landlord shall permit Tenant to use the 19th Floor Mezzanine for any use
that is lawfully permitted under the amended Certificate of Occupancy. Any
representations and warranties made by Landlord in this Lease shall not apply to
the 19th Floor Mezzanine. Tenant shall have the exclusive right to use the
staircase located within the Premises for access from the 19th Floor to the 19th
Floor Mezzanine.
(c) Landlord shall provide Tenant with temporary office space, as
set forth in Section 1.06(a) herein, until the Possession Date.
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<PAGE>
1.02 Term. (a) The term of this Lease (the "Term") shall commence on
the Possession Date and shall end, unless sooner terminated as herein provided,
on the last day of the calendar month in which occurs the fifteenth (15)
anniversary of the Rent Commencement Date (such date, as the same may be
extended pursuant to Article 9, is called the "Expiration Date").
(b) Landlord represents to Tenant that, as of the date of this
Lease, the Original Premises are subject to a lease agreement with the City
University of New York, and Tenant acknowledges that this Lease shall not be
effective with respect to the Original Premises (as opposed to First Temporary
Space and Second Temporary Space) unless and until Landlord receives a signed
termination agreement, approved by all necessary parties, from the City
University of New York. Landlord agrees to provide Tenant with a copy of the
executed termination agreement after Landlord's receipt of such agreement,
provided that Landlord's failure to deliver a copy of such agreement shall not
impair the validity of this Lease nor impose any liability therefore on
Landlord. If Landlord has not received a signed termination agreement, approved
by all necessary parties, from the City University of New York on or before
December 31, 1999, Tenant shall have the right to terminate this Lease on or
before February 15, 2000 by sending written notice to Landlord setting forth a
termination date, which shall be not less than 30 days nor more than 90 days
from the date of Tenant's notice.
1.03 Possession Date. (a) "Possession Date" shall mean the day on
which Landlord's Initial Work (as defined below) is substantially completed in
accordance with Section 1.03(c). Landlord shall use reasonable efforts to
substantially complete Landlord's Initial Work on or before February 1, 2001. If
Landlord's Initial Work is substantially completed prior to February 1, 2001,
such date of substantial completion shall be the Possession Date. In the event
that the Possession Date does not occur on or before February 1, 2001, then the
Landlord shall provide Tenant with additional temporary office space, as
provided in Section 1.06(b) herein. Landlord shall advise Tenant of the date
Landlord's Initial Work is substantially completed and Landlord and Tenant shall
promptly confirm the Possession Date, the Rent Commencement Date and the
Expiration Date by a separate instrument to be prepared by Landlord; provided,
that the failure to execute and deliver such instrument shall not affect the
determination of such dates in accordance with this Lease. Tenant shall have the
right to dispute the determination of the Possession Date by submitting such
dispute to binding arbitration before the American Arbitration Association in
the City of New York, County of New York; provided that Tenant has not commenced
Tenant's Initial Improvements in the Premises or otherwise taken exclusive
possession of the Premises prior to Landlord's proposed Possession Date. Pending
the resolution of any dispute as to the Possession Date, Tenant shall pay Rent
based upon Landlord's determination.
(b) Landlord shall provide Tenant with written notice upon
Landlord obtaining vacant possession of the Original Premises from The City
University of New York, the tenant in possession of the space as of the date of
this Lease. Landlord also shall provide Tenant with 5 business days' written
notice of the anticipated date of completion of Landlord's Initial Work;
provided, that failure to deliver the Premises to Tenant on the anticipated date
of completion of Landlord's Initial Work shall not impair the validity of this
Lease nor shall it delay the Possession Date under this Lease.
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<PAGE>
(c) Landlord's Initial Work shall be deemed to have been
substantially completed on the date upon which Landlord's Initial Work has been
completed, except for (A) minor details or adjustments, (B) items which, in
accordance with good construction practice, should be performed after completion
of Tenant's Initial Improvements and (C) any part of Landlord's Initial Work
that is not completed due to Tenant Delay; provided, that in each case Landlord
shall nevertheless remain obligated to complete Landlord's Initial Work. If
Tenant takes exclusive possession of the Original Premises for the performance
of Tenant's Initial Work or for any other reason, Landlord's Initial Work shall
be deemed to be substantially complete. For purposes of this Section 1.03,
Tenant shall be deemed to have taken exclusive possession of the Original
Premises, notwithstanding the fact that Landlord may be performing the work
described in items (A), (B) and (C) of this Section 1.03(c) in the Original
Premises at such time as Tenant commences performance of Tenant's Initial Work.
(d) If for any reason Landlord shall be unable to deliver
possession of the Original Premises to Tenant on any date specified in this
Lease for such delivery, Landlord shall have no liability to Tenant therefor and
the validity of this Lease shall not be impaired, nor shall the Term be
extended, by reason thereof. This Section 1.03 shall be an express provision to
the contrary for purposes of Section 223-a of the New York Real Property Law and
any other law of like import now or hereafter in effect. Nothing contained
herein shall be deemed to diminish Tenant's rights under Section 1.06(e) of this
Lease.
(e) In no event shall the Possession Date occur prior to July
1, 2000.
1.04 Tenant Delay. "Tenant Delay" means any delay which Landlord may
encounter in the performance of Landlord's obligations under this Lease solely
by reason of any act or omission of any nature of Tenant, its agents or
Contractors, including, without limitation, delays due to changes in or
additions to Landlord's Initial Work requested by Tenant, delays by Tenant in
submission of information or giving authorizations or approvals or delays due to
the postponement of any Landlord's Initial Work at the request of Tenant. Tenant
shall pay to Landlord any costs or expenses incurred by Landlord by reason of
any Tenant Delay.
1.05 Use. The Premises shall be used and occupied by Tenant (and its
permitted subtenants) solely as general and executive offices (including such
ancillary uses in connection therewith as shall be reasonably required by Tenant
in the operation of its business which may include, but shall not be limited to,
a lunchroom and a kitchen, incidental to the use of the Premises as general and
executive offices and each exclusively for the use of Tenant's employees);
provided, that in no event shall the Premises be used for any of the following:
(a) a banking, trust company, or safe deposit business, (b) a savings bank, a
savings and loan association, or a loan company, (c) the sale of travelers'
checks and/or foreign exchange, (d) a stock brokerage office or for stock
brokerage purposes, (e) a restaurant, bar or for the sale of food or beverages,
(f) photographic reproductions and/or offset printing, (g) an employment or
travel agency or airline ticket counter, (h) a school or classroom, (i) medical
or psychiatric offices, (j) conduct of an auction, (k) gambling activities, (l)
conduct of obscene, pornographic or similar disreputable activities, (m) offices
of an agency, department or bureau of the United States Government, any state or
municipality within the United States or any foreign government, or any
political subdivision of any of them, (n) offices of any charitable, religious,
union or other not-for-profit
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<PAGE>
organization, or (o) offices of any tax exempt entity within the meaning of
Section 168(h)(2) of the Internal Revenue Code of 1986, as amended, or any
successor or substitute statute, or rule or regulation applicable thereto. The
Premises shall not be used for any purpose which would tend to lower the
character of the Building, create unreasonable or excessive elevator or floor
loads, impair or interfere with any of the Building operations or the proper and
economic heating, ventilation, air-conditioning, cleaning or other servicing of
the Building, constitute a public or private nuisance, interfere with, annoy or
disturb any other tenant or Landlord, or impair the appearance of the Building.
1.06 Temporary Space. (a) Landlord hereby leases to Tenant and
Tenant hereby hires from Landlord, subject to the terms and conditions of this
Lease, the entire 10th floor of Building B (the "First Temporary Space")
substantially as shown on the plan annexed as Exhibit B-1. Landlord and Tenant
agree that the First Temporary Space is conclusively deemed to contain 12,217
rentable square feet. Tenant shall occupy the First Temporary Space beginning on
December 1, l999 ("First Temporary Space Occupancy Date"), and unless Tenant
shall have exercised its option to lease the First Temporary Space for the Term
of this Lease in accordance with Section 1.08 hereof, such occupancy of the
First Temporary Space shall end two (2) weeks after substantial completion of
Tenant's Initial Improvements, but, in no event, shall such occupancy extend
beyond one hundred eighty (180) days after the Possession Date (the "Temporary
Space Vacancy Date").
(b) In the event that the Possession Date shall not occur on
or before February 1, 2001, Landlord shall lease to Tenant and Tenant shall hire
from Landlord, subject to the terms and conditions of this Lease, additional
space suitable for the uses permitted under this Lease of at least 8,000 square
feet but no more than 12,000 square feet (the "Second Temporary Space" together
with the First Temporary Space, the "Temporary Space") in either (i) Building A
or (ii) Building B. Tenant shall occupy the Second Temporary Space beginning on
February 1, 2001, and such occupancy of the Second Temporary Space shall end,
unless sooner terminated as provided in this Lease, on the Temporary Space
Vacancy Date. Tenant shall have the right to reject the Second Temporary Space
offered by Landlord by notice to Landlord given within five (5) Business Days
after Landlord has designated such space, provided that, if Tenant so rejects
such Second Temporary Space, Landlord shall have no further obligation under
this Section 1.06(b) to provide additional temporary space to Tenant.
(c) The fixed rent for the First Temporary Space shall be at
an annual rate of $32.00 per rentable square foot of the First Temporary Space
for the period commencing on the First Temporary Space Occupancy Date and,
subject to Article 10 hereof, ending on the Temporary Space Vacancy Date. The
fixed rent for the Second Temporary Space shall be at an annual rate of $32.00
per square foot of the Second Temporary Space for the period commencing on
February 1, 2001 and ending on Temporary Space Vacancy Date. Fixed rent for the
First Temporary Space and, if applicable, the Second Temporary Space shall be
payable by Tenant in equal monthly installments in advance on the first day of
each calendar month after the date of this Lease, provided, that Tenant shall
pay, upon the execution and delivery of this Lease by Tenant, the first full
monthly installment of fixed rent for the First Temporary Space.
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(d) Tenant shall pay such Additional Charges, as defined in
Section 2.03, other than any Tax Payments described in Section 2.04 and any
expense escalations described in Section 2.10, as are applicable to the
occupancy of both the First Temporary Space and the Second Temporary Space.
(e) Notwithstanding the foregoing, if Landlord does not
deliver the Original Premises to Tenant on or prior to September 30, 2001,
Tenant shall have the right to terminate this Lease by sending written notice (a
"Termination Notice") to Landlord at least thirty (30) days prior to Tenant's
desired termination date, which date shall be no later than 270 days after the
date of the Termination Notice (the "Termination Date"). If Tenant has not
delivered a Termination Notice and the Original Premises have not been delivered
to Tenant on or prior to December 31, 2001, either Tenant or Landlord shall have
the right to terminate this Lease by delivering a Termination Notice to the
other party; provided that Landlord shall only have the right to terminate this
Lease in accordance with this Section 1.06(e) if Landlord has made a reasonable
effort to deliver the Original Premises to Tenant as required under this Lease.
If Tenant delivers a Termination Notice pursuant to the preceding sentence, such
Termination Notice shall set forth a Termination Date, which date shall be not
less than 30 days nor more than 270 days from the date of the Termination
Notice. If Landlord delivers a Termination Notice pursuant to the preceding
sentence, Tenant, within ten (10) Business Days thereafter, shall deliver to
Landlord a separate notice setting forth a Termination Date, which shall be not
less than 30 days nor more than 270 days from the date of the Termination Notice
delivered by Landlord. If Tenant has exercised the Expansion Option in
accordance with Article 10 of this Lease, then, subject to the provisions set
forth in this Section 1.06(e), (i) Landlord's right to terminate this Lease
provided hereunder shall be limited to terminating this Lease solely with
respect to the Original Premises and (ii) Tenant may elect to terminate this
Lease solely with respect to the Original Premises, provided that Tenant
notifies Landlord of such election in Tenant's Termination Notice. In the event
of such an election, this Lease shall remain in full force and effect with
respect to the Expansion Space.
1.07 Additional 19th Floor Space. Landlord hereby notifies Tenant
that Landlord may elect to remove the unused, existing elevator shafts on the
19th Floor shown on Exhibit B-2 attached hereto and made a part hereof (the
"Additional 19th Floor Space") provided that if Landlord elects to remove such
elevator shafts, such removal shall be completed on or before the Possession
Date herein. Landlord shall notify Tenant on or before April 1, 2000 of
Landlord's intent to exercise its rights under this Section 1.07. In the event
that Landlord elects to remove such elevator shafts, the area previously
occupied by the Additional 19th Floor Space shall become part of the Original
Premises. Upon notice from Landlord to Tenant that Landlord will deliver the
Additional 19th Floor Space to Tenant on the Possession Date, and effective on
the Possession Date, the Additional 19th Floor Space shall become part of the
Original Premises, without any further act on the part of Landlord or Tenant and
upon all of the terms and conditions of this Lease, except that, from and after
the Possession Date:
(i) Tenant's Tax Share shall be increased by 0.0457%;
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<PAGE>
(ii) the number of rentable square feet for the Original Premises
shall be increased by 216 rentable square feet and the
Original Premises shall be conclusively deemed to contain
21,951 rentable square feet; and
(iii) the amount of Landlord's Contribution (as defined below) shall
be increased by $7,560.00.
ARTICLE 2
Rent
2.01 Rent. "Rent" shall consist of Fixed Rent and Additional
Charges.
2.02 Fixed Rent. (a) The fixed rent for the 19th Floor ("19th Floor
Rent") shall be (i) for the period commencing on the Rent Commencement Date and
ending on the day immediately preceding the 5th anniversary of the Rent
Commencement Date, Seven Hundred Nine Thousand Six Hundred Sixty-Eight and
00/100 ($709,668.00) Dollars per annum, payable in equal monthly installments of
Fifty-Nine Thousand One Hundred Thirty-Nine and 00/100 ($59,139.00) Dollars (an
annual rate of $36.00 per rentable square foot contained in the 19th Floor),
(ii) for the period commencing on the 5th anniversary of the Rent Commencement
Date and ending on the day immediately preceding the 10th anniversary of the
Rent Commencement Date, Seven Hundred Sixty-Eight Thousand Eight Hundred Seven
and 00/100 ($768,807.00) Dollars per annum, payable in equal monthly
installments of Sixty-Four Thousand Sixty-Seven and 25/100 ($64,067.25) Dollars
(an annual rate of $39.00 per rentable square foot contained in the 19th Floor)
and (c) for the period commencing on the 10th anniversary of the Rent
Commencement Date and ending on the Expiration Date, Eight Hundred Twenty-Seven
Thousand Nine Hundred Forty-Six and 00/100 ($827,946.00) Dollars per annum,
payable in equal monthly installments of Sixty-Eight Thousand Nine Hundred
Ninety-Five and 50/100 ($68,995.50) Dollars (an annual rate of $42.00 per
rentable square foot contained in the 19th Floor). The fixed rent for the 19th
Floor Mezzanine (the "19th Floor Mezzanine Rent") shall be, for the period
commencing on the Rent Commencement Date and ending on the Expiration Date,
Forty Thousand Four Hundred Forty and 00/100 ($40,440.00) Dollars per annum,
payable in equal monthly installments of Three Thousand Three Hundred Seventy
and 00/100 ($3,370.00) Dollars (an annual rate of $20.00 per rentable square
foot contained in the 19th Floor Mezzanine). The 19th Floor Rent and the 19th
Floor Mezzanine Rent shall collectively be referred to as the "Fixed Rent."
Fixed Rent shall be payable by Tenant in equal monthly installments in advance
on the Rent Commencement Date and on the first day of each calendar month
thereafter; provided, that Tenant shall pay, upon the Possession Date, the first
full monthly installment of Fixed Rent; and provided further, that if the Rent
Commencement Date is not the first day of a month, then Fixed Rent for the month
in which the Rent Commencement Date occurs shall be prorated and paid on the
Rent Commencement Date. "Rent Commencement Date" means the date occurring in the
sixth (6th) month after the Possession Date which is the same numerical date in
the month as the Possession Date except that if no same numerical date shall
exist in such sixth (6th) month, the Rent Commencement Date shall be the last
day of such sixth (6th) month.
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(b) From and after the date hereof until August 1, 2000 (the
"Election Period") and provided that Tenant provides Landlord with evidence
reasonably satisfactory to Landlord that Tenant's Initial Improvements will cost
a minimum of (i) Thirty-Five Dollars ($35) per rentable square foot of the 19th
Floor and Twenty ($20) Dollars per rentable square foot of the 19th Floor
Mezzanine or (ii) Forty-Five Dollars ($45) per rentable square foot of the 19th
Floor and Ten Dollars ($10) per rentable square foot f the 19 Floor Mezzanine,
Tenant shall have the right to elect not to receive Landlord's Contribution
pursuant to Section 4.01(e) hereof and, in lieu thereof, receive a reduction in
Fixed Rent of $4.23 per year per rentable square foot contained in the 19th
Floor (i.e., $83,386.00 per year with respect to the 19th Floor) and $2.42 per
year per rentable square foot contained in the 19th Floor Mezzanine) (i.e.,
$4,893.24 per year with respect to the 19th Floor Mezzanine) plus any additional
reduction resulting from the inclusion of the Additional 19th Floor Space in the
Premises in accordance with Section 1.07 of this Lease. Tenant shall give
Landlord such notice prior to the expiration of the Election Period. Time shall
be of the essence with respect to the giving of such notice.
2.03 Additional Charges. "Additional Charges" means Tax Payments and
all other sums of money, other than Fixed Rent, at any time payable by Tenant
under this Lease, all of which Additional Charges shall be deemed to be rent.
2.04 Tax Payments. (a) "Base Tax Amount" means the Taxes (excluding
any amounts described in Section 2.04(b)(iii)) payable for the calendar year
2001 (the "Base Tax Year"). If the Base Tax Amount shall be reduced, for any
reason, such lesser amount shall be the Base Tax Amount used to compute Tenant's
Tax Share (as defined below) of any increase in Taxes for each Tax Year.
(b) "Taxes" means (i) the real estate taxes, sewer rents,
water frontage charges, vault taxes, assessments and special assessments levied,
assessed or imposed upon or with respect to Building A by any federal, state,
municipal or other government or governmental body or authority, (ii) all taxes
assessed or imposed with respect to the rentals payable under this Lease other
than general income and gross receipts taxes; provided, that any such tax shall
exclude Commercial Rent or Occupancy Taxes imposed pursuant to Title 11, Chapter
7 of the New York City Administrative Code so long as such tax is required to be
paid by tenants directly to the taxing authority and (iii) any expenses incurred
by Landlord in contesting such taxes or assessments and/or the assessed value of
the Project, which expenses shall be allocated to the Tax Year to which such
expenses relate (provided that, such expenses shall not be allocated until
Landlord receives the benefit, if any, of such a contest). If at any time the
method of taxation shall be altered so that in lieu of or as an addition to or
as a substitute for, the whole or any part of such real estate taxes,
assessments and special assessments now imposed on real estate, there shall be
levied, assessed or imposed (x) a tax, assessment, levy, imposition, fee or
charge wholly or partially as a capital levy or otherwise on the rents received
therefrom, or (y) any other additional or substitute tax, assessment, levy,
imposition, fee or charge, including, without limitation, business improvement
district and transportation taxes, fees and assessments, then all such taxes,
assessments, levies, impositions, fees or charges or the part thereof so
measured or based shall be included in "Taxes". If the owner, or lessee under a
Superior Lease, of all or any part of the Building and/or the Land is an entity
exempt from the payment of taxes described in clauses (i) and (ii), there shall
be included in "Taxes" the taxes described in clauses (i) and (ii)
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which would be so levied, assessed or imposed if such owner or lessee were not
so exempt and such taxes shall be deemed to have been paid by Landlord on the
dates on which such taxes otherwise would have been payable if such owner or
lessee were not so exempt. Except as permitted in this Section 2.04(b), "Taxes"
shall not include any franchise, estate, income, capital stock or transfer tax.
(c) "Tax Year" means each period of 12 months, commencing on
the first day of July of each such period, in which occurs any part of the Term,
or such other period of 12 months occurring during the Term as hereafter may be
adopted as the fiscal year for real estate tax purposes of the City of New York.
(d) "Tenant's Tax Share" means 4.1879%. The parties hereto
agree that the rentable square foot area of the 19th Floor shall be deemed to be
19,713 rentable square feet and, solely for the purpose of calculating Tenant's
Tax Share, the rentable square foot area of Building A shall be deemed to be
470,717 rentable square feet. The Tenant's Tax Share has been determined by
dividing the rentable square foot area of the 19th Floor by the rentable square
foot area of Building A.
(e) If Taxes for any Tax Year, including the Tax Year in which
the Rent Commencement Date occurs, shall exceed the Base Tax Amount, Tenant
shall pay to Landlord (each, a "Tax Payment") Tenant's Tax Share of the amount
by which Taxes for such Tax Year are greater than the Base Tax Amount. Landlord
shall give Tenant a statement showing the computation of Tenant's Tax Share,
which statement shall cover only those Taxes which Landlord is then required to
pay to the taxing authority and such statement shall be accompanied by copies of
the applicable tax bills or other evidence showing the Taxes or tax assessments.
If there shall be any increase or decrease in the Taxes for any Tax Year, the
Tax Payment for such Tax Year shall be appropriately adjusted and paid or
refunded, as the case may be, in accordance herewith.
(f) If Landlord shall receive a refund of Taxes for any Tax
Year, Landlord shall pay to Tenant Tenant's Share of the net refund (after
deducting from such refund the costs and expenses of obtaining the same,
including, without limitation, appraisal, accounting and legal fees, to the
extent that such costs and expenses were not included in the Taxes for such Tax
Year); provided, that (i) Tenant shall not be eligible to receive such payment
if Tenant is in default of any payment of Fixed Rent beyond any applicable
notice and grace period under the Lease beyond any notice and grace period, if
applicable, and (ii) such payment to Tenant shall in no event exceed Tenant's
Tax Payment paid for such Tax Year.
(g) If the Taxes comprising the Base Tax Amount are reduced as
a result of an appropriate proceeding or otherwise, the Taxes as so reduced
shall for all purposes be deemed to be the Base Tax Amount and Landlord shall
notify Tenant of the amount by which the Tax Payments previously made were less
than the Tax Payments required to be made under this Section 2.04, and Tenant
shall pay the deficiency within 10 days after demand therefor.
(h) Landlord represents (i) that to its knowledge, without due
inquiry, there is no abatement(s) or exemption(s) of Taxes applicable to the
Building as of the date of the
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Lease and (ii) Landlord has no actual knowledge of any pending abatement(s) or
exemption(s) for the Base Tax Year. A filing for certiorari for the Base Tax
Year shall not be deemed a violation of this provision. In the event there shall
be abatement(s) or exemption(s) in effect for the Base Tax Year, such
exemption(s)/abatement(s) shall not be taken into account in calculating the
Base Tax Amount.
2.05 [INTENTIONALLY OMITTED]
2.06 Tax Provisions. (a) In any case provided in Section 2.04 in
which Tenant is entitled to a refund, Landlord may, in lieu of making such
refund, credit against future installments of Rent any amounts to which Tenant
shall be entitled. Nothing in this Article 2 shall be construed so as to result
in a decrease in the Fixed Rent. If this Lease shall expire before any such
credit shall have been fully applied, then (provided Tenant is not in monetary
default beyond any applicable notice and grace period under this Lease) Landlord
shall refund to Tenant the unapplied balance of such credit.
(b) Landlord's failure to render or delay in rendering any
statement with respect to any Tax Payment or installment thereof shall not
prejudice Landlord's right to thereafter render such a statement, nor shall the
rendering of an incorrect statement for any Tax Payment or installment thereof
prejudice Landlord's right to thereafter render a corrected statement therefor.
(c) Landlord and Tenant confirm that the computations under
this Article 2 are intended to constitute a formula for agreed rental escalation
and may or may not constitute an actual reimbursement to Landlord for Taxes. If
the Building shall be condominiumized, then Tenant's Tax Payments shall, if
necessary, be equitably adjusted such that Tenant shall thereafter continue to
pay the same share of the Taxes of the Building as Tenant would pay in the
absence of such condominimization. If the size of either Building A or Building
B shall be increased due to a recalculation of the rentable square footage of
Building A or Building B or for any other reason, Tenant's Tax Share shall be
recalculated to reflect the ratio of the rentable square feet in the Premises to
the revised number of rentable square feet in Building A or Building B, as
appropriate.
(d) Each Tax Payment in respect of a Tax Year, which begins
prior to the Possession Date or ends after the expiration or earlier termination
of this Lease, and any tax refund pursuant to Section 2.04(f), shall be prorated
to correspond to that portion of such Tax Year occurring within the Term.
2.07 Electric Charges. (a) Landlord shall supply the Original
Premises with electric service equal to at least six (6) watts demand load per
square foot of rentable space for lighting and receptacles, and six (6) watts
demand load per square foot of rentable space for air conditioning, and shall
cause Tenant's electric energy usage to be measured on a submetering basis. If
the electric service supplied to the Original Premises is supplied by more than
one (1) submeter, then the readings will be accumulated through a totalizing
meter and billed on a coincident demand basis as if billed through a single
meter. Landlord shall, at Landlord's expense, purchase and install the
submeter(s). Tenant shall pay Landlord, as additional rent, within ten (10) days
of receipt of its next rent bill, for the kw hours and kw demand used by Tenant
at the service classification under which the public utility bills Landlord
commensurate with the rate for
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the usage as shown on Tenant's meters, plus five (5%) percent thereof for
providing, reading and billing the submetering service; provided, that at no
point will Tenant be entitled to time-of-day rates. Landlord shall have the sole
right to select the provider of electricity for the Building.
(b) If it shall become unlawful for Landlord to submeter
Tenant's electric energy usage, such usage shall thereafter be paid for and
measured as follows:
(i) Tenant agrees to pay for its electric usage as
additional rent (hereinafter referred to as the "Additional Rent for
Electricity"). The Additional Rent for Electricity shall be determined initially
by a survey of the Premises made by an electrical consultant or electrical
engineer chosen by Landlord. The survey so made will determine the number of kw
hours and kw demand based on the electrical equipment and fixtures in the
Premises and the period of use thereof, and based thereon will determine the
value, expressed in dollars per year, of Tenant's electric energy usage. The
rate Tenant shall pay will be the service classification under which the public
utility bills Landlord commensurate with the rate for usage as shown by the
survey, plus five (5%) percent of such amount for Landlord's administrative
costs; provided, that at no point will Tenant be entitled to time-of-day rates.
The Additional Rent for Electricity so determined, as adjusted from time to time
pursuant to subparagraphs (ii), (iii) and (iv), shall be paid by Tenant in equal
monthly installments in advance on the first day of each month during the Term,
without any set off or deduction of any kind.
(ii) If the public utility rate schedule for the supply
of electric current to the Building shall be increased or decreased subsequent
to the date of the survey referred to above, or if there shall be an increase or
decrease in the fuel adjustment or taxes, or if additional taxes, surcharges, or
charges of any kind shall be imposed upon the sale or furnishing of such
electric current, the Additional Rent for Electricity shall be increased or
decreased by applying the changed rate, fuel adjustment and taxes to the kw
hours and kw demand shown on the electric survey then in effect.
(iii) If there shall be a change subsequent to the
initial survey, or any future survey, in the Premises, or in the number of hours
during which the Premises is used, or if Tenant's failure to maintain its
installations in good order and repair causes greater consumption of electric
current, or if Tenant uses electricity for purposes other than the use permitted
hereunder, or if Tenant adds any fixtures, machinery or equipment which
significantly increases its electricity usage, the Additional Rent for
Electricity, theretofore adjusted, shall be increased by applying to the
additional kw hours and kw demand furnished by Landlord the Service
Classification Rate under which the public utility bills Landlord commensurate
with the rate for the usage as shown by the survey, plus five (5%) percent of
such amount for Landlord's administrative costs (provided, that at no point will
Tenant be entitled to time-of-day rates). If Tenant's electricity usage shall
decrease due to the use of its electric fixtures or equipment for lesser periods
of time, or due to less or more efficient fixtures or equipment, the Additional
Rent for Electricity, theretofore adjusted, shall be decreased by applying the
Service Classification Rate aforesaid to the lesser kw hours and kw demand.
(iv) Landlord and Tenant shall each have the right from
time to time during the Term to have an electric rate consultant or electrical
engineer survey the electric
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current consumed by Tenant in the Premises. If such consultant determines that
the value of the electric current furnished Tenant is more or less than the
Additional Rent for Electricity, as most recently adjusted, such annual amount
shall be further adjusted to equal the amount determined by said consultant. The
cost of the survey shall be borne by the party ordering the same.
(v) Landlord shall deliver a copy of the initial survey,
and a copy of any future survey made pursuant to this Section 2.07(b), to
Tenant, and Tenant shall have sixty (60) days within which it may protest the
findings contained therein. If Tenant fails to protest within the sixty (60) day
period, the findings contained in the survey shall be final. If Tenant protests
within the sixty (60) day period (by sending Landlord a notice in the manner
herein provided for the giving of notices), Tenant shall have a second survey
made by an electric engineer or electric rate consultant of its choice, and
deliver a copy thereof to Landlord within sixty (60) days of the date of the
protest. If Landlord's and Tenant's surveyors are unable to agree upon the
amount of electric energy consumed by Tenant, or the amount of any increase or
decrease, or an any other matter contained in the surveys, the determination of
the same shall be submitted to arbitration under the rules of the American
Arbitration Association then obtaining. The determination of the electric rate
consultant or engineer, or the American Arbitration Association if there is
disagreement and the determination is submitted to arbitration made pursuant to
this subparagraph, shall be binding on Landlord and Tenant. The parties hereto
shall, within ten (10) days from the date of any such determination, execute,
acknowledge and deliver to each other an agreement setting forth the adjusted
Additional Rent for Electricity, but such increase or decrease shall be
effective from the date of the increase or decrease (subparagraph (ii)), or
change (subparagraph (iii)), or new survey (subparagraph (iv)), whether or not
such agreement is executed, and notwithstanding the date of execution thereof.
(c) Landlord shall not in any way be liable or responsible to
Tenant, except where due to its negligence, for any loss, damage or expense
which Tenant may sustain or incur if during the Term, by reason of the act or
inaction of the public utility servicing the Building, either the quantity or
character of electrical energy is changed or is no longer available or suitable
for Tenant's requirements. Landlord shall not be obligated to increase the
existing electrical capacity of any portion of the Building's systems, nor to
provide any additional wiring or capacity to meet Tenant's requirements, other
than as set forth in Section 2.07(a). Tenant shall make no substantial
alteration or addition to the electrical equipment in the Premises as of the
commencement of the Term, nor increase the use of electricity in the Premises
without the prior written consent of the Landlord in each instance, which
consent Landlord agrees not to unreasonably withhold or delay. Subject to
Landlord's obligation set forth in Section 2.07(a) herein, Tenant covenants and
agrees that at all times its use of electric current shall never exceed the
capacity of the then existing feeders of the Building or the risers or wiring
installations, and further agrees that Tenant may not use any electrical
equipment which, in Landlord's opinion, reasonably exercised, will overload such
installations or interfere with the use thereof by any other tenants of the
Building.
2.08 Manner of Payment. Tenant shall pay all Rent and all other sums
as the same shall become due and payable under this Lease either by wire
transfer of immediately available federal funds as directed by Landlord or by
check (subject to collection) drawn on a New York Clearing House Association
member bank, in each case at the times provided herein
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without notice or demand and without setoff or counterclaim. All Rent shall be
paid in lawful. money of the United States to Landlord at its office or such
other place as Landlord may from time to time designate. If Tenant fails timely
to pay any Rent, Tenant shall pay interest thereon from the date when such Rent
became due to the date of Landlord's receipt thereof at the lesser of (i) 1 1/2%
per month or (ii) the maximum rate permitted by law. Any Additional Charges for
which no due date is specified in this Lease shall be due and payable on the
10th day after the date of Landlord's invoice therefor. All bills, invoices and
statements rendered to Tenant with respect to this Lease shall be binding and
conclusive on Tenant unless, within 60 days after receipt of same, Tenant
notifies Landlord that it is disputing same. Notwithstanding anything to the
contrary contained in this Lease, Rent shall be due and payable on the first day
of the month, and failure to pay such Rent on or prior to the first day of any
month shall be considered a default under this Lease and interest shall accrue
as provided in this Section 2.08 from and after the first day the Rent becomes
due and payable.
2.09 Security. (a) Upon the execution of this Lease, Tenant has
delivered to Landlord, as security for the performance of Tenant's obligations
under this Lease, either (i) the sum of $400,000.00, in certified or official
bank check (the "Initial Security Deposit"), or (ii) an unconditional,
irrevocable letter of credit in the amount of $400,000.00 in a form and issued
by a bank reasonably satisfactory to Landlord (the "Initial Letter of Credit").
Within ten (10) days after notice from Landlord to Tenant that the Premises are
vacant and Landlord is in possession of the Premises, Tenant shall deliver to
Landlord, as further security for the performance of Tenant's obligations under
this Lease, either (i) the sum of $1,400,000.00, in certified or official bank
check (the "Additional Security Deposit" together with the Initial Security
Deposit, the "Security Deposit") or (ii) an unconditional, irrevocable letter of
credit in the amount of $1,400,000.00 in a form issued by a bank reasonably
satisfactory to Landlord (the "Additional Letter of Credit" together with the
Initial Letter of Credit, the "Letter of Credit"). The Letter of Credit shall
provide that it is assignable by Landlord without charge and shall either (A)
expire on the date which is 60 days after the expiration or earlier termination
of this Lease (the "LC Date") or (B) be automatically self-renewing until the LC
Date. If any Letter of Credit is not renewed at least 30 days prior to the
expiration thereof or if Tenant holds over in the Premises without the consent
of Landlord after the expiration or termination of this Lease, Landlord may draw
upon the Letter of Credit and hold the proceeds thereof as security for the
performance of Tenant's obligations under this Lease including, but not limited
to, damages under Section 6.05 hereof. Landlord may draw on the Security Deposit
or Letter of Credit (or the proceeds thereof) solely to remedy defaults by
Tenant, which are beyond any applicable notice and grace period, in the payment
or performance of any of Tenant's obligations under this Lease. If Landlord
shall have so drawn upon the Security Deposit or the Letter of Credit (or the
proceeds thereof), Tenant shall upon demand deposit with Landlord a sum equal to
the amount so drawn by Landlord. Landlord hereby agrees that a Letter of Credit
issued (i) in the form set forth in Exhibit I attached hereto and made a part
hereof and (ii) by Amalgamated Bank shall be deemed to be reasonably
satisfactory to Landlord. If Tenant delivers the Security Deposit to Landlord in
cash, then the Security Deposit shall be kept in an interest-bearing account
until applied in accordance with the terms of this Lease (it being understood
that Landlord shall not be liable for failure to obtain any specific level of
interest). Landlord shall pay such interest to Tenant, less a one (1%) percent
administrative fee, no more frequently than annually, upon the request of
Tenant.
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(b) In the event that Tenant shall have prior to the
expiration of the Election Period elected to forego receipt of Landlord's
Contribution pursuant to Section 2.02(b) above, the amount of the Security
Deposit required hereunder shall be reduced by seven hundred thirty thousand
three hundred ninety-five ($730,395.00) dollars plus any amount added to
Landlord's Contribution resulting from the inclusion of the Additional 19th
Floor Space in accordance with Section 1.07 of this Lease.
(c) If, at any time, Tenant (i) completes a secondary public
offering of fifty million dollars ($50,000,000.00) or more (the "Minimum Equity
Amount") or (ii) otherwise receives an equity infusion of the Minimum Equity
Amount, which Minimum Equity Amount, by the terms of the documents governing the
same, can be used by Tenant as working capital, then the Security Deposit
required hereunder shall be reduced to one million dollars ($1,000,000.00).
(d) If, prior to the expiration of the Election Period, Tenant
has elected to forego receipt of Landlord's Contribution pursuant to Section
2.02(b) above, and if Tenant meets the requirements of Section 2.09(c) above,
then the Security Deposit hereunder shall be reduced to five hundred thousand
($500,000) dollars (the "Minimum Security Amount").
(e) If, from and after the Possession Date, (A) there is not a
monetary default beyond any applicable notice and grace period under this Lease
and (B) Tenant delivers to Landlord evidence that it has a NOI (as defined
below) of at least four million ($4,000,000.00) dollars and that the Tenant has
maintained a NAV (as defined below) of at least twenty million ($20,000,000.00)
dollars during the preceding twenty-four (24) month period, then the Security
Deposit shall be reduced to five hundred thousand ($500,000.00) dollars.
(f) If the Security Deposit has not otherwise been reduced to
the Minimum Security Amount, then:
(i) if, during the first five (5) years of the Term,
there have not occurred more than three (3) monetary defaults beyond any
applicable notice and grace period under this Lease, then upon the sixth (6th)
anniversary of the Rent Commencement Date, the Security Deposit shall be reduced
by four hundred thousand ($400,000) dollars; and
(ii) if, during the first ten (10) years of the Term,
there have not occurred more than six (6) monetary defaults beyond any
applicable notice and grace period, then upon the eleventh (11th) anniversary of
the Rent Commencement Date, the Security Deposit shall be reduced by four
hundred thousand, ($400,000) dollars; and
(g) If the Security Deposit is reduced pursuant to Section
2.09(f)(i) or (ii) above, and after the date of such reduction there occurs more
than three (3) monetary defaults, beyond any applicable notice and grace period,
within any five (5) year period, the Security Deposit required shall be
increased to the amount of such Security Deposit immediately prior to such
reduction and Tenant shall be required to deliver to Landlord as further
security for the performance of Tenant's obligations under this Lease, within
ten (10) days notice from Landlord and in accordance with the provisions of
Section 2.09(a) above, four hundred thousand ($400,000) dollars.
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(h) As used herein the term "NOI" shall mean net income,
adjusted for non-cash charges, including, without limitation, depreciation,
amortization, and deferred income taxes. The term "NAV" shall mean total assets,
less total liabilities. Total assets shall not include (i) deferred charges,
(ii) intangibles (including, without limitation, patents, software development
costs or goodwill), or (iii) receivables from stockholders, officers, or
affiliates.
(i) Notwithstanding anything to the contrary contained in this
Section 2.09, in no event shall the Security Deposit be reduced to less than the
Minimum Security Amount.
(j) In the event that Tenant is entitled to a reduction in the
amount of the Security Deposit under Sections 2.09(c), (d), (e) or (f) above,
Landlord shall (1) if the Security Deposit was paid in cash, return the amount
of such reduction to Tenant by check or (2) if the Security Deposit was given in
the form of a Letter of Credit, exchange the existing Letter of Credit for a
Letter of Credit in the amount of the reduced Security Deposit. If, within
thirty (30) days after receiving notice from Tenant that Tenant is entitled to a
reduction in the Security Deposit, unless Landlord is disputing the same,
Landlord does not return the amount of the reduction to Tenant or, if
applicable, cooperate with Tenant in obtaining a new Letter of Credit for the
reduced amount of the Security Deposit, then Tenant shall be entitled to
interest, at the Interest Rate, on the amount of the reduction of the Security
Deposit. "Interest Rate" means the lesser of (i) the prime rate from time to
time announced by Citibank, N.A. (or, if Citibank, NA. shall not exist, such
other bank in New York, New York, as shall be designated by Landlord in a notice
to Tenant) to be in effect at its principal office in New York, New York plus 2%
or (ii) the maximum rate permitted by law.
2.10 Expense Escalation. (A) As used in this Lease:
(i) "Wage Rate" means the full minimum regular hourly
rate of wages including, without limitation, adjustments of every kind, but
specifically excluding fringe benefits, in effect as of January 1st of each year
(whether paid by Landlord or any contractor employed by Landlord) computed as
paid over a forty (40) hour week to Porters in Class A office buildings pursuant
to an Agreement between The Realty Advisory Board on Labor Relations,
Incorporated, or any successor thereto ("Realty Advisory Board"), and Local
32B-32J of the Building Service Employees International Union ("Local 32B-32J"),
AFL-CIO, or any successor thereto; and provided, however, that if there is no
such agreement in effect prescribing a wage rate for Porters, computations and
payments shall thereupon be made upon the basis of the regular hourly wage rate
actually payable to Porters by Landlord or by Landlord's service contractors
over a forty (40) hour week, in effect as of January 1st of each year, and
provided, however, that if in any year during the Term the regular employment of
Porters shall occur on days or during hours which overtime or other premium pay
rates are in effect pursuant to such Agreement, then the term "hourly rate of
wages" as used herein shall be deemed to mean the average hourly rate for the
hours in a calendar week during which Porters are regularly employed (e.g., if
pursuant to an agreement between Realty Advisory Board and the Local 32B-32J the
regular employment of Porters for forty hours during a calendar week is at a
regular hourly wage rate of $3.00 for the first thirty hours, and premium or
overtime hourly wage rate of $4.50 for the remaining ten hours, then the hourly
rate of wages under this Article during such period shall be
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total weekly rate of $135.0O divided by the total number of regular hours of
employment, forty or $3.375).
(ii) "Base Wage Rate" means the Wage Rate in effect for
calendar year 2001.
(iii) The term "Porters" means that classification of
non-supervisory employees employed in and about the Building who devote a major
portion of their time to general cleaning, maintenance and miscellaneous
services essentially of a non-technical and non-mechanical nature and are the
type of employees who are presently included in the classification of "Class
A-Others" in the Commercial Building Agreement between the Realty Advisory Board
and Local 32B-32J.
(iv) "Multiplication Factor" shall mean the product
obtained by multiplying the area of the Original Premises (which, for the
purposes of this Article, the parties have agreed shall be 21,735 rentable
square feet, as the same may be increased or decreased pursuant to the express
provisions of this Lease) by one (1).
(B) If the Wage Rate for any calendar year during the Term
shall be greater than the Base Wage Rate, then Tenant shall pay, as additional
rent, an amount (the "Wage Increase Charge") equal to the product obtained by
multiplying the Multiplication Factor by the number of cents (including any
fraction of a cent) by which the Wage Rage is greater than the Base Wage Rate,
such payment to be made in equal monthly installments commencing with the first
monthly installments of fixed rent falling due on or after the effective date of
such increase in Wage Rate (payable retroactive from said effective date) and
continuing thereafter until a new adjustment shall have become effective in
accordance with the provisions of this Section. Landlord shall give Tenant
notice of each change in Wage Rate that will be effective to create or change
Tenant's obligation to pay the Wage Increase Charge pursuant to the provisions
of this Article, which notice shall contain Landlord's calculation of the Wage
Increase Charge payable resulting from such increase in Wage Rate. The Wage
Increase Charge shall be prorated, if necessary, to correspond with that portion
of a calendar year occurring within the Term. Such notice shall be served in
accordance with the terms of this Lease and shall be accompanied by such
information which shall be reasonably necessary for Tenant to evaluate the
accuracy thereof.
(C) Every notice given by Landlord pursuant to Paragraph B of
this Section shall be conclusive and binding upon Tenant unless (i) within
ninety (90) days after the receipt of such notice, Tenant shall notify (a
"Dispute Notice") Landlord that it disputes the correctness of the notice,
specifying the particular respects in which the notice is claimed to be
incorrect and (ii) if such dispute shall not have been settled by agreement,
Tenant shall submit the dispute to binding arbitration before the American
Arbitration Association in the City of New York, County of New York, within
sixty (60) days after the date of the Dispute Notice. If such dispute is
submitted to arbitration, the non-prevailing party shall, upon demand, reimburse
the prevailing party for any attorney's fees, disbursements and other costs
related to the arbitration. Pending the determination of such dispute, Tenant
shall pay the Wage Increase Charge in accordance with Landlord's notice without
prejudice to Tenant's position of such dispute. In the event such dispute shall
be determined in Tenant's favor, Landlord shall, on demand, pay Tenant
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the amount so overpaid by Tenant plus interest at the Interest Rate, which such
interest shall be calculated from the date on which Tenant first paid the
disputed Wage Increase Charge.
(D) The Wage Rate is intended to be a substitute comparative
index of economic costs and inflationary pressures and does not necessarily
reflect the actual costs of wages or other expenses of operating the Building.
The Wage Rate shall be used whether or not the building is a Class A office
building, whether or not porters are employed in the Building and without regard
to whether such employees are members of the union referred to in Paragraph A of
this Section.
ARTICLE 3
Landlord Covenants
3.01 Landlord Services. (a) Except as specifically provided
otherwise herein, from and after the date that Tenant first occupies the
Premises for the conduct of Tenant's business, Landlord shall furnish Tenant
with the following services (collectively, "Landlord Services"):
(i) (A) passenger elevator service to the 19th Floor,
with at least three (3) passenger elevators available at all times during
Business Hours on Business Days and at least one passenger elevator subject to
call at all other times, it being agreed that two of such passenger elevators
shall service floors 14 through 19 only and (B) freight elevator service to the
Premises and use of the loading dock on a first come-first served basis (i.e.,
no advance scheduling) from 8:00 am. to 5:00 p.m. on Business Days, and on a
reserved basis at all other times upon the payment of Landlord's actual cost for
the use of the freight elevator and loading dock including, without limitation,
the cost of an operator for the elevator; the use of all elevators shall be on a
nonexclusive basis;
(ii) reasonable quantities of hot and cold water to the
floor(s) on which the Premises are located for core lavatory and cleaning
purposes only; if Tenant requires water for any other purpose, Landlord shall
furnish cold water at the Building core riser through a capped outlet to be
installed at Tenant's expense located on the floor on which the Premises is
located (within the core of the Building), and the cost of heating such water,
as well as the cost of piping and supplying such water to the Premises, shall be
paid by Tenant; Landlord may install and maintain, at Tenant's expense, meters
to measure Tenant's consumption of cold water and/or hot water for such other
purposes in which event Tenant shall reimburse Landlord for the quantities of
cold water and hot water shown on such meters (including Landlord's standard
charge for the production of such hot water, if produced by Landlord), on
demand;
(iii) electrical capacity equal to at least six (6)
watts demand load per square foot of rentable space for lighting and
receptacles, and six (6) watts demand load per square foot of rentable space for
air conditioning; such electrical capacity shall be available at the electrical
closet on the floor of the Building on which the Premises is located (it being
understood
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that Tenant shall be responsible for bringing such electrical capacity from the
electrical closet to the Premises); subject to Landlord's obligation to provide
the electrical capacity set forth herein, in no event shall Tenant's consumption
of electricity exceed the capacity of existing feeders to the Building or the
risers or wiring serving the Premises, nor shall Tenant be entitled to any
unallocated power available in the Building unless, in Landlord's judgment
(taking into account the then existing and future needs of other then existing
and future tenants, and other needs of the Building), the same is available and
necessary for Tenant's use; and
(iv) cleaning services in accordance with Exhibit E
attached hereto. Landlord shall not be required to perform any (A) extra
cleaning work in the Premises required because of (w) carelessness,
indifference, misuse or neglect on the part of Tenant, its subtenants or their
respective employees or visitors, (x) interior glass partitions or an unusual
quantity of interior glass surfaces, (y) non-building standard materials or
finishes installed in the Premises and/or (z) the use of the Premises other than
during Business Hours on Business Days and/or (B) removal from the Premises and
the Building of any refuse of Tenant (x) in excess of that ordinarily
accumulated in business office occupancy, including, without limitation, kitchen
refuse and/or (y) at times other than Landlord's standard cleaning times.
Notwithstanding the foregoing, Landlord shall not be required to clean any
portions of the Premises used for preparation, serving or consumption of food or
beverages, training rooms, data processing or reproducing operations, private
lavatories or toilets or other special purposes requiring greater or more
difficult cleaning work than office areas, and Tenant shall retain Landlord's
cleaning staff or Landlord's cleaning contractor, as applicable, to perform such
cleaning at Tenant's expense. Landlord's cleaning staff or Landlord's cleaning
contractor, as applicable, shall have access to the Premises after 6:00 p.m. and
before 8:00 a.m. and shall have the right to use, without charge therefor, all
light, power and water in the Premises reasonably required to clean the
Premises.
(b) From and after the date that Tenant first occupies the
First Temporary Space, and if Tenant takes occupancy of the Second Temporary
Space as provided under Section 1.06(b), from and after the date that Tenant
first occupies the Second Temporary Space, Landlord shall furnish Tenant with:
(i) the Landlord Services described in Section 3.01(a)
above, and
(ii) heat, ventilation and air-conditioning to the
Temporary Space during Business Hours on Business Days; if Tenant shall require
heat, ventilation or air conditioning services at any other times, Landlord
shall furnish such service at a rate that reasonably reflects the actual cost to
Landlord of providing the service in question, which shall in no event be less
than $150.00 per hour, for a minimum of four (4) hours; provided that if other
tenants in Building B also have requested that Landlord provide such overtime
service, the cost of such overtime service shall be divided pro rata among all
tenants requesting such overtime service. Air-conditioning shall only be
available from May 1st through October 15th.
(iii) Landlord shall deliver to each floor of the
Temporary Space 30 tons of air conditioning per floor with adequate condenser
water (up to 30 tons) from Landlord's cooling towers to service such air
conditioning from May 15th through October 15th on Business Days during Business
Hours. Tenant shall have the right to install supplementary or
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auxiliary air-cooled HVAC equipment to serve the Temporary Space, the
specifications and installation of which system shall be subject to Landlord's
approval. From May 1st through October 15th, if Tenant requires condenser water
from Landlord's cooling towers for more extended hours or on Non-Business Days
or on holidays, Landlord will furnish the same, at Tenant's expense, in an
amount equal to $150.00 per hour, for a minimum of four (4) hours; provided that
if other tenants in Building B also have requested that Landlord provide such
overtime service, the cost of such overtime service shall be divided pro rata
among all tenants requesting such overtime service.
(c) Tenant acknowledges that (i) the 19th Floor Mezzanine
shall be used as permitted under Section 1.01(b) herein and (ii) with the
exception of electricity and cleaning as described in Sections 3.01(a)(iii) and
(iv), the Landlord Services described in Section 3.01(a) above shall not be
provided to the 19th Floor Mezzanine.
(d) Landlord may stop or interrupt any Landlord Services,
electricity, or other service and may stop or interrupt the use of any Building
facilities and systems at such times as may be necessary and for as long as may
reasonably be required by reason of accidents, strikes, or the making of
repairs, alterations or improvements, or inability to secure a proper supply of
fuel, gas, steam, water, electricity, labor or supplies, or by reason of any
other cause beyond the reasonable control of Landlord. Landlord shall have no
liability to Tenant by reason of any stoppage or interruption of any Landlord
Service, electricity or other service or the use of any Building facilities and
systems for any reason. Landlord shall use reasonable diligence (which shall not
include incurring overtime charges) to make such repairs as may be required to
machinery or equipment within the Project to provide restoration of any Landlord
Services and, where the cessation or interruption of such Landlord Services has
occurred due to circumstances or conditions beyond the Project boundaries, to
cause the same to be restored by diligent application or request to the
provider.
(e) Without limiting any of Landlord's other rights and
remedies, if Tenant shall be in monetary default beyond any applicable notice
and grace period, Landlord shall not be obligated to furnish to the Premises any
overtime service outside of Business Hours on Business Days, and Landlord shall
have no liability to Tenant by reason of any failure to provide, or
discontinuance of, any such service.
(f) "Business Hours" means 8:00 a.m. to 6:00 p.m. "Business
Days" means all days except Saturday, Sundays, holidays as outlined in the Rules
and Regulations (as defined below) and any other days which are either (i)
observed by both the federal and the state governments as legal holidays or (ii)
designated as a holiday by the applicable building service union employee
service contract or operating engineers contract.
(g) "Rules and Regulations" means the rules and regulations
attached hereto as Exhibit C, as the same may be modified or amended from time
to time. If there is any conflict between the provisions of the Rules and
Regulations and the provisions of this Lease, the provisions of this Lease will
control. Landlord shall not discriminate against Tenant in the promulgation and
enforcement of the Rules and Regulations of the Building.
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(h) Tenant acknowledges that (i) both the 19th Floor and the
19th Floor Mezzanine are serviced by independent heating/cooling units,
(specifically seven (7) ten-ton Carrier heating/cooling units and one (1)
five-ton Carrier heating/cooling unit) for the purposes of providing heat,
air-conditioning and ventilation to the 19th Floor and the 19th Floor Mezzanine
and (ii) Landlord shall not be obligated to otherwise provide heat,
air-conditioning and ventilation to the 19th Floor or the 19th Floor Mezzanine.
Tenant shall maintain, at Tenant's sole cost and expense, the aforementioned
independent heating/cooling units.
(i) Landlord agrees to continue to operate the Building to the
same standard that the Building is operated as of the date of this Lease.
ARTICLE 4
Leasehold Improvements; Tenant Covenants
4.01 Initial Improvements. (a) Landlord, at Landlord's expense,
shall perform or cause to be performed the initial work described on Exhibit F
("Landlord's Initial Work") in accordance with the provisions thereof. On the
Possession Date, Tenant shall accept the Original Premises in its "as is"
condition on such date; provided that Landlord's Initial Work shall be
substantially complete as required under Section 1.03 above. All other
improvements which do not constitute Landlord's Initial Work shall be performed
by Tenant at Tenant's expense in accordance with Section 4.02.
(b) Tenant agrees to improve the Original Premises and, if Tenant
exercises Tenant's Expansion Option, the Expansion Space, in accordance with
detailed specifications and working drawings to be prepared by Tenant's
architect. The detailed specifications and working drawings are hereinafter
referred to as "Tenant's Plans", and the work shown by the Tenant's Plans is
hereinafter referred to as "Tenant's Initial Improvements".
(c) Tenant shall proceed forthwith to cause Tenant's Plans to be
prepared by an architect licensed as such in the State of New York. Tenant's
Plans, including structural and mechanical drawings and specifications, shall be
prepared at Tenant's sole cost and expense. Tenant shall submit at least three
(3) full sets of Tenant's Plans to Landlord for Landlord's approval. Landlord
agrees to review Tenant's Plans and to approve the same or make written
exceptions thereto within thirty (30) days from the date of the submission of
the plans. Landlord agrees not to unreasonably withhold or delay its approval of
Tenant's Plans, and failure by Landlord to provide the written exceptions within
the thirty (30) day period aforesaid shall be deemed approval of Tenant's Plans.
If Landlord disapproves Tenant's Plans, Landlord shall provide Tenant with the
written exceptions to Tenant's Plans and Tenant shall revise them and re-submit
them to Landlord for approval. Landlord shall review the resubmitted Tenant's
Plans and shall approve the same or make written exceptions thereto within
fifteen (15) days from the date of the resubmission of the Plans. Upon approval
by Landlord of Tenant's Plans, Tenant shall submit the same to the New York City
Department of Buildings for approval, to the extent required by law, and for
issuance of a building permit to perform the Improvements, if required by
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law. Tenant acknowledges that preparation of a Fire Protection Plan with respect
to the Premises may be a prerequisite to obtaining a sign-off on Tenant's
Initial Improvements, and Tenant agrees to prepare the same at its expense if
one is required. Landlord agrees, at Tenant's cost and expense, to cooperate
with Tenant and Tenant's architect and engineer in providing information needed
for the preparation of Tenant's Plans, the Fire Protection Plan, the application
for a building permit and all other permits required for the Improvements, and
to promptly execute all documents required to be signed by Landlord.
(d) Tenant agrees to hire a reputable general contractor,
construction manager or subcontractors and materialmen (hereinafter
"Contractor(s)") from a list of contractors to be approved by Landlord (which
approval shall not be unreasonably withheld or delayed) to perform Tenant's
Initial Improvements in a good and workmanlike manner in accordance with (x) the
approved Tenant's Plans and any material amendments or additions thereto
approved by Tenant and Landlord and all municipal authorities having
jurisdiction, and (y) all provisions of Laws and any and all permits and other
requirements specified by any ordinance, law or public regulation. Tenant shall
cause the Contractor(s) to obtain and maintain throughout the work, Workers'
Compensation Insurance, New York State Disability Insurance and comprehensive
general liability insurance, including contractual liability coverage, in an
amount of not less thin $2 million combined single limit for bodily injury or
death for any one occurrence, and for property damage, plus a $5 million
umbrella policy. The liability coverage shall name Landlord and Orda Management
Corporation as additional insured parties, and Tenant shall deliver to Landlord
proper certificates of insurance confirming the coverages described above prior
to commencement of Tenant's Initial Improvements. If Tenant acts as its own
General Contractor or Construction Manager, Tenant shall obtain and maintain
such insurance. All Contractor(s) shall be members of a union affiliated with
the building trades in the City of New York that has jurisdiction over the
Building and Tenant's Initial Improvements.
(e) Unless Tenant shall have elected to forego the same pursuant to
Section 2.02(b) above, Landlord agrees to contribute Thirty-Five ($35) Dollars
per rentable square foot of the 19th Floor and Twenty ($20) Dollars per rentable
square foot of the 19th Floor Mezzanine, for a total of $730,395.00 (subject to
any amount added to Landlord's Contribution resulting from the inclusion of the
Additional 19th Floor Space in accordance with Section 1.07 of this Lease),
toward the cost of the Tenant's Initial Improvements ("Landlord's
Contribution"). Landlord shall pay the Landlord's Contribution to Tenant's
Contractor(s) over the duration of the construction, no more frequently than
monthly, on receipt of a notice from Tenant of the names of the Contractor(s)
who performed work or supplied materials with respect to Tenant's Initial
Improvements, together with an Application and Certificate for Payment on AIA
Document G702 and G703, or similar form, duly executed by the Contractor(s) to
be paid, and Tenant's architect, who shall certify to Landlord (i) that the work
performed and materials delivered under said application generally conform to
Tenant's Plans, (ii) that the amount of such payment request approved by the
architect is justified by the work, (iii) the percentage of Tenant's Initial
Improvements completed by that date, (iv) that no less than 85% of the cost of
work to be paid from Landlord's Contribution (i.e., $620,835.75) has been
incurred in respect of hard costs and (v) that in said architect's opinion
adequate funds remain to complete Tenant's Initial Improvements. Landlord may
retain ten (10%) percent of each requested amount until ten (10) days after (w)
substantial completion of Tenant's Initial Improvements, (x) delivery to
Landlord
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of waivers of mechanic's/materialmen's liens from all of Tenant's Contractor(s)
for amounts paid to date, and statements from the Contractor(s) stating the
balance owed, (y) receipt of invoices, requisitions, canceled checks or other
documentary evidence showing payment of the cost of Tenant's Initial
Improvements, and (z) receipt of two (2) sets of as-built drawings, or drawings
marked "Final", of the improved Premises. For each request for payment made by
Tenant, the amount of Landlord's Contribution to be paid to Tenant's
Contractor(s) shall be determined by multiplying the amount due to Tenant's
Contractors by the Pro Rata Share. "Pro Rata Share" shall mean the ratio of
Landlord's Contribution to the total estimated cost of Tenant's Initial
Improvements.
(f) If Landlord fails to pay any portion of Landlord's Contribution
as provided in Section 4.01(e) above within thirty (30) days from receipt of a
notice from Tenant, Landlord shall pay to Tenant interest, at the Interest Rate,
on the unpaid amount.
(g) All fees payable to municipal authorities by reason of Tenant's
Initial Improvements, and by reason of any hook-up into the Building's existing
fire alarm and communication systems, shall be part of, and not in addition to,
the Landlord's Contribution.
(h) Tenant shall pay Orda Management Corporation, within ten (10)
days after being billed therefor, the reasonable actual out of pocket fees and
disbursements paid by Landlord to architects and engineers for reviewing
Tenant's Plans; provided, that, in no event shall the cost to Tenant exceed two
thousand five hundred ($2,500.00) dollars.
(i) From the date of this Lease to the Possession Date, Landlord
shall, upon reasonable notice from Tenant, arrange for Tenant and Tenant's
architects to have reasonable access to the Premises during Business Hours and
on Business Days for the purpose of permitting Tenant's architects and other
consultants an opportunity to prepare plans for Tenant's Initial Work.
(j) Tenant shall deliver to Landlord, within 30 days after the
completion of Tenant's Initial Improvements, five sets of "as-built" drawings
thereof prepared and certified by Tenant's architect. During the Term, Tenant
shall keep records of Tenant's Initial Improvements including plans and
specifications, copies of contracts, invoices, evidence of payment and all other
records customarily maintained in the real estate business relating to Tenant's
Initial Improvements and the cost of such improvements. Tenant shall, within 30
days after demand by Landlord, furnish to Landlord copies of such records.
4.02 Alterations. (a) Tenant shall make no improvements, changes or
alterations in or to the Premises ("Alterations") without Landlord's prior
written approval. Provided Tenant is not in default under this Lease beyond any
applicable notice and/or cure period, Landlord shall not unreasonably withhold,
delay or condition its approval to any Alteration that is not a Material
Alteration. "Material Alteration" means an Alteration that (i) is not limited to
the interior of the Premises or which affects the exterior (including the
appearance) of the Building, (ii) is structural or affects the strength of the
Building, (iii) affects the usage or the proper functioning of any of the
Building systems, (iv) has a cost greater than $250,000
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(v) requires the consent of any Superior Mortgagee or Superior Lessor and/or
(vi) requires a building permit.
(b) Tenant, in connection with any Alteration, shall comply
with the Rules and Regulations applicable thereto. Tenant shall not proceed with
any Alteration unless and until Landlord approves Tenant's plans and
specifications ("Alteration Plans") therefor in writing. Tenant shall submit at
least three (3) full sets of Tenant's plans and specifications to Landlord for
Landlord's approval. Landlord shall have thirty (30) days from the submission of
Tenant's Alteration Plans to approve or disapprove of such plans. If Landlord
fails to approve or disapprove Tenant's Alteration Plans during such period, the
same shall be deemed approved. Landlord shall notify Tenant of which fixtures,
equipment and improvements must be removed at the expiration of the Term when
notifying Tenant of its approval or disapproval of Tenant's Alteration Plans; if
Landlord does not so notify Tenant, then Landlord shall not require Tenant to
remove such fixtures, equipment and improvements at the expiration of the Term.
Any review or approval by Landlord of Tenant's Alteration Plans is solely for
Landlord's benefit, and without any representation or warranty to Tenant with
respect to the adequacy, correctness or efficiency thereof, its compliance with
Laws or otherwise.
(c) Tenant shall pay to Landlord upon demand Landlord's
reasonable out-of-pocket costs and expenses (including, without limitation, the
fees of any architect or engineer employed by Landlord or any Superior Lessor or
Superior Mortgagee for such purpose) for reviewing Tenant's Alteration Plans and
inspecting Alterations; provided, that in no event shall the cost to Tenant
exceed two thousand five hundred ($2,500.00) dollars.
(d) Before proceeding with any Alteration that will cost more
than $50,000 (exclusive of the costs of decorating work and items constituting
Tenant's Property), as estimated by a reputable contractor designated by
Landlord, Tenant shall furnish to Landlord one of the following (as selected by
Landlord): (i) a cash deposit, (ii) a performance bond and a labor and materials
payment bond (issued by a corporate surety licensed to do business in New York
reasonably satisfactory to Landlord) or (iii) an irrevocable, unconditional,
negotiable letter of credit, issued by a bank and in a form satisfactory to
Landlord; each to be equal to 125% of the cost of the Alteration, estimated as
set forth above. Any such letter of credit shall be for one year and shall be
renewed by Tenant each and every year until the Alteration in question is
completed and shall be delivered to Landlord not less than 30 days prior to the
expiration of the then current letter of credit, failing which Landlord may
present the then current letter of credit for payment. Upon (A) the completion
of the Alteration in accordance with the terms of this Section 4.02 and (B) the
submission to Landlord of (x) proof evidencing the payment in full for said
Alteration, (y) written unconditional lien waivers of mechanics' liens and other
liens on the Project from all Contractors performing said Alteration and (z) all
submissions required pursuant to Laws, the security deposited with Landlord (or
the balance of the proceeds thereof, if Landlord has drawn on the same) shall be
returned to Tenant. Upon Tenant's failure properly to perform, complete and
fully pay for any Alteration, as determined by Landlord, Landlord may, upon
notice to Tenant, draw on the security deposited under this Section 4.02(d) to
the extent Landlord deems necessary in connection with said Alteration, the
restoration and/or protection of the Premises or the Project and the payment of
any costs, damages or expenses resulting therefrom.
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(e) Tenant shall obtain (and furnish copies to Landlord of)
all necessary governmental permits and certificates for the commencement and
prosecution of Alterations and for final approval thereof upon completion, and
shall cause Alterations to be performed in compliance therewith, and in
compliance with all Laws and with the Alteration Plans approved by Landlord.
Landlord agrees, at Tenant's cost and expense, to cooperate with Tenant and
Tenant's architect and engineer in providing information needed for the
preparation of Tenant's Alteration Plans, the application for a building permit,
if necessary, and the application for all other permits required for Tenant's
Alteration Plans, and to promptly execute all documents required to be signed by
Landlord. Alterations shall be diligently performed in a good and workmanlike
manner, using new materials and equipment at least equal in quality and class to
the then standards for the Building established by Landlord. Alterations shall
be performed by Contractors first approved by Landlord (which approval shall not
be unreasonably withheld or delayed); provided, that any Alterations in or to
the systems of the Building shall be performed only by the Contractor(s)
designated by Landlord. With respect to such Contractors for Building systems
(other than heat, ventilation and air conditioning, fire and safety), the
Contractor(s) designated by Landlord shall demonstrate to the reasonable
satisfaction of Tenant that the cost of the work in question is competitively
priced. The performance of any Alteration shall not be done in a manner which
would violate Landlord's union contracts affecting the Project, or create any
work stoppage, picketing, labor disruption, disharmony or dispute or any
interference with the business of Landlord or any tenant or occupant of the
Building. Tenant shall immediately stop the performance of any Alteration if
Landlord notifies Tenant that continuing such Alteration would violate
Landlord's union contracts affecting the Project, or create any work stoppage,
picketing, labor disruption, disharmony or dispute or any interference with the
business of Landlord or any tenant or occupant of the Building.
(f) Throughout the performance of Alterations, Tenant shall
carry worker's compensation insurance in statutory limits, "all risk" Builders
Risk coverage and general liability insurance, with completed operation
endorsement, for any occurrence in or about the Project, under which Landlord
and its agent and any Superior Lessor and Superior Mortgagee whose name and
address have been furnished to Tenant shall be named as parties insured, in such
limits as Landlord may reasonably require, with insurers reasonably satisfactory
to Landlord. Tenant shall furnish Landlord with evidence that such insurance is
in effect at or before the commencement of Alterations and, on request, at
reasonable intervals thereafter during the continuance of Alterations.
(g) Should any mechanics' or other liens be filed against any
portion of the Project by reason of the acts or omissions of, or because of a
claim against, Tenant or anyone claiming under or through Tenant, Tenant shall
cause the same to be canceled or discharged of record by bond or otherwise
within 30 days after notice from Landlord. If Tenant shall fail to cancel or
discharge said lien or liens within said 30 day period, Landlord may cancel or
discharge the same and, upon Landlord's demand, Tenant shall reimburse Landlord
for all costs incurred in canceling or discharging such liens, together with
interest thereon at the Interest Rate from the date incurred by Landlord to the
date of payment by Tenant, such reimbursement to be made within 10 days after
receipt by Tenant of a written statement from Landlord as to the amount of such
costs. Tenant shall indemnify and hold Landlord harmless from and against all
costs (including, without limitation, attorneys' fees and disbursements and
costs of suit), losses,
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liabilities or causes of action arising out of or relating to any Alteration,
including, without limitation, any mechanics' or other liens asserted in
connection with such Alteration, unless such costs, losses, liabilities or
causes of action result solely from the willful negligence of Landlord or
Landlord's agents.
(h) Tenant shall deliver to Landlord, within 30 days after the
completion of an Alteration, five sets of "as-built" drawings thereof prepared
and certified by Tenant's architect. During the Term, Tenant shall keep records
of Material Alterations including plans and specifications, copies of contracts,
invoices, evidence of payment and all other records customarily maintained in
the real estate business relating to Alterations and the cost thereof and shall,
within 30 days after demand by Landlord, furnish to Landlord copies of such
records.
(i) All Alterations to and Fixtures installed by Tenant in the
Premises shall be fully paid for by Tenant in cash and shall not be subject to
conditional bills of sale, chattel mortgages, or other title retention
agreements.
(j) [INTENTIONALLY OMITTED]
4.03 Landlord's and Tenant's Property. (a) All fixtures, equipment,
improvements and appurtenances attached to (so that any such fixtures,
equipment, improvements and appurtenances are incorporated into the Premises) or
built into the Premises, whether or not at the expense of Tenant (collectively,
"Fixtures"), shall be and remain a part of the Premises and shall not be removed
by Tenant. All Fixtures constituting Improvements and Betterments shall be the
property of Tenant during the Term and, upon expiration or earlier termination
of this Lease, shall become the property of Landlord. All Fixtures other than
Improvements and Betterments shall, upon installation, be the property of
Landlord. "Improvements and Betterments" means (i) all Fixtures, if any,
installed at the expense of Tenant, whether installed by Tenant or by Landlord
(i.e., excluding any Fixtures paid for by Landlord directly or by way of an
allowance) and (ii) all carpeting in the Premises.
(b) All movable partitions, business and trade fixtures,
machinery and equipment, and all furniture, furnishings and other articles of
movable personal property owned by Tenant and located in the Premises
(collectively, "Tenant's Property") shall be and shall remain the property of
Tenant and may be removed by Tenant at any time during the Term; provided, that
if any Tenant's Property is removed, Tenant shall repair any damage to the
Premises or to the Building resulting from the installation and/or removal
thereof. Notwithstanding the foregoing, any equipment or other property
identified in this Lease or in any leasehold improvement agreement as having
been paid for with any allowance or credit granted by Landlord to Tenant shall
not be considered Tenant's Property and shall be and remain a part of the
Premises, shall, upon the expiration or earlier termination of this Lease, be
the property of Landlord and shall not be removed by Tenant.
(c) At or before the Expiration Date, or within 15 days after
any earlier termination of this Lease, Tenant, at Tenant's expense, shall remove
Tenant's Property from the Premises (except such items thereof as Landlord shall
have expressly permitted to remain, which shall become the property of
Landlord), and Tenant shall repair any damage to the Premises or the
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Building resulting from any installation and/or removal of Tenant's Property.
Any items of Tenant's Property which remain in the Premises after the Expiration
Date, or more than 15 days after an earlier termination of this Lease, may, at
the option of Landlord, be deemed to have been abandoned, and may be retained by
Landlord as its property or disposed of by Landlord, without accountability, in
such manner as Landlord shall determine, at Tenant's expense.
(d) With respect to Tenant's Initial Improvements and Tenant's
Expansion Space Alterations, as well as any other Alterations made pursuant to
this Article 4 during the Term of this Lease, Landlord, by notice given to
Tenant at any time prior to the Expiration Date or not later than 30 days after
any earlier termination of this Lease, may require Tenant, notwithstanding
Section 4.03(a), to remove all or any Fixtures that do not constitute a standard
office installation, such as, by way of example only, kitchens, vaults, safes,
raised flooring and interior stairwells; provided, however, that the removal of
all or any Fixtures that constitute a standard office installation shall be
governed by Section 4.02(b) above. If Landlord shall give such notice, then
Tenant, at Tenant's expense, prior to the Expiration Date, or, in the case of an
earlier termination of this Lease, within 15 days after the giving of such
notice by Landlord, shall remove the same from the Premises, shall repair and
restore the Premises to the condition existing prior to installation thereof and
shall repair any damage to the Premises or to the Building due to such removal.
4.04 Access and Changes to Building. (a) Landlord reserves the
right, at any time, to make changes in or to the Project as Landlord may deem
necessary or desirable, and Landlord shall have no liability to Tenant therefor,
provided any such change does not deprive Tenant of access to the Premises and
does not affect the nature of the Project. Landlord may install and maintain
pipes, fans, ducts, wires and conduits within or through the walls, floors or
ceilings of the Premises. In exercising its rights under this Section 4.04,
Landlord shall use reasonable efforts to minimize any interference with Tenant's
use of the Premises for the ordinary conduct of Tenant's business and Landlord
shall use reasonable efforts to cooperate with Tenant to minimize the visual
appearance of any such pipes, fans, ducts, wires and conduits placed in the
ceiling of the Original Premises. Tenant shall not have any easement or other
right in or to the use of any door or any passage or any concourse or any plaza
connecting the Building with any subway or any other building or to any public
conveniences, and the use of such doors, passages, concourses, plazas and
conveniences may, without notice to Tenant, be regulated or discontinued at any
time by Landlord.
(b) Except for the space within the inside surfaces of all
walls, hung ceilings, floors, windows and doors bounding the Premises, all of
the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Premises, and any space in or adjacent to the Premises used for
shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities,
sinks or other Building facilities, and the use thereof as well as access
thereto through the Premises, are reserved to Landlord and are not part of the
Premises. Landlord reserves the right to name the Building and to change the
name or address of the Building at any time and from time to time.
(c) Landlord shall have no liability to Tenant if at any time
any windows of the Premises are either temporarily darkened or obstructed by
reason of any repairs,
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improvements, maintenance and/or cleaning in or about the Building (or
permanently darkened or obstructed if required by Law) or covered by any
translucent material for the purpose of energy conservation, or if any part of
the Building, other than the Premises, is temporarily or permanently closed or
inoperable.
(d) Landlord and persons authorized by Landlord shall have the
right, upon prior notice to Tenant (except in an emergency), to enter the
Premises (together with any necessary materials and/or equipment), to inspect or
perform such work as Landlord may reasonably deem necessary or to exhibit the
Premises to prospective purchasers or others or for any other purpose as
Landlord may deem necessary or desirable and, during Business Hours during the
last 18 months of the Term, to prospective tenants. Landlord shall have no
liability to Tenant by reason of any such entry. Landlord shall not be required
to make any improvements or repairs of any kind or character to the Premises
during the Term, except as otherwise set forth in this Lease.
4.05 Repairs. Tenant shall keep the Premises (including, without
limitation, all Fixtures) in good condition and, upon expiration or earlier
termination of the Term, shall surrender the same to Landlord in the same
condition as when first occupied, reasonable wear and tear excepted. Tenant's
obligation shall include, without limitation, the obligation to repair all
damage caused by Tenant, its agents, employees, invitees and licensees to the
equipment and other installations in the Premises or anywhere in the Building.
Any maintenance, repair or replacement to the windows (including, without
limitation, any solar film attached thereto), the Building systems, the
Building's structural components or any areas outside the Premises and which is
Tenant's obligation to perform shall be performed by Landlord at Tenant's
expense. Tenant shall not commit or allow to be committed any waste or damage to
any portion of the Premises or the Building.
4.06 Compliance with Laws. (a) Tenant shall comply with all laws,
ordinances, rules, orders and regulations (present, future, ordinary,
extraordinary, foreseen or unforeseen) of any governmental, public or
quasi-public authority and of the New York Board of Underwriters, the New York
Fire Insurance Rating Organization and any other entity performing similar
functions, at any time duly in force (collectively "Laws"), attributable to any
work, installation, occupancy, use or manner of use by Tenant of the Premises or
any part thereof. Nothing contained in this Section 4.06 shall require Tenant to
make any structural changes unless the same are necessitated by reason of the
use by Tenant of the Premises in a manner or for purposes other than normal and
customary ordinary office purposes. Tenant shall procure and maintain all
licenses and permits required for its business.
(b) Anything contained in this Lease to the contrary
notwithstanding, as part of Tenant's Initial Improvements, Tenant shall perform
all work and make all installations necessary in order to fully sprinkler the
Premises in compliance with the provisions of Local Law 5 of the New York City
Administrative Code, as approved January 18, 1973, as amended from time to time
(whether or not the Building is sprinklered or required to be sprinklered by
such law).
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(c) Except to the extent the same is Tenant's responsibility
pursuant to Section 4.06(a) or (b) above or elsewhere in this Lease, Landlord
shall comply with all Laws applicable to the common areas of the Building
generally made available to tenants of the Building, but only if Tenant's use of
the Premises shall be materially and adversely affected by non-compliance
therewith, subject to Landlord's right to contest the applicability or legality
of such Laws.
(d) Solely with respect to the 19th Floor and the First
Temporary Space, Landlord hereby represents to Tenant that, as of the date of
this Lease, to its knowledge, without due inquiry, all base building systems,
including the elevator cab and elevator system upgrades and the renovation of
the building lobby, are in compliance with or are exempt from such compliance
under the Americans with Disabilities Act ("ADA").
(e) Solely with respect to the Original Premises and the First
Temporary Space, Landlord hereby represents to Tenant that, as of the date of
this Lease, to its knowledge, without due inquiry, the sprinkler system
servicing the Premises is in good-working order and is in compliance with the
provisions of Local Law 5 of the New York City Administrative Code, as approved
on January 18, 1973 and as amended from time to time and with the provisions of
any other applicable rules and regulations of the City of New York.
(f) Landlord hereby represents to Tenant that, as of the date
of this Lease, to its knowledge, without due inquiry, there are no Hazardous
Materials, as hereinafter defined, in the Original Premises or the First
Temporary Space. "Hazardous Materials," as used herein, shall mean any
flammables, explosives, radioactive materials, hazardous wastes, hazardous and
toxic substances or related materials, asbestos or any materials containing
asbestos, or any other substance or materials as defined by any Federal, state
or local environmental law, ordinance, rule or regulation, including, without
limitation, the Comprehensive Environmental Response Liability Act, as amended,
the Resource Conservation and Recovery Act, as amended, and in the regulations
adopted and publications promulgated pursuant to each of the foregoing, except
that the term "Hazardous Materials" shall not include any such materials in
amounts typically found in office buildings of a similar age and character as
Building A.
(g) Solely with respect to the 19th Floor and the First
Temporary Space, Landlord represents to Tenant that, as of the date of this
Lease, to its knowledge, without due inquiry, Landlord has not received any
notice of violations from the New York City Department of Buildings, which
violations, if present, would prevent Tenant from performing Tenant's Initial
Improvements or from operating in the 19th Floor or the First Temporary Space as
permitted under this Lease.
(h) Except to the extent the same is Tenant's responsibility
pursuant to Section 4.06(a) or (b) above or elsewhere in this Lease, Landlord
shall comply with all Laws in effect as of the Possession Date applicable to the
Original Premises prior to giving Tenant vacant possession of the Original
Premises.
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4.07 Tenant Advertising. Tenant shall not use, and shall cause each
of its Affiliates not to use, the name or likeness of the Building or the
Project in any advertising (by whatever medium) without Landlord's consent (not
to be unreasonably withheld or delayed).
4.08 Right to Perform Tenant Covenants. If Tenant fails to perform
any of its obligations under this Lease, Landlord, any Superior Lessor or any
Superior Mortgagee (each, a "Curing Party") may perform the same at the expense
of Tenant (a) immediately and without notice in the case of emergency or in case
such failure interferes with the use of space by any other tenant in the
Building or with the efficient operation of the Building or may result in a
violation of any Law or in a cancellation of any insurance policy maintained by
Landlord and (b) in any other case if such failure continues beyond any
applicable grace period. If a Curing Party performs any of Tenant's obligations
under this Lease, Tenant shall pay to Landlord (as Additional Charges) the costs
thereof, together with interest at the Interest Rate from the date incurred by
the Curing Party until paid by Tenant, within 10 days after receipt by Tenant of
a statement as to the amounts of such costs. If the Curing Party effects such
cure by bonding any lien which Tenant is required to bond or otherwise
discharge, Tenant shall obtain and substitute a bond for the Curing Party's bond
and shall reimburse the Curing Party for the cost of the Curing Party's bond.
4.09 Improvements to Temporary Space. (a) Landlord, at Landlord's
expense, has performed in the First Temporary Space the work described on
Exhibit G ("Landlord's Temporary Space Work") in accordance with the provisions
thereof. On the First Temporary Space Occupancy Date, Tenant shall accept the
First Temporary Space in its "as is" condition on such date. All other
improvements to the First Temporary Space which do not constitute Landlord's
Temporary Space Work shall be performed by Tenant at Tenant's expense in
accordance with Section 4.02 or, if applicable, in accordance with Section 1.08.
(b) If applicable, Landlord, at Landlord's expense, shall
perform or cause to be performed in the Second Temporary Space, Landlord's
Temporary Space Work in accordance with the provisions of Exhibit G. All initial
improvements to the Second Temporary Space which do not constitute Landlord's
Temporary Space Work shall be performed by Tenant at Tenant's expense in
accordance with Section 4.02.
ARTICLE 5
Assignment and Subletting
5.01 Assignment; Etc. (a) Subject to Section 5.02, and except as
expressly set forth otherwise in this Article 5, neither this Lease nor the term
and estate hereby granted, nor any part hereof or thereof shall be assigned,
mortgaged, pledged, encumbered or otherwise transferred voluntarily,
involuntarily, by operation of law or otherwise, and neither the Premises, nor
any part thereof shall be subleased, be licensed, be used or occupied by any
person or entity other than Tenant or be encumbered in any manner by reason of
any act or omission on the part of Tenant, and no rents or other sums receivable
by Tenant under any sublease of all or any part of
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the Premises shall be assigned or otherwise encumbered, without the prior
consent of Landlord. The dissolution or direct or indirect transfer of control
of Tenant (however accomplished including, by way of example, the admission of
new partners or members or withdrawal of existing partners or members, or
transfers of interests in distributions of profits or losses of Tenant, issuance
of additional stock, redemption of stock, stock voting agreement, or change in
classes of stock) shall be deemed an assignment of this Lease regardless of
whether the transfer is made by one or more transactions, or whether one or more
persons or entities hold the controlling interest prior to the transfer or
afterwards. An agreement under which another person or entity becomes
responsible for all or a portion of Tenant's obligations under this Lease shall
be deemed an assignment of this Lease. No assignment or other transfer of this
Lease and the term and estate hereby granted, and no subletting of all or any
portion of the Premises shall relieve Tenant of its liability under this Lease
or of the obligation to obtain Landlord's prior consent to any further
assignment, other transfer or subletting. Any attempt to assign this Lease or
sublet all or any portion of the Premises in violation of this Article 5 shall
be null and void.
(b) Notwithstanding Section 5.01(a), without the consent of
Landlord, this Lease may be assigned to (i) an entity created by merger,
reorganization or recapitalization of or with Tenant or (ii) a purchaser of all
or substantially all of Tenant's assets; provided, in the case of both clause
(i) and clause (ii), that (A) Landlord shall have received a notice of such
assignment from Tenant, (B) the assignee assumes by written instrument
reasonably satisfactory to Landlord all of Tenant's obligations under this
Lease, (C) such assignment is for a valid business purpose and not to avoid any
obligations under this Lease, and (D) the assignee shall have, immediately after
giving effect to such assignment, a NAV that is at least equal to the greater of
(i) the NAV shown on Exhibit K attached hereto and made a part hereof or (ii)
the NAV of the Tenant named herein (i.e., ACTV, Inc.) at the time of such
assignment.
(c) Notwithstanding Section 5.01(a), without the consent of
Landlord, Tenant may assign this Lease or sublet all or any part of the Premises
to an Affiliate of Tenant; provided, that (i) Landlord shall have received a
notice of such assignment or sublease from Tenant; and (ii) in the case of any
such assignment. (A) the assignment is for a valid business purpose and not to
avoid any obligations under this Lease, and (B) the assignee assumes by written
instrument reasonably satisfactory to Landlord all of Tenant's obligations under
this Lease. "Affiliate" means, any person or entity which controls or is
controlled by Tenant. "Control" means ownership or voting control by Tenant,
directly or indirectly, of 51% or more of the voting stock, partnership
interests or other beneficial ownership interests of the entity in question. The
transfer of the outstanding capital stock of any corporate Tenant (by persons or
parties other than "insiders" within the meaning of the Securities Exchange Act
of 1934, as amended) through the "over-the-counter" market or any recognized
national securities exchange shall not be considered in the determination of
whether control has been transferred.
(d) Tenant represents to Landlord that, as of the date of this
Lease, the financial statement attached hereto as Exhibit K (the "Financial
Statement") is a true and correct statement of Tenant's NAV as of the date
thereof Simultaneously with the delivery of the Expansion Notice to Landlord in
accordance with Section 10.01, Tenant shall deliver a secretary's certificate to
Landlord attaching thereto a true and correct statement of Tenant's NAV dated no
earlier than sixty (60) days prior to the date of the Expansion Notice ("Updated
Financial
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Statement"). If Tenant's NAV as set forth in the Updated Financial Statement is
not at least 60% of Tenant's NAV on the date set forth in the Financial
Statement, Landlord shall have the right to terminate this Lease upon notice to
Tenant given within thirty (30) days of receipt of Tenant's Updated Financial
Statement. Such notice shall set forth a date for termination of this Lease,
which date shall be no sooner than 90 days and no later than 120 days from the
date of such notice.
5.02 Landlord's Option Right. (a) If Tenant desires to assign this
Lease or sublet all or a portion of the Premises (other than in accordance with
Sections 5.01(b) or 5.01(c)), Tenant shall give to Landlord notice ("Tenant's
Offer Notice") thereof, specifying (i) in the case of a proposed subletting, the
location of the space to be sublet and the terms of the subletting of such
space, (ii) (A) in the case of a proposed assignment, Tenant's good faith offer
of the consideration Tenant desires to receive or pay for such assignment or (B)
in the case of a proposed subletting, Tenant's good faith offer of the fixed
annual rent which Tenant desires to receive for such proposed subletting
(assuming that a subtenant will pay for Taxes, expense escalations and
electricity as described in Article 2 herein in the same manner, and utilizing
the same base year or base amount, as Tenant pays for such amounts under this
Lease) and (iii) the proposed assignment or sublease commencement date.
(b) Tenant's Offer Notice shall be deemed an offer from Tenant
to Landlord whereby Landlord (or Landlord's designee) may, at Landlord's option,
(i) sublease such space from Tenant or (ii) have this Lease assigned to it or
terminate this Lease (if the proposed transaction is an assignment or a sublease
of all or substantially all of the Premises or a sublease of a portion of the
Premises which, when aggregated with other subleases then in effect, covers all
or substantially all of the Premises). Said option may be exercised by Landlord
by notice to Tenant within 45 days after a Tenant's Offer Notice, together with
all information required pursuant to Section 5.02(a), has been given by Tenant
to Landlord.
(c) If Landlord exercises its option under Section 5.02(b)(ii)
to terminate this Lease, then this Lease shall terminate on the proposed
assignment or sublease commencement date specified in the applicable Tenant's
Offer Notice and all Rent shall be paid and apportioned to such date.
(d) If Landlord exercises its option under Section 5.02(b)(ii)
to have this Lease assigned to it (or its designee), then Tenant shall assign
this Lease to Landlord (or Landlord's designee) by an assignment in form and
substance reasonably satisfactory to Landlord, effective on the proposed
assignment or sublease commencement date specified in the applicable Tenant's
Offer Notice. Tenant shall not be entitled to consideration or payment from
Landlord (or Landlord's designee) in connection with any such assignment. If the
Tenant's Offer Notice provides that Tenant will pay any consideration or grant
any concessions in connection with the proposed assignment, then Tenant shall
pay such consideration and/or grant any such concessions to Landlord (or
Landlord's designee) on the date Tenant assigns this Lease to Landlord (or
Landlord's designee).
(e) [INTENTIONALLY OMITTED]
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(f) If Landlord exercises its option under Section 5.02(b)(i)
to sublet the Premises, such sublease to Landlord or its designee (as subtenant)
shall be in form and substance reasonably satisfactory to Landlord at the lower
of (i) the rental rate per rentable square foot of Fixed Rent and Additional
Charges then payable pursuant to this Lease or (ii) the rental set forth in the
applicable Tenant's Offer Notice with respect to such sublet space, and shall be
for the term set forth in the applicable Tenant's Offer Notice, and:
(A) shall be subject to all of the terms and conditions
of this Lease except such as are irrelevant or inapplicable, and except as
otherwise expressly set forth to the contrary in this Section 5.02(f);
(B) shall be upon the same terms and conditions as those
contained in the applicable Tenant's Offer Notice and otherwise on the terms and
conditions of this Lease, except such as are irrelevant or inapplicable and
except as otherwise expressly set forth to the contrary in this Section 5.02(f);
(C) shall permit the sublessee, without Tenant's
consent, freely to assign such sublease or any interest therein or to sublet all
or any part of the space covered by such sublease and to make any and all
alterations and improvements in the space covered by such sublease;
(D) shall provide that any assignee or further subtenant
of Landlord or its designee may, at the election of Landlord, make alterations,
decorations and installations in such space or any part thereon any or all of
which may be removed, in whole or in part, by such assignee or subtenant, at its
option, prior to or upon the expiration or other termination of such sublease,
provided that such assignee or subtenant, at its expense, shall repair any
damage caused by such removal; and
(E) shall provide that (1) the parties to such sublease
expressly negate any intention that any estate created under such sublease be
merged with any other estate held by either of said parties, (2) any assignment
or subletting by Landlord or its designee (as the subtenant) may be for any
purpose or purposes that Landlord shall deem appropriate, (3) Landlord, at
Tenant's expense, may make such alterations as may be required or deemed
necessary by Landlord to demise separately the subleased space and to comply
with any Laws relating to such demise, and (4) at the expiration of the term of
such sublease, Tenant shall accept the space covered by such sublease in its
then existing condition, subject to the obligations of the sublessee to make
such repairs thereto as may be necessary to preserve such space in good order
and condition.
(g) If Landlord exercises its option under Section 5.02(b)(i)
to sublet the Premises (or to have the Premises sublet to its designee) or if
Landlord exercises its option under Section 5.02(b)(ii) to have this Lease
assigned to it (or its designee) then Tenant shall not have any liability
hereunder arising from, in connection with or relating to any default of such
sublessee or assignee including, without limitation, the failure by such
sublessee or assignee to pay any rent due thereunder (but such release of Tenant
shall not operate to relieve the assignee from any liability for which Tenant
should otherwise be liable).
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(h) In the case of a proposed sublease, Tenant shall not
sublet any space to a third party at a rental which is less (on a per rentable
square foot basis) than the rental (on a per rentable square foot basis)
specified in Tenant's Offer Notice with respect to such space, without complying
once again with all of the provisions of this Section 5.02 and re-offering such
space to Landlord at such lower rental. In the case of a proposed assignment,
Tenant shall not assign this Lease to a third party where Tenant pays greater
consideration or grants a greater concession to such third party for such
assignment than the consideration offered to be paid or concession offered to be
granted to Landlord in Tenant's Offer Notice without complying once again with
all of the provisions of this Section 5.02 and re-offering to assign this Lease
to Landlord and pay such consideration or grant such concession to Landlord.
(i) If Landlord fails to respond to Tenant's Offer Notice
within the 45 days after such Tenant's Offer Notice, together with all
information required pursuant to Section 5.02(a), has been given by Tenant to
Landlord, Landlord shall be deemed to have declined Tenant's offer; provided,
that 15 days prior to the expiration of such 45 day period, Tenant shall send a
second notice to Landlord with the phrase "Failure to respond shall be deemed to
be a waiver of Landlord's Option Right under Section 5.02 of the Lease" in bold
lettering at the top of such notice.
(i) Landlord acknowledges and agrees that the foregoing
provisions of Section 5.02 shall not apply to an assignment subject to Section
5.01(b) and Section 5.01(c) above.
5.03 Assignment and Subletting Procedures. (a) If Tenant delivers to
Landlord a Tenant's Offer Notice with respect to any proposed assignment of this
Lease or subletting of all or any portion of the Premises and Landlord does not
timely exercise any of its options under Section 5.02, and Tenant thereafter
desires to assign this Lease or sublet the Premises as specified in Tenant's
Offer Notice, Tenant shall notify Landlord (a "Transfer Notice") of such desire,
which notice shall be accompanied by (i) a copy of the proposed assignment or
sublease and all related agreements, the effective date of which shall be at
least 30 days after the giving of the Transfer Notice, (ii) a statement setting
forth in reasonable detail the identity of the proposed assignee or subtenant,
the nature of its business and its proposed use of the Premises, (iii) current
financial information with respect to the proposed assignee or subtenant,
including, without limitation, its most recent financial statement and (iv) such
other information as Landlord may reasonably request, and Landlord's consent to
the proposed assignment or sublease shall not be unreasonably withheld, delayed
or conditioned provided that:
(i) Such Transfer Notice shall be delivered to Landlord
within three months after the delivery to Landlord of the applicable Tenant's
Offer Notice.
(ii) In Landlord's reasonable judgment the proposed
assignee or subtenant will use the Premises in a manner that (A) is in keeping
with the then standards of the Building, (B) is limited to the use expressly
permitted under this Lease, and (C) will not violate any negative covenant then
in effect as to use contained in any other Lease of space in the Building.
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(iii) The proposed assignee or subtenant is, in
Landlord's reasonable judgment, a reputable person or entity of good character
and with sufficient financial worth considering the responsibility involved.
(iv) Neither the proposed assignee or sublessee, nor any
Affiliate of such assignee or sublessee, is then an occupant of any part of the
Building.
(v) The proposed assignee or sublessee is not a person
with whom Landlord is then actively negotiating or has within the prior 3 months
negotiated to lease space in the Building.
(vi) The form of the proposed sublease shall be
reasonably satisfactory to Landlord and shall comply with the applicable
provisions of this Article 5.
(vii) There shall not be more than 1 subtenant of the
Original Premises and I subtenant of the Expansion Space and each such sublease
shall not be for less than 5,000 rentable square feet.
(viii) The aggregate rent to be paid by the proposed
subtenant is not less than the fair rental value of the sublet space as sublet
space (as reasonably determined by Landlord).
(ix) Tenant shall reimburse Landlord on demand for any
reasonable out-of-pocket costs incurred by Landlord in connection with said
assignment or sublease, including, without limitation, the costs of making
investigations as to the acceptability of the proposed assignee or subtenant,
and legal costs incurred in connection with the granting of any requested
consent.
If Landlord denies Landlord's consent to the proposed
assignment or sublease under this Section 5.03(a), Landlord shall specify the
reasons for such denial, provided, however, that Landlords' failure to so
specify such reasons shall not impose upon Landlord any obligation to consent to
such proposed assignment or sublease nor result in any liability to Landlord in
respect thereof.
(b) If Landlord consents to a proposed assignment or sublease
and Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within 45 days after the giving of such consent, then Tenant
shall again comply with this Article 5 before assigning this Lease or subletting
all or part of the Premises.
(c) If Landlord fails to respond to a Transfer Notice within
35 days after such Transfer Notice, together with all information required
pursuant to Section 5.03(a), has been given by Tenant to Landlord, Landlord
shall be deemed to have consented to such proposed assignment or subletting;
provided, that 5 days prior to the expiration of such 35 day period, Tenant
shall send a second notice to Landlord with the phrase "Failure to respond shall
be deemed consent to the assignment or subletting proposed in Tenant's Transfer
Notice" in bold lettering at the top of such notice.
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(d) If Tenant delivers to Landlord a Transfer Notice, together
with all information required under Section 5.03(a) above, at the same time that
Tenant delivers Tenant's Offer Notice as required under Section 5.02 above, then
Landlord shall either (i) exercise its options under Section 5.02 or (ii)
approve or deny (and, in the case of a denial, specifying the reasons for such
denial; subject to the last sentence of subsection (a) above,) Tenant's request
to assign this Lease or sublet the Premises under the provisions of Section 5.03
within 45 days after Tenant's Offer Notice, together with all information
required pursuant to Section 5.02(a), and the Transfer Notice, together with all
information required pursuant to Section 5.03(a), have been given by Tenant to
Landlord. If Landlord fails to respond within 45 days after receiving Tenant's
Offer Notice, together with all information required pursuant to Section 5.02(a)
and the Transfer Notice, together with all information required pursuant to
Section 5.03(b), Landlord shall be deemed to have consented to such proposed
assignment or subletting; provided, that 15 days prior to the expiration of such
45 day period, Tenant shall send a second notice to Landlord with the phrase
"Failure to respond shall be deemed to be a waiver of Landlord's Option Right
under Section 5.02 of the Lease and consent to the assignment or subletting
proposed in Tenant's Transfer Notice (such Tenant's Office Notice and Transfer
Notice having been delivered simultaneously)" in bold lettering at the top of
such notice.
5.04 General Provisions. (a) If this Lease is assigned, whether or
not in violation of this Lease, Landlord may collect rent from the assignee. If
the Premises or any part thereof are sublet or occupied by anybody other than
Tenant, whether or not in violation of this Lease, Landlord may, after default
by Tenant, and expiration of Tenant's time to cure such default, collect rent
from the subtenant or occupant. In either event, Landlord may apply the net
amount collected against Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 5.01(a),
or the acceptance of the assignee, subtenant or occupant as tenant, or a release
of Tenant from the performance of Tenant's obligations under this Lease.
(b) No assignment or transfer shall be effective until the
assignee delivers to Landlord (i) evidence that the assignee, as Tenant
hereunder, has complied with the requirements of Sections 7.02 and 7.03, and
(ii) an agreement in form and substance satisfactory to Landlord whereby the
assignee assumes Tenant's obligations under this Lease.
(c) Notwithstanding any assignment or transfer, whether or not
in violation of this Lease, and notwithstanding the acceptance of any Rent by
Landlord from an assignee, transferee, or any other party, the original named
Tenant and each successor Tenant shall remain fully liable for the payment of
the Rent and the performance of all of Tenant's other obligations under this
Lease. The joint and several liability of Tenant and any immediate or remote
successor in interest of Tenant shall not be discharged, released or impaired in
any respect by any agreement made by Landlord extending the time to perform, or
otherwise modifying, any of the obligations of Tenant under this Lease, or by
any waiver or failure of Landlord to enforce any of the obligations of Tenant
under this Lease.
(d) Each subletting by Tenant shall be subject to the
following:
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(i) No subletting shall be (x) for a term (including any
renewal or extension options contained in the sublease) ending later than one
day prior to the Expiration Date or (y) for less than (A) 5,000 rentable square
feet in the Original Premises and (B) 4,000 rentable square feet in the
Expansion Space except for subleases to Affiliates. Tenant shall not be
permitted to have more than one (1) subtenant of the Premises at any time;
provided, however, that if Tenant exercises Tenant's Expansion Option, Tenant
shall be permitted to have no more than one (1) subtenant in the Expansion Space
and no more than one (1) subtenant (other than Affiliates) in the Original
Premises at any time.
(ii) No sublease shall be valid, and no subtenant shall
take possession of the Premises or any part thereof, until there has been
delivered to Landlord, both (A) an executed counterpart of such sublease, and
(B) a certificate of insurance evidencing that (x) Landlord is an additional
insured under the insurance policies required to be maintained by occupants of
the Premises pursuant to Section 7.02, and (y) there is in full force and
effect, the insurance otherwise required by Section 7.02.
(iii) Each sublease shall provide that it is subject and
subordinate to this Lease, and that in the event of termination, reentry or
dispossess by Landlord under this Lease, Landlord may, at its option, take over
all of the right, title and interest of Tenant, as sublessor, under such
sublease, and such subtenant shall, at Landlord's option, attorn to Landlord
pursuant to the then executory provisions of such sublease, except that Landlord
shall not be liable for, subject to or bound by any item of the type that a
Successor Landlord is not so liable for, subject to or bound by in the case of
an attornment by Tenant to a Successor Landlord under Section 6.01(a).
(e) Each sublease shall provide that the subtenant may not
assign its rights thereunder or further sublet the space demised under the
sublease, in whole or in part, without complying with all of the terms and
conditions of this Article 5, including, without limitation, Section 5.05, which
for purposes of this Section 5.04(e) shall be deemed to be appropriately
modified to take into account that the transaction in question is an assignment
of the sublease or a further subletting of the space demised under the sublease,
as the case may be.
(f) Tenant shall not publicly advertise the availability of
the Premises or any portion thereof as sublet space or by way of an assignment
of this Lease, without first obtaining Landlord's consent, which consent shall
not be unreasonably withheld, conditioned or delayed, provided that Tenant shall
in no event advertise the rental rate or any description thereof.
5.05 Assignment and Sublease Profits. (a) If the aggregate of the
amounts payable as fixed rent and as additional rent on account of Taxes and
electricity by a subtenant under a sublease of the Premises and the amount of
any Other Sublease Consideration payable to Tenant by such subtenant, whether
received in a lump-sum payment or otherwise, shall be in excess of Tenant's
Basic Cost therefor at that time then, promptly after the collection thereof,
Tenant shall pay to Landlord in monthly installments as and when collected, as
Additional Charges, 50% of such excess. Tenant shall deliver to Landlord within
60 days after the end of each calendar year and within 60 days after the
expiration or earlier termination of this Lease a statement specifying each
sublease in effect during such calendar year or partial calendar year, the
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rentable area demised thereby, the term thereof and a computation in reasonable
detail showing the calculation of the amounts paid and payable by the subtenant
to Tenant, and by Tenant to Landlord, with respect to such sublease for the
period covered by such statement. "Tenant's Basic Cost" for sublet space at any
time means the sum of (i) the portion of the Fixed Rent (as escalated pursuant
to Section 2.10 of this Lease) and Tax Payments which is attributable to the
sublet space, plus (ii) the amount payable by Tenant on account of electricity
in respect of the sublet space, plus (iii) the amount of any costs reasonably
incurred by Tenant in making changes in the layout and finish of the sublet
space for the subtenant amortized on a straight-line basis over the term of the
sublease or of Tenant's cash contribution to the subtenant in lieu thereof plus
(iv) the amount of any reasonable brokerage commissions and reasonable legal
fees paid by Tenant in connection with the sublease amortized on a straight-line
basis over the term of the sublease. "Other Sublease Consideration" means all
sums paid for the furnishing of services by Tenant and the sale or rental of
Tenant's fixtures, leasehold improvements, equipment, furniture or other
personal property less, in the case of the sale thereof the then net unamortized
or undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns.
(b) Upon any assignment of this Lease, Tenant shall pay to
Landlord 50% of the Assignment Consideration received by Tenant for such
assignment, after deducting therefrom customary and reasonable closing expenses.
"Assignment Consideration" means an amount equal to all sums and other
considerations paid to Tenant by the assignee for or by reason of such
assignment (including, without limitation, sums paid for the furnishing of
services by Tenant and the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, in the case of a sale thereof the then net unamortized or undepreciated
cost thereof determined on the basis of Tenant's federal income tax returns).
(c) This Section 5.05 shall not apply to any assignment or
subletting pursuant to Section 5.01(b) or (c) of this Lease.
ARTICLE 6
Subordination; Default; Indemnity
6.01 Subordination. (a) This Lease is subject and subordinate to
each mortgage (a "Superior Mortgage") and each underlying lease (a "Superior
Lease") which may now or hereafter affect all or any portion of the Project or
any interest therein; provided that the Superior Mortgagee under such Superior
Mortgage or Superior Lessor under such Superior Lease shall have executed and
delivered a non-disturbance and attornment agreement substantially to the effect
that so long as Tenant is not in default hereunder beyond any applicable notice
and grace periods, (i) this Lease will not be terminated or cut off nor shall
Tenant's possession hereunder be disturbed by enforcement of any rights given to
such Superior Mortgagee or Superior Lessor pursuant to such Superior Mortgage or
Superior Lease, and (ii) such Superior Mortgagee or Superior Lessor shall
recognize Tenant as the tenant under this Lease. The lessor under a Superior
Lease is called a "Superior Lessor" and the mortgagee under a Superior Mortgage
is called a "Superior Mortgagee". Tenant shall execute, acknowledge and deliver
any
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instrument reasonably requested by Landlord, a Superior Lessor or Superior
Mortgagee to evidence such subordination, in a form substantially the same as
Exhibit H attached hereto but no such instrument shall be necessary to make such
subordination effective. Notwithstanding anything contained in this Section 6.01
to the contrary, if any Superior Mortgagee or Superior Lessee executes and
delivers a non-disturbance and attornment agreement either (i) in the form
herein described and such agreement is not in any material respect inconsistent
with the provisions of this Lease or (ii) in a form which is not in any material
respect less favorable to Tenant as the non-disturbance and attornment agreement
executed and delivered contemporaneously herewith by Tenant and the existing
Superior Mortgagee or Superior Lessor, as applicable, and Tenant either fails or
refuses to execute and deliver such agreement within 10 days after delivery of
such agreement to Tenant, then this Lease shall automatically and without
further act be deemed to be subject and subordinate to such Superior Mortgage or
Superior Lease and such non-disturbance and attornment agreement shall then be
deemed to be in effect with respect to such Superior Mortgage or Superior Lease.
Tenant acknowledges and agrees that simultaneously herewith Tenant and the
existing Superior Mortgagee and the existing Superior Lessor have executed and
exchanged non-disturbance and attornment agreements which satisfy the
requirements of this Section 6.01. Tenant shall execute any amendment of this
Lease requested by a Superior Mortgagee or a Superior Lessor, provided such
amendment shall not result in a material increase in Tenant's obligations under
this Lease or a material reduction in the benefits available to Tenant. In the
event of the enforcement by a Superior Mortgagee of the remedies provided for by
law or by such Superior Mortgage, or in the event of the termination or
expiration of a Superior Lease, Tenant, upon request of such Superior Mortgagee,
Superior Lessor or any person succeeding to the interest of such mortgagee or
lessor (each, a "Successor Landlord"), shall automatically become the tenant of
such Successor Landlord without change in the terms or provisions of this Lease
(it being understood that Tenant shall, if requested, enter into a new lease on
terms identical to those in this Lease); provided, that any Successor Landlord
shall not be (i) liable for any act, omission or default of any prior landlord
(including, without limitation, Landlord); (ii) liable for the return of any
monies paid to or on deposit with any prior landlord (including, without
limitation, Landlord), except to the extent such monies or deposits are
delivered to such Successor Landlord; (iii) subject to any offset, claims or
defense that Tenant might have against any prior landlord (including, without
limitation, Landlord); (iv) bound by any Rent which Tenant might have paid for
more than the current month to any prior landlord (including, without
limitation, Landlord) unless actually received by such Successor Landlord; (v)
bound by any covenant to perform or complete any construction in connection with
the Project or the Premises or to pay any sums to Tenant in connection
therewith; or (vi) bound by any waiver or forbearance under, or any amendment,
modification, abridgement, cancellation or surrender of, this Lease made without
the consent of such Successor Landlord. Upon request by such Successor Landlord,
Tenant shall execute and deliver an instrument or instruments, reasonably
requested by such Successor Landlord, confirming the attornment provided for
herein, but no such instrument shall be necessary to make such attornment
effective.
(b) Tenant shall give each Superior Mortgagee (including Aetna
Life Insurance Company ("Aetna"), Landlord's mortgagee as of the date of this
Lease) and each Superior Lessor a copy of any notice of default served upon
Landlord, provided that Tenant has been notified of the address of such
mortgagee or lessor. If Landlord fails to cure any default as
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to which Tenant is obligated to give notice pursuant to the preceding sentence
within the time provided for in this Lease, then each such mortgagee or lessor
shall have an additional 30 days after receipt of such notice within which to
cure such default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such 30 days, any such mortgagee
or lessor has commenced and is diligently pursuing the remedies necessary to
cure such default (including, without limitation, commencement of foreclosure
proceedings or eviction proceedings, if necessary to effect such cure), in which
event this Lease shall not be terminated and Tenant shall not exercise any other
rights or remedies under this Lease or otherwise while such remedies are being
so diligently pursued. Nothing herein shall be deemed to imply that Tenant has
any right to terminate this Lease or any other right or remedy, except as may be
otherwise expressly provided for in this Lease. The address for Aetna is 151
Farmington Avenue, Hartford, CT 06156-9624.
(c) Tenant acknowledges being advised by Landlord that
Landlord's mortgage with Aetna Life Insurance Company contains a provision that
Landlord may not waive any provision of any lease without Aetna's written
consent. This restriction shall be enforceable by Landlord or Aetna or any
future mortgagee whose mortgage contains such provision.
6.02 Estoppel Certificate. Each party shall, at any time and from
time to time, within 20 days after written request by the other party, which
request shall specifically state the time period in which the other party must
respond, execute and deliver to the requesting party (or to such person or
entity as the requesting party may designate) a statement certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), certifying the Possession Date, Expiration Date and the
dates to which the Fixed Rent and Additional Charges have been paid and stating
whether or not the other party is in default in performance of any of its
obligations under this Lease, and, if so, specifying each such default of which
such party has knowledge, it being intended that any such statement shall be
deemed a representation and warranty to be relied upon by the party to whom such
statement is addressed. The responding party also shall include or confirm in
any such statement such other information concerning this Lease as the other
party may reasonably request.
6.03 Default. This Lease and the term and estate hereby granted are
subject to the limitation that:
(a) if Tenant defaults in the payment of any Rent, and such
default continues for 10 days in the event of a default in the payment of Base
Rent or 15 days in the event of a default in the payment of Additional Rent or
any other sums due hereunder after Landlord gives to Tenant a notice specifying
such default (provided, however, that Tenant acknowledges that Rent shall be due
and payable on the first day of the month, and failure to pay such Rent on or
prior to the first day of any month shall be considered a default under this
Lease and interest shall accrue thereon as provided in Section 2.08 of this
Lease from and after the first day the Rent becomes due and payable), or
(b) if Tenant defaults in the keeping, observance or
performance of any covenant or agreement (other than a default of the character
referred to in Section 6.03(a), (c),
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(d), (e) or (f), and if such default continues and is not cured within 30 days
after Landlord gives to Tenant a notice specifying the same, or, in the case of
a default which for causes beyond Tenant's reasonable control cannot with due
diligence be cured within such period of 30 days, if Tenant shall not
immediately upon the receipt of such notice, (i) advise Landlord of Tenant's
intention duly to institute all steps necessary to cure such default and (ii)
institute and thereafter diligently prosecute to completion all steps necessary
to cure the same, or
(c) if this Lease or the estate hereby granted would, by
operation of law or otherwise, devolve upon or pass to any person or entity
other than Tenant, except as expressly permitted by Article 5, or
(d) if Tenant shall abandon the Premises (and the fact that
any of Tenant's Property remains in the Premises shall not be evidence that
Tenant has not abandoned the Premises), or
(e) if Tenant defaults under any other lease with Landlord or
under any other lease in a building managed by Orda Management Corporation which
default shall continue beyond any applicable grace period provided under such
other lease, or
(f) if a default of the kind set forth in Section 6.03(a) or
(b) shall occur and have been cured, and if a similar default shall occur more
than once within the next 365 days, whether or not such similar defaults are
cured within the applicable grace period, or
(g) if Tenant fails to deliver to Landlord any security
deposit or letter of credit within the time period required under Section 2.09
and, if applicable, Section 10.01, then, in any of such cases, in addition to
any other remedies available to Landlord at law or in equity, Landlord shall be
entitled to give to Tenant a notice of intention to end the Term at the
expiration of 5 days from the date of the giving of such notice, and, in the
event such notice is given, this Lease and the term and estate hereby granted
shall terminate upon the expiration of such 5 days with the same effect as if
the last of such 5 days were the Expiration Date, but Tenant shall remain liable
for damages as provided herein or pursuant to law.
6.04 Re-entry by Landlord. If Tenant defaults in the payment of any
Rent and such default continues for 5 days, or if this Lease shall terminate as
in Section 6.03 provided, Landlord or Landlord's agents and servants may
immediately or at any time thereafter re-enter into or upon the Premises, or any
part thereof, without notice, either by summary dispossess proceedings or by any
suitable action or proceeding at law, or by legal force or otherwise, without
being liable to indictment, prosecution or damages therefor, and may repossess
the same, and may remove any persons therefrom, to the end that Landlord may
have, hold and enjoy the Premises. The words "re-enter" and "re-entering" as
used in this Lease are not restricted to their technical legal meanings. Upon
such termination or re-entry, Tenant shall pay to Landlord any Rent then due and
owing (in addition to any damages payable under Section 6.05).
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6.05 Damages. If this Lease is terminated under Section 6.03, or if
Landlord re-enters the Premises under Section 6.04, Tenant shall pay to Landlord
as damages, at the election of Landlord, either:
(a) a sum which, at the time of such termination or re-entry,
represents the then value of the excess, if any, of (1) the aggregate of the
Rent which, had this Lease not terminated, would have been payable hereunder by
Tenant for the period commencing on the day following the date of such
termination or re-entry to and including the Expiration Date over (2) the
aggregate fair rental value of the Premises for the same period (for the
purposes of this clause (a) the amount of Additional Charges which would have
been payable by Tenant under Sections 2.04 and 2.05 shall, for each calendar
year ending after such termination or re-entry, be deemed to be an amount equal
to the amount of such Additional Charges payable by Tenant for the calendar year
immediately preceding the calendar year in which such termination or re-entry
shall occur), or
(b) sums equal to the Rent that would have been payable by
Tenant through and including the Expiration Date had this Lease not terminated
or had Landlord not re-entered the Premises, payable upon the due dates therefor
specified in this Lease; provided, that if Landlord shall relet all or any part
of the Premises for all or any part of the period commencing on the day
following the date of such termination or re-entry to and including the
Expiration Date, Landlord shall credit Tenant with the net rents received by
Landlord from such reletting, such net rents to be determined by first deducting
from the gross rents as and when received by Landlord from such reletting the
expenses incurred or paid by Landlord in terminating this Lease and of
re-entering the Premises and of securing possession thereof, as well as the
expenses of reletting, including, without limitation, altering and preparing the
Premises for new tenants, brokers' commissions, legal fees and all other
expenses properly chargeable against the Premises and the rental therefrom in
connection with such reletting, it being understood that any such reletting may
be for a period equal to or shorter or longer than said period; provided,
further, that (i) in no event shall Tenant be entitled to receive any excess of
such net rents over the sums payable by Tenant to Landlord under this Lease,
(ii) in no event shall Tenant be entitled, in any suit for the collection of
damages pursuant to this Section 6.05(b), to a credit in respect of any net
rents from a reletting except to the extent that such net rents are actually
received by Landlord prior to the commencement of such suit, (iii) if the
Premises or any part thereof should be relet in combination with other space,
then proper apportionment on a square foot rentable area basis shall be made of
the rent received from such reletting and of the expenses of reletting and (iv)
Landlord shall have no obligation to so relet the Premises and Tenant hereby
waives any right Tenant may have, at law or in equity, to require Landlord to so
relet the Premises.
Suit or suits for the recovery of any damages payable hereunder by Tenant, or
any installments thereof may be brought by Landlord from time to time at its
election, and nothing contained herein shall require Landlord to postpone suit
until the date when the Term would have expired but for such termination or
re-entry.
6.06 Other Remedies. Nothing contained in this Lease shall be
construed as limiting or precluding the recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by
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reason of any default hereunder on the part of Tenant. Anything in this Lease to
the contrary notwithstanding, during the continuation of any default by Tenant,
Tenant shall not be entitled to exercise any rights or options, or to receive
any funds or proceeds being held, under or pursuant to this Lease.
6.07 Right to Injunction. In the event of a breach or threatened
breach by Tenant of any of its obligations under this Lease, including, but not
limited to, holding over after the Expiration Date or the date of any earlier
termination of this Lease, Landlord shall also have the right of injunction and,
in the case of a threatened holdover, the right to bring a summary proceeding
for possession of the Premises on the Expiration Date or the date of any earlier
termination of this Lease. The specified remedies to which Landlord may resort
hereunder are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Landlord may lawfully be entitled, and
Landlord may invoke any remedy allowed at law or in equity as if specific
remedies were not herein provided for.
6.08 Certain Waivers; Waiver of Trial by Jury. (a) Tenant waives and
surrenders all right and privilege that Tenant might have under or by reason of
any present or future law to redeem the Premises or to have a continuance of
this Lease after Tenant is dispossessed or ejected therefrom by Landlord, by
process of law or under the terms of this Lease or after any termination of this
Lease. Tenant also waives the provisions of any law relating to notice and/or
delay in levy of execution in case of any eviction or dispossession for
nonpayment of rent, and the provisions of any successor or other law of like
import.
(b) Landlord and Tenant each waive trial by jury in any action in
connection with this Lease.
6.09 No Waiver. Failure by either party to declare any default
immediately upon its occurrence or delay in taking any action in connection with
such default shall not waive such default but such party shall have the right to
declare any such default at any time thereafter. Any amounts paid by Tenant to
Landlord may be applied by Landlord, in Landlord's discretion, to any items then
owing by Tenant to Landlord under this Lease. Receipt by Landlord of a partial
payment shall not be deemed to be an accord and satisfaction (notwithstanding
any endorsement or statement on any check or any letter accompanying any check
or payment) nor shall such receipt constitute a waiver by Landlord of Tenant's
obligation to make full payment. No act or thing done by Landlord or its agents
shall be deemed an acceptance of a surrender of the Premises, and no agreement
to accept such surrender shall be valid unless in writing and signed by Landlord
and by each Superior Lessor and Superior Mortgagee whose lease or mortgage
provides that any such surrender may not be accepted without its consent.
6.10 Holding Over. If Tenant holds over without the consent of
Landlord after expiration or termination of this Lease, Tenant shall (a) pay as
holdover rental during the holdover tenancy an amount equal to (x) 150% for the
first month of the holdover tenancy, (y) 175% for the second month of the
holdover tenancy and (z) 200% for the third month and any additional month(s) of
the holdover tenancy of the greater of (i) the fair market rental value of the
Premises for such month (as reasonably determined by Landlord) or (ii) the Rent
which Tenant was obligated to pay for the month immediately preceding the end of
the Term; and (b) be liable to
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Landlord for and indemnify Landlord against (i) any payment or rent concession
which Landlord may be required to make to any tenant obtained by Landlord for
all or any part of the Premises (a "New Tenant") by reason of the late delivery
of space to the New Tenant as a result of Tenant's holding over or in order to
induce such New Tenant not to terminate its lease by reason of the holding over
by Tenant, (ii) the loss of the benefit of the bargain if any New Tenant shall
terminate its lease by reason of the holding over by Tenant and (iii) any claim
for damages by any New Tenant. No holding over by Tenant after the Term shall
operate to extend the Term. Notwithstanding the foregoing, the acceptance of any
rent paid by Tenant pursuant to this Section 6.10 shall not preclude Landlord
from commencing and prosecuting a holdover or summary eviction proceeding.
6.11 Attorneys' Fees. If Landlord places the enforcement of this
Lease or any part thereof, or the collection of any Rent due or to become due
hereunder, or recovery of the possession of the Premises, in the hands of an
attorney, or files suit upon the same, or in the event any bankruptcy,
insolvency or other similar proceeding is commenced involving Tenant, and
Landlord prevails in such enforcement action, Tenant shall, upon demand,
reimburse Landlord for Landlord's reasonable attorneys' fees and disbursements
and court costs.
6.12 Nonliability and Indemnification. (a) Neither Landlord, any
Superior Lessor or any Superior Mortgagee, nor any partner, director, officer,
shareholder, principal, agent, servant or employee of Landlord, any Superior
Lessor or any Superior Mortgagee (whether disclosed or undisclosed), shall be
liable to Tenant for (i) any loss, injury or damage to Tenant or to any other
person, or to its or their property, irrespective of the cause of such injury,
damage or loss, nor shall the aforesaid parties be liable for any loss of or
damage to property of Tenant or of others entrusted to employees of Landlord;
provided, that, except to the extent of the release of liability and waiver of
subrogation provided in Section 7.03 hereof, the foregoing shall not be deemed
to relieve Landlord of any liability to the extent resulting from the negligence
or the willful act or failure to act of Landlord, its agents, servants or
employees in the operation or maintenance of the Premises or the Building, (ii)
any loss, injury or damage described in clause (i) above caused by other tenants
or persons in, upon or about the Building, or caused by operations in
construction of any private, public or quasi-public work, or (iii) even if
negligent, consequential damages arising out of any loss of use of the Premises
or any equipment, facilities or other Tenant's Property therein.
(b) Tenant shall indemnify and hold harmless Landlord, all
Superior Lessors and all Superior Mortgagees and each of their respective
members, partners, directors, officers, shareholders, principals, agents and
employees (each, an "Indemnified Party"), from and against any and all claims
arising from or in connection with (i) the conduct or management of the Premises
or of any business therein, or any work or thing done, or any condition created,
in or about the Premises, (ii) any act, omission or negligence of Tenant or any
person claiming through or under Tenant or any of their respective members,
partners, directors, officers, agents, employees or Contractors, (iii) any
accident, injury or damage occurring in, at or upon the Premises, (iv) any
default by Tenant in the performance of Tenant's obligations under this Lease
and (v) any brokerage commission or similar compensation claimed to be due by
reason of any proposed subletting or assignment by Tenant (irrespective of the
exercise by Landlord of any of the options in Section 5.02(b); together with all
costs, expenses and liabilities incurred in
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connection with each such claim or action or proceeding brought thereon,
including, without limitation, all attorneys' fees and disbursements; provided,
that the foregoing indemnity shall not apply to the extent such claim results
from the negligence (other than negligence to which the release of liability and
waiver of subrogation provided in Section 7.03 below applies) or willful
misconduct of the Indemnified Party. If any action or proceeding is brought
against any Indemnified Party by reason of any such claim, Tenant, upon notice
from such Indemnified Party shall resist and defend such action or proceeding
(by counsel reasonably satisfactory to such Indemnified Party).
6.13 Protest of Landlord Charges. Except as otherwise set forth in
Section 2.10 of this Lease, Tenant shall have sixty (60) days from receipt of a
bill or other request from Landlord for payment of any charge, other than the
Fixed Rent, payable by Tenant under this Lease within which to protest the
correctness of such charge. If Tenant fails to make such protest, which shall be
made in the manner herein set forth for the giving of notices, within the sixty
(60) day period aforementioned, the charge set forth in such bill or other
request shall be deemed to have been accepted by Tenant and shall no longer be
contestable by Tenant, time being of the essence.
ARTICLE 7
Insurance; Casualty; Condemnation
7.01 Compliance with Insurance Standards. (a) Tenant shall not
violate, or permit the violation of, any condition imposed by any insurance
policy then issued in respect of the Project and shall not do, or permit
anything to be done, or keep or permit anything to be kept in the Premises,
which would subject Landlord, any Superior Lessor or any Superior Mortgagee to
any liability or responsibility for personal injury or death or property damage,
or which would increase any insurance rate in respect of the Project over the
rate which would otherwise then be in effect or which would result in insurance
companies of good standing refusing to insure the Project in amounts reasonably
satisfactory to Landlord, or which would result in the cancellation of or the
assertion of any defense by the insurer in whole or in part to claims under, any
policy of insurance in respect of the Project.
(b) If, by reason of any failure of Tenant to comply with this
Lease, the premiums on Landlord's insurance on the Project shall be higher than
they otherwise would be, Tenant shall reimburse Landlord, on demand, for that
part of such premiums attributable to such failure on the part of Tenant. A
schedule or "make up" of rates for the Project or the Premises, as the case may
be, issued by the New York Fire Insurance Rating Organization or other similar
body making rates for insurance for the Project or the Premises, as the case may
be, shall be conclusive evidence of the facts therein stated and of the several
items and charges in the insurance rate then applicable to the Project or the
Premises, as the case may be.
7.02 Tenant's Insurance. Tenant shall maintain at all times during
the Term (a) "all risk" property insurance covering all present and future
Tenant's Property, Fixtures and
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Tenant's Improvements and Betterments to a limit of not less than the full
replacement cost thereof, and (b) commercial general liability insurance,
including a contractual liability endorsement, and personal injury liability
coverage, in respect of the Premises and the conduct or operation of business
therein, with Landlord and its managing agent, if any, and each Superior Lessor
and Superior Mortgagee whose name and address shall have been furnished to
Tenant, as additional insureds, with limits of not less than $5,000,000 combined
single limit for bodily injury and property damage liability in any one
occurrence and (c) boiler and machinery insurance, if there is a boiler,
supplementary air conditioner or pressure object or similar equipment in the
Premises, with Landlord and its managing agent, if any, and each Superior Lessor
and Superior Mortgagee whose name and address shall have been furnished to
Tenant, as additional insureds, with limits of not less than $5,000,000 combined
single limit and (d) when Alterations are in process, the insurance specified in
Section 4.02(f) hereof. The limits of such insurance shall not limit the
liability of Tenant. Tenant shall deliver to Landlord and any other additional
insureds, at least 10 days prior to the Possession Date, such fully paid-for
policies or certificates of insurance, in form reasonably satisfactory to
Landlord issued by the insurance company or its authorized agent. Tenant shall
procure and pay for renewals of such insurance from time to time before the
expiration thereof; and Tenant shall deliver to Landlord and any other
additional insureds such renewal policy or a certificate thereof at least 30
days before the expiration of any existing policy. All such policies shall be
issued by companies of recognized responsibility licensed to do business in New
York State and rated by Best's Insurance Reports or any successor publication of
comparable standing as A-/VIII or better or the then equivalent of such rating,
and all such policies shall contain a provision whereby the same cannot be
canceled, allowed to lapse or modified unless Landlord and any additional
insureds are given at least 30 days' prior written notice of such cancellation,
lapse or modification. The proceeds of policies providing "all risk" property
insurance of Tenant's Fixtures and Improvements and Betterments shall be payable
to Landlord, Tenant and each Superior Lessor and Superior Mortgagee as their
interests may appear. Tenant shall cooperate with Landlord in connection with
the collection of any insurance monies that may be due in the event of loss and
Tenant shall execute and deliver to Landlord such proofs of loss and other
instruments which may be required to recover any such insurance monies. Landlord
may from time to time require that the amount of the insurance to be maintained
by Tenant under this Section 7.02 be increased, so that the amount thereof
adequately protects Landlord's interest.
7.03 Subrogation Waiver. Landlord and Tenant shall each include in
each of its insurance policies (insuring the Building in case of Landlord, and
insuring Tenant's Property, Fixtures and Improvements and Betterments in the
case of Tenant, against loss, damage or destruction by fire or other casualty) a
waiver of the insurer's right of subrogation against the other party during the
Term or, if such waiver should be unobtainable or unenforceable, (a) an express
agreement that such policy shall not be invalidated if the assured waives the
right of recovery against any party responsible for a casualty covered by the
policy before the casualty or (b) any other form of permission for the release
of the other party. Each party hereby releases the other party with respect to
any claim (including a claim for negligence) which it might otherwise have
against the other party for loss, damage or destruction with respect to its
property occurring during the Term to the extent to which it is, or is required
to be, insured under a policy or policies containing a waiver of subrogation or
permission to release liability. Nothing contained in this
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Section 7.03 shall be deemed to relieve either party of any duty imposed
elsewhere in this Lease to repair, restore or rebuild or to nullify any
abatement of rents provided for elsewhere in this Lease.
7.04 Condemnation. (a) If there shall be a total taking of the
Building in condemnation proceedings or by any right of eminent domain, this
Lease and the term and estate hereby granted shall terminate as of the date of
taking of possession by the condemning authority and all Rent shall be prorated
and paid as of such termination date. If there shall be a taking of any material
(in Landlord's reasonable judgment) portion of the Land or the Building (whether
or not the Premises are affected by such taking), then Landlord may terminate
this Lease and the term and estate granted hereby by giving notice to Tenant
within 60 days after the date of taking of possession by the condemning
authority. If there shall be a taking of the Premises of such scope (but in no
event less than 25% thereof) that the untaken part of the Premises would in
Tenant's reasonable judgment be uneconomic to operate, then Tenant may terminate
this Lease and the term and estate granted hereby by giving notice to Landlord
within 60 days after the date of taking of possession by the condemning
authority. If either Landlord or Tenant shall give a termination notice as
aforesaid, then this Lease and the term and estate granted hereby shall
terminate as of the date of such notice and all Rent shall be prorated and paid
as of such termination date. In the event of a taking of the Premises which does
not result in the termination of this Lease (i) the term and estate hereby
granted with respect to the taken part of the Premises shall terminate as of the
date of taking of possession by the condemning authority and all Rent shall be
appropriately abated for the period from such date to the Expiration Date and
(ii) Landlord shall with reasonable diligence restore the remaining portion of
the Premises (exclusive of Tenant's Property) as nearly as practicable to its
condition prior to such taking.
(b) In the event of any taking of all or a part of the
Building, Landlord shall be entitled to receive the entire award in the
condemnation proceeding, including, without limitation, any award made for the
value of the estate vested by this Lease in Tenant or any value attributable to
the unexpired portion of the Term, and Tenant hereby assigns to Landlord any and
all right, title and interest of Tenant now or hereafter arising in or to any
such award or any part thereof, and Tenant shall be entitled to receive no part
of such award; provided, that nothing shall preclude Tenant from intervening in
any such condemnation proceeding to claim or receive from the condemning
authority any compensation to which Tenant may otherwise lawfully be entitled in
such case in respect of Tenant's Property or moving expenses, provided the same
does not include any value of the estate vested by this Lease in Tenant or of
the unexpired portion of the Term and does not reduce the amount available to
Landlord or materially delay the payment thereof.
(c) If all or any part of the Premises shall be taken for a
limited period, Tenant shall be entitled, except as hereinafter set forth, to
that portion of the award for such taking which represents compensation for the
use and occupancy of the Premises, for the taking of Tenant's Property and for
moving expenses, and Landlord shall be entitled to that portion which represents
reimbursement for the cost of restoration of the Premises. This Lease shall
remain unaffected by such taking and Tenant shall continue responsible for all
of its obligations under this Lease to the extent such obligations are not
affected by such taking and shall continue to pay in full all Rent when due. If
the period of temporary use or occupancy shall extend beyond
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the Expiration Date, that part of the award which represents compensation for
the use and occupancy of the Premises shall be apportioned between Landlord and
Tenant as of the Expiration Date. Any award for temporary use and occupancy for
a period beyond the date to which the Rent has been paid shall be paid to, held
and applied by Landlord as a trust fund for payment of the Rent thereafter
becoming due.
(d) In the event of any taking which does not result in
termination of this Lease, (i) Landlord, whether or not any award shall be
sufficient therefor, shall proceed with reasonable diligence to repair the
remaining parts of the Building and the Premises (other than those parts of the
Premises which constitute Tenant's Property) to substantially their former
condition to the extent that the same may be feasible (subject to reasonable
changes which Landlord deems desirable) and so as to constitute a complete and
rentable Building and Premises and (ii) Tenant, whether or not any award shall
be sufficient therefor, shall proceed with reasonable diligence to repair the
remaining parts of the Premises which constitute Tenant's Property, to
substantially their former condition to the extent that the same may be
feasible, subject to reasonable changes which shall be deemed Alterations.
7.05 Casualty. (a) If the Building or the Premises shall be
partially or totally damaged or destroyed by fire or other casualty (each, a
"Casualty") and if this Lease is not terminated as provided below, then (i)
Landlord shall repair and restore the Building and the Premises (excluding
Tenant's Improvements and Betterments, Fixtures and Tenant's Property) with
reasonable dispatch (but Landlord shall not be required to perform the same on
an overtime or premium pay basis) after notice to Landlord of the Casualty and
the collection of the insurance proceeds attributable to such Casualty and (ii)
Tenant shall repair and restore in accordance with Section 4.02 all Tenant's
Property, Fixtures and Improvements and Betterments with reasonable dispatch
after the Casualty.
(b) If all or part of the Premises shall be rendered
untenantable by reason of a Casualty, the Fixed Rent and the Additional Charges
under Sections 2.04 and 2.05 shall be abated in the proportion that the
untenantable area of the Premises bears to the total area of the Premises, for
the period from the date of the Casualty to the earlier of (i) the date the
Premises is made tenantable (provided, that if the Premises would have been
tenantable at an earlier date but for Tenant having failed to cooperate with
Landlord in effecting repairs or restoration or collecting insurance proceeds
(including, without limitation, by reason of Tenant failing to pay to Landlord
the amounts set forth in clauses (A) and (B) of Section 7.05(a)), then the
Premises shall be deemed to have been made tenantable on such earlier date and
the abatement shall cease) or (ii) the date Tenant or any subtenant reoccupies a
portion of the Premises (in which case the Fixed Rent and the Additional Charges
allocable to such reoccupied portion shall be payable by Tenant from the date of
such occupancy). Landlord's determination of the date the Premises is tenantable
shall be controlling unless Tenant disputes same by notice to Landlord within 10
days after such determination by Landlord, and pending resolution of such
dispute, Tenant shall pay Rent in accordance with Landlord's determination.
Notwithstanding the foregoing, (x) if by reason of any act or omission by
Tenant, any subtenant or any of their respective partners, directors, officers,
servants, employees, agents or Contractors, Landlord, any Superior Lessor or any
Superior Mortgagee shall be unable to collect all of the insurance proceeds
(including, without limitation, rent insurance proceeds) applicable to the
Casualty, or,
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(y) if Tenant demolishes or otherwise alters the portion of the Premises
affected by any Casualty (other than as may be required by Laws, emergency
conditions or as part of Tenant's efforts to prevent further damage) without
Landlord's consent, then, without prejudice to any other remedies which may be
available against Tenant, there shall be no abatement of Rent. Nothing contained
in this Section 7.05 shall relieve Tenant from any liability that may exist as a
result of any Casualty.
(c) If by reason of a Casualty (i) the Building shall be
totally damaged or destroyed, (ii) the Building shall be so damaged or destroyed
(whether or not the Premises are damaged or destroyed) that repair or
restoration shall require more than 270 days or the expenditure of more than 20%
percent of the full insurable value of the Building (which, for purposes of this
Section 7.05(c), shall mean replacement cost less the cost of footings,
foundations and other structures below the street and first floors of the
Building) immediately prior to the Casualty or (iii) more than 30% of the
Premises shall be damaged or destroyed (as estimated in any such case by a
reputable contractor, architect or engineer designated by Landlord), then in any
such case Landlord may terminate this Lease by notice given to Tenant within 180
days after the Casualty.
(d) If (i) by reason of a Casualty the Building shall be so
damaged or destroyed that the Landlord's independent architect estimates that
repair or restoration shall require more than 270 days from the date of such
determination or (ii) if the Premises shall be rendered untenantable by reason
of a Casualty during the last 18 months of the Term of this Lease, then Tenant
may terminate this Lease by written notice given to Landlord within 60 days
after the Casualty.
(e) Landlord shall not carry any insurance on Tenant's
Property, Fixtures or on Tenant's Improvements and Betterments and shall not be
obligated to repair or replace Tenant's Property, Fixtures or Improvements and
Betterments. Tenant shall look solely to its insurance for recovery of any
damage to or loss of Tenant's Property, Fixtures or Tenant's Improvements and
Betterments. Tenant shall notify Landlord promptly of any Casualty in the
Premises.
(f) This Section 7.05 shall be deemed an express agreement
governing any damage or destruction of the Premises by fire or other casualty,
and Section 227 of the New York Real Property Law providing for such a
contingency in the absence of an express agreement, and any other law of like
import now or hereafter in force, shall have no application.
ARTICLE 8
Miscellaneous Provisions
8.01 Notice. All notices, demands, consents, approvals, advices,
waivers or other communications which may or are required to be given by either
party to the other under this Lease shall be in writing and shall be deemed to
have been given one Business Day after
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deposit in the United States mail, certified or registered, postage prepaid,
return receipt requested, and addressed to the party to be notified at the
address for such party specified in the first paragraph of this Lease or to such
other place as the party to be notified may from time to time designate by at
least 5 days' notice to the notifying party (and, in the case of each notice to
Landlord, to (a) Landlord's address specified in the first paragraph of this
Lease, Attention: Mr. Morton F. Silver with a copy to (b) Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004, Attention:
Jonathan L. Mechanic, Esq. and, in the case of each notice to Tenant, with a
copy to (x) McLaughlin and Stern, LLP, 260 Madison Avenue, 18th Floor, New York,
New York 10016, Attention: Henry Feuerstein. Notices from Landlord may be given
by Landlord's managing agent, if any, or by Landlord's attorney.
8.02 Building Rules. Tenant shall comply with, and Tenant shall
cause its licensees, employees, Contractors, agents and invitees to comply with,
the rules of the Building set forth in the Rules and Regulations, as the same
may be reasonably modified or supplemented by Landlord from time to time for the
safety, care and cleanliness of the Premises and the Building and for
preservation of good order therein. Landlord shall not be obligated to enforce
the rules of the Building against Tenant or any other tenant of the Building or
any other party, and Landlord shall have no liability to Tenant by reason of the
violation by any tenant or other party of the rules of the Building; provided,
that Landlord shall not promulgate or enforce the rules of the Building in a
manner which discriminates against Tenant. If any rule of the Building shall
conflict with any provision of this Lease, such provision of this Lease shall
govern.
8.03 Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected, and each provision of this
Lease shall be valid and shall be enforceable to the extent permitted by law.
8.04 Certain Definitions. (a) "Landlord" means only the owner, at
the time in question, of the Building or that portion of the Building of which
the Premises are a part, or of a lease of the Building or that portion of the
Building of which the Premises are a part, so that in the event of any transfer
or transfers of title to the Building or of Landlord's interest in a lease of
the Building or such portion of the Building, the transferor shall be and hereby
is relieved and freed of all obligations of Landlord under this Lease accruing
after such transfer, and it shall be deemed, without further agreement, that
such transferee has assumed all obligations of Landlord during the period it is
the holder of Landlord's interest under this Lease.
(b) "Landlord shall have no liability to Tenant" or words of
similar import mean that Tenant is not entitled to terminate this Lease, or to
claim actual or constructive eviction, partial, or total, or to receive any
abatement or diminution of Rent, or to be relieved in any manner or any of its
other obligations under this Lease, or to be compensated for loss or injury
suffered or to enforce any other right or kind of liability whatsoever against
Landlord under or with respect to this Lease or with respect to Tenant's use or
occupancy of the Premises.
8.05 Quiet Enjoyment. Tenant shall and may peaceably and quietly
have, hold and enjoy the Premises, subject to the other terms of this Lease and
to Superior Leases and
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Superior Mortgages, provided that Tenant pays the Fixed Rent and Additional
Charges to be paid by Tenant and performs all of Tenant's covenants and
agreements contained in this Lease.
8.06 Limitation of Landlord's Liability. (a) Tenant shall look
solely to Landlord's interest in the Project for the recovery of any judgment
against Landlord, and no other property or assets of Landlord or Landlord's
members, partners, officers, directors, shareholders or principals, direct or
indirect, disclosed or undisclosed, shall be subject to levy, execution
attachment or other enforcement procedure for the satisfaction of any judgment
or Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder, or Tenant's use and occupancy of the Premises, or
any other liability of Landlord to Tenant.
(b) In the event of a transfer of title to the land and Building of
which the Premises is a part, or in the event of a lease of the Building of
which the Premises is a part, or of the land and Building, upon notification to
Tenant of such transfer or lease, the said transferor landlord named herein
shall be and hereby is entirely freed and relieved of all future covenants,
obligations and liabilities of Landlord hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the transferee of title to or lessee of
said land and Building, that the transferee or lessee has assumed and agreed to
carry out all of the covenants and obligations of Landlord hereunder.
8.07 Counterclaims. If Landlord commences any summary proceeding or
action for nonpayment of Rent or to recover possession of the Premises, Tenant
shall not interpose any counterclaim of any nature or description in any such
proceeding or action, unless Tenant's failure to interpose such counterclaim in
such proceeding or action would result in the waiver of Tenant's right to bring
such claim in a separate proceeding under applicable law.
8.08 Survival. All obligations and liabilities of Landlord or Tenant
to the other which accrued before the expiration or other termination of this
Lease and all such obligations and liabilities which by their nature or under
the circumstances can only be, or by the provisions of this Lease may be,
performed after such expiration or other termination, shall survive the
expiration or other termination of this Lease. Without limiting the generality
of the foregoing, the rights and obligations of the parties with respect to any
indemnity under this Lease, and with respect to Tax Payments and any other
amounts payable under this Lease, shall survive the expiration or other
termination of this Lease.
8.09 Certain Remedies. If Tenant requests Landlord's consent and
Landlord fails or refuses to give such consent, Tenant shall not be entitled to
any damages for any withholding by Landlord of its consent, it being intended
that Tenant's sole remedy shall be an action for specific performance or
injunction, and that such remedy shall be available only in those cases where
this Lease provides that Landlord shall not unreasonably withhold its consent.
No dispute relating to this Lease or the relationship of Landlord and Tenant
under this Lease shall be resolved by arbitration unless this Lease expressly
provides for such dispute to be resolved by arbitration.
8.10 No Offer. The submission by Landlord of this Lease in draft
form shall be solely for Tenant's consideration and not for acceptance and
execution. Such submission shall
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have no binding force or effect and shall confer no rights nor impose any
obligations, including brokerage obligations, on either party unless and until
both Landlord and Tenant shall have executed a lease and duplicate originals
thereof shall have been delivered to the respective parties.
8.11 Captions; Construction. The table of contents, captions,
headings and titles in this Lease are solely for convenience of reference and
shall not affect its interpretation. This Lease shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Lease to be drafted. Each covenant, agreement, obligation or other
provision of this Lease on Tenant's part to be performed, shall be deemed and
construed as a separate and independent covenant of Tenant, not dependent on any
other provision of this Lease.
8.12 Amendments. This Lease may not be altered, changed or amended,
except by an instrument in writing signed by the party to be charged.
8.13 Broker. Each party represents to the other that such party has
dealt with no broker other than Insignia/Edward S. Gordon Company, Inc. (the
"Broker") in connection with this Lease or the Building, and each party shall
indemnify and hold the other harmless from and against all loss, cost, liability
and expense (including, without limitation, reasonable attorneys' fees and
disbursements) arising out of any claim for a commission or other compensation
by any broker other than Broker who alleges that it has dealt with the
indemnifying party in connection with this Lease or the Building. Landlord shall
enter into a separate agreement with Broker which provides that, if this Lease
is executed and delivered by both Landlord and Tenant, Landlord shall pay to
Broker a commission to be agreed upon between Landlord and Broker, subject to,
and in accordance with, the terms and conditions of such agreement.
8.14 Merger. Tenant acknowledges that Landlord has not made and is
not making, and Tenant, in executing and delivering this Lease, is not relying
upon, any warranties, representations, promises or statements, except to the
extent that the same are expressly set forth in this Lease. This Lease embodies
the entire understanding between the parties with respect to the subject matter
hereof, and all prior agreements, understanding and statements, oral or written,
with respect thereto are merged in this Lease.
8.15 Successors. This Lease shall be binding upon and inure to the
benefit of Landlord, its successors and assigns, and shall be binding upon and
inure to the benefit of Tenant, its successors, and to the extent that an
assignment is permitted hereunder, Tenant's assigns.
8.16 Applicable Law. This Lease shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
any principles of conflicts of laws.
8.17 No Development Rights. Tenant acknowledges that it has no
rights to any development rights, air rights or comparable rights appurtenant to
the Project, and Tenant consents, without further consideration, to any
utilization of such rights by Landlord. Tenant shall promptly execute and
deliver any instruments which may be requested by Landlord, including
instruments merging zoning lots, evidencing such acknowledgment and consent. The
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provisions of this Section 8.17 shall be construed as an express waiver by
Tenant of any interest Tenant may have as a "party in interest" (as such term is
defined in Section 12-10 Zoning Lot of the Zoning Resolution of the City of New
York) in the Project.
8.18 Signage. (a) Landlord agrees that Tenant shall, subject to the
consent of Landlord (which consent shall not be unreasonably withheld,
conditioned or delayed), be permitted to install signage of Tenant's design (i)
in the Premises, (ii) in the elevator lobby of the 19th Floor and (iii) if
applicable, in the Expansion Space and in the elevator lobby of floor on which
the Expansion Space is located.
(b) Provided that Landlord maintains a directory in the lobby of the
Building, Landlord shall make available, at no charge to Tenant, space for the
listing of Tenant's name, the names of any of the officers or employees of
Tenant or any alter ego name of Tenant, and any affiliate of Tenant, provided,
that Tenant shall be entitled to the greater of (i) Tenant's pro-rata share of
said directory or (ii) a minimum of 5 spaces in said directory.
(c) With respect to the Temporary Space, Landlord agrees that Tenant
shall, subject to the consent of Landlord (which consent shall not be
unreasonably withheld, conditioned or delayed) be permitted to install signage
of Tenant's design in the Temporary Space. Unless Tenant exercises Tenant's
Expansion Option set forth in Section 1.08, Tenant agrees that on or prior to
the Temporary Space Vacancy Date or any earlier termination of this Lease, if
applicable, Tenant shall remove any such signage from the Temporary Space and
shall repair and restore any area of the Temporary Space impacted by such
signage to the condition of such area as of the date of this Lease. If Tenant
exercises Tenant's Expansion Option as set forth in Section 1.08, then upon the
Expiration Date or earlier termination of this Lease, Tenant shall remove any
signage from the Expansion Space and shall repair and restore any area of the
Expansion Space impacted by such signage to the condition of such area as of the
date of this Lease.
8.19 Building Access. Tenant shall have access to the Building 24
hours a day, seven days a week, 365 days a year.
ARTICLE 9
Renewal Right
9.01 Renewal Right. (a) Provided that on the date Tenant exercises
the Renewal Option and at the commencement of the Renewal Term (i) this Lease
shall not have been terminated, (ii) Tenant shall not be in monetary default
beyond any applicable notice and grace period under this Lease and (iii) Tenant
named herein (i.e., ACTV, Inc.), an Affiliate or a permitted assignee of Tenant
shall occupy the entire Premises, Tenant shall have the option (the "Renewal
Option") to extend the term of this Lease for an additional five (5) year period
(the "Renewal Term"), to commence at the expiration of the initial Term.
(b) The Renewal Option shall be exercised with respect to the entire
Premises only and shall be exercisable by Tenant giving notice to Landlord (the
"Renewal Notice") at least
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18 months before the last day of the initial Term. Time is of the essence with
respect to the giving of the Renewal Notice.
9.02 Renewal Rent and Other Terms. (a) The Renewal Term shall be
upon all of the terms and conditions set forth in this Lease, except that (i)
the Fixed Rent shall be as determined pursuant to the further provisions of this
Section 9.02; (ii) Tenant shall accept the Premises in its "as is" condition at
the commencement of the Renewal Term, and Landlord shall not be required to
perform Landlord's Initial Work or any other work, pay the Landlord's
Contribution or any other amount or render any services to make the Premises
ready for Tenant's use and occupancy or provide any abatement of Fixed Rent or
Additional Charges, in each case with respect to the Renewal Term; (iii) Tenant
shall have no option to renew this Lease beyond the expiration of the Renewal
Term; and (iv) the Base Tax Amount shall be the Taxes for the Tax Year ending
immediately before the commencement of the Renewal Term.
(b) The annual Fixed Rent for the Premises for the Renewal Term
shall be the greater of (i) the Fair Market Rent or (ii) an amount (the "Annual
Rent") equal to the aggregate of (A) the Fixed Rent payable by Tenant for the 12
month period ending on the last day of the initial Term and (B) the Tax Payment
payable with respect to the Tax Year ending immediately before the commencement
of the Renewal Term (the greater of Fair Market Rent and Annual Rent is called
the "Rental Value"). "Fair Market Rent" means the fixed annual rent that a
willing lessee would pay and a willing lessor would accept for the Premises
during the Renewal Term, taking into account all relevant factors, including,
without limitation, market rents then being charged for comparable space in
other similar office buildings in the same area and all of the following which
shall be assumed: (X) the Landlord and prospective tenant are typically
motivated; (Y) the Landlord and prospective tenant are well informed and well
advised and each is acting in what it considers its own best interest; and (Z)
in the event the Premises have been destroyed or damaged by fire or other
casualty, they have been fully restored. The following shall have been presumed
to have been done: (A) a reasonable time under then-existing market conditions
has been allowed for exposure of the Premises on the open market; (B) the
prospective tenant has been given the benefit of customary rent concessions or
free rent periods than pertaining in the community for comparable space of a
similar size; (C) the Premises have been newly renovated to the prospective
tenant's specifications and are acceptable to the prospective tenant "as is;"
(D) the Premises have been let with vacant possession and subject to the
provisions of this Lease for a 5-year term; (E) the computation of the number of
rentable square feet contained in the Premises has been based on the measurement
standard then prevalent in the market for comparable space; and (F) a full
brokerage commission shall have been paid by Landlord on then market terms.
Notwithstanding that the factors enumerated above are to be assumed or presumed
to have already been given in the determination of Fair Market Rent, Landlord
shall not be obliged to give Tenant any of the foregoing benefits.
(c) If Tenant timely exercises the Renewal Option, Landlord shall
notify Tenant (the "Rent Notice") at least 120 days before the last day of the
initial Term of Landlord's determination of the Fair Market Rent ("Landlord's
Determination"). If Landlord's Determination exceeds the Annual Rent, then
Tenant shall notify Landlord ("Tenant's Notice"), within 20 days after Tenant's
receipt of the Rent Notice, whether Tenant accepts or disputes Landlord's
Determination, and if Tenant disputes Landlord's Determination, Tenant's Notice
shall
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set forth Tenant's determination of the Fair Market Rent (which shall not be
less than the Annual Rent). If Tenant fails to give Tenant's Notice within such
20 day period, Tenant shall be deemed to have accepted Landlord's Determination.
(d) If Tenant timely disputes Landlord's Determination and Landlord
and Tenant fail to agree as to the Fair Market Rent within 20 days after the
giving of Tenant's Notice, then the Fair Market Rent shall be determined as
follows: Such dispute shall be resolved by arbitration conducted in accordance
with the Real Estate Valuation Arbitration Rules (Expedited Procedures) of the
AAA, except that the provisions of this Section 9.02(d) shall supersede any
conflicting or inconsistent provisions of said rules. The party requesting
arbitration shall do so by giving notice to that effect to the other party,
specifying in said notice the nature of the dispute, and that said dispute shall
be determined in the City of New York, by a panel of 3 arbitrators in accordance
with this Section 9.02(d). Landlord and Tenant shall each appoint their own
arbitrator within 7 days after the giving of notice by either party. If either
Landlord or Tenant shall fail timely to appoint an arbitrator, the appointed
arbitrator shall select the second arbitrator, who shall be impartial, within 7
days after such party's failure to appoint. Such two arbitrators shall have 7
days to appoint a third arbitrator who shall be impartial. If such arbitrators
fail to do so, then either Landlord or Tenant may request the AAA to appoint an
arbitrator who shall be impartial within 14 days of such request and both
parties shall be bound by any appointment so made within such 14-day period. If
no such third arbitrator shall have been appointed within such 14 days, either
Landlord or Tenant may apply to any court having jurisdiction to make such
appointment. The third arbitrator only shall subscribe and swear to an oath
fairly and impartially to determine such dispute. Within 14 days after the third
arbitrator has been appointed, each arbitrator shall render its determination of
the Fair Market Rent in writing and shall submit same to each of the other
arbitrators, and to Landlord and Tenant. If at least two of the three
arbitrators shall concur in their determination of the Fair Market Rent, their
determination shall be final and binding upon the parties. If the arbitrators
fail to concur, then the Fair Market Rent shall be equal to 50% of the sum of
the two determinations by the arbitrators closest in amount, and such amount
shall be final and binding upon the parties. The fees and expenses of any
arbitration pursuant to this Section 9.02(d) shall be borne by the parties
equally, but each party shall bear the expense of its own arbitrator, attorneys
and experts and the additional expenses of presenting its own proof The
arbitrators shall not have the power to add to, modify or change any of the
provisions of this Lease. Each arbitrator shall have at least 10 years'
experience in leasing and valuation of properties which are similar in character
to the Building. After a determination has been made of the Fair Market Rent,
the parties shall execute and deliver an instrument setting forth the Fair
Market Rent, but the failure to so execute and deliver any such instrument shall
not affect the determination of Fair Market Rent.
(e) If Tenant disputes Landlord's Determination and if the final
determination of Fair Market Rent shall not be made on or before the first day
of the Renewal Term, then, pending such final determination, Tenant shall pay,
as Fixed Rent for the Renewal Term, an amount equal to the last month's Fixed
Rent payable under this Lease plus ten (10%) percent. If, based upon the final
determination of the Fair Market Rent, the Fixed Rent payments made by Tenant
for such portion of the Renewal Term were (i) less than the Rental Value payable
for the Renewal Term, Tenant shall pay to Landlord the amount of such deficiency
within 10 days after demand therefor or (ii) greater than the Rental Value
payable for the Renewal Term, Landlord
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shall credit the amount of such excess against future installments of Fixed Rent
and/or Additional Charges payable by Tenant.
ARTICLE 10
Expansion Space
10.01 Expansion Space. Provided that on the date Tenant exercises
the Expansion Option and on the ES Inclusion Date (as defined below) (i) this
Lease shall not have been terminated, (ii) Tenant shall not be in default under
this Lease and (iii) Tenant and/or an Affiliate of Tenant shall occupy the
entire First Temporary Space, Tenant shall have the option (the "Expansion
Option") to lease, as part of the Premises defined herein, the First Temporary
Space (the "Expansion Space"). Landlord and Tenant confirm that the Expansion
Space is conclusively deemed to contain 12,217 rentable square feet. The
Expansion Option shall be exercisable by Tenant giving Landlord notice thereof
(the "Expansion Notice") on or before April 1, 2000 (time being of the essence).
If Tenant timely gives the Expansion Notice, on the ES Inclusion Date, the
Expansion Space shall become part of the Premises, upon all of the terms and
conditions set forth in this Lease, except that:
(a) Fixed rent for the Expansion Space shall be (i) for the period
commencing on the ES Inclusion Date and ending on the day immediately preceding
the 5th anniversary of the ES Inclusion Date Three Hundred Ninety Thousand Nine
Hundred Forty-Four and 00/100 ($390,944.00) Dollars, payable in equal monthly
installments of Thirty-Two Thousand Five Hundred Seventy-Eight and 67/100
($32,578.67) Dollars (an annual rate of $32.00 per rentable square foot
contained in the Expansion Space), (ii) for the period commencing on the 5th
anniversary of the ES Inclusion Date and ending on the day immediately preceding
the 10th anniversary of the ES Inclusion Date, Four Hundred Twenty-Seven
Thousand Five Hundred Ninety-Five and 00/100 ($427,595.00) Dollars per annum,
payable in equal monthly installments of Thirty-Five Thousand Six Hundred
Thirty-Two and 92/100 ($35,632.92) Dollars (an annual rate of $35.00 per
rentable square foot contained in the Expansion Space) and (iii) for the period
commencing on the 10th anniversary of the ES Inclusion Date and ending on the
latter of (A) the 15th anniversary of the ES Inclusion Date or (B) the
Expiration Date, Four Hundred Sixty-Four Thousand Two Hundred Forty-Six and
00/100 ($464,246.00) Dollars (an annual rate of $38.00 per rentable square foot
contained in the Expansion Space). Fixed Rent shall be payable by Tenant in
equal monthly installments in advance on the ES Inclusion Date and on the first
day of each calendar month thereafter. From and after the ES Inclusion Date, the
term "Fixed Rent" (as defined herein) shall include the fixed rent for the
Expansion Space;
(b) From and after Tenant's exercise of the Expansion Option until
August 1, 2000 (the "ES Election Period"), and provided that Tenant delivers to
Landlord written evidence reasonably satisfactory to Landlord that Tenant's
Expansion Space Alterations (defined below) will cost a minimum of Fifteen ($15)
Dollars per rentable square foot, Tenant shall have the right to elect to forego
receipt of Landlord's Expansion Space Work Contribution pursuant to Section 10.0
1(e) hereunder and, in lieu thereof, receive a reduction in fixed rent for the
Expansion Space
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of $1.81 per year per rentable square feet contained in the Expansion Space
(i.e., $22,112.77 per year with respect to the Expansion Space). Tenant shall
give Landlord such written notice on or prior to the expiration of the ES
Election Period. Time shall be of the essence with respect to the giving of such
notice;
(c) Each of the provisions of Section 2.04 shall apply to the
Expansion Space except (i) the term "Building A" in Section 2.04(b)(i) shall be
replaced by "Building B" for the purpose of calculating Taxes with respect to
the Expansion Space and (ii) Tenant's Tax Share with respect to the Expansion
Space shall be 8.4999% ("Expansion Space Tax Share") and any reference with
respect to Tenant's Tax Share shall be deemed to refer to the Expansion Space
Tax Share when calculating the Taxes for the Expansion Space. The parties hereto
agree that the rentable square foot area of the Expansion Space shall be deemed
to be 12,217 rentable square feet and the rentable square foot area of Building
B shall be deemed to be 143,731 rentable square feet. The Expansion Space Tax
Share has been determined by dividing the rentable square foot area of the
Expansion Space by the rentable square foot area of Building B,
(d) The Multiplication Factor shall be increased by 12,217 rentable
square feet;
(e) Landlord agrees to contribute Fifteen ($15) Dollars per rentable
square foot of the Expansion Space for a total of $183,255 ("Expansion Space
Work Contribution"), toward the cost of the Tenant's Initial Improvements with
respect to the Expansion Space ("Expansion Space Alterations"). Landlord shall
pay the Expansion Space Work Contribution to Tenant's Contractor(s) over the
duration of the construction, no more frequently than monthly, on receipt of a
notice from Tenant of the names of the Contractor(s) who performed work or
supplied materials with respect to Tenant's Expansion Space Alterations,
together with an Application and Certificate for Payment on AIA Document G702
and G703, or similar form, duly executed by the Contractor(s) to be paid, and
Tenant's architect, who shall certify to Landlord (i) that the work performed
and materials delivered under said application generally conform to Tenant's
Plans, (ii) that the amount of such payment request approved by the architect is
justified by the work, (iii) the percentage of Tenant's Expansion Space
Alterations completed by that date, (iv) that no less than 85% of the cost of
work to be paid from the Expansion Space Work Contribution (i.e., $155,766.75)
has been incurred in respect of hard costs and (v) that in said architect's
opinion adequate funds remain to complete Tenant's Expansion Space Alterations.
Landlord may retain ten (10%) percent of each requested amount until ten (10)
days after (w) substantial completion of Tenant's Expansion Space Alterations,
(x) delivery to Landlord of waivers of mechanic's/materialmen's liens from all
of Tenant's Contractor(s) for amounts paid to date, and statements from the
Contractor(s) stating the balance owed, (y) receipt of invoices, requisitions,
canceled checks or other documentary evidence showing payment of the cost of
Tenant's Expansion Space Alterations, and (z) receipt of two (2) sets of
as-built drawings, or drawings marked "Final", of the improved Expansion Space.
For each request for payment made by Tenant, the amount of Expansion Space Work
Contribution to be paid to Tenant's Contractor(s) shall be determined by
multiplying the amount due to Tenant's Contractors by the Pro Rata Share. "Pro
Rata Share" shall mean the ratio of the Expansion Space Work Contribution to the
total estimated cost of Tenant's Expansion Space Alterations. Tenant shall
comply with all provisions of Section 4.01 in performing Tenant's Expansion
Space Alterations;
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(f) (i) In connection with the delivery of the Expansion Notice by
Tenant to Landlord, Tenant shall, simultaneously, deliver to Landlord, as
security for the performance of Tenant's obligations under this Lease, either
(a) the additional sum of $871,198.00, in certified or official bank check (the
"Expansion Space Security Deposit"), or (b) an unconditional, irrevocable letter
of credit in the amount of $871,198.00 in a form and issued by a bank reasonably
satisfactory to Landlord (the "Expansion Space Letter of Credit"). The Expansion
Space Letter of Credit shall provide that it is assignable by Landlord without
charge and shall either (x) expire on the LC Date (as defined herein) or (y) be
automatically self-renewing until the LC Date. If the Expansion Space Letter of
Credit is not renewed at least 30 days prior to the expiration thereof or if
Tenant holds over in the Premises without the consent of Landlord after the
expiration or termination of this Lease, Landlord may draw upon the Expansion
Space Letter of Credit and hold the proceeds thereof as security for the
performance of Tenant's obligations under this Lease. Landlord may draw on the
Expansion Space Security Deposit or Expansion Space Letter of Credit (or the
proceeds thereof) solely to remedy defaults by Tenant, which are beyond any
applicable notice and grace period, in the payment or performance of any of
Tenant's obligations under this Lease. If Landlord shall have so drawn upon the
Expansion Space Security Deposit or the Expansion Space Letter of Credit (or the
proceeds thereof), Tenant shall upon demand deposit with Landlord a sum equal to
the amount so drawn by Landlord. Landlord hereby agrees that a letter of credit
issued (i) in the form set forth in Exhibit I attached hereto and made a part
hereof and (ii) by Amalgamated Bank shall be deemed to be reasonably
satisfactory to Landlord. If Tenant delivers the Expansion Space Security
Deposit to Landlord in cash, then such Expansion Space Security Deposit shall be
kept in an interest-bearing account until applied in accordance with the terms
of this Lease (it being understood that Landlord shall not be liable for failure
to obtain any specific level of interest). Landlord shall pay such interest to
Tenant, less a one (1%) percent administrative fee, no more frequently than
annually, upon request of Tenant.
(ii) In the event that Tenant shall have, prior to the
expiration of the ES Election Period, elected to forego receipt of the Expansion
Space Work Contribution pursuant to Section 10.01(b) above, the amount of the
Expansion Space Security Deposit required hereunder shall be reduced by one
hundred eighty-three thousand two hundred fifty-five and 00/100 ($183,255.00)
dollars.
(iii) If, at any time, Tenant (1) completes a secondary public
offering of the Minimum Equity Amount or (2) otherwise receives an equity
infusion of the Minimum Equity Amount, which Minimum Equity Amount, by the terms
of the documents governing the same, can be used by Tenant as working capital,
then the Expansion Space Security Deposit required hereunder shall be reduced to
four hundred eighty-four thousand and 00/100 ($484,000.00) dollars;
(iv) If, prior to the expiration of the ES Election Period,
Tenant has elected to forego receipt of the Expansion Space Work Contribution
pursuant to Section 10.08(b) above, and if Tenant meets the requirements of
Section 10.08(f)(iii) above, then the Security Deposit shall be reduced to three
hundred nine thousand eight hundred seventy-two and 00/100 ($309,872.00) dollars
(the "ES Minimum Security Amount").
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(v) If, from and after the ES Inclusion Date, (1) there is not
a monetary default beyond any applicable notice and grace period under this
Lease and (2) Tenant delivers to Landlord evidence that it has a NOI of at least
four million ($4,000,000.00) dollars and that the Tenant has maintained a NAV of
at least twenty million ($20,000,000.00) dollars during the preceding
twenty-four (24) month period, then the Expansion Space Security Deposit shall
be reduced to three hundred nine thousand eight hundred seventy-two and 00/100
($309,872.00) dollars;
(vi) If the Expansion Space Security Deposit has not otherwise
been reduced to the ES Minimum Security Amount, then:
(a) if, during the first five (5) years of the Term,
there have not occurred more than three (3) monetary defaults beyond any
applicable notice and grace period under this Lease, then upon the sixth (6th)
anniversary of the ES Inclusion Date, the Security Deposit shall be reduced by
two hundred forty-seven thousand eight hundred ninety-seven and 00/100
($247,897.00) dollars; and
(b) if during the first ten (10) years of the Term,
there have not occurred more than six (6) monetary defaults beyond any
applicable notice and grace period, then upon the eleventh (11th) anniversary of
the ES Inclusion Date, the Security Deposit shall be reduced by two hundred
forty-seven thousand eight hundred ninety-seven and 00/100 ($247,897.00)
dollars;
(vii) If the Security Deposit is reduced pursuant to Section
1.08(a)(v)(D)(1) or (2) above, and after the date of such reduction there occurs
more than three (3) monetary defaults, beyond any applicable notice and grace
period, within any five (5) year period, the Security Deposit required shall be
increased to the amount of such Security Deposit immediately prior to such
reduction and Tenant shall be required to deliver to Landlord as further
security for the performance of Tenant's obligations under this Lease, within
ten (10) days notice from Landlord and in accordance with the provisions of
Section 1.08(a)(v)(A) above, two hundred forty-seven thousand eight hundred
ninety-seven ($247,897.00) dollars;
(viii) Notwithstanding anything to the contrary contained in
this Section 1.08(a)(vi), in no event shall the Expansion Space Security Deposit
be reduced to less than the ES Minimum Security Amount;
(ix) In the event that Tenant is entitled to a reduction in
the amount of the Expansion Space Security Deposit under Sections 1.08(a)(v)(B),
(C), or (D) above, Landlord shall (1) if the Expansion Space Security Deposit
was paid in cash, return the amount of such reduction to Tenant by check or (2)
if the Expansion Space Security Deposit was given in the form of a letter of
credit, exchange the existing Expansion Space Letter of Credit for a letter of
credit in the amount of the reduced Expansion Space Security Deposit. If, within
thirty (30) days after receiving notice from Tenant that Tenant is entitled to a
reduction in the Expansion Space Security Deposit, unless Landlord is disputing
the same, Landlord does not return the amount of the reduction to Tenant or, if
applicable, cooperate with Tenant in obtaining a new letter of credit for the
reduced amount of the Expansion Space Security Deposit, then Tenant shall be
entitled to
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interest, at the Interest Rate, on the amount of the reduction of the Expansion
Space Security Deposit. "Interest Rate" means the lesser of (i) the prime rate
from time to time announced by Citibank, N.A. (or, if Citibank, N.A. shall not
exist, such other bank in New York, New York, as shall be designated by Landlord
in a notice to Tenant) to be in effect at its principal office in New York, New
York plus 2% or (ii) the maximum rate permitted by law; and
10.02 ES Inclusion Date. (a) The "ES Inclusion Date" shall be the
Possession Date and, if the Possession Date shall not have occurred as a result
of the termination of this Lease with respect to the Original Premises in
accordance with Section 1.06(e) herein, then the ES Inclusion Date shall be the
date of the Termination Notice.
(b) Promptly after the occurrence of the ES Inclusion Date, Landlord
and Tenant shall confirm the occurrence thereof and the inclusion of the
Expansion Space in the Premises by executing an instrument reasonably
satisfactory to Landlord and Tenant; provided, that failure by Landlord or
Tenant to execute such instrument shall not affect the inclusion of the
Expansion Space in the Premises in accordance with this Article 10.
10.03 Services. If Tenant exercises the Expansion Option set forth
in this Article 10, Landlord shall provide the Expansion Space with the services
described in Section 3.01(b) herein throughout the Term of this Lease.
10.04 Alternate Space. Notwithstanding anything to the contrary
contained herein, if Tenant gives to Landlord an Expansion Notice on or before
April 1, 2000 (time being of the essence), Landlord may notify Tenant within ten
(10) days of receiving Tenant's Expansion Notice that Landlord, at Landlord's
cost and expense, intends to move Tenant to alternate space, of at least an
equal number of rentable square feet as the First Temporary Space, in the
Building (the "Alternate Space"); provided, that Landlord has signed a lease for
two or more floors, one of which is the First Temporary Space. If, at the time
the Expansion Notice is given, Landlord is actively negotiating a lease for two
or more floors which lease shall encompass the First Temporary Space, Landlord
shall provide notice to Tenant that Landlord is actively negotiating such a
lease. Landlord shall within three (3) months from the date of the Expansion
Notice notify Tenant that Landlord intends to move Tenant to Alternate Space. If
Landlord so notifies Tenant that it intends to move Tenant from the Expansion
Space to Alternate Space, Tenant may withdraw its Expansion Notice if Tenant
determines not to accept the Alternate Space offered by Landlord. Tenant shall
so advise Landlord by written notice given to Landlord within ten (10) Business
Days of the date of Landlord's Notice. If Tenant accepts the Alternate Space
offered by Landlord, (i) Landlord shall, at Landlord's cost, move Tenant to the
Alternate Space and shall pay, in connection therewith, for the cost of
installing telecommunications equipment in the Alternate Space in an amount not
to exceed $10,000 and (ii) the term "Expansion Space" as used in this Article 10
shall for all purposes hereunder mean the Alternate Space. Landlord shall
coordinate any move to the Alternate Space with Tenant, but the timing of such
move shall be determined in Landlord's sole discretion.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the day and year first written above.
Landlord: 225 FOURTH LLC
By: ORDA MANAGEMENT CORPORATION
By: /s/ Morton F. Silver
----------------------------
Morton F. Silver, President
Tenant: ACTV, INC
By: /s/ Christopher Cline
-------------------------------
Name: Christopher Cline
Title: Senior Vice President
Tenant's Federal Tax ID. No.: 94-2907258
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EXHIBIT A
DESCRIPTION OF LAND
All those lots or parcels of land, situate, lying and being in the Borough of
Manhattan, in the City, County and State of New York, bounded and described as
follows:
AS TO LOT 4
BEGINNING at the corner formed by the intersection of the easterly side of Park
Avenue South (formerly known as Fourth Avenue) with the southerly side of
Nineteenth Street;
RUNNING THENCE southerly along the easterly side of Park Avenue South (formerly
known as Fourth Avenue) eighty two feet;
THENCE easterly parallel with Nineteenth Street one hundred and fifty feet;
THENCE northerly parallel with Park Avenue South (formerly known as Fourth
Avenue) eighty two feet to the southerly side of Nineteenth Street;
THENCE westerly along the said southerly side of Nineteenth Street one hundred
and fifty feet to the corner aforesaid the point or place of BEGINNING.
AS TO LOT 1
BEGINNING at the corner formed by the intersection of the easterly side of Park
Avenue South (formerly known as Fourth Avenue) with the northerly side of
Eighteenth Street;
RUNNING THENCE northerly along said easterly side of Park Avenue South (formerly
known as Fourth Avenue) one hundred and two feet;
THENCE easterly parallel with Eighteenth Street one hundred and fifty feet;
THENCE northerly and parallel with Park Avenue South (formerly known as Fourth
Avenue) eighty two feet to the southerly side of Nineteenth Street;
THENCE easterly along the said southerly side of Nineteenth Street fifty feet;
THENCE southerly and parallel with Park Avenue South (formerly known as Fourth
Avenue) ninety two feet to the center line of the block;
THENCE easterly along the said center line of the block eighteen feet;
THENCE southerly and again parallel with Park Avenue South (formerly known as
Fourth Avenue) ninety two feet to the said northerly side of Eighteenth Street;
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THENCE westerly along the said northerly side of Eighteenth Street two hundred
and eighteen feet to the corner aforesaid, the point or place of BEGINNING.
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EXHIBIT B
[FLOOR PLAN OMITTED]
225 PARK AVENUE SOUTH
19TH FLOOR
<PAGE>
EXHIBIT B
Page 2
[FLOOR PLAN OMITTED]
225 PARK AVENUE SOUTH
20TH FLOOR
<PAGE>
EXHIBIT B-1
[FLOOR PLAN OMITTED]
233 PARK AVENUE SOUTH
10TH FLOOR
<PAGE>
Exhibit B-2
Additional 19th Floor Space is shown by shading
[FLOOR PLAN OMITTED]
225 PARK AVENUE SOUTH
19TH FLOOR
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or
encumbered by any Tenant or used for any purpose other than for ingress or
egress from the demised premises and for delivery of merchandise and
equipment in a prompt and efficient manner using elevators and passageways
designated for such delivery by Landlord. There shall not be used in any
space, or in the public hall of the building, either by Tenant or by
jobbers or others in the delivery or receipt of merchandise, any hand
trucks, except those equipped with rubber tires and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and
no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting
from the violation of this rule shall be borne by the Tenant who, or whose
clerks, agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window
of the building, and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any
of the corridors or halls, elevators, or out of the doors or windows or
stairways of the building and Tenant shall not use, keep or permit to be
kept any foul or noxious gas or substance in the demised premises, or
permit or suffer the demised premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the building
by reason of noise, odors, and/or vibrations, or interfere in any way with
other Tenants or those having business therein, nor shall any animals or
birds be kept in or about the building. Smoking or carrying lighted cigars
or cigarettes in the elevators or elsewhere in the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of the Landlord.
5. Except as otherwise provided in this Lease, no sign, advertisement, notice
or other lettering shall be exhibited, inscribed, painted or affixed by
any Tenant on any part of the outside of the demised premises or the
building or on the inside of the demised premises if the same is visible
from the outside of the demised premises without the prior written consent
of Landlord, except that the name and/or logo of Tenant may appear on the
entrance door, and in the event of a full floor tenant, in the elevator
lobby of the demised premises. In the event of the violation of the
foregoing by any Tenant, Landlord may remove same without any liability,
and may charge the expense incurred by such removal to Tenant or Tenants
violating this rule. Interior signs on doors and the directory in the
lobby shall be inscribed, painted or affixed for each Tenant by Landlord
at the expense of such Tenant, and shall be of a size, color and style
acceptable to Landlord and consistent
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with the standard for the building. Tenant may place signs on the inside
of the demised premises, including in the lobby of the demised premises.
6. No Tenant shall mark, paint, drill into, or in any way deface any masonry
wall of the demised premises or the building of which they form a part,
except that Tenant may paint interior masonry walls. No boring, cutting or
stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct, except for the
installation of telecommunication and electric wires. No Tenant shall lay
linoleum, or other similar floor covering, so that the same shall come in
direct contact with the floor of the demised premises, and if linoleum or
other similar floor covering is desired to be used, an interlining of
builder's deadening felt shall be first affixed to the floor, by a paste
or other material, soluble in water, the use of cement or other similar
adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of this
Lease, restore to Landlord all keys of offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys so furnished, such Tenant shall pay to Landlord the
cost thereof. Tenant may place a lock or locks on any "secure area" closet
that Tenant shall designate, and Landlord shall not have access thereto
except in an emergency.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the demised
premises only on the freight elevators and through the service entrances
and corridors, and only between 8:00 AM and 5:00 PM, Monday through
Friday, and in a manner approved by Landlord. Tenant shall have the right
to use the freight elevator after 5:00 PM upon reasonable notice to
Landlord, and upon payment of a commercially reasonable charge set by
Landlord for all tenants. Landlord reserves the right to inspect all
freight to be brought into the building and to exclude from the building
all freight which violates any of these Rules and Regulations of the lease
or which these Rules and Regulations are a part.
9. Canvassing, soliciting, hawking and peddling in the building is prohibited
and each Tenant shall cooperate to prevent the same.
10. Landlord shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building
or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
11. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any vending machines dispensing food or beverage,
inflammable, combustible or explosive or hazardous fluid, material,
chemical or substance, or any other hazardous material, or cause or permit
any odors of cooking or other processes, or any unusual or other
objectionable odors to permeate in or emanate from the demised premises.
Tenant may have copying equipment that uses ammonia.
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12. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Landlord's prior
written consent, which Landlord agrees not to unreasonably withhold or
delay. If such safe, machinery, equipment, bulky matter or fixtures
requires special handling, all work in connection therewith shall comply
with the Administration Code of the City of New York and all other laws
and regulations applicable thereto and shall be done during such hours as
Landlord may designate.
13. Refuse and trash: (1) Compliance by Tenant. Tenant covenants and agrees,
at its sole cost and expense, to comply with all present and future laws,
orders, and regulations of all state, federal, municipal, and local
governments, departments, commissions and boards regarding the collection,
sorting, separation and recycling of waste products, garbage, refuse and
trash. Tenant shall sort and separate such waste products, garbage, refuse
and trash into such categories as provided by law. Each separately sorted
category of waste products, garbage, refuse and trash shall be placed in
separate receptacles reasonably approved by Landlord. Such separate
receptacles may, at Landlord's option, be removed from the demised
premises in accordance with a collection schedule prescribed by law.
Tenant shall remove, or cause to be removed by a contractor acceptable to
Landlord, at Landlord's sole discretion, such items as Landlord may
expressly designate. (2) Owner's Rights in Event of Noncompliance. Owner
has the option to refuse to collect or accept from Tenant waste products,
garbage, refuse or trash (a) that is not separated and sorted as required
by law or (b) which consists of such items as Landlord may expressly
designate for Tenant's removal, and to require Tenant to arrange for such
collection at Tenant's sole cost and expense, utilizing a contractor
satisfactory to Landlord. Tenant shall pay all costs, expenses, fines,
penalties or damages that may be imposed on Landlord or Tenant by reason
of Tenant's failure to comply with the provisions of this Rule 15, and, at
Tenant's sole cost and expense, shall indemnify, defend and hold Landlord
harmless (including reasonable legal fees and expenses) from and against
any actions, claims and suits arising from such noncompliance, utilizing
counsel reasonably satisfactory to Landlord.
14. No equipment or large boxes containing personal or office items are
allowed to enter or exit through the building lobbies. Such items must be
brought in or removed through the freight elevators. When leaving the
building, a pass for these items must be given to the freight elevator
operator.
15. No pets are allowed in the building at any time. Guide Dogs are the only
exception to this rule.
16. No bicycles are allowed in the building.
17. Anyone entering the building from 6:00 PM to 7:00 AM (Monday - Friday),
and anytime Saturday or Sunday, must be on an authorized list supplied by
Tenant's office manager from time to time. In addition, anyone entering
the building during the times listed in the preceding sentence must sign
in and out, and if asked, must show identification. Updates
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should list all employees with permission to enter the demised premises
after hours, not just newly authorized employees.
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EXHIBIT D
[INTENTIONALLY OMITTED]
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EXHIBIT E
GENERAL TENANT CLEANING SERVICES
The following services will be performed five nights per week (Monday through
Friday), except on union holidays.
Empty waste paper baskets and other rubbish containers, including
containers in bathrooms. Bags of rubbish will be properly tied and left a place
to be designated by Orda Management, which will arrange for their removal. Under
NYC law, it is the responsibility of the tenant to have all recyclable materials
placed in one large central container.
Clean water fountains and water coolers.
Sweep and damp mop composition like floors.
Dust all furniture such as desk, tables, chairs, files, cabinets and
lockers.
Dust window sills, moldings, and radiator covers; once a week.
Vacuum carpeting once per week, carpet sweep rest of week, including
steps.
Dust telephones.
Lavatories:
Clean and disinfect bowls, seats, basins and urinals.
Clean mirrors.
Clean all metal fixtures.
Clean metal partitions and tile walls.
Wall floors.
* Refill containers of hand towels and toilet tissues.
Turn off all lights as required.
All exterior windows will be cleaned inside and outside; once every four
months.
High dust every three months.
Damp wipe venetian blinds every three months.
Machine scrub lavatory floors as necessary.
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* On single tenant floors Management will not furnish paper and soap supplies.
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EXHIBIT F
LANDLORD'S WORK
The following work shall constitute "Landlord's Initial Work":
1. Demolish the existing concrete block kitchen, including any duct work,
exhaust hoods and/or fans, and cafeteria facility walls.
2. Close any roof openings caused by the demolition described above, subject
to Tenant's demolition plan (to be provided to Landlord).
3. Remove and dispose of existing glass and metal in fill partitions at
cafeteria and kitchen facility.
4. Patch and paint any and all columns affected by demolition of the existing
concrete block kitchen and cafeteria facility walls.
5. Cut back and cap gas and water lines to their point or origin.
6. Remove any and all ductwork within the kitchen and cafeteria.
7. Blank abandoned openings at main duct.
8. Remove any and all grease traps and grease disposal systems.
9. Cap any and all waste lines.
10. Remove any and all existing electrical receptacles and lighting subject to
Tenant's demolition plan (to be provided to Landlord).
11. Cut back any and all wiring and conduits to the point of origin at the
circuit panel subject to Tenant's demolition plan (to be provided to
Landlord).
12. Level the floor area of the Additional 19th Floor Space.
13. Remove the refrigerator, remote phone system and phone cabinet from the
19th Floor Mezzanine.
14. Provide to Tenant an ACP-5 for the 19th Floor and 19th Floor Mezzanine.
-1-
<PAGE>
EXHIBIT G
LANDLORD'S TEMPORARY SPACE WORK
The following work shall constitute "Landlord's Temporary Space Work":
1. Shampoo carpet in the First Temporary Space.
2. Paint the First Temporary Space.
-1-
<PAGE>
EXHIBIT H
FORM OF SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
("Agreement") is made and entered into to be effective as of the ____ day of
____ 199_, by and between AETNA LIFE INSURANCE COMPANY, a Connecticut
corporation having an office and place of business c/o Aetna Investment Group,
151 Farmington Avenue, Hartford, Connecticut 06156 ("Lender") and
__________________,a __________ corporation having an office and place of
business at _______________________ ("Tenant").
WITNESSETH:
WHEREAS, 225 FOURTH LLC, a Delaware limited liability company
("Landlord") and Tenant are parties to that certain Lease dated as of
____________, 1999 (the "Lease"), covering the ______________ floor(s) in that
certain building known as and located at 225 Park Avenue South, New York, New
York 10003, as more particularly described in the Lease (the "Demised
Premises"); and
WHEREAS, Lender has made a loan to Landlord (the "Loan") which is
secured by inter alia, a mortgage upon certain property including the Demised
Premises (as the same may be amended from time to time, the "Mortgage"); and
WHEREAS, Lender and Tenant desire to set forth their agreement
concerning their respective interests in the Demised Premises.
NOW THEREFORE, in consideration of the foregoing recitals, the
leasing of the Demised Premises, and of the sum of One Dollar ($1.00) and other
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. The Lease is and shall be subject and subordinate to the Mortgage
insofar as it affects the real property of which the Demised Premises form a
part, and to all renewals, modifications, consolidations, replacements and
extensions thereof, to the full extent of amounts secured thereby and interest
thereon.
2. Tenant agrees that it will attorn to and recognize any purchaser
at a foreclosure sale under the Mortgage, any transferee who acquires the
Demised Premises by deed in lieu of foreclosure, and the successors and assigns
of such purchaser or transferee, as its landlord for the unexpired balance (and
any extensions, if exercised) of the term of the Lease upon the same terms and
conditions as are set forth in the Lease.
3. Lender covenants and agrees that so long as Tenant is not then in
default under the Lease beyond any applicable cure period, in the event Lender
forecloses, the Mortgage Lender shall not terminate the Lease nor join Tenant in
summary or foreclosure proceedings and
-1-
<PAGE>
will recognize Tenant and its rights under the Lease and will not disturb Tenant
in its possession pursuant to the Lease of the Demised Premises.
4. Tenant covenants and agrees with Lender that if Lender succeeds
to the interest of Landlord under the Lease, Lender shall not be:
a. liable for any act or omission of any prior landlord
(including Landlord); or
b. liable for the return of any security deposit, unless and
only to the extent that Lender actually receives such security
deposit; or
c. subject to any offsets or defenses which Tenant might have
against any prior landlord (including Landlord), other than as
specifically provided for in the Lease, provided the foregoing shall
not relieve Lender from any obligation of the Landlord under the
Lease accruing or arising after Lender's succeeding to the interest
of Landlord under the Lease; or
d. bound by any rent or additional rent which Tenant might
have paid in advance for more than the current month to any prior
landlord (including Landlord); or
e. bound by any amendment or modification of the Lease made
without Lender's written approval or consent not to be unreasonably
withheld; or
f. bound by any representation or warranty made by any prior
landlord (including Landlord).
5. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
6. Tenant agrees to give Lender, by certified mail, return receipt
requested, sent to Lender's address set forth above a copy of any notice of
default served upon Landlord. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in the Lease and Tenant
would have the right to terminate the Lease based on such default then the
Lender shall have an additional thirty (30) days within which to cure such
default before Tenant may terminate the Lease, or if such default cannot be
cured within that time, then such additional time as may be necessary to cure
such default shall be granted if within thirty (30) days Lender has commenced
and is diligently pursuing to cure such default, in which event the Lease shall
not be terminated while such remedies are being so diligently pursued.
7. The liability of Lender for the performance of any obligation of
Landlord under the Lease shall be limited to Lender's interest in the Demised
Premises and the income and proceeds therefrom, and Tenant hereby agrees that
any judgment it may obtain against Lender as a result of Lender's failure, as
Landlord, to perform any of Landlord's obligations under the Lease shall be
enforceable solely against Lender's interest in the Demised Premises.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
TENANT:
------------------------------
By: ____________________________
Name:
Title:
LENDER:
AETNA LIFE INSURANCE COMPANY
By: ____________________________
Name:
Title:
-3-
<PAGE>
EXHIBIT I
FORM OF LETTER OF CREDIT
LETTER OF CREDIT
BENEFICIARY: ________________________, as Escrow Agent
NEW YORK, NEW YORK _____
IRREVOCABLE STANDBY LETTER OF CREDIT ____________, 199_
Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit Number __________
in favor of _________________ its successors and assigns ("Escrow Agent"), as
escrow agent for the parties pursuant to Article 29 of that certain Lease dated
as of _____________, 1999 between 225 FOURTH, LLC, as Landlord, and
______________________, as Tenant by order and for [account of ________________]
[INSERT NAME OF TENANT] for a sum or sums not exceeding in all _____________
00/100 U.S. Dollars (USD ___________) available by your sight draft(s) drawn on
us.
Partial Drawing(s) permitted.
The term "Beneficiary" includes any successor by operation of law of the named
beneficiary, including without limitation, any liquidator, rehabilitator,
receiver, or conservator.
Drafts drawn hereunder must be marked "DRAWN UNDER [____________ BANK] CREDIT
NO. __________ DATED _________, 199_."
The Letter of Credit shall be deemed to be automatically renewed, without
amendment, for consecutive periods of one year each unless we send written
notice to you and to the Landlord under the Lease by certified or registered
mail, return receipt requested, not less than thirty (30) days next preceding
the then expiration date of this Letter of Credit, that we elect not to have
this Letter of Credit renewed.
This Letter of Credit sets forth in full the terms of our undertaking and such
undertaking shall not in any way be modified, amended or amplified by reference
to any document or instrument referred to herein or in which this Letter of
Credit is referred to or to which this Letter of Credit relates, and any such
reference shall not be deemed to incorporate herein by reference any documents
or instrument.
We engage with you that your draft(s) drawn hereunder and in compliance with the
terms of this credit will be duly honored by us, if presented at _______________
__________________________________________________________________, on or before
-1-
<PAGE>
Except as otherwise expressly stated herein, this credit is subject to the
uniform customs and practice for documentary credits, [1993 revision, ICC
Publication No. 500] [UPDATE IF NECESSARY].
Very truly yours,
- -------------------------------
Authorized Signature
-2-
<PAGE>
EXHIBIT J
[INTENTIONALLY OMITTED]
-1-
<PAGE>
EXHIBIT K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
ACTV, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-2907258
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 217-1600 (Registrant's telephone number, including area code)
- --------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
- ------------------- ------------------------------------
Common Stock, Par Value $0.10 Boston Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |x| No |_|
As of November 15, 1999, there were 41,971,330 shares of the registrant's common
stock outstanding.
1
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Month Periods Three Month Periods
Ended September 30, Ended September 30,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales revenues ................. $ 1,058,560 $ 1,328,961 $ 301,900 $ 474,454
------------ ------------ ------------ ------------
Total revenues .............. 1,058,560 1,328,961 301,900 474,454
Costs and expenses:
Cost of sales .................. 168,934 161,754 45,545 81,240
Operating expenses ............. 1,718,627 1,418,087 738,000 615,588
Selling and administrative ..... 6,462,024 11,874,979 2,558,176 5,252,404
Depreciation and amortization .. 810,984 1,038,449 296,721 368,275
Amortization of goodwill ....... 319,779 319,779 106,593 106,593
Stock appreciation rights ...... 455,251 1,950,330 58,972 (2,605,319)
------------ ------------ ------------ ------------
Total costs and expenses ...... 9,935,599 16,763,378 3,804,007 3,818,781
------------ ------------ ------------ ------------
Loss from operations .............. (8,877,039) (15,434,417) (3,502,107) (3,344,327)
------------ ------------ ------------ ------------
Interest (income) .............. (105,398) (304,679) (40,077) (180,830)
Interest expense ............... 718,220 782,922 254,243 261,305
------------ ------------ ------------ ------------
Interest expense (income) - net 612,822 478,243 214,166 80,475
Minority interest - subsidiary
preferred stock dividends ...... 379,161 -- 117,211 --
------------ ------------ ------------ ------------
Net loss .......................... (9,869,022) (15,912,660) (3,833,484) (3,424,802)
Preferred stock dividends ...... -- 494,431 -- --
------------ ------------ ------------ ------------
Net loss applicable to common
shareholders ...................... $ (9,869,022) $(16,407,091) $ (3,833,484) $ (3,424,802)
============ ============ ============ ============
Basic and diluted loss per common
share ............................. $(.51) $(.47) $(.16) $(.08)
Weighted average number of
common shares outstanding ......... 19,309,832 35,154,248 23,422,018 41,430,091
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Series A Preferred Series B Additional paid-
Shares Amount Shares Amount Shares Amount in-capital Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
January 1,
1999 29,759,459 $2,975,946 56,300 $5,630 5,018 $2,805,961 $71,068,230 $(71,892,519)
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of
common
shares 4,059,783 405,978 18,593,996
Issuance of
shares for
services
provided 556,294 55,629 4,023,107
Issuance of
shares in
connection
with exchange
of preferred
stock 1,061,690 106,169 (56,300) (5,630)
Issuance of
shares in
connection
with exercise
of stock
options, stock
appreciation
rights &
warrants 6,109,770 610,978 12,284,173
Preferred stock
redemption (5,018) (2,805,961) (2,392,379)
Net loss (15,912,660)
Preferred stock
dividends &
accretions (494,431)
--------------------------------------------------------------------------------------------------------------
Balances
September 30,
1999 41,546,996 $4,154,700 -- $ -- -- $ -- $103,487,127 $(88,299,610)
==============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
In connection with the purchase of such notes, the investors received on
January 14, 1998 a warrant that allowed them, among other rights, to
exchange the warrant for such number of shares of our common stock, at the
time of and giving effect to such exchange, equal to 5.5% of the fully
diluted number of shares of common stock outstanding, after giving effect
to the exercise or conversion of all then outstanding options, warrants
and other rights to purchase or acquire shares of common stock.
For accounting purposes, we allocated approximately $1.4 million to the
value of the warrant, based on a valuation by an investment banker. The
warrant was included outside of Consolidated Shareholders' Equity, 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 the principal is being amortized as
additional interest expense over the life of the notes. The warrant was
exchanged and exercised for our common stock during the first quarter of
1999.
5. Our balance sheet at December 31, 1998 also reflects a contra
shareholders' equity amount of $199,900, related to a loan made by us in
August 1995 to a shareholder. The loan was repaid during the first quarter
of 1999.
6. We made no cash payments of interest or income taxes during the nine
months ended September 30, 1998. However, we made cash interest payments
in July 1999 of $369,632, related to the $5 million original fair value
notes.
7. For the three and nine months ended September 30, 1999, we incurred
executive compensation expense of $2.1 million and $3.6 million,
respectively. Approximately $1.3 million of both the three and nine month
totals 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 $780,000 and
$2.3 million for the three and nine month periods, respectively, 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
$1.7 million, or 75% of the award in the form of our unregistered common
stock.
8. We have developed proprietary and patented software technologies for two
principal business segments, Individualized Television and HyperTV.
Individualized Television software provides the tools needed to create
live or pre-recorded television programming that individualizes what the
viewer sees and hears. We have not yet recorded revenues related to
Individualized Television, applications of which we expect to distribute
both nationally and regionally in the U.S. HyperTV software enables the
simultaneous delivery of television video and complementary web content.
HyperTV is targeted at both the entertainment and education markets. Our
presentation of the operating segments, Individualized Television and
HyperTV, is based on the way we manage our business.
Information concerning our business segments for the nine and three-month
periods ending September 30, 1998 and 1999 are as follows:
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Since our inception, the primary focus of our operating activities has
been to develop patented, proprietary technologies that enable programmers and
advertisers to create individualized programming and programming enhancements
- --first for television and later also for the emerging area of
television/Internet convergence. We call our technologies for the television and
television/Internet convergence markets Individualized Television and
HyperTV(TM), respectively.
We derived all of our revenues for 1998 and for the nine months ended
September 30, 1999 from HyperTV, which is targeted at the entertainment and
education markets. We anticipate that the most significant portion of future
HyperTV revenues will be derived from the entertainment market, for which we
introduced a HyperTV application earlier this year. We subsequently entered into
HyperTV programming alliances for this market with The Box Music Network,
Showtime, and New Line Television. We expect the sources of revenue from the
entertainment market to be software licensing and program hosting fees, Internet
advertising and commerce, content creation fees, and data management services.
With respect to Individualized Television, our business plan is to
generate future revenues from subscription fees, advertising and fees related to
advertising services. For national distribution of Individualized Television, we
have formed a joint venture, LMC IATV Events, LLC, with Liberty Digital, a
subsidiary of Liberty Media Corporation. LMC expects to license the rights to
produce individualized telecasts of marquee sports and other events. In November
1999, LMC IATV Events entered into an agreement with Viewer's Choice, LLC to
distribute individualized event programming on a pay-per-view basis to a
national audience. Viewers Choice is the premier distributor of pay-per-view
programming in the United States.
For regional applications of Individualized Television, we intend to
launch a series of sports television networks in different regions of the United
States. Programming for our networks will be provided by FOX Sports Net, which
reaches 72 million homes through 19 regional networks across the country. FOX
Sports Net will supply us with its professional and college sports programming,
to which we will add Individualized Television enhancements produced by us. Our
license agreement with FOX Sports Net provides that we pay FOX a portion of the
net subscriber revenue we receive from cable operators. In addition, we must
bear the production costs of additional elements to produce an individualized
telecast.
Having performed tests of Individualized Television during 1998 and 1999
through the Dallas cable system of AT&T Broadband & Internet Services (formerly
TCI Cable), we intend to launch our first network in the region served by FOX
Sports Net Southwest. FOX Sports Net Southwest programming reaches over 6
million subscriber homes in Texas, Arkansas, Louisiana, Oklahoma and parts of
New Mexico. We have an agreement with AT&T Broadband to distribute our southwest
regional network and to share subscription fee revenues with us. Since
individualized programming relies on software incorporated into digital cable
set-top terminals, AT&T Broadband will offer our network to those subscribers
who receive its digital cable service. We intend to enter into similar
distribution agreements with other cable operators who are deploying digital
service in their systems.
We have had minimal revenues to date and have incurred significant
operating losses, net
9
<PAGE>
preferred stock issued by a subsidiary of ours, which was accounted for as
minority interest. In addition, we paid $312,137 in preferred dividends during
the nine-month period ending September 30, 1998 in the form of our common stock.
The subsidiary preferred stock was retired in November 1998 in exchange for a
combination of our new preferred stock, common stock and warrants.
Preferred Stock Dividends. For the nine-month period ended September 30,
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, which was issued in
November 1998, was redeemed in full in May 1999.
Net Loss Applicable to Common Shareholders. For the nine months ended
September 30, 1999, our net loss applicable to common shareholders was
$16,407,091 or $.47 per basic and diluted share, an increase of 66% over the net
loss of $9,869,022, or $.51 per basic and diluted share, incurred in the prior
year's comparable period. The increase during the more recent nine-month period
was the result of higher overall expenses, led by higher selling and
administrative and stock appreciation rights expenses, as described above.
Comparison of Nine-Month Periods Ended September 30, 1998 and September 30, 1997
Revenues. During the nine-month period ended September 30, 1998, our
revenues decreased 31% to $1,058,560, from $1,534,295 in the nine-month period
ended September 30, 1997. Nearly all of our revenues in the more recent
nine-month period were derived from educational sales of HyperTV software,
computer servers, and related services, compared to the comparable 1997
nine-month period, when the majority of revenues were related to
television-based education hardware and content.
Total Costs and Expenses. Cost of sales in the nine months ended September
30, 1998, was $168,934, a decrease of 61% over cost of sales of $434,287 in the
nine months ended September 30, 1997. The decrease was the result of the change
in the composition of products sold during the nine months ended September 30,
1998, as noted above, in favor of Internet products and services, which carry a
higher profit margin than our television-based education revenue sources. Total
costs and expenses, excluding cost of sales, in the nine months ended September
30, 1998, increased 63%, to $9,766,665, from $6,000,435 in the comparable period
in 1997. The increase was due to higher operating and selling and administrative
expenses associated with our regional network testing in Dallas; higher
depreciation and amortization expenses; and higher stock appreciation rights
expenses, the result of an increase in the market price of our common stock.
Depreciation and amortization expense for the nine months ended September 30,
1998, increased 440% to $810,984, from $150,210 for the nine months ended
September 30, 1997. This increase was due principally to higher depreciation
expenses related to our regional network's master control production facility
and to the amortization of software development costs in the more recent period.
Interest Expense (Income) - Net. Interest income in the nine months ended
September 30, 1998, was $105,398, compared with $103,239 in the nine months
ended September 30, 1997. We incurred interest expense and accretions of
$718,220 in the nine months ended September 30, 1998, compared to no interest
expense during the comparable 1997 period. Interest expense is related to the $5
million principal value notes issued in January 1998 by a subsidiary of ours. We
chose to pay the interest due September 30, 1998 in kind rather than in cash.
11
<PAGE>
outstanding preferred stock issued by our subsidiary, which was accounted for as
minority interest. The subsidiary preferred stock was retired in November 1998
in exchange for a combination of new ACTV, Inc. preferred stock, common stock,
and warrants.
Net Loss Applicable to Common Shareholders. Our net loss applicable to
common shareholders for the three months ended September 30, 1999 decreased
approximately 11%, to $3,424,802, or $.08 per share, from $3,833,484, or $.16
per share, in the comparable 1998 period, principally due to higher sales, SARs
income and interest income that more than offset an increase in selling and
administrative expenses.
Comparison of Three-Month Periods Ended September 30, 1998 and September 30,
1997
Revenues. During the three-month period ended September 30, 1998, our
revenues increased approximately 58%, to $301,900, from $191,400 in the
three-month period ended September 30, 1997. In the 1998 quarter, all of our
revenues derived from HyperTV sales, compared to the 1997 quarter, in which we
recorded revenues from both HyperTV sales and from television-based education
hardware and content.
Total Costs and Expenses. Cost of sales in the three months ended
September 30, 1998 was $45,545, compared to corresponding 1997 quarter's cost of
sales of $78,847. The difference was due to the relatively higher gross margins
of our HyperTV products. Total costs and expenses, excluding cost of sales,
increased approximately 124% for the three months ended September 30, 1998, to
$3,758,462, from $1,681,306 for the three months ended September 30, 1997. The
increase was due principally to higher operating, selling and administrative
expenses and depreciation and amortization expense in the more recent period.
The increases were principally related to our Southwest regional network.
Depreciation and amortization expense increased 474% for the three months ended
September 30, 1998 to $296,721, from $51,722 in the comparable 1997 quarter.
This increase was due principally to higher depreciation expenses related to the
regional network's master control production facility.
Interest Expense (Income) -- Net. Interest income for the three months
ended September 30, 1998 was $40,077, compared with $11,156 for the three months
ended September 30, 1997. The increase was due to higher average cash balances
during the more recent period. We incurred interest expense and accretions of
$254,243 in the 1998 quarterly period, compared to no interest expense during
the comparable 1997 period. Interest expense is related to the Notes issued in
January 1998 by a subsidiary of ours. We chose to pay the interest due September
30, 1998 in kind rather than in cash.
Minority Interest -- Subsidiary Preferred Stock Dividends. For the three
months ended September 30, 1998 and the three months ended September 30, 1997,
respectively, we accrued $117,211 for dividends and $746,041 for dividends and
accretions, respectively, related to outstanding preferred stock issued by our
subsidiary, which was accounted for as minority interest. We paid $117,211 and
$746,041 in preferred dividends during the three-month periods ending September
30, 1998 and September 30, 1997, respectively, by issuing shares of our common
stock.
Net Loss. Our net loss for the three months ended September 30, 1998
increased approximately 66%, to $3,833,484, or $.16 per share, from $2,303,598,
or $.17 per share, in the comparable 1997 period, principally due to higher
expenses associated with our regional network, as noted above.
13
<PAGE>
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
and/or business infrastructure.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTV, Inc.
Registrant
Date: November 15, 1999 /s/ William C. Samuels
--------------------------------------
William C. Samuels
Chairman, Chief Executive Officer
and Director
Date: November 15, 1999 /s/ Christopher C. Cline
--------------------------------------
Christopher C. Cline
Senior Vice President (principal
financial and accounting officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDED IN
THE REGISTRANTS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,816,368
<SECURITIES> 0
<RECEIVABLES> 1,160,036
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,565,834
<PP&E> 5,920,898
<DEPRECIATION> 2,528,679
<TOTAL-ASSETS> 28,152,058
<CURRENT-LIABILITIES> 1,708,611
<BONDS> 4,803,342
0
0
<COMMON> 4,216,800
<OTHER-SE> 15,422,712
<TOTAL-LIABILITY-AND-EQUITY> 28,152,058
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<TOTAL-REVENUES> 2,117,938
<CGS> 174,032
<TOTAL-COSTS> 24,231,028
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 595,470
<INCOME-PRETAX> (23,377,611)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,377,611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,377,611)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
