Prepared by MERRILL CORPORATION www.edgaradvantage.com

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FM1SP5FvbtfoE/THk8D8UkjQeKcYygeukQsQ5/QPmKfrwKinwZ232EV8GddH9NxE BitzTrpRcvcvNSMib+AvsA== 0000912057-01-504791.txt : 20010326 0000912057-01-504791.hdr.sgml : 20010326 ACCESSION NUMBER: 0000912057-01-504791 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTV INC /DE/ CENTRAL INDEX KEY: 0000854152 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 942907258 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10377 FILM NUMBER: 1577067 BUSINESS ADDRESS: STREET 1: 1270 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2122622571 MAIL ADDRESS: STREET 1: 12270 AVE OF THE AMERICAS #2401 STREET 2: 12270 AVE OF THE AMERICAS #2401 CITY: NEW YORK STATE: NY ZIP: 10020 10-K 1 a2041842z10-k.htm FORM 10-K Prepared by MERRILL CORPORATION www.edgaradvantage.com
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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, 2000

ACTV, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		94-2907258 (I.R.S. Employer Identification No.)
225 Park Avenue South New York, New York (Address of principal executive offices)		10003 (Zip Code)

(212) 497-7000
(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 22, 2001, the aggregate market value of the voting stock held by non-affiliates of the registrant (based on The Nasdaq Stock Market closing price of $4.00 on March 22, 2001) was $224,227,348.

As of March 22, 2001, there were 56,056,837 shares of the registrant's common stock outstanding.

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 terms "we," "our," and "ACTV" used herein refer to ACTV, Inc. and its subsidiaries.

PART I

Item 1. Business

Overview

We are a digital media company that provides technical and creative services, tools and proprietary applications for digital television and enhanced media. We have two operating business segments, which we call Digital TV and Enhanced Media.

We have developed a range of services, products and proprietary technologies for each of these business segments. Our Digital TV technologies enable television programmers and advertisers to create individualized programming for digital television transmission systems. We believe that our Digital TV technologies are unique in providing targeting, interactivity and accountability for television commercials, and in giving viewers the ability to instantly customize their viewing experiences for a wide variety of programming applications. Our Enhanced Media technologies allow both for the enhancement of video and audio content, including standard TV programming, with Web-based information and interactivity, and for the delivery of games through the Internet. For the Enhanced Media market, we are a leading provider of technology and services that synchronize the delivery of television programming and Internet content.

We believe that the new applications enabled by the expansion of digital TV transmission systems and TV/Internet convergence platforms will revolutionize television as we know it by turning passive viewing into an interactive experience. Digital and convergence technology will allow television distributors, advertisers and programmers to bring interactivity to a mass audience. We believe that our proprietary technologies, tools, applications, and ability to deliver technical and creative services uniquely position us to capitalize on this anticipated digital television revolution.

To assist in our development of ACTV as a full-service digital media company, we received strategic investments from Liberty Digital Inc., our largest shareholder, and Motorola Broadband Communications Sector.

ACTV, Inc. was incorporated under the laws of the State of Delaware in July, 1989. ACTV, Inc. is the successor, by merger effective November 1, 1989, to ACTV, Inc., a California corporation organized in July 1983. Our executive offices are located at 225 Park Avenue South, New York, New York 10003, telephone number (212) 497-7000.

Industry Background

Digital TV

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. ("Kagan"), over 98% of U.S. households have televisions and approximately 67% 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.

The technology necessary to provide our Digital TV applications will become increasingly available as cable subscribers have increased access to digital set-top boxes. Kagan estimates that nearly 11 million U.S. cable subscribers had digital set-top boxes at year-end 2000, projecting the number to grow to approximately 43 million in 2004, and 60 million in 2009. We believe that sales of digital set-top boxes will increase rapidly as prices decrease. Prices for digital set-top boxes have declined nearly 20% in the past year and we expect this trend to continue, 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 Digital TV technologies may expand to DBS platforms. Kagan has estimated that DBS had approximately 15 million subscriber households at the end of 2000, and projects an increase in this number to approximately 25 million in 2004, and 28 million in 2009.

Advertising represents a critical application of our Digital TV technologies. According to Morgan Stanley Dean Witter, advertisers spent approximately $55 billion on television advertising in the United States in 2000. 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.

Enhanced Media

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. Nielsen / Net Ratings estimates that in mid-1999 there were 63.4 million active Internet users in the United States and a total

of 105.4 million users with Internet access. 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 television. According to Dataquest Inc., a unit of Gartner Group, Inc., there are over 44 million people in the United States who simultaneously use the television and Internet-connected PCs at least some of the time.

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 ("Jupiter"), approximately 45% of Internet users maintain that they watch less television because of time spent online. To combat this migration and gain online market share, broadcasters and cable programmers have begun and are expected to continue promoting companion online programming during shows and using commercial airtime to drive viewers to far more lucrative online 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.

Despite the current downturn in Internet advertising, 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 that complements television programming. 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. Jupiter estimates that the amount of Web advertising worldwide will grow from $5.3 billion in 2000 to over $16.5 billion by the year 2005. 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. The Gartner Group estimates that the total value of consumer goods and services purchased over the Web will increase from $30 billion in 2000 to $143 billion by the year 2004. The combination of growth in online advertising and e-commerce enhances the Internet's value as a commerce medium.

Digital TV

Our core technologies for Digital TV are patented processes for creating interactive and instantly customized television content and advertising in response to viewer remote control entries or to information stored locally in a viewer's set-top box. Our software-only application, which resides in the digital set-top, 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. The viewer experiences the video, audio and graphics of a single fluid programming stream, while the programming on the other signals remains transparent. We expect to generate Digital TV revenues from software license fees, subscriber fees and sales of technical and professional services.

The first commercial applications of our Digital TV technologies will be for advertising and sports entertainment programming. We have branded our Digital TV applications for advertising and

entertainment as SpotOn and One To One TV, respectively. We believe that our Digital TV technologies represent a core breakthrough for television programming and advertising. For example:

•: neighbors watching the same television program can see entirely different advertisements based upon demographic information stored in their respective set-top boxes;
•: 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;
•: the viewer of a sporting event telecast can select from features such as a different view of the action, highlight packages, statistics or instant replays; and
•: a child viewing a program can engage a favorite television character in what seems to be a one-on-one dialogue.

We are initially targeting SpotOn and One To One TV for distribution through cable operators that have deployed digital transmission systems. We expect eventually to offer our Digital TV applications through other programming distribution systems, including direct broadcast satellite, or DBS, and terrestrial digital. To receive SpotOn and One To One TV, all a viewer needs is a digital set-top box with our software download. We have agreements with leading manufacturers of digital set-top terminals—Motorola Broadband Communications Sector, Scientific-Atlanta and Pioneer—for the integration of our software into their equipment.

SpotOn and One To One TV

We created a company with Motorola Broadband, called Digital ADCO, Inc., which developed the SpotOn applications and services. OpenTV later joined Motorola and ACTV as a shareholder of Digital ADCO, Inc. SpotOn is a comprehensive end-to-end system that allows digital cable, satellite and broadcast systems to offer targeting, interactivity and accountability for television commercials. We believe that SpotOn will improve dramatically the effectiveness of television advertising.

Based on proprietary technologies contributed by Motorola, OpenTV and ACTV, SpotOn provides an array of functionalities that we believe are unique. For example, our software can instantaneously choose the most appropriate commercial for each viewer from a number of alternatives received by the viewer's set-top. SpotOn's logic function makes this choice based either on demographic information that the TV distributor, e.g., cable operator, has downloaded to the set-top box or on remote control responses keyed in by the viewer. SpotOn can even discern that a viewer is watching a program with subtitles in a second language, and deliver commercials in that language.

With SpotOn, an advertiser can give viewers a choice of commercials, allowing them to select those of most relevance. Ads can contain program branches that allow the commercial itself to change course in response to viewer selections.

In addition, SpotOn provides the means for advertisers to receive unprecedented aggregate viewer data for each commercial. This information might include the actual number of homes, by geographic area, where a given commercial was displayed as well as the percentage of viewers who changed channels or muted the sound during the commercial.

SpotOn allows for permission-based marketing. A subscriber might request additional information on a product or make merchandise purchases through the set-top box, enabled with SpotOn software.

The deployment of SpotOn in a cable system involves principally the installation of software at the headend and a separate software download to subscriber set-top boxes. Depending on how the headend is equipped, a minimal investment in hardware may also be required. SpotOn, which is compatible with the vast majority of digital cable set-tops currently deployed in the United States, is not dependent on the roll-out of the next generation of digital boxes. To capitalize fully on the capabilities of SpotOn, the operator may also choose to upgrade its trafficking and billing system.

Having identified a business opportunity for next-generation trafficking and billing software that can handle advanced digital applications such as SpotOn, in December 2000 we acquired a controlling

interest in the assets of VisionTel, Inc., from nCUBE Corporation, which retains a minority interest. VisionTel's principal product is the AdVision® software suite for advertising sales management in cable, broadband, broadcast, satellite, and Internet services. Its clients have included AT&T Broadband, Time Warner, Cox Communications, Texas Cable News Channel and Captivate Network, Inc., among others.

SpotOn's software application in the set-top box is resident at the chip-set level, where it monitors programming streams coming into the box as well as viewer remote control selections. Commercials that are intended for a targeted audience are marked with our proprietary digital codes that identify them as SpotOn-enabled. Our software in the set-top box reads the codes as the commercials are received and, in real time, determines the most appropriate one. SpotOn is then able to insert this ad into the TV programming stream without any visually perceptible delay. The viewer is unaware that such a switch has occurred.

We expect SpotOn to generate revenues from multiple sources. We intend to charge a license fee to the TV distributors that deploy the system, as well as upstream license fees to programmers and advertising interconnects. We expect to receive fees from advertisers for encoding targeted commercials, for the storage and transit of the ads, and for creative services. We believe that we will be able to charge a tolling fee for enabling television commerce transactions and that we can generate revenues from programmers and advertisers for data reporting and analysis. Finally, we expect to generate revenues from AdVision trafficking and billing services provided to SpotOn clients and non-SpotOn clients alike.

We plan to introduce SpotOn during 2001 through AT&T Broadband's approximately 40,000 digital cable subscribers in Aurora, Colorado. SpotOn will be available on AT&T Broadband's currently deployed DCT-1000 and DCT-2000 digital set-top boxes.

We intend to develop the market for One To One TV entertainment programming on a pay-per-view and subscription basis. We believe that the first entertainment applications of One To One TV, whether distributed on a pay-per-view or subscription basis, will be for sports. We believe that sports programming represents a compelling application of One To One TV. Our Digital TV technologies allow sports fans to completely individualize their TV viewing experience using a standard remote control. Moreover, we believe that we can produce One To One TV versions of traditional linear sports telecasts for a small fraction of the cost of the original production.

Intellocity

On March 9, 2001, ACTV completed the acquisition of Intellocity, Inc., a corporation formed under the laws of the British Virgin Islands ("Intellocity"). The acquisition was completed by a merger of Intellocity with and into ACTV, with ACTV remaining as the surviving entity. As consideration for the merger, ACTV issued to the stockholders of Intellocity: (i) an aggregate of 5,260,362 newly issued shares of its common stock; and (ii) options to purchase an aggregate of 1,322,346 shares of its common stock.

The acqusition was pursuant to an Agreement and Plan of Merger dated March 7, 2001, between the ACTV and Intellocity (the "Agreement and Plan of Merger").

Prior to the date of the Agreement and Plan of Merger, there were no material relationships between ACTV and any of Intellocity's affiliates, directors, officer or stockholders.

Our technical services for digital television are primarily provided by Intellocity, which we acquired in March 2001. A preeminent professional services and tools provider for interactive television ("iTV"), Intellocity provides comprehensive services to broadband operators, content providers and platform and infrastructure providers. These services include:

•: Content design and development
•: Content integration on multiple platforms and broadband networks

•: Viewer interface design, development and integration
•: Design, development and integration of end-to-end system architecture
•: Requirements definition and specification

Intellocity also markets a suite of applications it has developed, called iTV Studio, which is a tool for creating, publishing, and broadcasting interactive TV content across multiple platforms.

The upgrade, which is now in process, of the cable TV infrastructure in the United States from analog to digital transmission systems is creating significant opportunities for interactive television applications. We expect that operators, along with content and infrastructure providers, will have an increasing demand for the tools and expertise necessary to develop and implement such applications. We believe that Intellocity is well-positioned to capitalize on this new market by selling its professional and technical services and tools for iTV.

We believe that the acquisition of Intellocity strengthens our position as a leader in the Digital TV market by broadening our offerings to include a wide variety of advanced interactive television tools and services.

Enhanced Media

Overview

Our Enhanced Media business segment serves the relatively new but rapidly growing market for interactive games and convergence programming, which combines video and or audio programming with Web content. We have been a pioneer in developing and marketing enhanced media applications and services.

We market Enhanced Media applications and services through the brand names of HyperTV with Livewire, Bottle Rocket, and eSchool Online. HyperTV with Livewire and eSchool Online provide convergence software and services to the entertainment and education markets, respectively. Bottle Rocket is a leading developer of online games that it delivers for both stand-alone and multi-player applications. We acquired Bottle Rocket in August 2000 through an exchange of shares with Bottle Rocket, Inc.

Our Enhanced Media business derives revenues from a number of sources, including software licensing, technical and content services, data management, online advertising sales, and e-commerce.

We believe that our Enhanced Media technologies have potential applications for virtually all forms of television and radio programming and advertising. For instance:

•: while watching a sports show on television, viewers can compete with other fans—using a Web-enabled box, a computer connected to the Internet, or even a wireless hand-held device;
•: viewers of a rock concert being streamed through the Internet can receive synchronized Web pushes with song lyrics, information about the band, and special offers to purchase CDs of the band or other merchandise;
•: a TV car commercial can automatically deliver more detailed information through the Internet and let viewers link to local dealer Websites where viewers can schedule test drives.

HyperTV

HyperTV technologies represent a cornerstone of our Enhanced Media business. HyperTV is a suite of patented processes that enhance a television program or advertisement with related and synchronized content delivered through the Internet. HyperTV enables convergent programming by embedding a stream of Web page addresses into the video or audio signal or by transmitting the addresses directly over the Internet to a user's computer or wireless device. The Web content is synchronized to programming being shown on a particular television channel, streamed through the Internet, or played through a local storage device, such as a DVD player.

In April 2000, we entered into an agreement with Liberty Livewire to jointly market HyperTV with Livewire. Liberty Livewire is the U.S. leader in audio and video post-production and location services. The agreement gives Liberty Livewire, a unit of Liberty Media, the right to provide content creation services and, through affiliate AT&T IP Services, a scaleable hosting infrastructure for HyperTV with Livewire. Pursuant to the agreement creating HyperTV with Livewire, we received warrants to purchase 2.5 million shares of Liberty Livewire common stock.

We market HyperTV with Livewire to networks and producers of traditional media content as a turnkey system consisting of user software, Web content creation software and creative services, database management and analysis and program hosting. We provide free downloads from our Website of HyperTV with Livewire user software.

We believe that we are the leading provider of convergence software and services. To date, we have enabled hundreds of hours of HyperTV with Livewire programming for music, movies, sports, games and live programming.

Bottle Rocket

Bottle Rocket creates customized and licensed online games based on proprietary technology engines including trivia, prediction, simulation, fantasy, and game show. Bottle Rocket brings not only expertise in high-traffic, high-tech gaming, but sophisticated online marketing and promotional strategies. Clients include such well known names as Major League Baseball, Madison Square Garden, MTV, HBO, Noggin, the National Hockey League, The Sporting News, ESPN.com, Electronic Arts and the National Football League.

Bottle Rocket plays a crucial role for us in the development of gaming across a number of platforms. We are not only expanding Bottle Rocket's stand-alone and multiple player online gaming entertainment from PCs to wireless devices, but we also plan to migrate Bottle Rocket applications and content to digital television distribution systems.

Education

eSchool Online was the first commercial application of our Enhanced Media technologies. eSchool integrates educational video with relevant Web content, interactivity and chat functionality on a student's computer screen. In addition, eSchool provides teachers and administrators with an application that allows for online assessment of a student performance.

We have provided eSchool software and content and technical services to state departments of education, school districts, and schools throughout the United States. In the past year, we began to focus eSchool on the professional development market. During 2000, we had major projects in California, Texas and Alabama for teacher training in Remedial Reading, Algebra, and Internet skills.

Traditionally, we have provided eSchool Online applications and services on a custom development basis to individual education clients. During 2000, we began to market completed eSchool programs to third parties, under licensing agreements with the clients for whom the programs were originally produced. It is our intention to build a library of licensed eSchool content that is available for nationwide distribution.

Enhanced Media Platforms

Our goal is to extend our Enhanced Media technologies to all relevant platforms for convergence programming. Initially, HyperTV with Livewire served only TV viewers with PCs connected to the Internet in the same room. We have since migrated the application to function with WebTV and AOLTV, which allow both television programming and Web content to be viewed at the same time on a TV screen. As the installed base of Internet connected handheld devices—like cellular phones and PDAs—expands, we expect to extend our Enhanced Media technologies to such devices. Finally, we intend to deploy our Enhanced Media technologies for media streamed through the Internet, as the

forecasted proliferation of high-speed Internet connectivity in the U.S. provides opportunities in this market.

Equipment Suppliers

We do not intend to manufacture set-top converters, terminals, video servers or other devices in connection with any of our applications or services.

We have non-exclusive, royalty-free agreements with Motorola Broadband and Scientific-Atlanta for the integration of our Digital TV technologies into their digital set-top boxes. Motorola Broadband and Scientific-Atlanta are the dominant suppliers of set-top terminals in the United States. We have a similar integration agreement with Pioneer.

In addition, we have agreements with the leading providers of set-top box middleware, including OpenTV, Liberate and MicrosoftTV, to ensure the compatibility of our Digital TV technologies with their platforms. Middleware is set-top box software that acts as an operating system for the terminal.

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 Spot On and One To One TV.

Patents and Other Intellectual Property

We have sought to protect the proprietary features of our individualized programming technologies and Enhanced Media 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 20 patents to us that are currently in force. We also have additional patents pending. The patents expire at various dates from 2003 to 2018. Corresponding patents for some of the above U.S. patents have been granted by or are pending in the Patent Offices of Canada, Japan, South Korea, China, Singapore, India, Australia and Europe. 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.

Competition

The markets for digital television and enhanced media applications and services are extremely competitive, and we expect competition to intensify in the future. These markets are new, quickly

evolving and characterized by untested consumer demand and a lack of industry standards. They 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 which 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 enhanced media programming and services markets include RespondTV, Gold Pocket Interactive Digital Convergence, Merlin TV, Mixed Signals, More.com, and Worldgate Communications, Inc. Our Bottle Rocket business competes with companies that create online games for third parties, such as Boxerjam, Spiderdance, Inc., Twin and Internet gaming consulting firms. In addition, Intellocity's competitors include Mixed Signals and MetaTV.

We also face competition from traditional television and cable broadcasters such as ABC, CBS, FOX, and NBC. Some of these broadcasters have in the past, and may in the future, develop and broadcast their own television/Internet convergence programming. (See Item 3. LEGAL PROCEEDINGS—Action against the Walt Disney Co., ABC, Inc., and ESPN, Inc.) In addition, we may face future competition with companies such as Microsoft, RealNetworks, Inc., and Veon that provide applications allowing video content to be "streamed" over the Internet. Many of these applications could be extended to compete with some or all of our existing or proposed enhanced media offerings.

We do not believe that there are currently any competitors offering products comparable to SpotOn and One To One TV. But there are a number of companies, including NDS Group plc, that market products and services that have limited functionalities in common with One To One TV. In the same way, although SpotOn has no competitors that offer its range of applications and services, companies such as SeaChange International and Wink Communications market products that compete with certain SpotOn offerings. Finally, SpotOn and One To One TV compete in a sense for limited "shelf space" within a digital set-top box with other dissimilar applications, such as video on demand, high definition television, and telephony.

Government Regulation

We believe that neither our present or future implementation of One To One TV or SpotOn is subject to any direct substantial government regulation. However, the broadcast industry in general, and cable television, DBS and wireless communication in particular, are subject to substantial government regulation.

Cable Television. Pursuant to federal legislation enacted in 1992, which we call the 1992 Cable Act, and amended by the Telecommunications Act of 1996, the Federal Communications Commission substantially re-regulates the cable television industry in various areas, including rate regulation, competitive access to programming, and "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, and limit exclusivity provisions in programming contracts. and require prior notice for channel additions, deletions and changes. The Cable Act also regulates the collection and use of subscriber information over cable systems by cable operators and their affiliates. 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. In particular, the FCC recently initiated an inquiry to determine whether the cable industry's future provision of interactive services should be subject to regulations ensuring equal access and competition among service vendors.

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. The Federal Trade Commission recently adopted regulations enacting the Children's Online Privacy Protection Act, which govern collection and use of information over the Internet regarding children. 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 Digital TV and Enhanced Media 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, 2000, we employed 250 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 225 Park Avenue South, New York, New York, where we lease approximately 47,000 square feet. In addition, we lease approximately 12,000 square feet in an adjacent building at 233 Park Avenue South. Our lease for these facilities extends through 2016. We also lease office and technical space totaling approximately 51,000 square feet in nine other facilities in New York City, Branchburg, New Jersey, Dallas, Texas, Houston, Texas, Los Angeles, California, Tulsa, Oklahoma and Denver, Colorado. These leases expire at various dates through 2005.

Item 3. Legal Proceedings

ACTV, Inc. and its wholly-owned subsidiary HyperTV Networks, Inc. are co-plaintiffs in a civil action filed against The Walt Disney Co., ABC, Inc. and ESPN, Inc. in December, 2000, which action alleges that the defendants' "Enhanced TV" system synchronizing a web site application to ESPN Sunday Night and ABC Monday Night Football telecasts has infringed and is continuing to infringe certain of the plaintiffs' patents and that the defendants should be held liable to the plaintiffs for treble damages on account thereof as well as for plaintiffs' expenses and reasonable attorneys' fees. That action is continuing in the U.S. District Court, Southern District of New York.

Item 4. Submission of Matters to a Vote of Security Holders

On May 19, 2000 we held our Annual Meeting of Shareholders for which we solicited votes by proxy. The following is a brief description of the matters voted upon at the meeting and a statement of the number of votes cast for and against, and the number of abstentions as to each matter.

1.: Election of directors

		For		Withheld
Bruce Crowley		39,675,468		211,851
Melvyn Klein		39,675,468		211,851

2.: To approve the adoption of the ACTV's 2000 Stock Option Plan.

For		Against		Abstain
15,763,184		3,432,422		100,943

3.: To ratify the appointment of Deloitte & Touche, LLP as independent auditors.

For		Against		Abstain
39,648,705		214,494		24,120

4.: To approve an amendment to ACTV's Restated Certificate of Incorporation to increase the number of authorized shares of common stock, $0.10 par value per share from 65,000,000 to 200,000,000.

For		Against		Abstain
37,549,838		2,297,598		39,883

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 ACTV common stock as reported by Nasdaq.

	Common Stock
2000 Quarter	High	Low
First	46.125	20.000
Second	34.750	9.688
Third	19.375	10.750
Fourth	14.313	3.000

1999 Quarter	High	Low
First	8.844	3.813
Second	25.125	9.250
Third	16.375	8.875
Fourth	51.563	13.250

On March 21, 2001, there were approximately 476 holders of record of ACTV's 57,309,309 outstanding shares of common stock. On March 21, 2001 the high and low bid prices of the common stock as reported by Nasdaq were $5.00 and $3.50, respectively. ACTV has not paid cash dividends since its organization. The Company plans to use earnings, if any, to fund growth and does not anticipate the declaration of the payment of cash dividends in the foreseeable future.

Item 6. Selected Financial Data

		Years Ended December 31, ($000's)
		2000			1999			1998			1997			1996
Statement of Operations Data:
	Revenues	$	8,016		$	2,910		$	1,625		$	1,948		$	1,476

	Net (loss) before extraordinary item		(33,170	)		(26,532	)		(22,065	)		(10,664	)		(10,300	)

	Net (loss)		(34,581	)		(26,532	)		(22,065	)		(10,664	)		(10,300	)

	Net (loss) applicable to common stockholders		(34,581	)		(27,026	)		(22,543	)		(10,664	)		(10,300	)

	Loss per common share before extraordinary item	$	(0.67	)	$	(0.69	)	$	(1.02	)	$	(0.81	)	$	(0.88	)

	Loss per common share after extraordinary item	$	(0.70	)	$	(0.69	)	$	(1.02	)	$	(0.81	)	$	(0.88	)

	Basic and diluted (loss) per common share	$	(0.70	)	$	(0.70	)	$	(1.04	)	$	(0.81	)	$	(0.88	)

	Weighted average number of common shares outstanding		49,501,885			38,491,044			21,671,076			13,155,883			11,739,768
Balance Sheet Data:
	Cash and cash equivalents	$	122,488		$	9,413		$	5,198		$	658		$	6,521
	Working capital (deficiency)		116,327			9,607			3,007			(1,062	)		5,094
	Total assets		236,152			29,440			13,733			8,047			11,693
	Long-term debt (including current portion)		—			4,804			4,315			—			—

The historical financial information has been restated to include the accounts and results of operations of Bottle Rocket Inc. which was acquired on August 17, 2000 in a transaction accounted for under the pooling of interests method as described in Note 3 in the consolidated financial statements.

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

RESULTS OF OPERATIONS

Comparison of Fiscal Year Ended December 31, 2000 and December 31, 1999

Revenues. Revenues increased 176% to $8.0 million for the year ended December 31, 2000, from $2.9 million for the year ended December 31, 1999. The increase is the result of increasing revenues from our Enhanced Media products.

Operating Expenses. Operating expenses for the year ended December 31, 2000 were $13.1 million, compared with $5.6 million for the year ended December 31, 1999, an increase of $7.5 million. The increase was in part due to the development of our Digital Television business, which is not yet producing revenue, along with increased costs associated with our Enhanced Media operations.

Selling and Administrative Costs. Selling and administrative expenses for year ended December 31, 2000 were $33.4 million, compared with $19.2 million for the year ended December 31, 1999, an increase of $14.2 million. The increase in costs was attributable to the development of the sales, marketing and engineering organizations for Digital Adco, increased investment in management infrastructure, and growth in corporate expenses. Selling and administrative expenses for 2000 also includes $6.9 million of deferred compensation expense, of which $4.6 million was non-cash.

Depreciation and Amortization. Depreciation and amortization expense increased $1.8 million for the year ended December 31, 2000, to $3.9 million, from $2.1 million during the same period of 1999, due primarily to our increasing investment in patents, software development, and equipment.

Interest (Expense)/Income. Interest income, net of interest expense, for the year ended December 31, 2000 was $7.4 million, compared with net interest expense of $0.6 million for the year ended December 31, 1999. The increase was the result of significantly higher cash balances resulting from our February 2000 follow-on offering. We incurred interest expense for 1999 of $1.0 million, compared to $0.3 million for 2000. Interest expense for 1999 and 2000 relates to the $5 million original face value notes issued by a subsidiary of ours in January 1998; the notes were retired on April 3, 2000.

Minority Interest. The minority interest benefit for the year ended December 31, 2000 was $1.7 million, compared with expense of $588 in 1999. The benefit is attributable to the minority interest held by others in Digital Adco, which was formed in November.

Extraordinary Item. We recorded an extraordinary change in 2000 of $1.4 million, resulting from the early extinguishment of $5.0 million notes issued in January 1998.

Net Loss Applicable to Common Shareholders. For the year ended December 31, 2000, our net loss applicable to common stockholders after extraordinary loss was $.70, compared with a loss of $.70 for 1999.

Comparison of Fiscal Year Ended December 31, 1999 and December 31, 1998

Revenues. Revenues increased 79% to $2.9 million for the year ended December 31, 1999, from $1.6 million for the year ended December 31, 1998, due to an increase in Enhanced Media sales. Substantially all of our revenues in 1998 and the majority of our revenues in 1999 were derived from sales of HyperTV and Bottle Rocket software, services and related computer hardware.

Operating Expenses. Operating expenses were $5.6 million compared with $3.1 million, an increase of $2.5 million. The increase in expenses is directed related to the increased Enhanced Media revenue.

Selling and Administrative Expenses. Selling and administrative expenses increased 77% to $19.2 million for the year ended December 31, 1999, from $10.8 million for the year ended December 31, 1998, due chiefly to non-cash employee compensation, paid in the form of stock and to greater expenses related to HyperTV.

Depreciation and Amortization. We continue to innovate in the areas of software development and intellectual properties. Accordingly, our depreciation and amortization expense increased approximately $0.6 million, or 73%.

Interest (Expense) Income-Net. Interest expense increased 12% to $1.0 million for the year ended December 31, 1999, from $0.9 million 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 145% to $0.5 million for the year ended December 31, 1999, from $.2 million for the year ended December 31, 1998. The increase was due to higher average cash balances in 1999.

Preferred Stock Dividend and Accretion. For the years ended December 31, 1999 and 1998, we paid $.5 million in preferred stock dividends, related to our Series B preferred stock. 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 20% to $27.0 million, or $0.70 per basic and diluted share, for the year ended December 31, 1999, from $22.5 million, or $1.04 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 2% to $1.62 million for the year ended December 31, 1998, from $1.65 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.

Operating Expenses. Operating expenses increased 70% to $3.1 million for the year ended December 31, 1998, from $1.8 million for the year ended December 31, 1997. The increase was due in

part to the growth in the Bottle Rocket operations and from the increased activity of our Texas-based regional network operation.

Selling and Administrative Expenses. Selling and administrative expenses increased by 58% to $10.8 million for the year ended December 31, 1998 from $6.9 million in 1997, resulting from increased activity of our Texas-based regional network operation.

Depreciation and Amortization. Depreciation and amortization expense increased 107% to $1.6 million from $0.8 million 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.

Stock Appreciation Rights. Stock appreciation rights costs were $2.0 million in for the year ended December 31, 1998, compared with $0.3 million expense for 1997. This resulted from a higher common stock price at December 31, 1998 compared with 1997.

Interest (Expense) Income-Net. We incurred interest expense of $0.9 million 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 63% to $0.2 million for the year ended December 31, 1998, from $0.1 million 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 $5.4 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 112% to $22.5 million, or $1.04 per basic and diluted share, for the year ended December 31, 1998, from $10.4 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 have incurred operating losses. Through December 31, 2000, we had an accumulated deficit of $138.2 million. Our cash position on December 31, 2000 was $122.5 million, compared with $9.4 million on December 31, 1999.

Net Cash Provided By (Used In) Operating Activities. During the year ended December 31, 2000, we used cash of $29.0 million for operations, compared with $15.6 million for the year ended December 31, 1999. The increase in net cash used by operating activities principally relates to higher operating losses and increased working capital uses.

Net Cash Used In Investing Activities and Capital Expenditures. For the year ended December 31, 2000, we used cash for investing activities of $17.1 million, compared with $11.3 million, for year ended December 31, 1999. The increase in cash used in investing activities is due in part to investments in patents, $3.8 million of strategic equity investments, and increased capital expenditures for the development of interactive TV products, and leasehold improvements.

Net Cash Provided By Financing Activities. We have and continue to fund our cash requirements from the net proceeds of a public, follow-on offering completed on February 3, 2000. Through a group

of underwriters, we sold total of 4.6 million common shares, resulting in net proceeds of $129.4 million. In addition, on March 27, 2000, Liberty Digital, Inc. invested an additional $20 million in us by exercising a warrant granted in March 1999, and OpenTV invested $10 million in our Digital Adco subsidiary.

Impact of Inflation

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company's interest income is affected by changes in the general level of U.S. interest rates. Changes in U.S. interest rates could affect the interest earned on the Company's cash equivalents and investments. Currently, changes in U.S. interest rates would not have a material effect on the interest earned on the Company's cash equivalents and investments. A majority of these cash equivalents and investments earn a fixed rate of interest while the remaining portion earns interest at a variable rate. The Company does not anticipate that exposure to interest rate market risk will have a material impact on the Company due to the nature of the Company's investments.

During April 2000, the Company received a warrant to acquire 2,500,000 shares of Liberty Livewire Corporation ("Livewire"), a publicly traded company. The warrant becomes exercisable at the rate of 500,000 shares per year, commencing on April 13, 2001, includes certain registration rights and may be exercised until March 31, 2015. The warrant is not transferable, except in certain circumstances. The Company estimated the value of the warrant to be $76,016,175 at the date it was received, using the Black-Scholes pricing model, with a risk free rate of 6.5%, a volatility of 80% and assuming no cash dividends. The estimated value of the warrant at December 31, 2000 was $17,300,000, using the same assumptions. The Company expects the value of the warrant to fluctuate based on the underlying stock price of Livewire. Any future changes in estimated value attributable to shares that are both exercisable and that are expected to be registered within one year will be recorded in other comprehensive income. The Company does not currently expect to exercise or register shares in the coming year.

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 120 days after December 31, 2000, a definitive proxy statement pertaining to our annual meeting of stockholders to be held in June, 2001. Information regarding our directors and executive officers will appear under the caption "Election of Directors" in the proxy statement and is incorporated in this report by reference.

Item 11. EXECUTIVE COMPENSATION

Information regarding executive compensation will appear under the caption "Executive Compensation" in the proxy statement and is incorporated in this report by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and management will appear under the caption "Ownership of Securities" in the proxy statement and is incorporated in this report by reference.

Item 13. CERTAIN TRANSACTIONS

Information regarding certain transactions will appear under the caption "Certain Transactions" in the proxy statement and is incorporated in this report by reference.

PART IV

Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K:

(a)1. FINANCIAL STATEMENTS:

See the Consolidated Financial Statements beginning on Page F1 hereafter, which is incorporated by reference.

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, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. 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 2, 2001
New York, New York

F-1

ACTV, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2000			1999
ASSETS
Current assets:
Cash and cash equivalents	$	122,488,041		$	9,413,170
Accounts receivable — net		1,182,376			1,469,164
Other		4,402,541			1,589,430

Total current assets		128,072,958			12,471,764

Property and equipment-net		12,628,232			3,770,195

Other assets:
Investment in warrant		76,016,175			—
Investments-other		3,250,000			250,000
Patents and patents pending		8,053,642			8,142,928
Software development costs		3,328,101			2,183,950
Goodwill		1,362,072			1,788,444
Other		3,441,006			833,113

Total other assets		95,450,996			13,198,435

Total	$	236,152,186		$	29,440,394

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	7,712,857		$	1,967,164
Deferred revenue		4,032,776			897,990

Total current liabilities		11,745,633			2,865,154
Long-term note payable		—			4,804,342
Deferred revenue		70,586,450			—
Minority interest		13,307,131			2,000,593
Stockholders' equity:
Common stock, $.10 par value, 200,000,000 shares authorized: issued and outstanding 51,228,154 at December 31, 2000, 42,440,032 at December 31, 1999		5,122,816			4,244,004
Additional paid-in capital		273,605,573			116,448,332
Accumulated deficit		(138,215,417	)		(100,922,031	)

Total stockholders' equity		140,512,972			19,770,305

Total	$	236,152,186		$	29,440,394

See notes to consolidated financial statements

F-2

ACTV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years ended December 31,
	2000			1999			1998
Revenue	$	8,016,453		$	2,909,642		$	1,625,139

Costs and expenses:
Operating expenses		13,060,176			5,588,090			3,116,573
Selling and administrative		33,403,906			19,206,036			10,843,984
Depreciation and amortization		3,907,631			2,118,096			1,557,717
Stock appreciation rights		—			1,950,330			2,000,062

Total costs and expenses		50,371,713			28,862,552			17,518,336

Loss from operations		(42,355,260	)		(25,952,910	)		(15,893,197	)

Interest income		7,726,929			465,840			189,928
Interest (expense)		(284,619	)		(1,044,227	)		(932,247	)

Interest income/(expense)—net		7,442,310			(578,387	)		(742,319	)

Loss before minority interest, preferred stock dividend and accretion and extraordinary items		(34,912,950	)		(26,531,297	)		(16,635,516	)
Minority interest-subsidiary preferred stock dividend and accretion		—			—			5,428,638
Minority interest—subsidiary		(1,743,357	)		588			—

Loss before extraordinary item	$	(33,169,593	)	$	(26,531,885	)	$	(22,064,154	)
Extraordinary loss on early extinguishment of debt	$	(1,411,139	)		—			—

Net loss	$	(34,580,732	)	$	(26,531,885	)	$	(22,064,154	)
Preferred stock dividends and accretion		—			494,431			479,173

Net loss applicable to common stockholders	$	(34,580,732	)	$	(27,026,316	)	$	(22,543,327	)

Basic and diluted loss per common share:
Before extraordinary item	$	(0.67	)	$	(0.69	)	$	(1.02	)

After extraordinary item	$	(0.70	)	$	(0.70	)	$	(1.04	)

Weighted average number of common shares outstanding		49,501,885			38,491,044			21,671,076

See notes to consolidated financial statements

F-3

ACTV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years ended December 31,
			2000			1999			1998
Cash flows from operating activities:
Net loss			$	(34,580,732	)	$	(27,026,316	)	$	(22,543,327	)

Adjustments to reconcile net loss to net cash used in operations:
	Depreciation and amortization			3,907,631			2,118,096			1,557,717
	Deferred compensation from stock appreciation rights			306,000			1,950,330			2,000,062
	Amortization and accretion of deferred expenses related to debt financing			—			864,147			241,565
	Amortization of deferred revenue			(1,809,907	)		—			—
	Write-down of investment			750,000			—			—
	Common stock issued in lieu of cash payment			4,560,000			6,383,560			2,016,023
	Common stock issued for preferred dividends and accretion			—			—			162,595
	Note issued in lieu of cash interest payment			—			20,827			690,546
	Subsidiary preferred stock dividends and accretions			—			241,513			6,065,274
	Minority interest			(1,743,357	)		—			—
Changes in assets and liabilities:
	Accounts receivable			286,788			(933,501	)		(218,719	)
	Other assets			(5,964,251	)		(615,789	)		(180,161	)
	Accounts payable and accrued expenses			5,745,693			537,249			(773,776	)
	Deferred revenue			(485,032	)		825,788			10,027

		Net cash used in operating activities		(29,027,167	)		(15,634,096	)		(10,972,174	)

Cash flows from investing activities:
	Investments in patents			(500,726	)		(7,515,343	)		(598,671	)
	Investment in property and equipment			(10,938,456	)		(2,366,917	)		(613,047	)
	Investment in software and development costs			(1,954,979	)		(1,438,654	)		(797,677	)
	Investments — other			(3,750,000	)		—			—

		Net cash used in investing activities		(17,144,161	)		(11,320,914	)		(2,009,395	)
Cash flows from financing activities:
	Net proceeds from debt issuance			—			—			4,612,990
	Retirement of debt			(4,567,095	)		(174,732	)		—
	Net proceeds from put warrant issuance			—			—			1,371,624
	Redemption of preferred stock			—			(5,792,538	)		(565,759	)
	Net proceeds from subsidiary equity transactions			13,049,895			2,000,593			—
	Net proceeds from equity financing			150,763,399			35,020,947			12,062,582
	Other			—			115,660			40,006

		Net cash provided by financing activities.		159,246,199			31,169,929			17,521,443

Net increase in cash and cash equivalents				113,074,871			4,214,919			4,539,874
	Cash and cash equivalents, beginning of period			9,413,170			5,198,251			658,377

	Cash and cash equivalents, end of period		$	122,488,041		$	9,413,170		$	5,198,251

See notes to consolidated financial statements

F-4

ACTV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

	Common Stock					Preferred Series A					Preferred Series A
	Common Stock					Preferred Series A					Preferred Series A					Stockholder Loan			Additional Paid-in- Capital
	Shares		Amount			Shares		Amount			Shares		Amount			Stockholder Loan			Additional Paid-in- Capital			Deficit			Total
Balances December 31, 1997	14,886,646		$	1,488,665		86,200		$	8,620		—		$	—		$	(199,900	)	$	48,488,401		$	(51,352,388	)	$	(1,566,602	)

Issuance of shares in connection with financings	6,458,332			645,833																11,287,813						11,933,646
Issuance of Series B preferred stock											5,018			2,805,961						2,527,723						5,333,684
Issuance of shares for services	373,592			37,359																508,083						545,442
Issuance of shares in connection with exchange of preferred stock	5,857,406			585,741		(29,900	)		(2,990	)										2,535,660						3,118,411
Issuance of shares in connection with exercise of stock options	1,662,452			166,245																2,282,323						2,448,568
Issuance of warrants and shares in connection with financing activities	793,066			79,307																5,086,153						5,165,460
Net loss																							(22,064,154	)		(22,064,154	)
Preferred dividends																							(479,173	)		(479,173	)

Balances December 31, 1998	30,031,494		$	3,003,150		56,300		$	5,630		5,018		$	2,805,961		$	(199,900	)	$	72,716,156		$	(73,895,715	)	$	4,435,282

Issuance of common shares	4,059,783			405,978																22,611,560						23,017,538
Issuance of shares for services provided	931,294			93,129																10,696,587						10,789,716
Issuance of shares in connection with exchange of preferred stock	1,061,690			106,169		(56,300	)		(5,630	)																100,539
Issuance of shares in connection with exercise of stock options, stock appreciation rights and warrants	6,355,771			635,577																12,816,409						13,451,986
Preferred stock redemption											(5,018	)		(2,805,961	)					(2,392,380	)					(5,198,341	)
Payment of stockholder loans																	199,900									199,900
Net loss																							(26,531,885	)		(26,531,885	)
Preferred stock dividends and accretion																							(494,431	)		(494,431	)

Balances December 31, 1999	42,440,032		$	4,244,004		—		$	—		—		$	—		$	—		$	116,448,332		$	(100,922,031	)	$	19,770,305

Issuance of shares in connection with public offering	4,600,000			460,000																128,909,468						129,369,468
Issuance of shares for services	947,000			94,700																7,617,788						7,712,488
Issuance of shares in connection with exercise of stock options & warrants	3,299,598			329,960																20,937,621						21,267,581
Retirement of common stock	(58,476	)		(5,848	)															(307,636	)		(2,712,654	)		(3,026,138	)
Net loss																							(34,580,732	)		(34,580,732	)

Balance at December 31, 2000	51,228,154		$	5,122,816		—		$	—		—		$	—		$	—		$	273,605,573		$	(138,215,417	)	$	140,512,972

F-5

ACTV, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the

YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

1. Nature of Operations

We are a digital media company that provides technical and creative services, tools and proprietary applications for enhanced media, interactive TV, advertising, and personalized programming applications. We have two operating business segments, which we call Digital TV and Enhanced Media.

We have developed proprietary technologies for each of these business segments. Our Digital TV technologies enable television programmers and advertisers to create individualized programming for digital television transmission systems. Our Enhanced Media technologies allow for the enhancement of video and audio content, including standard TV programming, with information, interactivity and games delivered through the Internet. We believe that our Digital TV technologies are unique in providing targeting, interactivity and accountability for television commercials, and in giving viewers the ability to instantly customize their viewing experiences. For the Enhanced Media market, we are a leading provider of technology and services that synchronize the delivery of television programming and Internet content. To date, all of our revenues have been generated by our Enhanced Media businesses. Revenues from our Digital TV businesses will commence in 2001.

2. Organization and Significant Accounting Policies

Principles of Consolidation—The Company's consolidated financial statements include the balances of its operating subsidiaries that are more than 50% owned and controlled along with Digital ADCO ("ADCO"), which is a 45.9% subsidiary controlled by the Company. All significant intercompany transactions and account balances are eliminated.

Property and Equipment—Property and equipment is recorded at cost and depreciated on the straight-line method over it's estimated useful lives (generally 5 years). Depreciation expense for the years ended December 31, 2000, 1999 and 1998 aggregated $2,080,420, $929,765 and $762,581, respectively.

Patents and Patents Pending—The cost of patents, representing patent acquisition costs and legal costs relating to 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, 2000 and 1999, are net of accumulated amortization of $981,248 and $391,236, respectively.

Software Development Costs—The Company capitalizes costs incurred for the development of software products when 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 unamortized balance at December 31, 2000 and 1999 is net of accumulated amortization of $1,567,435 and $756,607, 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—In businesses where the Company is delivering specific services and products, revenues are recorded as the services and products are delivered. Where software licenses are granted for a specific period of time, with related content and maintenance contracts, revenue is aggregated and amortized over the life of the license.

F-6

Earnings Per Share—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.

Long-Lived Assets and Intangibles—In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable, the Company reviews the carrying values of its long-lived assets and identifiable intangibles for possible impairment. 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. The Company does not believe that any long-lived assets and intangibles have been impaired. The Company did not record impairment losses for the three years ended December 31, 2000.

Stock-Based Compensation—The Company applies the intrinsic-value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employee", with pro forma disclosure of net loss and EPS as if the fair-value based method prescribed by SFAS No. 123, Accounting for Stock Based Compensation had been applied.

Use of Estimates—The preparation of financial statements in conformity with general accepted accounting principles requires Management to make estimates and assumptions that effect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Reclassifications—Certain reclassifications have been made to the prior years financial statements to conform to the current year presentation.

Recently Issued Accounting Pronouncements—In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133"), which becomes effective for the Company's consolidated financial statements for the year beginning January 1, 2001, (as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities). These statements establish accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value. These statements require that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Based on the Company's current use of derivative instruments management believes the adoption of this statement will not have a material effect on the Company's consolidated financial statements.

F-7

3. Merger and Acquisition Activity

Acquisition

On August 17, 2000, the Company acquired all of the outstanding capital stock of Bottle Rocket, Inc. ("Bottle Rocket") in exchange for 272,035 shares of the Company's common stock. Bottle Rocket creates online entertainment based on proprietary technology engines for trivia, prediction, simulation, arcade-style, and multi-player games. The acquisition of Bottle Rocket has been accounted for under the pooling of interests method of accounting and, accordingly, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of Bottle Rocket.

The results of operations previously reported by the Company, the results of operations of Bottle Rocket and the combined amounts presented in the accompanying consolidated financial statements are presented below:

	Years ended December 31,
	1999		1998
Revenues:
ACTV	$	2,117,938	$	1,405,838
Bottle Rocket		791,704		219,301

Combined	$	2,909,642	$	1,625,139

Net Loss:
ACTV	$	22,883,180	$	20,389,151
Bottle Rocket		3,648,706		1,675,003

Combined	$	26,531,886	$	22,064,154

There were no eliminations or other adjustments to historical financial statements or significant non-recurring charges as a result of this transaction. The revenues and net loss of Bottle Rocket were $1,469,513 and $1,337,854, respectively, from January 1, 2000 to August 17, 2000. Bottle Rocket had no operations prior to 1997.

4. Property and Equipment

Property and equipment—net at December 31, 2000 and 1999 consisted of the following (at cost):

	2000			1999
Machinery and equipment	$	8,138,082		$	5,181,941
Office furniture and fixtures		3,253,895			837,207
Leasehold improvements		5,992,172			428,132

Total	$	17,384,149		$	6,447,280
Less accumulated depreciation and amortization		(4,755,917	)		(2,677,085	)

Total	$	12,628,232		$	3,770,195

F-8

5. Financing Activities

Common Stock Financing

During the years ended December 31, 2000, 1999 and 1998, the Company raised approximately $129.4, $18.9 and $10.6 million from sales of common stock to private institutional investors and from the exercise of stock options and warrants, totaling approximately $21.3, $13.5 and $2.4 million.

On February 3, 2000, we completed a follow-on offering of 4.6 million common shares, including 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 4.6 million total common shares were priced to the public at $30 per share, for total gross proceeds of $138 million. We paid underwriting discounts and commissions of $1.80 per share or $8.28 million, resulting in net proceeds of $28.20 per share, or $129.4 million

On March 27, 2000 Liberty Digital, Inc. invested an additional $20 million in us, increasing its investment to 16% by exercising a warrant granted in March 1999.

Preferred Stock Financing

During 1996, the Company raised approximately $11.0 million net from the proceeds of a private placement of common stock and 5% exchangeable preferred stock issued by the Company's wholly-owned subsidiary. 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. 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 Series B convertible preferred stock ("Series B Stock"), common stock, and warrants to purchase approximately 1.95 million shares of common stock at $2.00 per share as a partial exchange for approximately 179,000 shares of the subsidiary exchangeable preferred stock. The excess of the fair value of this consideration over the carrying value of the exchangeable preferred stock for which the Series B Stock was issued is included in minority interest subsidiary preferred stock dividend and accretion in the accompanying statement of operations. The Series B Stock 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

F-9

$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 Company issued $5.0 million aggregate principal amount notes. The notes had an interest rate of 13.0% per annum, payable semi-annually, with principal repayment in one installment on June 30, 2003. The Company had the option to 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. In connection with the note, the holders received on January 14, 1998 a common stock purchase warrant (The "Warrant") of Texas Network that granted the holders either the right to purchase up to 17.5% of the fully-diluted shares of common stock of Texas Network or, through July 14, 1999, to exchange the Warrant for such number of shares of the Company's common stock, at the time of and giving effect to such exchange, that were equal to 5.5% of the fully diluted number of shares of common stock outstanding.

For accounting purposes, the Company allocated approximately $1.4 million to the value of the Warrant, based on the market value of the Company's common stock into which the Warrant was convertible at issuance. The Warrant was included outside of Consolidated Stockholders' Equity 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.

On April 3, 2000, the Company repaid certain notes in full, thereby incurring a loss on extinguishment of debt that was recorded as an extraordinary item in the quarter ended June 30, 2000. The extraordinary loss includes a prepayment premium of $369,632, and the unamortized original issue discount and deferred issue costs of $819,294 and $222,213, respectively, for a total loss of $1,411,139, or $0.03 per share.

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.

F-10

Preferred Stock Rights Agreement

Our policy is and has been to license our technology and arrange joint ventures for its use in a number of different industries. In August 2000, our Board of Directors adopted a Preferred Stock Rights Agreement, which gives our Board of Directors certain alternative courses of action if a potential acquirer of 15% or more of our common stock is deemed unlikely to further such policy or if such potential acquirer is deemed likely to act inconsistently with the best interests of our stockholders. Pursuant to the Preferred Stock Rights Agreement, we could distribute certain preferred stock purchase rights to our current stockholders. These rights would become exercisable if an outside party became the beneficial owner of 15% or more of our issued and outstanding common stock, unless our Board of Directors determines to defer the exercise of, or redeem, such rights. The potential acquirer's rights under the Preferred Stock Rights Agreement will be null and void. Once exercisable, each preferred stock purchase right would entitle the holder thereof to purchase .001 of share of our Series C Preferred Stock at an exercise price of $0.00001 per share. Each share of our Series C Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of our stockholders. Once issued our Board of Directors could vote to exchange the preferred stock purchase rights for shares of our common stock. A potential acquirer may be discouraged from completing an acquisition if it could not be assured of having control of us.

Our Bylaws provide that only a majority of the Board of Directors or the Chairman of the Board may call a special meeting of the stockholders. In addition, our certificate of incorporation permits our Board of Directors to have us designate and issue, without stockholder approval, preferred stock with voting, conversion and other rights and preferences that could differentially and adversely affect the voting power or other rights of the holders of our common stock. Our issuance of preferred stock or of rights to purchase preferred stock could also be used to discourage an unsolicited acquisition proposal.

ACTV Entertainment, Inc. ("Entertainment") and HyperTV Networks, Inc. are subsidiaries of ACTV, Inc. In part as an anti-takeover defense, in 1997 and 1998 Entertainment and HyperTV granted stock options for their respective Class B common shares to a limited number of their officers and employees, which Class B stock options—as amended in December, 1999—were to become exercisable only upon a "change of control" of ACTV, Inc., as the term "change of control" was defined in those options. Effective October 2, 2000, all of those Class B stock options were terminated, with the result that there are no options outstanding at this date with respect to any of the Class B shares of either Entertainment or HyperTV.

F-11

6. Stock Options and Warrants

At December 31, 2000, the Company had reserved shares of Common Stock for issuance as follows:

		Authorized	Granted (net of cancellations)	Exercised	Outstanding
1989 Non-Qualified Stock Option Plan		100,000	91,500	82,000	9,500
1996 Qualified Stock Option Plan		500,000	493,484	331,214	162,270
1998 Qualified Stock Option Plan		900,000	802,167	170,161	632,006
1999 Qualified Stock Option Plan		1,500,000	1,412,667	113,814	1,298,853
2000 Qualified Stock Option Plan		4,000,000	3,379,665	15,822	3,363,843
Options and warrants granted outside of formal plans			23,578,108	10,970,129	12,607,979

	Total				18,074,451

In August 1989, the Board of Directors approved a Non-Qualified Stock Option Plan providing for the granting to employees, officers, directors, consultants and independent contractors options to purchase shares of common stock. The Non-Qualified Plan stipulates that the option price not be less than fair market value at the date of grant, or such other price as the Board may determine

During the years 2000, 1999, 1998 and 1996 the Board of Directors approved stock option plans providing for stock option grants to employees and others who provide significant services to the Company.

At December 31, 2000, 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 common stock. The prices of these options and warrants range from $0.82 to $153.32 per share; they have expiration dates in the years 2001 through 2010. The options and warrants granted are not part of the stock option plans discussed above.

A summary of the status of the Company's stock options as of December 31, 2000, 1999 and 1998 is as follows:

	2000 Shares	2000 Wtd. Avg. Exer Price		1999 Shares	1999 Wtd. Avg. Exer Price		1998 Shares	1998 Wtd. Avg. Exer Price
Outstanding at beginning of period	16,736,838			7,850,007			3,539,218
Options and warrants granted	4,698,976	$	8.87	14,863,501	$	8.20	6,376,073	$	1.91
Options and warrants exercised	3,247,196	$	6.74	5,801,670	$	1.98	1,844,951	$	1.64
Options and warrants terminated	114,167	$	11.75	175,000	$	4.00	220,333	$	2.86

Outstanding at end of period	18,074,451	$	7.55	16,736,838	$	7.44	7,850,007	$	1.90

Options and warrants exercisable at end of period	10,061,021	$	8.28	9,369,330	$	9.08	5,782,275	$	1.99

F-12

The following table summarizes information about stock options outstanding at December 31, 2000:

Range of Exercise Prices	Number Outstanding at 12/31/2000	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 12/31/2000	Weighted Average Exercise Price
$0.00 to 4.00	6,684,892	4.2 Years	$	1.60	4,601,288	$	1.58
$4.01 to 8.00	4,141,505	5.3 Years	$	6.89	100,501	$	6.05
$8.01 to 12.00	1,154,900	3.8 Years	$	9.81	308,574	$	9.11
$12.01 to 16.00	6,067,000	2.3 Years	$	13.91	5,030,503	$	14.00
$15.01 to 200.00	26,154	4.9 Years	$	88.90	20,155	$	108.78

The weighted average fair value of options granted during 2000, 1999 and 1998 was $8.87, $5.85 and $.97 per share, respectively, excluding the value of options granted and terminated within the year. In the case of each issuance, options were issued at an exercise price that was higher than the fair market value of the Company's common stock on the date of grant. The Company applies APB No. 25 and related Interpretations in accounting for its stock option and purchase plans. Accordingly, no compensation cost has been recognized for option issuances. Had compensation cost for the Company's option issuances been determined based on the fair value at the grant dates consistent with the method of FASB Statement 123, the Company's net loss and loss per basic and diluted share for the years ended December 31, 2000, 1999, and 1998 would have been increased to the pro forma amounts indicated below:

Net loss to common stockholders	2000		1999		1998
As reported	$	34,580,732	$	27,026,316	$	22,543,327
Pro forma	$	57,246,880	$	29,429,133	$	23,978,803
Net loss per basic and diluted common share
As reported		$0.70		$0.70		$1.04
Pro forma		$1.16		$0.76		$1.11

The Company estimated the fair value of options issued during 2000, 1999, and 1998 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 2000, 1999, 1998 of 122.4%, 94.4% and 49.5%, respectively, and a risk free interest rate of 6% for all years.

7. Stock Appreciation Rights Plans

As of December 31, 1998, the Company had granted 896,000 outstanding Stock Appreciation Rights ("SARs") (with an exercise price of $1.50 per share). 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.

F-13

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. In May 1999, three directors agreed to retroactively exercise their vested SARs for unregistered shares of common stock, based upon the closing market price of $3¹⁵/16 on January 4, 1999. As a result, the SARs expense for the first quarter 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. In 1999, this conversion resulted in 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 related SAR liability. Additionally, the Company incurred a $381,000 non-cash charge to deferred expenses for rights that had not vested as of December 31, 1999.

The stock appreciation rights expense for the periods ended December 31, 1999 and 1998 was $1,950,330 and $2,000,062, respectively. In September 1999, all remaining SARs were converted into options under our 1999 option plan. Deferred expenses were recorded related to SARs that had not yet vested. In May 2000, we recognized $306,000 of those deferred expenses as period costs.

8. Income Taxes

The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes.

Deferred income taxes reflect the net tax effects at an effective tax rate of 35.33% of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax asset as of December 31, 2000, 1999 and 1998 are as follows:

		2000			1999			998
Deferred tax assets:
	Operating loss carryforwards	$	40,683,955		$	27,388,791		$	20,254,782
	Differences between book and tax basis of property		747,216			1,561,275			852,587

			41,431,171			28,950,066			21,107,369
Deferred tax liabilities:
	Differences between book and tax basis of property		(483,785	)		(305,561	)		(454,618	)

			40,947,386			28,644,505			20,652,751
Valuation Allowance			(40,947,386	)		(28,644,505	)		(20,652,751	)

Net deferred tax asset		$	0		$	0		$	0

F-14

The increase in the valuation allowance for the year ended December 31, 2000 and 1999, was approximately $12.3 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. In the event of an ownership change, 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 the long term federal rate.

At December 31, 2000 and 1999, the Company had Federal net operating loss ("NOL") carryovers of approximately $115.2 and $77.5 million, respectively. These carryovers will expire between the years 2001 and 2020.

During 2000, the Company entered into an investment that created a foreign subsidiary called Digital ADCO International. Although there are no material tax implications currently, the investment may result in an income tax liability that is not limited by the Company's existing NOL.

9. 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 the 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. In 2000, 1999 and 1998, the Company contributed the common stock equivalent of $247,275, $154,565 and $132,162 respectively.

10. Commitments

At December 31, 2000, future aggregate minimum lease commitments under non-cancelable operating leases, were as follows:

Year	Commitment
2001	$	2,635,562
2002		2,731,185
2003		2,734,351
2004		2,640,706
2005		2,508,499
Thereafter		28,159,327

Total	$	41,409,630

The leases contain customary escalation clauses, based principally on real estate taxes. Rent expense related to these leases for the years ended December 31, 2000, 1999 and 1998 aggregated $1,240,625, $577,956 and $476,513, respectively.

F-15

ACTV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the
Years Ended December 31, 2000, 1999 and 1998 (Continued)

11. Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and receivables. Concentrations of risk with respect to trade receivables exist because of the relatively few companies or other organizations 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. The Company's temporary cash investments consist of investments with high quality financial institutions.

12. Fair Value of Financial Instruments

The Company acquired a warrant to purchase common shares of Liberty Livewire LLC as described in Note 14. The carrying amounts of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximated fair value because of their short maturity.

13. Segment Reporting

We have two principal business segments. The Digital Television segment, which includes Digital ADCO, develops and markets technologies which enables interactive television and advertising.

The Enhanced Media segment, which includes HyperTV, Bottle Rocket, and Media Online Services, develops and markets technologies for the convergence of the Internet and television, for Internet gaming and for streaming media applications.

Individual customers accounted for more than 10% of the Company's revenues during the years ended 2000, 1999, and 1998. For the year ended December 31, 2000, two individual customers accounted for the following percentages of sales: 23% and 23%. For the year ended December 31, 1999, four individual customers accounted for the following percentages of sales: 10%, 10%, 11%, and 12%. For the year ended December 31, 1998, two individual customers accounted for the following percentages of sales: 12% and 35%.

Information concerning the Company's business segments in 2000, 1999, and 1998 is as follows:

	2000			1999			1998
Revenues
Digital Television	$	—		$	—		$	—
Enhanced Media		8,016,453			2,909,642			1,625,139

Total	$	8,016,453		$	2,909,642		$	1,625,139

Depreciation & Amortization
Digital Television	$	1,675,433		$	891,729		$	763,241
Enhanced Media		1,183,473			565,466			231,324
Unallocated corporate		1,048,724			660,901			563,151

Total	$	3,907,631		$	2,118,096		$	1,557,716

Interest Income (Expense)
Digital Television	$	(29,229	)	$	(1,014,617	)	$	(850,770	)
Enhanced Media		4,709			15,872			14,048
Unallocated corporate		7,466,830			420,358			94,403

Total	$	7,442,310		$	(578,387	)	$	(742,319	)

F-16

Net loss before extraordinary item
Digital Television	$	(7,453,433	)	$	(6,203,020	)	$	(5,273,173	)
Enhanced Media		(14,146,874	)		(8,069,935	)		(3,695,231	)
Unallocated corporate		(11,569,286	)		(12,258,930	)		(13,095,750	)

Total	$	(33,169,593	)	$	(26,531,885	)	$	(22,064,154	)

Capital Expenditures
Digital Television	$	4,219,555		$	2,030,469		$	947,710
Enhanced Media		2,490,859			3,179,536			443,190
Unallocated corporate		6,683,747			6,110,909			618,495

Total	$	13,394,161		$	11,320,914		$	2,009,395

Total Assets
Digital Television	$	17,010,470		$	6,244,009		$	4,708,444
Enhanced Media		83,127,887			6,000,980			1,377,728
Unallocated corporate		136,013,829			17,195,405			7,646,773

Total	$	236,152,186		$	29,440,394		$	13,732,945

14. Investments

In 2000, the Company entered into various strategic equity investments in privately held companies that operate in its industry. At December 31, 2000, the investments are stated at cost, aggregating $3,250,000. We do not exercise effective control or significant influence over operations for any of these strategic equity investments. The Company wrote-off an investment totaling $750,000 during 2000, which is recorded in selling and administrative expenses.

The Company and Liberty Livewire LLC, a unit of Liberty Livewire Corporation ("Livewire") (formerly known as Todd AO Corporation), entered into a joint marketing venture "HyperTV® with Livewire" on April 13, 2000. HyperTV with Livewire uses ACTV's patented HyperTV convergence technology to combine the emotive power of television with the interactivity of the Internet, and provides turnkey convergence services, including application hosting, web authoring services, data management, e-commerce and other value-added services for advertisers, television programmers, studios and networks.

The Company received a warrant ("Livewire Warrant") to acquire 2,500,000 shares of Livewire at $30 per share in connection with entering into the joint marketing agreement. The warrant becomes exercisable at the rate of 500,000 shares per year, commencing on April 13, 2001, includes certain registration rights, and may be exercised until March 31, 2015. With certain exceptions, the warrant is not transferable. The Company has recorded an investment and deferred revenue in the amount of $76,016,175, the estimated value of the warrant at April 13, 2000. The estimated value of the warrant was $17,300,000 at December 31, 2000. The Company estimated the value of the warrant using the Black-Scholes pricing model with a risk free rate of 6.5%, a volatility of 80% and assuming no cash dividends. For accounting purposes, the Company will periodically estimate the value of the warrant. Any change in estimated value attributable to shares that are both exercisable and are expected to become registered within one year will be recorded through increases or decreases in Other Comprehensive Income. The deferred income recorded by the Company is being amortized into income over a period of 21 years, the contractual term of the joint marketing venture.

F-17

15. Executive Compensation

For the years ended December 31, 2000 and 1999, the Company incurred $6.9 million and $3.1 million, respectively, of compensation expense in connection with an executing bonus plan. Pursuant to this plan, supplemental compensation is measured as of March 31, and is based on changes in the market value of our common stock. Payment is made in unregistered securities, and future compensation to be recognized is contingent on continued employment of the executive and subject to forfeiture.

16. Supplemental Disclosure of Cash Flow Information

The consolidated financial statements at December 31, 2000 and 1999, reflect non-cash activity during the years ended December 31, 2000 and 1999, that relate to stock appreciation rights, notes and stock issued in lieu of cash compensation, preferred stock accretions and revenue in connection with the Livewire Warrant.

The Company made no cash payments of interest or income taxes during the year ended December 31, 1998. During the years ended December 31, 2000 and 1999, the Company made cash interest payments of $204,976 and $739,263, respectively, primarily related to the $5.0 million original fair value note, and no cash payments of income tax.

17. Digital ADCO

We record minority interest resulting from Digital ADCO. Digital ADCO was formed in November 1999 and co-founded by ACTV, Inc. and Motorola Broadband. Digital ADCO develops and markets applications for the delivery of addressable advertising. Under the terms of our agreement with Motorola Broadband, we licensed five of our patents to Digital ADCO, and Motorola Broadband licensed six of its patents and made a capital commitment to Digital ADCO. On September 6, 2000, Digital ADCO, Inc., a subsidiary of ACTV, Inc. and General Instrument Corporation, a subsidiary of Motorola Broadband Communications, announced the completion of a direct minority investment by OpenTV Corp. Digital ADCO, Inc. and OpenTV Corp. have joined to create a new subsidiary named SpotOn International Ltd to license and exploit Digital ADCO's technology outside the U.S., Canada and Mexico. During August 2000, OpenTV made a capital contribution and contributed patents on a non-exclusive basis to Digital ADCO. Additionally, Digital ADCO International was formed to license and distribute products and services outside of North America and other western hemisphere countries. Digital ADCO, Inc.'s issued and outstanding shares of capital stock presently consist of Class A common stock, having one vote per share, and Class B common stock, having 25 votes per share. All of Digital ADCO's issued and outstanding shares are presently held by three investors. Open TV currently owns the issued and outstanding Class A common shares. ACTV, Inc. and Motorola Broadband, the co-founders of Digital ADCO, own the issued and outstanding Class B common shares. ACTV, Inc. currently owns 45.9% of Digital ADCO, and exercises voting control.

For the periods ended December 31, 2000 and 1999, we allocated losses in the amount of $1,622,957 and $588, respectively, from Digital ADCO to Motorola Broadband and OpenTV.

F-18

18. Subsequent Event

During March, 2001, the Company acquired all of the assets and business of Intellocity, Inc., ("Intellocity") a technology and engineering solutions provider focusing on the interactive television market. The Company acquired Intellocity for 4,007,890 shares of the Company's common stock, aggregating $23.2 million, and issued options to purchase 762,665 shares of the Company's common stock valued at $4.3 million, for an aggregate purchase price of $27.5 million. The Company could make an additional payment of up to 1.5 million shares and options contingent upon Intellocity achieving certain performance targets for the year ended December 31, 2001. Intellocity shareholders are subject to provisions restricting the sale of the ACTV stock, which range over 4 years. The acquisition will be accounted for under the purchase method of accounting in the first quarter of 2001.

14.(a)2. Financial Statement Schedule

The following Financial Statement Schedule for the years ended December 31, 2000, December 31, 1999, and December 31, 1998 is filed as part of this Annual Report.

Schedule II—Valuation and Qualifying Accounts and Reserves

	Column B		Column C			Column D		Column E
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts	Deductions		Balance at End of Period
Year ended 12/31/98:
Accounts receivable allowance for doubtful accounts	$	43,188		—	—	$	43,188		—
Year ended 12/31/99:
Accounts receivable allowance for doubtful accounts	$	—		—	—		—		—
Year ended 12/31/00:
Accounts receivable allowance for doubtful accounts	$	—	$	68,600	—	$	48,600	$	20,000

During 1999, there were no changes to either the accounts receivable allowance or investment loss reserve. Uncollectable accounts receivables in the amount of $43,188 were written off in 1998.

F-19

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 day of March 2001.

		ACTV, INC.
		By:	/s/ WILLIAM C. SAMUELS William C. Samuels Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/ WILLIAM C. SAMUELS William C. Samuels	Chairman, Chief Executive Officer and Director	March 23, 2001
/s/ BRUCE J. CROWLEY Bruce J. Crowley	Vice Chairman and Director	March 23, 2001
/s/ JOSEPH P. DWYER Joseph P. Dwyer	Executive Vice President and Chief Financial Officer	March 23, 2001
/s/ WILLIAM A. FRANK William A. Frank	Executive Vice President and Director	March 23, 2001
/s/ DAY L. PATTERSON Day L. Patterson	Executive Vice President, General Counsel and Secretary	March 23, 2001
/s/ DAVID REESE David Reese	President and Director	March 23, 2001
/s/ MELVYN N. KLEIN Melvyn N. Klein	Director	March 23, 2001
/s/ STEVEN W. SCHUSTER Steven W. Schuster	Director	March 23, 2001
/s/ JOHN C. WILCOX John C. Wilcox	Director	March 23, 2001

INDEX TO EXHIBITS

(a): 3. EXHIBITS (inapplicable items omitted):

Exhibits
2.1		Agreement and Plan of Merger dated March 7, 2001, between ACTV, Inc. and Intellocity, Inc. #
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.
3.1(d)		Amendment to Certificate of Incorporation of ACTV, Inc. ##
3.1(e)		Amended and Restated Certificate of Incorporation of ACTV, Inc. #
3.2		By-Laws of ACTV, Inc. *
3.2(a)		Amended By-Laws of ACTV, Inc. #
9.1		Deleted.
9.2		Deleted.
10.1		Deleted.
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		Deleted.
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. ***
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)		Deleted.
10.24(b)		Deleted.
10.24(c)		Deleted.
10.24(d)		Deleted.
10.24(e)		Deleted.
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)		Deleted.
10.26(a)		Stock Option Agreement by and between Florida Individualized Television Network, Inc. and William Samuels dated June 3, 1997 and amended January 14, 1998. +
10.26(b)		Stock Option Agreement by and between Northwest Individualized Television Network, Inc. and William Samuels dated June 3, 1997 and amended January 14, 1998. +
10.26(c)		Stock Option Agreement by and between New York Individualized Television Network, Inc. and William Samuels dated June 3, 1997 and amended January 14, 1998. +
10.26(d)		Stock Option Agreement by and between San Francisco Individualized Television Network, Inc. and William Samuels dated June 3, 1997 and amended January 14, 1998. +
10.26(e)		Stock Option Agreement by and between Los Angeles Individualized Television Network, Inc. and William Samuels dated March 14, 1997 and amended January 14, 1998. +
10.26(f)		Deleted.
10.26(f)1		Deleted.
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.
10.26(l)1		Deleted.
10.27		Deleted.
10.28		Deleted.
10.29		Deleted.
10.30		Deleted — replaced by 10.45
10.31		Deleted — replaced by 10.46
10.32		The Los Angeles Individualized Television Network, Inc. Sublicense Agreement dated March 14, 1997 between ACTV Entertainment and The Los Angeles Individualized Television Network, Inc. +
10.33		The San Francisco Individualized Television Network, Inc. Sublicense Agreement dated January 1, 1989 between ACTV Entertainment and The San Francisco Individualized Television Network, Inc. +
10.34		The Texas Individualized Television Network, Inc. Sublicense Agreement dated March 14, 1997 between ACTV Entertainment and The Texas Individualized Television Network, Inc. +
10.35		The Los Angeles Individualized Television Network, Inc. Service Agreement dated March 14, 1997 between ACTV, Inc., ACTV Entertainment and The Los Angeles Individualized Television Network, Inc. +
10.36		The San Francisco Individualized Television Network, Inc. Service Agreement dated January 1, 1998 between ACTV, Inc., ACTV Entertainment and The San Francisco Individualized Television Network, Inc. +
10.37		The Texas Individualized Television Network, Inc. Service Agreement dated March 14, 1997 between ACTV, Inc., ACTV Entertainment and The Texas Individualized Television Network, Inc. +
10.38		Deleted.
10.39		Deleted.
10.40		Deleted — superceded by 10.40.2
10.41.1		Deleted — superceded by 10.40.2.
10.40.2		Employment agreement dated as of August 1, 1995, as amended January 18, 2001, 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 10.42.2.
10.42.1		Deleted — superceded by 10.42.2.

10.42.2		Employment agreement dated as of August 1, 1995, as amended January 18, 2001, 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
10.48.1		Deleted.
10.49		Deleted.
10.50		Deleted.
10.51		Deleted — superceded by 10.51.1
10.51.1		Stock option agreement dated February 21, 1998, as amended January 10, 2001, between ACTV, Inc. and William C. Samuels. #
10.52		Deleted — superceded by 10.52.1
10.52.1		Stock option agreement dated February 21, 1998, as amended January 10, 2001, between ACTV, Inc. and Bruce Crowley. #
10.53		Deleted — superceded by 10.53.1
10.53.1		Stock option agreement dated February 21, 1998, as amended January 10, 2001, 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. ++++
10.54.1		Lease dated as of December 1, 1999, as amended May 23, 2000, between 225 Fourth, LLC, as landlord, and ACTV, Inc., as tenant. #
10.55		2000 Stock Incentive Plan ##

10.56		Cooperative Venture Agreement dated April 13, 2000 by and among HyperTV Networks, Inc., Liberty Livewire LLC, and HyperTV with Livewire, LLC. ###
10.57		Employment agreement dated as of October 1, 2000 between ACTV, Inc. and Kevin M. Liga. #
10.58		Employment agreement dated as of October 1, 2000 between ACTV, Inc. and David D. Alworth #
21		Subsidiaries of the Registrant

*		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.
++++		Incorporated by reference to ACTV, Inc.'s Form 10-K for the year ended December 31, 1999.
#		Filed herewtih
##		Incorporated by reference to ACTV, Inc.'s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 17, 2000.
###		Incorporated by reference to ACTV, Inc.'s amended quarterly report on Form 10Q/A for the quarter ended June 30, 2000

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
INTRODUCTORY NOTE
PART I
PART II
RESULTS OF OPERATIONS
PART III
PART IV
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
INDEX TO EXHIBITS
EX-2.1 2 a2041842zex-2_1.txt EXHIBIT 2.1 Exhibit 2.1 AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger ("Agreement") is made as of the 7th day of March, 2001, by and among ACTV, Inc., a Delaware corporation ("ACTV"), with its principal place of business at 225 Park Avenue South, 18th Floor, New York, New York 10003; and Intellocity, Inc., a corporation formed under the laws of the British Virgin Islands ("Intellocity") with its principal place of business at Suite 1201 Leighton Center, 77 Leighton Road, Causeway Bay, Hong Kong. ACTV and Intellocity are referred to herein individually as a "Party" and collectively as the "Parties." PREAMBLE WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware ("Delaware Law") and the International Business Companies Act of the British Virgin Islands ("BVI Law"), Intellocity will be merged with and into ACTV (the "Merger"); and WHEREAS, the Parties intend that the Merger qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Parties intend this Agreement to qualify as a "plan of reorganization" within the meaning of Treasury Regulation Sections 1.368-2(g) and 1.368-3(a). For accounting purposes, it is intended that the purchase rules of accounting be applied to the Merger. NOW THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: ARTICLE 1 THE MERGER (a) THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Delaware Law and BVI Law, at the Effective Time (as herein defined) Intellocity shall be merged with and into ACTV, the separate existence of Intellocity shall cease and ACTV shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). (b) CONSUMMATION OF THE MERGER. Subject to the satisfaction of the conditions set forth in Article 9 herein (the "Closing Conditions"), the closing of the Merger (the "Closing") will take place as promptly as practicable after the satisfaction or waiver of the Closing Conditions on a date specified by the parties, but in any event no later than the second business day following such satisfaction or waiver. The date on which the Closing occurs is the "Closing Date." The Closing shall be held at the offices of Gersten, Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New York 10023 at 9:00 a.m. on the Closing Date, unless another time and place is agreed to in writing by the Parties hereto. (c) EFFECTIVE TIME. On the Closing Date, the Parties shall cause the Merger to be consummated by filing, and the Merger shall become effective immediately upon the filing, of (i) a certificate of merger (the "Delaware Merger Certificate") with the Secretary of State of the State of Delaware in substantially the form annexed hereto as EXHIBIT 1, executed in accordance with the relevant provisions of Delaware Law, and (ii) articles of merger and a plan of merger (the "BVI Merger Certificate") with the Registrar of Companies of the British Virgin Islands in substantially the form annexed hereto as EXHIBIT 2, executed in accordance with the relevant provisions of BVI Law. The Merger shall become effective at the latest to occur of the time such Delaware Merger Certificate is filed with the Secretary of State of the State of Delaware and the BVI Merger Certificate is filed with the Registrar of Companies of the British Virgin Islands (the "Effective Time"). The date on which the Effective Time occurs is referred to as the "Effective Date." (d) EFFECT OF THE MERGER. At and after the Effective Time, the Merger shall be effective as provided in the applicable provisions of Delaware Law and BVI Law. The corporate existence of ACTV, as the Surviving Corporation, with all of its purposes and powers, shall continue unaffected and unimpaired by the Merger, and, as the Surviving Corporation, it shall be governed by the laws of the State of Delaware and succeed to all rights, assets, liabilities and obligations of Intellocity in accordance with Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of ACTV and Intellocity shall vest in the Surviving Corporation, and all debts, liabilities and duties of ACTV and Intellocity shall become the debts, liabilities and duties of the Surviving Corporation. The separate existence and corporate organization of Intellocity shall cease at the Effective Time and thereafter ACTV and Intellocity shall be a single corporation, to wit, the Surviving Corporation. (e) CERTIFICATE OF INCORPORATION; BY-LAWS. At and after the Effective Time, the Certificate of Incorporation and By-Laws of ACTV, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and By-Laws of the Surviving Corporation. (f) DIRECTORS AND OFFICERS. At and after the Effective Time and subject to Article 10 (c)(iii) and (iv) hereof, the directors and officers of ACTV as in effect immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, and the directors and officers of Intellocity USA, Inc., a Delaware corporation and wholly-owned subsidiary of Intellocity ("USA") shall be the individuals named in EXHIBIT 3 hereto, in each case until their respective successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Certificate of Incorporation and By-Laws of ACTV and USA, respectively. (g) FURTHER ACTIONS. If at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any further assignment or assurances or any other things that are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, the title to any property or right of Intellocity acquired or to be acquired by reason of or as a result of the Merger, Intellocity and its officers and directors in office immediately prior to the Effective Time shall use commercially reasonable efforts to execute and deliver, or cause to be executed and delivered, all such proper deeds, assignments and assurances 2 and do all things reasonably necessary and proper to vest, perfect or confirm title to such property or rights in the Surviving Corporation and otherwise carry out the purpose of this Agreement, and the officers of the Surviving Corporation are fully authorized in the name of Intellocity or otherwise to take any and all such action with the same effect as if such persons were officers of Intellocity. (h) DISSENTING SHARES. Notwithstanding the provisions of Article 2 below, if the Merger is effectuated pursuant to Section 79 of BVI Law, shares of Intellocity Common Stock and Intellocity Preferred Stock outstanding immediately prior to the Effective Time and held by an Intellocity Stockholder (as defined below) who has demanded appraisal for such shares in accordance with BVI Law shall not be converted into a right to receive the merger consideration, unless such Intellocity Stockholder fails to perfect or withdraws or otherwise loses his or her right to appraisal. If, after the Effective Time, such Intellocity Stockholder fails to perfect or withdraws or loses his or her right to appraisal, such shares shall be treated as if they had been converted as of the Effective Time into a right to receive the merger consideration as provided in this Agreement. Intellocity shall give ACTV prompt notice of any demands received by Intellocity for appraisal of shares, and ACTV shall have the right to participate in all negotiations and proceedings with respect to such demands. Intellocity shall not, except with the prior written consent of ACTV, make any payment with respect to, or settle or offer to settle, any such demands. Any amounts paid to an Intellocity Stockholder pursuant to a right of appraisal will be paid by Intellocity out of its own funds and will not be reimbursed by ACTV or any affiliate of ACTV. ARTICLE 2 CONSIDERATION (a) SHARES OF ACTV COMMON STOCK TO BE ISSUED. At and as of the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof: (i) each outstanding Ordinary Share of Intellocity, $.01 par value per share (the "Intellocity Common Stock"), and each outstanding Series A Preference Share of Intellocity, $.01 par value per share (the "Intellocity Preferred Stock"), shall be converted into the right to receive 0.412943122 shares of common stock of ACTV, $.10 par value per share (the "ACTV Common Stock"; and the shares of ACTV Common Stock issued upon such conversion, being five million two hundred sixty thousand three hundred sixty one (5,260,361) shares in the aggregate, are referred to herein as the "Merger Shares"), and (ii) each dissenting share shall be converted into the right to receive payment from Intellocity with respect thereto in accordance BVI Law. As a result of the foregoing, the Merger Shares shall be allocated among the holders of Intellocity Common Stock and Intellocity Preferred Stock as set forth in EXHIBIT 4 attached hereto (which shall be amended by the Parties immediately prior to the Effective Time in order to give effect to exercises, if any, of Outstanding Options (as defined below) subsequent to the date hereof). 3 The ratio of 0.412943122 shares of ACTV Common Stock to one share of Intellocity Common Stock or Intellocity Preferred Stock, as the case may be, is referred to herein as the "Conversion Ratio." The Conversion Ratio equals the fraction (i) having a numerator equal to $42,000,000, and (ii) having a denominator equal to the amount determined by multiplying (A) the ACTV Average Stock Price by (B) the Aggregate Outstanding Shares and Vested Options. For purposes of this Agreement, the "ACTV Average Stock Price" shall mean the average of the closing sales prices of ACTV Common Stock as quoted on the Nasdaq National Market for the ten (10) trading days immediately preceding February 14, 2001 (the date on which a Memorandum of Understanding was executed by the parties to this Agreement). For purposes of this Agreement, the "Aggregate Outstanding Shares and Vested Options" shall mean all issued and outstanding shares of Intellocity Common Stock and Intellocity Preferred Stock together with all shares of Intellocity Common Stock issuable upon the exercise of vested and exerciseable Outstanding Options (as defined below), giving effect to all contractual change of control provisions applicable to such options, in each case calculated as of February 14, 2001. The Conversion Ratio shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in the number of shares of ACTV Common Stock, Intellocity Common Stock and Intellocity Preferred Stock outstanding (other than in connection with the exercise of outstanding convertible stock options or warrants). In no event shall ACTV be required to issue more than six million two hundred and sixty one thousand three hundred sixty seven (6,261,367) shares of ACTV Common Stock pursuant to this Agreement. (b) EXCHANGE OF OUTSTANDING OPTIONS. Subject to the terms and conditions set forth in this Agreement, at and as of the Effective Time, each of the outstanding options to acquire Intellocity Common Stock set forth on EXHIBIT 5 attached hereto (which shall, if necessary, be amended by the parties as of the Effective Date) that remain outstanding as of the Effective Time (collectively the "Outstanding Options"), shall be converted by ACTV into non-plan options to acquire such number of shares of ACTV Common Stock based on the Conversion Ratio as set forth on EXHIBIT 5 attached hereto, at the exercise price per share of ACTV Common Stock also set forth on EXHIBIT 5 attached hereto. The options to acquire ACTV Common Stock shall be subject to the vesting schedules set forth on EXHIBIT 5 attached hereto. (c) SHARES OF ACTV COMMON STOCK TO BE RESERVED. Subject to the terms and conditions set forth in this Agreement, at and after the Closing, ACTV shall reserve such number of shares of ACTV Common Stock as are required for issuance in connection with the exercise of the Outstanding Options, including any adjustments by reason of the antidilution provisions contained therein. (d) RESTRICTIONS ON RESALE. (i) Except as otherwise set forth herein, the Merger Shares, the options to acquire shares of ACTV Common Stock issuable in exchange for the Outstanding Options, and the shares of ACTV Common Stock issuable upon the exercise of the options to acquire shares of ACTV Common Stock have not been registered under the Securities Act of 1933 (the "Securities Act"), or the securities laws of any state, and absent an exemption from registration contained in such laws, cannot be transferred, hypothecated, sold or otherwise disposed of until (A) a registration statement with respect to such securities is declared effective under the Securities Act, or (B) such shares are saleable under Rule 144 promulgated under the Securities 4 Act or (C) ACTV receives an opinion of counsel for ACTV that an exemption from the registration requirements of the Securities Act is available. Notwithstanding the forgoing, if permissible under all applicable law, no registration statement or opinion of counsel shall be necessary for a transfer by a Holder (as defined below) which is (W) a partnership to its partners or former partners in accordance with partnership interests, (X) a corporation to its shareholders in accordance with their interest in the corporation or to its subsidiaries in accordance with its percentage interest in such subsidiaries, (Y) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (Z) to the Holder's family member or trust for the benefit of an individual Holder (each, a "Permitted Transfer"); provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder. (ii) In addition, except in the case of Permitted Transfers, the Intellocity Stockholders (as defined below) and the holders of Outstanding Options (collectively, the "Holders") shall also be subject to the following restrictions on resale: (A) The Holders shall be permitted to sell, on a pro rata basis, one million seven hundred eighty eight thousand nine hundred fifty six (1,788,956) shares of the ACTV Common Stock issued or issuable upon the Closing (which number includes the shares of ACTV Common Stock issuable upon the exercise of the vested options, but not the unvested options, to acquire shares of ACTV Common Stock) (the "Initial ACTV Common Stock") at any time after the Closing. (B) The remaining balance of the shares of ACTV Common Stock issued or issuable upon the Closing (which number includes the shares of ACTV Common Stock issuable upon the exercise of the vested, but not the unvested, options to acquire shares of ACTV Common Stock) (the "Remaining ACTV Common Stock") shall become saleable by the Holders: (x) in the case of Holders who are salaried employees of Intellocity, at the rate of one-third (1/3) per year, upon each of the first three (3) anniversaries of the Closing Date; and (y) in the case of all other Holders, at the rate of seventy-five percent (75%) upon the first (1st) anniversary of the Closing Date and twenty-five percent (25%) upon the second (2nd) anniversary of the Closing Date. Any Escrow Shares (as hereinafter defined) distributed to salaried employees of Intellocity shall become saleable pro rata in accordance with Article 2(d)(ii)(B)(x) above. Any Escrow Shares distributed to other Holders shall become saleable upon the second (2nd) anniversary of the Closing Date. Notwithstanding the foregoing, ACTV's general counsel, in his sole discretion, and pursuant to written authorization, may permit the Holders to sell any number of shares of ACTV Common Stock in excess of the scheduled amounts set forth above. EXHIBIT 6 attached hereto (which shall, if necessary, be amended by the Parties immediately prior to the Effective Time) contains a complete list of the ACTV Common Stock issued or issuable to each Holder as of the Effective Time and the transfer restriction release schedule with respect to each Holder. 5 (iii) The certificates representing the number of shares of ACTV Common Stock into which the shares of Intellocity Common Stock and Intellocity Preferred Stock shall have been converted, and the certificates representing the number of shares of ACTV Common Stock issuable upon the exercise of the options to acquire shares of ACTV Common Stock, shall contain legends, substantially as follows: "THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT, OR THE SECURITIES ARE SALEABLE PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE." "PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED AS OF MARCH 7, 2001, BY AND BETWEEN THE COMPANY AND INTELLOCITY, INC., THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN A LOCK-UP AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY" ARTICLE 3 EXCHANGE OF CERTIFICATES, ETC. (a) EXCHANGE OF CERTIFICATES. After the Effective Time, each outstanding certificate or certificates which, prior thereto, represented one (1) or more shares of Intellocity Common Stock and/or one (1) or more shares of Intellocity Preferred Stock shall be required to be surrendered to ACTV and each holder of Intellocity Common Stock and Intellocity Preferred Stock shall be entitled upon surrender to receive in exchange therefor a certificate or certificates representing the number of whole shares of ACTV Common Stock into which the shares of Intellocity Common and Intellocity Preferred Stock theretofore represented by the certificate or certificates so cancelled shall have been converted, LESS such holder's portion of the Escrow Shares, which shall be deposited in an escrow account as more fully described in Article 4. Until so exchanged, each such outstanding certificate which, prior to the Effective Time, represented shares of Intellocity Common Stock or Intellocity Preferred Stock shall be deemed for all corporate purposes, subject to the further provisions of this Article 3, to evidence the ownership of the number of whole shares of ACTV Common Stock into which such shares of Intellocity Common Stock and Intellocity Preferred Stock have been so converted. No dividend payable to holders of shares of ACTV Common Stock of record as of any date subsequent to the Effective Time shall be paid to the holder of any certificate which, prior to the Effective Time, represented shares of Intellocity Common Stock and Intellocity Preferred Stock, until such certificate or 6 certificates are surrendered as provided in this Article 3(a) or pursuant to letters of transmittal or other instructions with respect to lost certificates provided by ACTV. (b) EXCHANGE OF OPTION AGREEMENTS. After the Effective Time, each holder of an Outstanding Option agreement will receive in exchange therefor, a non-plan option agreement, in the form of EXHIBIT 7 attached hereto. Each non-plan option agreement issued by ACTV in exchange for an Outstanding Option will represent an option to acquire such number of shares of ACTV Common Stock as set forth on EXHIBIT 5 attached hereto, at the exercise price per share of ACTV Common Stock also set forth on EXHIBIT 5. The options to acquire ACTV Common Stock shall be subject to the vesting schedules set forth on EXHIBIT 5 attached hereto. After the Effective Time, each such Outstanding Option agreement shall be deemed for all corporate purposes, subject to the further provisions of this Article 3, to evidence the ownership of an option agreement to acquire the number of whole shares of ACTV Common Stock into which such Outstanding Option agreement has been so converted. Payment of the exercise price due under the exchanged Outstanding Options shall be permitted to be made pursuant to a Regulation T program if otherwise offered to employees of ACTV. (c) FRACTIONAL SHARES. No certificate or scrip representing fractional shares of ACTV Common Stock shall be issued upon the surrender of certificates representing shares of Intellocity Common Stock and Intellocity Preferred Stock pursuant to this Agreement, and no dividend declaration by the Board of Directors of ACTV shall relate to any such fractional share. In lieu of such fractional shares, each holder of shares of Intellocity Common Stock and Intellocity Preferred Stock who would otherwise be entitled to receive a fraction of a share of ACTV Common Stock (after aggregating all fractional shares of ACTV Common Stock that otherwise would be received by such holder) shall, upon surrender of such holder's certificate(s) receive from ACTV an amount of cash (rounded to the nearest whole cent), without interest, equal to the product obtained by multiplying such fraction by $6.7078 (the average of the closing sales prices of the ACTV Common Stock as quoted on the Nasdaq National Market for the ten (10) trading days immediately preceding February 14, 2001, the date on which the Memorandum of Understanding relating to the Merger was executed by the Parties). (d) FULL SATISFACTION OF RIGHTS. All shares of ACTV Common Stock into which the Intellocity Common Stock and Intellocity Preferred Stock shall have been converted pursuant to the Merger shall be deemed to have been issued in full satisfaction of all rights pertaining to such converted shares. If any certificate for such shares of ACTV Common Stock is to be issued in a name other than that in which the certificate(s) for Intellocity Common Stock and Intellocity Preferred Stock surrendered for exchange is registered, it shall be a condition of such exchange that the certificate(s) so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the holder of Intellocity Common Stock and/or Intellocity Preferred Stock requesting such exchange shall pay to ACTV, any transfer or other taxes required by reason of the issuance of certificate for such shares of ACTV Common Stock in a name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of ACTV that such tax has been paid or is not applicable. 7 (e) CANCELLATION OF CERTIFICATES. All certificates representing shares of Intellocity Common Stock and Intellocity Preferred Stock converted into shares of ACTV Common Stock pursuant to this Article 3 shall be canceled upon delivery thereof to ACTV pursuant to this Agreement. (f) CLOSING OF TRANSFER BOOKS. On the Effective Date, the stock transfer book of Intellocity shall be deemed to be closed and no transfer of shares of Intellocity Common Stock and Intellocity Preferred Stock shall thereafter be recorded thereon. (g) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any certificates evidencing Intellocity Common Stock or Intellocity Preferred Stock shall have been lost, stolen or destroyed, ACTV shall issue and pay in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, certificates representing the shares of ACTV Common Stock into which the shares of Intellocity Common Stock or Intellocity Preferred Stock represented by such certificates were converted pursuant to Article 2(a), cash for fractional shares, if any, as may be required pursuant to Article 3(c) and any dividends or distributions payable pursuant to Article 3(a). Such a holder will be required to indemnify and agree to hold harmless the exchange agent and ACTV for any and all damages, liabilities, losses, costs or expenses incurred or sustained by the exchange agent or ACTV in connection with the issuance of certificates pursuant to this Article 4(g). (h) TAX CONSEQUENCES. It is intended by the Parties hereto that the transactions contemplated by this Agreement shall constitute a "reorganization" within the meaning of Section 368(a)(2)(C) of the Code. The Parties hereto adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. (i) ACCOUNTING CONSEQUENCES. It is intended by the parties hereto that the Merger qualify as a purchase for accounting purposes. ARTICLE 4 ESCROW OF SHARES OF ACTV COMMON STOCK (a) ESCROW. Upon the Closing Date, ACTV on behalf of each holder of Intellocity Common Stock and Intellocity Preferred Stock (collectively, the "Intellocity Stockholders") will deposit each Holder's pro rata share (based on the number of Merger Shares and vested and exerciseable Outstanding Options held by such Holder as a percentage of the Aggregate Outstanding Shares and Vested Options) of one million four hundred ninety thousand eight hundred (1,490,800) shares of ACTV Common Stock (the "Escrow Shares") as set forth on EXHIBIT 6 attached hereto with Gersten, Savage & Kaplowitz, LLP (the "Escrow Agent"), pursuant to the terms of an Escrow Agreement substantially in the form of EXHIBIT 8 attached hereto. Each Intellocity Stockholder shall be entitled to vote such Holder's portion of the issued Escrow Shares during the time period such Escrow Shares are subject to the Escrow Agreement. As set forth below, the Escrow Agent shall release the Escrow Shares from escrow and distribute the Escrow Shares to the Intellocity Stockholders on a pro rata basis in accordance with the number of Escrow Shares deposited on behalf of each Intellocity Stockholder or holder of 8 Outstanding Options, as the case may be (an "Escrow Payment"), based upon USA's 2001 EBITDA (as defined in EXHIBIT 9 hereto) as set forth below:

(b) ESCROW MECHANICS. ACTV and its affiliates, including USA, shall maintain separate records of account upon which all transactions involving Intellocity's or USA's products and services will be entered and shall prepare quarterly and annual financial statements of ACTV and affiliates, including USA. Within sixty (60) days of the end of calendar year 2001 or as soon as reasonably practicable thereafter, Joel Hassell (or another Intellocity Stockholder then employed by USA and designated by a majority in interest of the Intellocity Stockholders (the "Stockholder Agent")) and Deloitte & Touche LLP shall prepare and deliver to ACTV a schedule detailing the calculation of USA's 2001 EBITDA for such calendar year, the calculation of the Escrow Payments in respect thereof, and a copy of the financial statements of USA for such period (an "Escrow Statement"). The Escrow Statement and the underlying financial statements shall be prepared in accordance with GAAP. Notwithstanding anything contained herein, the targets for USA's 2001 EBITDA to be used to determine eligibility for the amount of Escrow Payments as set forth above have been established, in part, by utilizing forecasts prepared by Intellocity which contain certain assumptions based on Intellocity's historical expenses and costs. These forecasts do not anticipate the imposition by ACTV of additional expenses and costs to USA in the form of intercompany charges which are materially inconsistent with those historical expenses and costs. The Parties agree that any such intercompany charges shall be determined by mutual agreement. In the event that ACTV agrees with the determination of the Escrow Payments payable or does not object to the determination set forth in the Escrow Statement within thirty (30) days after receipt of the Escrow Statement, the Escrow Agent shall distribute the Escrow Payment as soon as practicable. In the event ACTV shall disagree in any respect with the determination of the Escrow Payments payable, ACTV shall notify the Stockholder Agent within thirty (30) days after receipt of the Escrow Statement specifying the areas of disagreement. In the event of disagreement, ACTV shall pay out any agreed number of Escrow Shares as soon as reasonably practicable. If ACTV and the Stockholder Agent are unable to resolve all such disagreements within thirty (30) days after such notice by ACTV, then the dispute shall be resolved by a mutually agreed upon "Big Five" accounting firm which has not been retained in the past five (5) years by ACTV, Intellocity, USA or any entity that is an Intellocity Stockholder (the "Independent Accounting Firm"). The determination of the Independent Accounting Firm shall be in accordance with the provisions hereof and shall be made as promptly as practicable but in any event within sixty (60) days after the submission thereto and shall be binding and conclusive on the Parties hereto. All expenses relating to the engagement of the Independent Accounting 9 Firm shall be borne by ACTV. The Escrow Agent shall release any supplemental Escrow Shares determined to be payable as a result of the audit within ten (10) business days after such additional Escrow Shares are conclusively determined pursuant to this Article 4. In order to give effect to this Article 4, the product and service lines of USA shall not be integrated with the product and service lines of ACTV prior to December 31, 2001. If there is a merger of USA with ACTV or an affiliate of ACTV prior to December 31, 2001, the operations of USA shall be maintained in a manner sufficiently separate to enable the calculation of amounts due under this Article 4. In the event that ACTV either (i) merges or consolidates USA with a corporation other than ACTV or an affiliate of ACTV, other than a transaction the principal purpose of which is to change USA's state of incorporation or (ii) sells, transfers or engages in another disposition of all of the stock of USA or all or substantially all of the assets of USA, ACTV shall pay to the Intellocity Stockholders the maximum Escrow Payments set forth above if such merger, consolidation, sale, transfer or other disposition is effective or closed prior to the last day of the period for which USA's 2001 EBITDA is calculated. (c) COVENANT OF GOOD FAITH. ACTV agrees to use commercially reasonable efforts, and to cause its officers and employees to use commercially reasonable efforts, to provide to USA sufficient authority and autonomy and otherwise act in good faith toward USA with respect to the escrow targets provided above. (d) ALTERNATIVE DISPUTE RESOLUTION PROCEDURES; EFFECT OF BREACH. Any disputes relating to the covenant contained in Article 4(c) shall be settled by the Parties and the Holders through the alternative dispute resolution procedures set forth below. If it is determined, based on the agreed upon such alternative dispute resolution procedures, that ACTV is in breach of the foregoing covenant, ACTV and the Arbitrator (as defined below) shall cause the Escrow Agent to immediately distribute all of the Escrow Shares to the Holders. Any dispute, claim or controversy of whatever nature arising out of or relating to the covenant contained in Article 4(c), including, without limitation, any action or claim concerning the interpretation, effect, termination, validity, performance and/or breach of Article 4(c), shall be resolved by final and binding arbitration before a single arbitrator ("Arbitrator") selected from and administered by the New York, New York office of JAMS/Endispute ("JAMS"), in accordance with JAMS's then existing Rules of Practice and Procedure. The arbitration hearing shall be held in New York, New York. The Arbitrator shall, within fifteen (15) calendar days after the conclusion of the Arbitration hearing, issue a written award and a written statement of decision describing the reasons for the award. The Arbitrator (i) shall be required to award specific performance with respect to the release of the Escrow Shares by the Escrow Agent, (ii) shall have the authority to award other damages that the Arbitrator deems appropriate in his/her sole discretion, and (iii) shall not have the authority to reform, modify or materially change this Agreement or other agreements entered into between the parties. The parties shall bear equally the costs and fees of JAMS and the Arbitrator; however, the Arbitrator, in his or her sole discretion, shall be authorized to determine whether a party is the prevailing party and, if so, to award to that prevailing party reimbursement for its reasonable attorneys' fees, disbursements (including, for example, expert witness fees and expenses, photocopy charges, travel expenses, etc.), and costs 10 arising from the arbitration. The Arbitrator, and not a court, shall also be authorized to determine whether the provisions of this Article apply to a dispute, controversy or claim sought to be resolved in accordance with these arbitration procedures. ARTICLE 5 DELIVERIES BY THE PARTIES; CERTAIN DEFINITIONS (a) DELIVERIES BY THE PARTIES. It shall be a condition to the obligations of ACTV to close that, at the Closing, Intellocity shall have delivered or caused to be delivered to ACTV the closing documents referenced in Article 9(b) herein. It shall be a condition to the obligations of Intellocity to close that, at the Closing, ACTV shall have delivered or caused to be delivered to Intellocity the closing documents referenced in Article 9(c) herein. (b) FURTHER ASSURANCES. At or after the Closing, Intellocity and ACTV shall prepare, execute, and deliver such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action, as any Party shall reasonably request of any other Party at any time or from time to time in order to consummate, in any other manner, the terms and provisions of this Agreement. (c) CERTAIN DEFINED TERMS. In this Agreement: (i) Any reference to any event, change, condition or effect being "material" with respect to any entity or group of entities means any event, change, condition or effect that is or would be material to the financial condition, business or results of operations of such entity or group of entities taken as a whole. Any agreement, instrument, lease, note, debenture, indenture, action, proceeding, inquiry or investigation shall be deemed to be material if disclosure thereof would be required pursuant to the Securities Act. (ii) Any reference to a "Material Adverse Effect" with respect to any entity or group of entities shall mean any event, change or effect that has or would have a materially adverse effect on the financial condition, business or results of operations of such entity or group of entities, taken as a whole. (iii) Any reference to a Party's "knowledge" means the actual knowledge of such Party's executive officers. (iv) Any reference to "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means: (A) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll employment, excise, severance, stamp, occupation, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever together with any interest or any penalty, addition to tax or additional amount imposed by any governmental entity (a "Tax Authority") responsible for the imposition of any such tax (domestic or foreign), and 11 (B) any liability for the payment of any amounts of the type described in clause (A) of this Article 5(c)(iv) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period, and (C) any liability for the payment of any amounts of the type described in clauses (A) or (B) of this Article 5(c)(iv) as a result of any express or implied obligation to indemnify any other person. (D) "Tax Return" shall mean any return, statement, report or form, including, without limitation, estimated Tax Returns and reports, withholding Tax Returns and reports and information reports and returns required to be filed with respect to Taxes. ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF INTELLOCITY Except as set forth in the Schedules to this Agreement, disclosure in any one of which shall apply to any and all representations and warranties made in this Agreement, and except as otherwise disclosed in writing to ACTV, Intellocity hereby represents and warrants to ACTV as follows: (a) ORGANIZATION, STANDING, AND POWER. Intellocity is a company duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands and has corporate power and authority to conduct its business as presently conducted by it and to enter into and perform this Agreement and to carry out the transactions contemplated by this Agreement. Intellocity is duly qualified to do business as a foreign corporation doing business in each state in which it owns or leases real property and where the failure to be so qualified and in good standing would have a Material Adverse Effect on Intellocity or its business. Other than Intellocity's ownership of one hundred percent (100%) of the issued and outstanding common stock of USA, Intellocity does not have any ownership interest in any corporation, partnership (general or limited), limited liability company or other entity, whether foreign or domestic (collectively such ownership interests including capital stock). USA is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has corporate power and authority to conduct its business as presently conducted by it. USA is duly qualified to do business as a foreign corporation doing business in the each state in which it owns or leases real property and where the failure to be so qualified and in good standing would have a Material Adverse Effect. (b) CAPITALIZATION. The authorized capital stock of Intellocity consists of one hundred million (100,000,000) shares of Intellocity Common Stock and one million eight hundred seventy five thousand (1,875,000) shares of Intellocity Preferred Stock. As of the date of this Agreement, there were nine million nine hundred seventy thousand (9,970,000) issued and outstanding shares of Intellocity Common Stock, no shares of Intellocity Common Stock held as treasury shares and one million eight hundred seventy five thousand (1,875,000) issued and outstanding shares of Intellocity Preferred Stock. Except for (i) four million three hundred thousand (4,300,000) shares of Intellocity Common Stock reserved for issuance upon exercise of options available for grant under Intellocity's and USA's stock options plans and non-plan stock option agreements (of which options to purchase an aggregate of four million ninety-six 12 thousand (4,096,000) shares of Intellocity Common Stock have been granted and are outstanding as of the date of this Agreement), and (ii) one million eight hundred seventy five thousand (1,875,000) shares of Intellocity Common Stock reserved for issuance upon the conversion of the Intellocity Preferred Stock, no shares of capital stock have been reserved for issuance to any person, and there are no other outstanding rights, warrants, options or agreements for the purchase of capital stock from Intellocity except as provided in this Agreement. Except as provided in Intellocity's Memorandum and Articles of Association and the Amended and Restated Stockholders Agreement dated as of June 29, 2000 (the "Intellocity Stockholders Agreement"), which agreement shall be terminated in connection with the consummation of the Merger, no person is entitled to any rights with respect to the issuance or transfer of the capital stock of Intellocity. The outstanding shares of Intellocity Common Stock are validly issued, fully paid, non-assessable, and have been issued in compliance with all state and Federal securities laws or other applicable law. The authorized capital stock of USA consists of one thousand (1,000) shares of common stock, $.01 par value per share ("USA Common Stock"), one hundred (100) of which are issued and outstanding and owned by Intellocity. There are no shares of capital stock reserved for issuance to any person, and there are no other outstanding rights, warrants, options or agreements for the purchase of capital stock from USA except as provided in this Agreement. The outstanding shares of USA Common Stock are validly issued, fully paid, non-assessable, and have been issued in compliance with all state and Federal securities laws. (c) AUTHORITY FOR AGREEMENT. The execution, delivery, and performance of this Agreement by Intellocity has been duly authorized by all necessary corporate action, except for the approval of Intellocity's stockholders, and this Agreement, upon its execution by the Parties, will constitute the valid and binding obligation of Intellocity enforceable against it in accordance with and subject to its terms, except as enforceability may be affected by bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors' rights. Except as set forth above or in SCHEDULE 6(c) attached hereto, the execution and consummation of the transactions contemplated by this Agreement and compliance with its provisions by Intellocity will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, Intellocity's and USA's Memorandum and Articles of Association, Certificate of Incorporation, or By-Laws, as the case may be and in each case as amended, or, in any material respect, any indenture, lease, loan agreement or other agreement or instrument to which Intellocity or USA is a party or by which they or any of their properties are bound, or any decree, judgment, order, statute, rule or regulation applicable to Intellocity or USA except to the extent that any breach or violation of any of the foregoing would not constitute or result in a Material Adverse Effect on Intellocity and USA taken as a whole. (d) GOVERNMENTAL CONSENT. Except as may be required by the Securities Act and state securities commissions or as otherwise expressly provided in this Agreement, no material consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of Intellocity in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated by this Agreement. 13 (e) FINANCIAL STATEMENTS. (i) Intellocity has furnished to ACTV a true, correct and complete copy of Intellocity's and USA's unaudited balance sheet and accompanying income statement and statement of cash flow (on a consolidated basis) prepared on a monthly basis for January 2001 and Intellocity's and USA's unaudited balance sheets and the accompanying income statements and statements of cash flow (on a consolidated basis) for the fiscal years ended December 31, 2000 and December 31, 1999 respectively (collectively the "Intellocity Unaudited Financial Statements"). Except as set forth in SCHEDULE 6(e) attached hereto and/or as otherwise disclosed in writing to ACTV, the Intellocity Unaudited Financial Statements fairly present, in all material respects, the financial condition of Intellocity and the results of its operations and cash flows as of the dates thereof, and have been prepared in accordance with GAAP consistently applied, except such unaudited statements do not include footnotes in substance or form required by GAAP and except that the unaudited interim statements were or are subject to normal adjustments which were not or are not expected to be material in amount. (ii) To the knowledge of Intellocity, except as disclosed in the Intellocity Unaudited Financial Statements, there has been no event which would have a Material Adverse Effect on the financial condition, operations or business of Intellocity or USA since December 31, 2000. (iii) Except as set forth in SCHEDULE 6(e) attached hereto or as otherwise disclosed in the Intellocity Unaudited Financial Statements, Intellocity and USA (on a consolidated basis) do not have any material liabilities, contingent or otherwise, material liability for taxes, or material commitments extending for over five (5) years and requiring the material expenditure of more than the amount of liabilities set forth in the Intellocity Unaudited Financial Statements. (f) LITIGATION. Except as set forth in SCHEDULE 6(f) attached hereto and/or as otherwise disclosed in writing to ACTV, Intellocity has not received notice of any material action, suit or proceeding, or governmental inquiry or investigation, pending or threatened against Intellocity or USA, which, if adversely determined, would have a Material Adverse Effect upon Intellocity and USA taken as a whole. (g) INTERESTED PARTY TRANSACTIONS. Except as set forth in SCHEDULE 6(g) attached hereto and/or as otherwise disclosed in writing to ACTV, neither Intellocity nor USA is indebted to any officer or director of Intellocity or USA (except for compensation and reimbursement of expenses incurred in the ordinary course of business), and no such person is indebted to Intellocity or USA, except in each case as disclosed or reflected in the Intellocity Unaudited Financial Statements. (h) TITLE TO PROPERTIES; LIENS. Neither Intellocity nor USA owns any real property. To the knowledge of Intellocity and USA, all of the assets of Intellocity and USA, except those disposed of or licensed in the ordinary course of business, are free and clear of all liens (for the purposes of this section, "liens" do not include licenses granted by Intellocity and USA to third parties relating to the intellectual property owned or used by Intellocity and USA), security interests, charges and encumbrances, except (i) as disclosed on the Intellocity Unaudited 14 Financial Statements, (ii) liens for current taxes not yet due and payable, (iii) liens in favor of any lessor with respect to material capital lease obligations disclosed in SCHEDULE 6(h) attached hereto, (iv) such imperfections of title or zoning restrictions, easements or encumbrances, if any, as do not materially interfere with the present use of such property or assets, (vi) liens which arise by operation of law; (vii) liens relating to USA's line of credit with FirstBank of Denver (the "Bank Line"); and (viii) liens granted to ACTV relating to intellectual property owned by Intellocity and USA. (i) MATERIAL CONTRACTS. Except for: (i) contracts with clients and other contracts executed by Intellocity and/or USA in the ordinary course of business; (ii) employment agreements with officers; and (iii) other material contracts which are listed on SCHEDULE 6(i)(a) attached hereto, neither Intellocity nor USA is a party to or bound by any material indenture, lease, license, loan agreement, other agreement or other instrument (collectively, the "Material Contracts"). Except as disclosed on SCHEDULE 6(i)(b) all of Intellocity's and USA's Material Contracts are, to Intellocity's knowledge, enforceable in accordance with their respective terms, and to the knowledge of Intellocity, neither Intellocity nor USA is in violation of, and nor has either has received notice of being in violation of, such Material Contracts. (j) COMPLIANCE. Neither Intellocity nor USA is in violation of any material term or provision of their Memorandum and Articles of Association, Certificate of Incorporation or By-Laws, as the case may be and in each case as amended, or any material term of any instrument, indenture, loan agreement, judgment, decree, order, statute, rule or regulation applicable to either of them where, to the knowledge of Intellocity, the failure of compliance would have a Material Adverse Effect upon Intellocity and USA taken as a whole. To the knowledge of Intellocity, Intellocity and USA has complied in all material respects with all laws and regulations applicable to their businesses, except as otherwise disclosed in writing to ACTV. (k) LABOR RELATIONS. Neither Intellocity nor USA is a party to any collective bargaining agreement and, to Intellocity's knowledge, no organizational efforts are presently being made with respect to any of their employees. To the knowledge of Intellocity, Intellocity and USA have complied in all material respects with all applicable laws (including, but not limited to, the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and regulations relating to employment matters including, but not limited to, those relating to wages, hours, discrimination and payment of social security and similar taxes. Neither Intellocity nor USA has any unfunded liabilities relating to an Intellocity or USA 401(k) program. (l) TAX RETURNS AND PAYMENT. Except as set forth on SCHEDULE 6(l), Intellocity and USA have filed all material Tax Returns required to be filed by them and have paid all Taxes shown thereon to be due, except as reflected in the Intellocity Unaudited Financial Statements and except for Taxes being contested in good faith. Except as disclosed in the Intellocity Unaudited Financial Statements, there is no material claim for Taxes that is a lien against the property of Intellocity or USA other than liens for taxes not yet due and payable. Except as set forth on SCHEDULE 6(l), neither Intellocity nor USA has received written notification of any audit of any Tax Return of Intellocity or USA being conducted or pending by a Tax Authority where an adverse determination would have a Material Adverse Effect on Intellocity and USA taken as a whole, no extension or waiver of the statute of limitations on the assessment of any taxes has been granted by Intellocity or USA which is currently in effect, and neither Intellocity nor USA 15 is a party to any written agreement with any Tax Authority, which to Intellocity's knowledge, may result in the payment of any material amount in excess of the accrual and reserve for taxes reflected on the Intellocity Unaudited Financial Statements. (m) INTELLECTUAL PROPERTY. To the knowledge of Intellocity and USA, Intellocity and USA have title to all material patents, trademarks or trade secrets, or adequate licenses and rights to use all material patents, trademarks, copyrights, trade names and trade secrets of others, necessary to the conduct of their businesses. Except as set forth in SCHEDULE 6(f), the businesses of Intellocity and USA are being carried on without knowledge of any material conflicts with patents, licenses, trademarks, copyrights, trade names and trade secrets of others and, except as set forth on SCHEDULE 6(f), to Intellocity's knowledge, no other persons are conducting their businesses in conflict with the material patents, licenses, trademarks, domain names, copyrights, trade names and trade secrets used by Intellocity or USA. (n) ENVIRONMENTAL MATTERS. To the knowledge of Intellocity: (i) Intellocity and USA have obtained all material permits and licenses which are required in connection with their businesses under all applicable laws and regulations relating to pollution or protection of the environment (the "Environmental Laws") and are in material compliance therewith; (ii) Intellocity and USA have at all times conducted their businesses in material compliance with all Environmental Laws and neither Intellocity nor USA have received any written notice of any past, present or future events, conditions or circumstances, which would interfere with or prevent material compliance or continued material compliance with any Environmental Laws or which form the basis of any material claim, demand or investigation, based on or related to Intellocity's and USA businesses or other activities; (iii) there is no civil, criminal or administrative action or proceeding pending or threatened against Intellocity or USA, arising under any Environmental Laws; and (iv) there does not exist, and at no time since Intellocity and/or USA acquired any premises leased or used by them, has there existed any conditions that Intellocity believes would require remediation by Intellocity or USA under any Environmental Laws. (o) OPERATION SINCE THE BALANCE SHEET DATE. Since December 31, 2000, except as contemplated by this Agreement or in the Intellocity Unaudited Financial Statements, Intellocity and USA: (i) have operated their businesses substantially as they were operated prior to that date and only in the ordinary course; (ii) have not declared or otherwise become liable with respect to any dividend or distribution of cash, assets or capital stock, except for the issuance of shares of Intellocity Common Stock upon exercise of stock options; (iii) have maintained or kept current their books, accounts, records, payroll, and filings in the usual and ordinary course of business, consistent in all material respects with past practice; and (iv) have not made any capital expenditure, commitment or investment other than in the ordinary course of business. 16 (p) EMPLOYMENT AGREEMENTS. SCHEDULE 6(p) attached hereto lists each employment agreement between Intellocity and/or USA and any director, officer or employee of Intellocity and/or USA and copies of all such agreements have been provided to ACTV prior to the date hereof. Except as provided in such employment agreements, all other employees of Intellocity or USA are terminable at will without expense or liability to Intellocity or USA other than as may be set forth in said SCHEDULE 6(p) attached hereto or as otherwise provided by law. (q) WARRANTY CLAIMS. To Intellocity's knowledge and except as set forth in SCHEDULE 6(q) attached hereto, there are no pending or threatened material claims against Intellocity or USA for any work performed by Intellocity or USA for any client, including but not limited to, any services rendered under any warranties. (r) BROKERS' AND FINDERS' FEES. Intellocity has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby, except pursuant to: (i) that certain engagement letter by and between Intellocity and Allen & Company Incorporated ("Allen") dated October 31, 2000, and (ii) that certain Commission Agreement by and between Intellocity and David Rudnick, dated as of February 29, 2000 and amended as of June 12, 2000. (s) BOARD APPROVAL. The Board of Directors of Intellocity has approved this Agreement and the transactions contemplated hereby. (t) FULL DISCLOSURE. The Intellocity Unaudited Financial Statements and the representations and warranties of Intellocity contained in Article 6 of this Agreement, taken together, do not contain any untrue statement of a material fact, or omit to state a material fact required to be stated herein or therein or necessary to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading. ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF ACTV Except as set forth in the Schedules to this Agreement, disclosure in any one of which shall apply to any and all representations and warranties made in this Agreement, and except as otherwise disclosed in writing to Intellocity, ACTV hereby represents and warrants to Intellocity as follows: (a) ORGANIZATION, STANDING, AND POWER. ACTV is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and ACTV has full corporate power and authority to conduct its business as presently conducted by it and to enter into and perform this Agreement and to carry out the transactions contemplated by this Agreement. ACTV is duly qualified to do business as a foreign corporation doing business in each state in which it owns or leases real property and where the failure to be so qualified and in good standing would have a Material Adverse Effect. ACTV is duly organized, validly existing and in good standing under the laws of the State of Delaware. ACTV has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified to conduct business and is in good standing in each jurisdiction in which it owns or leases real 17 property and where the failure to be so qualified and in good standing would have a Material Adverse Effect. (b) CAPITALIZATION. The authorized capital stock of ACTV consists of two hundred million (200,000,000) shares of ACTV Common Stock and one million (1,000,000) shares of blank-check preferred stock, $.10 par value per share ("ACTV Preferred Stock"). As of February 26, 2001, there were fifty one million two hundred twenty eight thousand one hundred and fifty four (51,228,154) issued and outstanding shares of ACTV Common Stock and no issued and outstanding shares of ACTV Preferred Stock. Except for nineteen million five hundred twenty seven thousand four hundred and sixty eight (19,527,468) shares of ACTV Common Stock reserved for issuance, consisting of six million two hundred ninety four thousand four hundred and eighty nine (6,294,489) shares of ACTV Common Stock reserved for issuance upon exercise of options available for grant under stock option plans, and thirteen million two hundred thirty two thousand nine hundred and seventy nine (13,232,979) shares of ACTV Common Stock reserved for issuance upon exercise of non-plan options, no shares of capital stock of ACTV have been reserved for issuance to any person, and as of February 26, 2001, there are no other outstanding rights, warrants, options or agreements for the purchase of capital stock from ACTV except as provided in this Agreement. No person is entitled to any preemptive or similar right with respect to the issuance of any capital stock of ACTV. The outstanding shares of ACTV Common Stock are validly issued, fully paid, non-assessable, and have been issued in compliance with all state and Federal securities laws. (c) AUTHORITY FOR AGREEMENT. The execution, delivery and performance of this Agreement by ACTV has been duly authorized by all necessary corporate action, and this Agreement constitutes a valid and binding obligation of ACTV enforceable against it in accordance with its terms, except as enforceability may be affected by bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors' rights. The execution and consummation of the transactions contemplated by this Agreement and compliance with its provisions by ACTV will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, its Certificate of Incorporation or By-Laws or, in any material respect, any indenture, lease, loan agreement or other agreement instrument to which ACTV is a party or by which it or any of its properties are bound, or any decree, judgment, order, statute, rule or regulation applicable to ACTV except to the extent that any breach or violation of any of the foregoing would not constitute or result in a Material Adverse Effect. (d) ISSUANCE OF ACTV COMMON STOCK. The shares of ACTV Common Stock issuable to (i) the holders of the issued and outstanding shares of Intellocity Common Stock, (ii) the holders of the issued and outstanding shares of Intellocity Preferred Stock, and (iii) the holders of the Outstanding Options, upon the proper exercise of such Outstanding Options, have been duly authorized and reserved for issuance, and, when issued pursuant to this Agreement, or as applicable, upon the exercise of an Outstanding Option, will be duly and validly authorized and issued, fully paid and non-assessable. (e) GOVERNMENTAL CONSENT. Except as required by the Securities Act and state securities commissions or as otherwise expressly provided in this Agreement, no material consent, approval, order or authorization of, or registration, qualification, designation, 18 declaration or filing with, any governmental authority is required on the part of ACTV in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby. (f) COMPLIANCE. ACTV is not in violation of any material term or provision of its Certificate of Incorporation or By-Laws, or of any material term of any instrument, indenture, loan agreement, other agreement, judgment, decree, order, statute, rule or regulation applicable to ACTV where, to the knowledge of ACTV, the failure of compliance would have a Material Adverse Effect. To the knowledge of ACTV, ACTV has complied in all material respects with all laws and regulations applicable to its business, except as otherwise disclosed in writing to Intellocity. (g) BROKERS' AND FINDERS' FEES. ACTV has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement. (h) BOARD APPROVAL. The Board of Directors of ACTV has approved this Agreement and the transactions contemplated hereby. (i) STOCKHOLDER APPROVAL. No approval of ACTV's stockholders is required under applicable law, rule or regulation, including, without limitation, the rules and regulations of the NASD and the Nasdaq National Market. (j) SEC FILINGS; FINANCIAL STATEMENTS. (i) ACTV has made available to Company (through reference to documents filed with the Securities Exchange Commission ("SEC") by EDGAR or otherwise) a correct and complete copy of each report, schedule, registration statement and definitive proxy statement filed by ACTV with the SEC since December 31, 1997 (the "ACTV SEC Reports"), which are all the forms, reports and documents (other than preliminary material) required to be filed by ACTV with the SEC since December 31, 1997. With the exception of any Forms 3, 4, and 5 and any Schedule 13D filed by ACTV on behalf of ACTV's stockholders, ACTV's SEC Reports (A) were prepared in compliance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (B) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of ACTV's subsidiaries is required to file any reports or other documents with the SEC. (ii) Each set of consolidated financial statements (including, in each case, any related notes thereto) contained in the ACTV SEC Reports was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and except that unaudited statements do not contain footnotes in substance or form required by GAAP, as is permitted by Form 10-Q of the Exchange Act) and each fairly presents the consolidated financial position of ACTV and its subsidiaries at the respective dates thereof and the consolidated results of their operations and cash flows for the periods indicated, 19 except that the unaudited interim financial statements were or are subject to normal adjustments which were not or are not expected to be material in amount. (k) NO UNDISCLOSED LIABILITIES. Neither ACTV nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of ACTV and its subsidiaries taken as a whole, except (i) liabilities disclosed or provided for in ACTV's unaudited financial statements and related notes thereto as of and for the nine-month period ended September 30, 2000 as set forth in the ACTV SEC Reports or in the related notes or (ii) liabilities incurred since September 30, 2000 in the ordinary course of business. (l) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2000, there has not been any: (i) Material Adverse Effect on ACTV, (ii) declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of ACTV's or any of its subsidiaries' capital stock, or any purchase, redemption or other acquisition by ACTV of any of ACTV's capital stock or any other securities of ACTV or its subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities except for repurchases from employees following their termination pursuant to the terms of their pre-existing stock option or purchase agreements, (iii) split, combination or reclassification of any of ACTV's or any of its subsidiaries' capital stock, (iv) material change by ACTV in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, (v) material revaluation by ACTV of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable, or (vi) any sale of assets of ACTV other than in the ordinary course of business. (m) ABSENCE OF LITIGATION. As of the date hereof, there are no claims, suits, actions or proceedings that have a reasonable likelihood of success on the merits pending or, to the knowledge of ACTV, threatened against, relating to or affecting ACTV or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that seek to restrain or enjoin the consummation of the transactions contemplated by this Agreement or that could otherwise reasonably be expected to have a Material Adverse Effect on ACTV. (n) TAXES. Each of ACTV and its subsidiaries has filed all Tax returns required to be filed by each of them (except such Tax returns that are not, individually or in the aggregate, material to them, taken as a whole) and has paid (or ACTV has paid on behalf of its subsidiaries), or has established an adequate reserve for the payment of, all Taxes required to be paid with respect to such Tax Returns, whether or not shown to be due thereon. (o) FULL DISCLOSURE. The representations and warranties of ACTV contained in this Article 7, taken together, do not contain any untrue statement of a material fact, or omit to state a material fact required to be stated herein or therein or necessary to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading. 20 ARTICLE 8 REGISTRATION STATEMENTS FILING OF REGISTRATION STATEMENTS. As soon as practicable after the Closing Date, ACTV will use commercially reasonable efforts to cause to be prepared, and filed with and declared effective by, the SEC a registration statement, in accordance with the terms of the Registration Rights Agreement which is attached hereto as EXHIBIT 10 (the "Registration Statement"), covering the shares of Initial ACTV Common Stock, the shares of ACTV Common Stock to be issued in connection with the exercise of options into which the Outstanding Options shall have been converted (except those to be registered on Form S-8 as set forth below), and the shares of Remaining ACTV Common Stock and Escrowed Shares issued to each of the Intellocity Stockholders who after the consummation of the Merger is deemed to be an "Affiliate" of ACTV, as such term is defined in Rule 144 of the Securities Act. ACTV agrees to bear all reasonable costs of the preparation, filing and maintenance of the effectiveness of the Registration Statement. In addition to and notwithstanding the forgoing, within thirty (30) calendar days after the Closing, ACTV shall file a registration statement on Form S-8 with respect to shares of ACTV Common Stock subject to options into which the Outstanding Options shall have been converted (provided that such registration statement shall not cover those options for which such form is unavailable) and shall use commercially reasonable efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus contained therein) for so long as such options remain outstanding. ARTICLE 9 CONDITIONS TO CLOSING (a) CONDITIONS PRECEDENT TO INTELLOCITY'S AND ACTV'S OBLIGATIONS. The obligations of Intellocity and ACTV as provided herein shall be subject to each of the following conditions precedent, unless waived by both Intellocity and ACTV: (i) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have received the approval of the Intellocity Stockholders. (ii) ABSENCE OF CERTAIN LITIGATION. No action or proceeding shall be threatened or pending before any governmental entity or authority which, in the reasonable opinion of counsel for Intellocity or ACTV, is likely to result in a court order restraining or prohibiting the consummation of the Merger. (iii) REGULATORY APPROVALS. All regulatory approvals or filings necessary to consummate the Merger shall have been made as of the Closing Date. (b) CONDITIONS PRECEDENT TO ACTV'S OBLIGATIONS. The obligations of ACTV as provided herein shall be subject to each of the following conditions precedent, unless waived by ACTV: (i) CONSENTS AND APPROVALS. Intellocity shall have obtained all material consents, including any material consents and waivers by Intellocity's and USA's respective lenders and other third-parties, if necessary, to the consummation of the transactions contemplated by this Agreement. 21 (ii) REPRESENTATIONS AND WARRANTIES. The representations and warranties by Intellocity in Article 6 herein shall be true and accurate in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made at and as of the Closing Date, except to the extent that any changes therein are specifically contemplated by this Agreement. (iii) PERFORMANCE. Intellocity shall have performed and complied in all material respects with all agreements to be performed or complied with by it pursuant to this Agreement prior to or at the Closing. (iv) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to ACTV and its counsel, and ACTV and its counsel shall have received all such counterpart originals (or certified or other copies) of such documents as they may reasonably request. (v) OPINION OF INTELLOCITY'S COUNSEL. ACTV shall have received from counsel of Intellocity, an opinion, dated the Closing Date, in the form as forth in EXHIBIT 11 to this Agreement (vi) ASSIGNMENTS. Intellocity shall have obtained all required written consents to assignment of the licenses, contracts, patents and patent applications listed on SCHEDULE 9(B)(VI) attached hereto assigning such licenses, contracts, patents and patent applications to ACTV in connection with the Merger. (vii) TERMINATION OF INTELLOCITY STOCKHOLDERS' AGREEMENT. The Intellocity Stockholders Agreement shall have been terminated on or prior to the Closing Date. (viii) EMPLOYMENT AGREEMENTS. ACTV and/or USA shall have entered into employment agreements with those individuals listed on SCHEDULE 9(B)(VIII) attached hereto, on terms and in a form which will be reasonably satisfactory to ACTV, which employment agreements shall specifically include the terms and conditions on EXHIBIT 12 attached hereto. (ix) CERTIFICATES OF GOOD STANDING. Intellocity shall have delivered to ACTV a certificate as to the good standing of Intellocity in the British Virgin Islands certified by the Registrar of Companies on or within two (2) business days of the Closing Date. In addition, Intellocity shall have delivered to ACTV a certificate as to the good standing of USA in the State of Delaware certified by the Secretary of State of the State of Delaware on or within two (2) business days of the Closing Date. (x) MATERIAL CHANGES. Except as contemplated by this Agreement, since the date hereof, Intellocity and USA, taken as a whole, shall not have suffered a Material Adverse Effect. (xi) COMPLIANCE CERTIFICATE. Intellocity shall have delivered to ACTV the certificate of its President, Chief Executive Officer or Chief Financial Officer as to the matters set forth in Articles 6(a), (b) and (c) of this Agreement. 22 (xii) TAX OPINION. ACTV shall have obtained an opinion of Gersten, Savage & Kaplowitz, LLP, or another national law firm or accounting firm mutually acceptable to the Parties, in the form and in the substance substantially identical to the opinion of Cooley Godward LLP that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. (c) CONDITIONS PRECEDENT TO INTELLOCITY'S OBLIGATIONS. The obligation of Intellocity on the Closing Date as provided herein shall be subject to the satisfaction, on or prior to the Closing Date, of the following conditions precedent, unless waived by Intellocity: (i) CONSENTS AND APPROVALS. ACTV shall have obtained the consent and approval of its Board of Directors and, if required, stockholders, and all material consents, including any material consents and waivers by the Parties' respective lenders and other third-parties, if necessary, to the consummation of the transactions contemplated by this Agreement. (ii) REPRESENTATIONS AND WARRANTIES. The representations and warranties by ACTV in Article 7 herein shall be true and accurate in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made at and as of the Closing Date, except to the extent that any changes therein are specifically contemplated by this Agreement. (iii) PERFORMANCE. ACTV shall have performed and complied in all material respects with all agreements to be performed or complied with by them pursuant to this Agreement prior to or at the Closing. (iv) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to Intellocity and its counsel, and Intellocity and its counsel shall have received all such counterpart originals (or certified or other copies) of such documents as they may reasonably request. (v) OPINION OF ACTV'S COUNSEL. Intellocity shall have received from counsel of ACTV, an opinion, dated the Closing Date, in the form as set forth in EXHIBIT 13 to this Agreement. (vi) CERTIFICATE OF GOOD STANDING. ACTV shall have delivered to Intellocity a certificate as to the good standing of ACTV in the Sate of Delaware certified by the Secretary of State of the State of Delaware on or within two (2) business days of the Closing Date. (vii) REGISTRATION RIGHTS AGREEMENT. ACTV, the Intellocity Stockholders and holders of options to acquire Intellocity Common Stock who are not salaried employees of Intellocity shall have executed a Registration Rights Agreement, in the form as set forth in EXHIBIT 10 to this Agreement. (viii) ESCROW AGREEMENT. The Parties shall have executed an Escrow Agreement, in the form as set forth in EXHIBIT 8 to this Agreement. 23 (ix) MATERIAL CHANGES. Except as contemplated by this Agreement, since the date hereof, ACTV shall not have suffered a Material Adverse Effect. (x) TAX OPINION. Intellocity shall have obtained an opinion of Cooley Godward LLP in form and substance substantially identical to the opinion of Gersten, Savage & Kaplowitz, LLP, or another national law firm or accounting firm mutually acceptable to the Parties, that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. ARTICLE 10 COVENANTS (a) COVENANTS OF INTELLOCITY. Except as set forth on SCHEDULE 10(a), Intellocity covenants and agrees that, except as contemplated by this Agreement, during the period from the date of this Agreement until the Closing Date, that for purposes of this Article 10(a), Intellocity and USA shall conduct their businesses as presently operated and solely in the ordinary course, and consistent with such operation, and, in connection therewith, without the written consent of ACTV, which consent shall not be unreasonably withheld: (i) shall not amend their Memorandum and Articles of Association or similar documents (other than to terminate the Intellocity Preferred Stock participating liquidation preference); (ii) shall not pay or agree to pay to any employee, officer or director compensation that is in excess of the current compensation level of such employee, officer or director other than salary increases or payments made in the ordinary course of business or as otherwise provided in any contracts or agreements with any such employees; (iii) shall not merge or consolidate with any other entity or acquire or agree to acquire any other entity; (iv) shall not sell, transfer, or otherwise dispose of any assets required for the operations of Intellocity's and USA's businesses, except in the ordinary course of business consistent with past practices; (v) shall not create, incur, assume, or guarantee any indebtedness for money borrowed except in the ordinary course of business, or create or suffer to exist any mortgage, lien or other encumbrance on any of its assets, except those in existence on the date hereof or those granted pursuant to agreements in effect on the date of this Agreement; (vi) shall not make any capital expenditure or series of capital expenditures except in the ordinary course of business; (vii) shall not declare or pay any dividends on or make any distribution of any kind with respect to Intellocity's or USA's capital stock; 24 (viii) shall maintain their facilities, assets and properties in reasonable repair, order and condition, reasonable wear and tear excepted, and to notify ACTV immediately in the event of any material loss or damage to any of Intellocity's or USA's material assets; (ix) shall maintain in full force and effect all present insurance coverage of the types and in the amounts as are in effect as of the date of this Agreement; (x) shall seek to preserve the present employees, reputation and business organization of Intellocity and USA and Intellocity's and USA relationship with its clients and others having business dealings with them; (xi) shall not issue any additional shares of the capital stock or take any action affecting the capitalization of Intellocity or USA, except that this covenant shall not preclude the issuance of shares of Intellocity Common Stock upon exercise of options or warrants which are currently exercisable or exercisable on or before the Closing Date; (xii) shall use commercially reasonable efforts to comply with and not be in default or violation under any law, regulation, decree or order applicable to Intellocity's or USA's businesses, operations or assets where such violation would have a Material Adverse Effect; (xiii) shall not grant any severance or termination pay to any director, officer or any other employees of Intellocity or USA, other than pursuant to agreements in effect on the date of this Agreement or as otherwise disclosed in the documents delivered pursuant to this Agreement; (xiv) shall use commercially reasonable efforts to secure the requisite Intellocity shareholder consents to approve this Agreement and the transaction contemplated hereby; (xv) shall not, other than in the ordinary course of business, make or change any material election in respect of Taxes, or adopt or change any accounting method in respect of Taxes; (xvi) shall not terminate or waive any right of substantial value other than in the ordinary course of business; (xvii) shall not enter into any material contract or commitment other than in the ordinary course of business; and (xviii) shall pay any amounts required to be paid to Intellocity Stockholders pursuant to the appraisal rights set forth in BVI Law, as described in Article 1(h). (b) COVENANTS OF ACTV. ACTV covenants and agrees that: (i) ACTV and/or USA shall seek, in good faith, to enter into employment agreements with those individuals listed on SCHEDULE 9(b)(viii) attached hereto, on terms and in a form which will be reasonably satisfactory to ACTV; 25 (ii) From and after the Effective Time, ACTV and USA will provide each individual who served as a director or officer of Intellocity or USA at any time prior to the Effective Time with liability insurance for a period of thirty-six (36) months after the Effective Time no less favorable in coverage and amount than any applicable insurance in effect immediately prior to the Effective Time; (iii) From and after the Effective Time, ACTV and USA will observe any indemnification provisions now existing in the organization documents of Intellocity or USA, to the extent permissible under BVI or Delaware law as applicable, for the benefit of any individual who served as a director or officer of Intellocity or USA at any time prior to the Effective Time; (iv) ACTV will make all required filings under the Securities Act, the Securities Exchange Act of 1934, and applicable state blue-sky securities regulations in connection with the transactions contemplated by this Agreement; (v) From and after the Effective Time, ACTV agrees to use reasonable commercial efforts to cause the listing on Nasdaq of shares of ACTV Common Stock issuable, and those required to be reserved for issuance, in connection with the transactions contemplated by this Agreement, subject to the registration of such shares as required by this Agreement; (vi) From and after the Effective Time: (A) ACTV will cause the USA to provide the benefits (including health benefits, severance policies and general employment policies and procedures) which are substantially comparable in the aggregate to benefits that are available to similarly situated employees of ACTV and its subsidiaries as of the date hereof, provided, however, that such insurance carriers, outsider providers or the like are able to provide such benefits on terms reasonably acceptable to ACTV, and provided, further, that nothing in this Section shall prevent ACTV or USA from making any change required by applicable law, and provided, further, that it shall not result in any duplication of benefits. (B) To the extent permitted under applicable law, each employee of Intellocity or its subsidiaries shall be given credit for all service with Intellocity or its subsidiaries (or service credited by Intellocity or its subsidiaries) under all employee benefit plans, programs, policies and arrangements maintained by ACTV or USA in which they participate or in which they become participants for purposes of eligibility, vesting and benefit accrual including, without limitation, for purposes of determining (i) short-term and long-term disability benefits, (ii) severance benefits, (iii) vacation benefits and (iv) benefits under any retirement plan; provided, however, that no service credit for benefit accrual purposes shall be provided under any defined benefit pension plan or in any other circumstance that would result in duplicative accrual of benefits, and provided, further, that such insurance carriers, outsider providers or the like are able to honor such commitments on terms reasonably acceptable to ACTV. (vii) ACTV will use reasonable commercial efforts to actively consummate the transactions contemplated by this Agreement and the Merger and will not take any action which 26 would delay the consummation of the transactions contemplated by this Agreement and the Merger; (viii) Upon the consummation of the Merger, Joel Hassell shall become an advisor to ACTV's Board of Directors and shall be invited to attend and participate in (but note vote at) all ACTV Board of Directors' meetings (whether held in person or telephonically) during the year 2001, and shall receive all notices, consents, documents, communications and other information provided to members of the Board of Directors during such year; (ix) Upon the consummation of the Merger, ACTV and USA will use commercially reasonable efforts to extend credit support and cause the release of all outstanding personal guarantees relating to Intellocity or USA equipment lease financing arrangements; and (x) From and after the consummation of the Merger, ACTV will grant options to purchase shares of ACTV Common Stock to newly hired employees of USA (i.e., employees hired by USA subsequent to the consummation of the Merger), which grants will be in a manner that is consistent with ACTV's then current policies with respect to its employees generally. (xi) From and after the consummation of the Merger, ACTV will use commercially reasonable efforts to issue, and to cause its transfer agent to issue, certificates representing the ACTV Common Stock issuable in connection with the Merger pursuant to Article 3 hereof, as soon as reasonably practicable. (xii) From and after the consummation of the Merger, ACTV will use commercially reasonable efforts to issue the non-plan option agreements pursuant to Article 3 hereof, as soon as reasonably practicable. (xiii) From and after the consummation of the Merger, ACTV will use commercially reasonable efforts to assign the Master Service Agreement between Intellocity and Tomen Mediacom, Inc. dated December 28, 2000, as soon as reasonably practicable. (c) COVENANTS OF THE PARTIES. The Parties covenant and agree: (i) that they will not engage in any action, or fail to take any action and will cause their respective subsidiaries not to engage in any action, or fail to take any action, which action or failure to take action would reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code, whether or not otherwise permitted by the provisions of this Agreement. Each of ACTV and Intellocity agree to provide to Gersten, Savage & Kaplowitz, LLP and Cooley Godward LLP any information and materials required in support of their tax opinions referred to in Sections 9(b)(xi) and 9(c)(v), as mutually agreed upon by the Parties' counsel. (ii) that they will cause to be prepared an information statement in a form acceptable to each Party setting forth a description of the material terms of the Merger and a material description of ACTV and ACTV's financial condition and business operations, which information statement will be circulated to all Intellocity Stockholders and holders of Outstanding Options at least five (5) days prior to the Closing Date; 27 (iii) that the Board of Directors of USA after the consummation of the Merger, for the year 2001, shall consist of Joel Hassell as Chairman, Steve Reynolds, Edward Knudson, Kevin M. Liga and William C. Samuels; and (iv) from the date of this Agreement until December 31, 2004, unless he has been appointed to the Board of Directors of ACTV and as long as he remains in the employ of the ACTV or USA, Joel Hassell will serve as Chairman of USA's Board of Directors and he will have the right to designate three (3) of the five (5) directors of USA. ACTV agrees to vote all shares of USA's equity securities that it holds (directly or indirectly through an affiliate) in accordance with the forgoing. ARTICLE 11 TERMINATION (a) TERMINATION DUE TO CONDITIONS PRECEDENT. (i) If the Closing Date has not occurred by July 31, 2001, ACTV may terminate this Agreement upon written notice to Intellocity in the event that any of the conditions to closing set forth in Articles 9(a) and (b) to this Agreement shall not have been satisfied or waived on or before such date, unless the failure to satisfy such conditions results primarily from ACTV breaching any representation, warranty, or covenant contained in this Agreement. (ii) If the Closing Date has not occurred by July 31, 2001, Intellocity may terminate this Agreement upon written notice to ACTV in the event that any of the conditions to closing set forth in Articles 9(a) and (c) to this Agreement shall not have been satisfied or waived on or before such date, unless the failure to satisfy such conditions results primarily from Intellocity breaching any representation, warranty, or covenant contained in this Agreement. (b) TERMINATION BY MUTUAL CONSENT. At any time prior to the Closing, this Agreement may be terminated by the written consent of both ACTV and Intellocity. (c) TERMINATION UPON DEFAULT. (i) ACTV may terminate this Agreement at any time prior to the Closing Date by delivery of written notice to Intellocity in the event of a material breach by Intellocity or a failure by Intellocity to perform any material obligation on its part to be performed or a material breach by Intellocity of its representations and warranties contained in Article 6 of this Agreement, and such breach or failure continues for a period of five (5) business days following the giving of notice, unless such failure results primarily from ACTV breaching any representation, warranty, or covenant contained in this Agreement. (ii) Intellocity may terminate this Agreement at any time prior to the Closing Date by delivery of written notice to ACTV in the event of a material breach by ACTV or a failure by ACTV to perform any material obligation on their part to be performed or a material breach by ACTV of its representations and warranties contained in Article 7 of this Agreement, and such breach or failure continues for a period of five (5) business days following the giving of notice, unless such failure results primarily from Intellocity breaching any representation, warranty, or covenant contained in this Agreement. 28 (d) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to this Article 11, all rights and obligations of the Parties hereunder shall terminate without any liability of any party to any other Party (except for any liability of any Party then in breach); provided, however, that the confidentiality provisions contained in Section 12(a) shall survive any such termination. ARTICLE 12 CONFIDENTIALITY; NON-SOLICITATION (a) CONFIDENTIALITY. ACTV, on the one hand, and Intellocity, on the other hand, in the course of discussions and negotiations, have disclosed to the other certain proprietary, confidential or other non-public information (collectively, the "Information") relating to its business. Except as herein set forth, neither arty shall (i) reveal or make known to any person, firm, corporation or entity, other than its own management and advisors, including its attorneys, accountants and investment bankers, or (ii) utilize in its own business or (iii) make any other usage of, any Information disclosed to it by the other in connection with the discussions and negotiations above mentioned. Notwithstanding the foregoing, (x) each party may disclose any Information received from the other party to any governmental or regulatory authority in connection with obtaining approval of the transactions contemplated hereby or as otherwise may be required by applicable law, and (y) if required, ACTV may disclose any Information received from Intellocity, to its lenders in connection with obtaining their approval of the transactions contemplated hereby. A party's obligations with respect to any item of Information disclosed to it shall terminate if that item of Information becomes disclosed in published literature or otherwise becomes generally available to the public; provided, however, that such public disclosure did not result, directly or indirectly, from any act, omission, or fault of such party with respect to that item of Information. Further, this Article 12 (a) shall not apply to any item of Information which at the time of disclosure was already generally available to the public or which at the time of disclosure was already in the possession of the party intending to utilize the item of Information and was not acquired by such party, directly or indirectly, from the disclosing party as protected information under a confidentiality agreement. Both parties agree that the Information either party has received or may receive from the other has been and will be used by the receiving party solely for the limited purpose of its investigation and evaluation of the other party in connection with the transaction contemplated hereby. (b) NON-SOLICITATION. During to period from the date of this Agreement until the consummation or termination of this Agreement or the Merger and, in the event of the termination of this Agreement or the Merger for any reason, during the one (1) year period following the date of such termination, neither Party shall, without the consent of the other Party, directly or indirectly solicit the employment or engagement, as an employee or consultant, any restricted employee or encourage any restricted employee to leave the employment of the other Party or any subsidiary of the other Party. A restricted employee shall mean any person who is employed by a Party or any of its subsidiaries on the date of this Agreement or at any time during the six (6) months prior thereto. 29 ARTICLE 13 EXCLUSIVITY Prior to July 31, 2001 (or such earlier date on which ACTV has ended its active efforts to consummate the Merger or this Agreement has been terminated by any Party pursuant to the terms of Article 11), neither Intellocity, USA, nor any of their respective affiliates, investment bankers or brokers, shall, directly or indirectly, enter into any agreement, commitment or understanding with respect to, or engage in any discussions or negotiations with, or encourage or respond to any solicitations from, any other party with respect to the sale, lease or management of any material portion of the assets, or in respect of the sale of any shares of capital stock in Intellocity or USA, Intellocity shall promptly advise ACTV of any unsolicited offer or inquiry received by any one of them, including the terms thereof. ARTICLE 14 MISCELLANEOUS (a) EXPENSES. Upon the consummation of the Merger, ACTV shall pay the reasonable legal fees of counsel to Intellocity, which reimbursement obligation of ACTV shall not exceed one hundred twenty five thousand dollars ($125,000). ACTV shall also pay all reasonable expenses of counsel to Intellocity. In addition, upon the consummation of the Merger, ACTV shall pay the reasonable fees of Allen, which fees are not to exceed four hundred twenty thousand dollars ($420,000), for financial advisory services rendered. ACTV shall also pay all reasonable expenses of Allen. The payment of any fees and expenses by ACTV shall be subject to the presentment of supporting documentation and shall be paid directly to counsel to Intellocity and Allen. (b) SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in connection with the transactions contemplated hereby shall terminate at and as of fifteen months from the Effective Time. Each covenant contained herein or made in connection with the transactions contemplated hereby shall survive until such time as it has been fully performed or otherwise terminated by written agreement of the Parties. (c) NOTICES. All notices, requests, consents and other communications herein shall be in writing and shall be mailed by first class or certified mail, postage prepaid, or personally delivered or sent by overnight courier service, facsimile or email, provided that the sender obtains reasonable evidence of delivery to the Party and its counsel as follows: If to ACTV: ACTV, Inc. 225 Park Avenue South, 18th Floor New York, New York 10003 Attention: Day L. Patterson Executive Vice President and General Counsel with a copy to: Gersten, Savage & Kaplowitz, LLP 101 East 52nd Street, 9th Floor 30 New York, New York 10022 Attention: Jay M. Kaplowitz, Esq. If to Intellocity: Intellocity, Inc. c/o Intellocity USA, Inc. 1400 Market Street Denver, Colorado 80202 Attention: Joel Hassell Chairman and Chief Executive Officer with a copy to: Cooley Godward LLP One Tabor Center 1200 Seventeenth Street, Suite 2100 Denver, Colorado 80202 Attention: Steven E. Segal, Esq. (d) THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns; provided, however, that (i) (A) the provisions contained in this Agreement concerning the issuance of the Merger Shares, the Escrow Shares and option agreement in exchange for the Outstanding Options, (B) the provisions contained in Articles 7, 8, 10(b), 10(c) and 14(l) of this Agreement, and (C) the provisions contained in this Agreement concerning requirements for a tax-free reorganization, are intended for the benefit of the Intellocity Stockholders and the holders of Outstanding Options, and (ii) the provisions in this Agreement concerning insurance and indemnification are intended for the benefit of the individuals specified therein and their respective legal representatives. (e) ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement and the documents and other agreements specifically referred to herein constitute the final, exclusive and complete understanding of the Parties with respect to the subject matter hereof and supersede any and all prior agreements, understandings, discussions and agreements with respect thereto, including, without limitation, the Memorandum of Understanding by and between ACTV, Intellocity and USA dated February 14, 2001. No amendment or modification of this Agreement and no waiver of any provision or condition hereof or granting of any consent contemplated hereby, shall be valid unless it is in writing, expressly refers to this Agreement and states that it is an amendment, modification or waiver and signed by all Parties, in the case of an amendment or modification, or the Party granting the waiver, in the case of a waiver. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed or construed as a waiver of the same term or condition or any other term or condition of this Agreement on any future occasion. (f) SUCCESSORS AND ASSIGNS. All of the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successor and assigns of the Parties hereto; provided, that no Party may assign this Agreement or any of its rights under this Agreement without the written consent of the other Party. 31 (g) EXECUTION AND COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. (h) GOVERNING LAW AND SEVERABILITY. Except to the extent that Delaware Law is mandatorily applicable to the Merger and with respect to matters of corporate law (which shall be governed by Delaware law), this Agreement shall be governed by the laws of the State of New York as applied to agreements entered into and to be performed such state. If any provision of this Agreement or any application thereof is held to be unenforceable, the remainder of the Agreement and any application of such provision shall not be affected thereby and to the extent permitted by law, there shall be substituted for the provisions held unenforceable, provisions which shall, as nearly as possible, have the same economic effect as the provisions held unenforceable. (i) PUBLICITY. Except for disclosure required by law, the timing and content of any announcements and press releases made prior to the Closing concerning the transactions contemplated by this Agreement shall be subject to prior written approval of the Parties. (j) CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provisions of this Agreement. (k) SCHEDULES AND EXHIBITS. All of the schedules and exhibits to this Agreement are hereby incorporated in this Agreement and shall be deemed and construed to be a part of this Agreement for all purposes. (SIGNATURES ON THE FOLLOWING PAGE) 32 IN WITNESS WHEREOF, each Party executed this Agreement as of the date first above written. ACTV, INC. By: /s/ DAY L. PATTERSON -------------------- Name: Day L. Patterson Title: Executive Vice President and General Counsel INTELLOCITY, INC. By: /s/ JOEL HASSELL ---------------- Name: Joel Hassell Title: President and Chief Executive Officer 33 EX-3.1(E) 3 a2041842zex-3_1e.txt EXHIBIT 3.1(E) EXHIBIT 3.1(e) RESTATED CERTIFICATE OF INCORPORATION OF ACTV, INC. ACTV, INC., a Delaware corporation, does hereby certify as follows: 1. The present name of the corporation (hereinafter called the "corporation") is ACTV, Inc., which is the name under which the corporation was originally incorporated; and the original certificate of incorporation of the corporation was filed with the Secretary of State of the State of Delaware on July 24, 1989. 2. The provisions of the certificate of incorporation of the corporation, as heretofore amended and/or supplemented, are hereby restated and integrated into the single instrument which is attached hereto, which single instrument is entitled Restated Certificate of Incorporation of ACTV, Inc., without further amendment and without any discrepancy between the provisions of the certificate of incorporation as heretofore amended and supplemented and the provisions of the said single instrument hereinafter set forth. 3. The Board of Directors of the corporation has duly adopted this Restated Certificate of Incorporation pursuant to the provisions of Section 245 of the General Corporation Law of the State of Delaware in the form attached hereto. IN WITNESS WHEREOF, said ACTV, Inc. has caused this certificate to be signed by William C. Samuels, its Chairman and Chief Executive Officer, and attested by Day L. Patterson, its Secretary, this 10th day of January, 2001. ACTV, INC. By: William C. Samuels, Chairman and CEO (Corporate Seal) ATTESTED: By: Day L. Patterson, Secretary RESTATED CERTIFICATE OF INCORPORATION OF ACTV, INC. FIRST: The name of the corporation (hereinafter called the "Corporation") is ACTV, INC. SECOND: The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 229 South State Street, City of Dover, County of Kent; and the name of the registered agent of the corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: A. The aggregate number of shares of all classes of stock which the Corporation shall have authority to issue is Two Hundred One Million (201,000,000) shares, divided into classes as follows: (1) Two Hundred Million (200,000,000) shares of Common Stock, $0.10 per share (hereinafter called the "Common Stock"); and (2) One Million (1,000,000) shares of Preferred Stock, $0.10 per share (hereinafter called the "Preferred Stock"), to be issued in series. 2. The following is a statement of the designations, powers, preferences, rights, qualifications and limitations or restrictions with respect to the Preferred Stock of the Corporation: The shares of Preferred Stock may be issued in one or more series, and each series shall be so designated as to distinguish the shares thereof from the shares of all other series. Authority is hereby expressly granted to the Board of Directors of the Corporation to fix, subject to the provisions herein set forth, before the issuance of any shares of a particular series, the number, designation and relative rights, preferences, and limitations of the shares of such series including (a) voting rights, if any, which may include the right to vote together as a single class with the Common Stock and any other series of the Preferred Stock with the number of votes per share accorded to shares of such series being the same as or different from that accorded to such other shares, (b) the dividend rate per annum, if any, and the terms and conditions pertaining to dividends and whether such dividends shall be cumulative, (c) the amount or amounts payable upon any voluntary or involuntary liquidation, (d) the redemption price or prices, if any, and the terms and conditions of the redemption, (e) sinking fund provisions, if any, for the redemption or purchase of such shares, (f) the terms and conditions on which such shares are convertible, in the event such shares are to have conversion rights, and (g) any other rights, preferences and limitations pertaining to such series which may be fixed by the Board of Directors pursuant to the Delaware General Corporation Law. FIFTH: The name and the mailing address of the incorporator is as follows: Name Mailing Address Elaine Bibow c/o Gersten, Savage, Kaplowitz & Curtin 575 Lexington Avenue New York, New York 10022 SIXTH: The corporation is to have perpetual existence. SEVENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or any receiver or receivers appointed for this corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors, or class or creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. EIGHTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: 1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. The phrase "Whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot. 2. After the original or other by-laws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the by-laws of the corporation may be exercised by the Board of Directors of the corporation; provided, however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial By-law or in a By-law adopted by the stockholders entitled to vote of the corporation unless provisions for such classification shall be set forth in this restated certificate of incorporation. 3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class. NINTH: The officers of the corporation shall be chosen in such a manner, shall hold their offices for such terms and shall carry out such duties as are provided in the Bylaws of the corporation or determined by the Board of Directors, subject to the right of the Board of Directors to remove any officer or officers at any time with or without cause. TENTH: No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Article TENTH shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the General Corporation Law of the State of Delaware is amended hereafter to further eliminate or limit the personal liability of directors, the liability of this corporation shall be limited or eliminated to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended. ELEVENTH: The by-laws of the Corporation may be made, altered, amended, changed, added to or repealed by the Board of Directors without the assent or vote of the stockholders. TWELFTH: A. Right of Indemnification. Each person who was or is made a party to or is threatened to be made a party to or is involuntarily involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving (during his or her tenure as director and/or officer) at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, whether the basis of such Proceeding is an alleged action or inaction in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware (or other applicable law), as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement reasonably incurred or suffered by such person in connection with such Proceeding). Such director or officer shall have the right to be paid by the Corporation for expenses incurred in defending any such Proceeding in advance of its final deposition; provided, however, that if the General Corporation Law of the State of Delaware (or law) requires, the payment of such expenses in advance of the final disposition of any such Proceeding shall be made only upon receipt by the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it should be determined ultimately that he or she is not entitled to be indemnified under this Article TWELFTH or otherwise. B. Right of Claimant to Bring Suit. If a claim under paragraph A of this Article TWELFTH is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, together with interest thereon, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim, including reasonable attorneys' fees incurred in connection therewith. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware (or other applicable law) for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall, be on the Corporation. Neither the failure of the Corporation (or of its Full Board of Directors, its directors who are not parties to the Proceeding with respect to which such indemnification is claimed, its stockholders, or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware (or other applicable law), nor an actual determination by any such person or persons that such claimant has not met such applicable standard of conduct, shall be a defense to such action or create a presumption that the claimant has not met the applicable standard of conduct. C. Non-Exclusivity of Rights. The rights conferred by this Article TWELFTH shall not be exclusive of any other right (including, without limitation, any right relating to indemnification or advancement of expenses) which any director, officer, representative, employee or other agent may have or hereafter acquire under the General Corporation Law of the State of Delaware or any other statute, or any provision contained in the Corporation's Certificate of Incorporation or Bylaws, or any agreement, or pursuant to a vote of stockholders or disinterested directors, or otherwise. D. Insurance and Trust Fund. In furtherance and not in limitation of the powers conferred by statute: (1) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and (2) the Corporation may create a trust fund, grant a security interest and/or use other means including, without limitation, letters of credit, surety bonds and/or other similar arrangements, as well as enter into contracts providing indemnification to the fullest extent permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect indemnification as provided therein, or otherwise. E. Indemnification of Employees and Agents of the corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, including the right to be paid by the Corporation the expenses incurred in defending any Proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Section or otherwise, with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. F. Effect of Repeal or Modification. Any repeal or modification of this Article TWELFTH shall not change the rights of an officer or director to indemnification with respect to any action or omission occurring prior to such repeal or modification. THIRTEENTH: The Corporation elects not to be governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware. FOURTEENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power. IN WITNESS WHEREOF, said ACTV, Inc. has caused this certificate to be signed by William C. Samuels, its Chairman and Chief Executive Officer, and attested by Day L. Patterson, its Secretary, this 10th day of January, 2001. ACTV, INC. By: William C. Samuels, Chairman and CEO (Corporate Seal) ATTESTED: By: Day L. Patterson, Secretary EX-3.2(A) 4 a2041842zex-3_2a.txt EXHIBIT 3.2(A) Exhibit 3.2(a) BYLAWS OF ACTV, INC. (HEREINAFTER CALLED THE "CORPORATION") I. OFFICES Section 1. REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. Section 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. II. MEETING OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. ANNUAL MEETINGS. Annual meetings of the stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Stockholders shall provide advance written notice of any proposal to nominate or elect any member of the Board of Directors and/or any stockholder proposal to be voted upon at any annual meeting of the stockholders. Such advance written notice shall be provided to both the Chairman and the Secretary of the Corporation not less than sixty (60) days prior to the first anniversary of the Corporation's then immediately preceding annual meeting. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may only be called by the Board of Directors or the Chairman of the Board. Notice of any such special meeting shall be provided to the stockholders as set forth in Section 4 below. Section 4. NOTICE OF MEETINGS. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation. Section 5. QUORUM; ADJOURNMENT. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or the Certificate of Incorporation. Where a separate vote by a class, classes or series is required, a majority of the outstanding shares of such class, classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, unless or except to the extent that the presence of a larger number may be required by law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time without notice other than announcement at the meeting, until a quorum shall be present or represented. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken: provided, however, that if the date of any adjourned meting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 6. PROXIES AND VOTING. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law or the Certificate of Incorporation. All voting, including on the election of directors but excepting where otherwise provided herein or required by law or the Certificate of Incorporation, may be by a voice vote: provided, however, that upon demand therefor by a stockholder entitled to vote or such stockholder's proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the Board of Directors. All elections of directors shall be determined by a plurality of the votes cast, and except as otherwise required by law or the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. Section 7. STOCK LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in such stockholder's name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholder entitled to vote at the meeting and the number of shares held by each of them. Section 8. ACTIONS BY STOCKHOLDERS. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. III. BOARD OF DIRECTORS Section 1. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 2. NUMBER AND TERM OF OFFICE. The Board of Directors shall consist initially of four (4) directors. The number of directors may be changed from time to time by resolution duly adopted by the Board of Directors or the stockholders, except as provided by law or the Certificate of Incorporation. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At any annual meeting of stockholders held after the initial election of all Classes of directors, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so the number of directors in each class is as nearly equal as possible, and any additional director of any class elected to fill a vacancy in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which such director's term expires and until such director's successor shall be elected and shall qualify, subject, however to prior death, resignation, retirement, disqualification or removal from office. Except as provided in Section 3 of this Article, directors shall be elected by the holders of record of a plurality of the votes cast at Annual Meetings of Stockholders. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. Section 3. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director or by the stockholders entitled to vote at any Annual or Special Meeting held in accordance with Article II, and the directors so chosen shall hold office until the next Annual or Special Meeting duly called for that purpose and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 4. MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly-elected Board of Directors shall be held immediately following the Annual Meeting of Stockholders and no notice of such meeting shall be necessary to be given the newly-elected directors in order legally to constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or at least one-third of the directors then in office. Notice thereof stating the place, date and hour of the meetings shall be given to each director by mail, telephone or telegram not less than seventy-two (72) hours before the date of the meeting. Meetings may be held at any time without notice if all the directors are present or if all those not present waive such notice in accordance with Section 2 of Article VI of these Bylaws. Section 5. QUORUM. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. ACTION OF BOARD WITHOUT A MEETING. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the directors then in office, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent allowed by law and provided in the Bylaw or resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. COMPENSATION. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. REMOVAL. Unless otherwise restricted by the Certificate of Incorporation or Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. IV. OFFICERS Section 1. GENERAL. The officers of the Corporation shall be appointed by the Board of Directors and shall consist of a Chairman of the Board or a President, or both, one or more Vice Presidents, a Treasurer, and a Secretary. The Board of Directors may also choose one or more assistant secretaries and assistant treasurers, and such other officers and agents as the Board of Directors, in its discretion shall deem necessary or appropriate as designated by the Board of Directors from time to time. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 2. ELECTION; TERM OF OFFICE. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect a Chairman of the Board or a President, or both, one or more Vice Presidents, a Secretary and a Treasurer, and may also elect at that meeting or any other meeting, such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors together with the powers and duties customarily exercised by such officer; and each officer of the Corporation shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may at any time, with or without cause, by the affirmative vote of a majority of directors then in office, remove any officer. Section 3. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall be the chief executive officer of the Corporation. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall have such other duties and powers as may be prescribed by the Board of Directors from time to time. Section 4. PRESIDENT. The President shall be the chief operating officer of the Corporation, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have and exercise such further powers and duties as may be specifically delegated to or vested in the President from time to time by these Bylaws or the Board of Directors. In the absence of the Chairman of the Board or in the event of his inability or refusal to act, or if the Board has not designated a Chairman, the President shall perform the duties of the Chairman of the Board, and when so acting, shall have all of the powers and be subject to all of the restrictions upon the Chairman of the Board. Section 5. VICE PRESIDENT. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one vice president, the vice presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The vice presidents shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. Section 6. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 7. ASSISTANT SECRETARIES. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there by any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Secretary, and shall have the authority to perform all functions of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 8. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep complete and accurate accounts of all receipts and disbursements of the Corporation, and shall deposit all monies and other valuable effects of the Corporation in its name and to its credit in such banks and other depositories as may be designated from time to time by the Board of directors. The Treasurer shall disburse the funds of the Corporation, taking proper vouchers and receipts for such disbursements, and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall, when and if required by the Board of Directors, give and file with the Corporation a bond, in such form and amount and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of his or her duties as Treasurer. The Treasurer shall have such other powers and perform such other duties as the Board of Directors or the President shall from time to time prescribe. Section 9. ASSISTANT TREASURERS. Except as may be otherwise provided in these Bylaws, Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Treasurer, and shall have the authority to perform all functions of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. Section 10. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. V. STOCK Section 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board or the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. Section 2. SIGNATURES. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share of shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 7. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the board, the President, any Vice President or the Secretary and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. VI. NOTICES Section 1. NOTICES. Whenever written notice is required by law, the certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable and such notice shall be deemed to be given at the time of receipt thereof, if given personally at the time of transmission thereof if given by telegram, telex or cable. Section 2. WAIVER OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member or a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. VII. GENERAL PROVISIONS Section 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting or by any Committee of the Board of Directors having such authority at any meeting thereof, and may be paid in cash, in property, in shares of the capital stock or in any combination thereof. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. DISBURSEMENTS. All notes, checks, drafts and orders for the payment of money issued by the Corporation shall be signed in the name of the Corporation by such officers or such other persons as the Board of Directors may from time to time designate. Section 3. CORPORATION SEAL. The corporate seal, if the Corporation shall have a corporate seal, shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. VIII. DIRECTOR'S LIABILITY AND INDEMNIFICATION Section 1. DIRECTOR'S LIABILITY. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the Delaware General Corporation Law is amended hereafter to further eliminate or limit the personal liability of directors, the liability of a director of the Corporation shall be limited or eliminated to the fullest extent permitted by the Delaware General Corporation Law, as amended. Section 2. RIGHT TO INDEMNIFICATION. Each person who was or is made a party to or is threatened to be made a party to or is involuntarily involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation or is or was serving (during his or her tenure as director and/or officer) at the requests of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, whether the basis of such Proceeding is an alleged action or inaction in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law (or other applicable law), as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with such Proceeding. Such director or officer shall have the right to be paid by the Corporation for expenses incurred in defending such Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law (or other applicable law) requires, the payment of such expenses in advance of the final disposition of any such Proceeding shall be made only upon receipt by the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it should be determined ultimately that he or she is not entitled to be indemnified under this Article or otherwise. Section 3. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph A of this Article is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, together with interest thereon, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim, including reasonable attorneys' fees incurred in connection therewith. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law (or other applicable law) for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (or of its full Board of Directors, its directors who are not parties to the Proceeding with respect to which indemnification is claimed, its stockholders, or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law (or other applicable law), nor an actual determination by any such person or persons that such claimant has not met such applicable standard of conduct, shall be a defense to such action or create a presumption that the claimant has not met the applicable standard of conduct. Section 4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred by this Article shall not be exclusive of any other right which any director, officer, representative, employee or other agent may have or hereafter acquire under the Delaware General Corporation Law or any other statute, or any provision contained in the Corporation's Certificate of Incorporation or Bylaws, or any agreement, or pursuant to a vote of stockholders or disinterested directors, or otherwise. Section 5. INSURANCE AND TRUST FUND. In furtherance and not in limitation of the powers conferred by statute: (1) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and (2) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the fullest extent permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect indemnification as provided therein, or elsewhere. Section 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, including the right to be paid by the corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Section or otherwise with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. Section 7. AMENDMENT. This Article VIII is also contained in Articles TENTH and TWELFTH of the Corporation's Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time the comparable Certificate Article is altered, amended or repealed if such alteration, amendment or repeal would have the effect of reducing available indemnification or advancement of expenses. Any repeal or modification of this Article VIII having such effect shall not change the rights of an officer or director to indemnification or advancement of expenses with respect to any action or omission occurring prior to such repeal or modification. Consistent with paragraph C of Article TWELFTH of the Corporation's Certificate of Incorporation, nothing in this paragraph shall prohibit or restrict, through an alteration or amendment of this Article VIII or otherwise, any provision which has the effect of expanding available indemnification or advancement of expenses. IX. AMENDMENTS Except as otherwise specifically stated within an Article to be altered, amended or repealed, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting. The undersigned, as the incorporator of ACTV, Inc., hereby adopts the foregoing Bylaws as the Bylaws of the Corporation. THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of ACTV, Inc. and that the foregoing Bylaws were adopted as the Bylaws of said Corporation as of _______________, _____ by Unanimous Written Consent of the Board of Directors of said Corporation. Dated as of ________________, ______ ------------------------ Day L. Patterson, Secretary EX-10.40(2) 5 a2041842zex-10_402.txt EXHIBIT 10.40.2 Exhibit 10.40.2 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, 2005. 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, 2001, the term of this Agreement shall be automatically extended for one (1) additional Annual Period to be added at the end of the then current term of this Agreement. 3. DUTIES. The Employee shall perform those functions generally performed by persons of such title and position, shall attend all meetings of the stockholders and the Board, shall perform any and all related duties and shall have any and all powers as may be prescribed 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 $395,000 for each Annual Period. 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 yearly 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. 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 -2- (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; 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 at any time within three years of the 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 cash bonus, equal on an after-tax basis to two times his average compensation for the two previous fiscal years. Such compensation shall include salary, bonus, and restricted stock awards. 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 average compensation for the two previous fiscal years. 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. -3- d. Employer shall maintain a life, accidental death and dismemberment insurance policy on Employee for the benefit of a beneficiary named by Employee in an amount not less than $2,000,000. Ownership of the policy shall be assigned to Employee upon termination of Employee's employment under this Agreement. e. (i) A bonus plan shall be instituted for Employee which shall take account of the efforts of Employee in generating value to Employer's shareholders. Under said plan, Employee shall be entitled to an annual bonus payable for each 12 month period commencing April 1, 1995 in cash and/or unregistered securities of Employer, at the option of the Compensation Committee of the Board, equal to 2% of the increase for said 12 month period in the total market capitalization of Employer calculated upon the excess of the total of the average daily closing price (if applicable) 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 highest previous 90 Day Average against which a bonus was paid under this bonus plan. Should the Compensation Committee elect hereunder to pay Employee in unregistered securities, said securities shall be valued at 60% of either the most recent 90 Day Average or 60% of the closing price on a day designated for payment, in the discretion of the Compensation Committee. 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, including if pursuant to, Section 10(a)(ii), 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. -4- (ii) Employee shall also be entitled to participate pari passu in any other program established by Employer pursuant to which any executive officers receive a share of the profits of Employer. f. Employee shall have the right to participate in any other employee benefit plans established by Employer. g. Unless a pre-existing plan of Employer expressly forbids it, all Rights which may become exercisable during the term hereof shall be paid for in cash only if Employee so elects, otherwise they may be paid for (i) by the transfer by Employee to Employer of so much of Employee's Rights which, when valued at the highest trading price of the underlying securities of Employer during the previous six months, will offset the price of the Rights then being exercised; (ii) by means of a 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 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 (i), 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 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 -5- 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. Employee acknowledges and confirms that the Company is placing its confidence and trust in Employee. Accordingly, Employee covenants and agrees that he/she will not, during the term of his/her 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/her employment, and for a period of one (1) year thereafter, individually or through any entity, directly or indirectly, without the express prior written consent of ACTV, 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. Nor shall Employee, during the term of his/her employment, and for a period of three (3) years thereafter, individually or through any entity, directly or indirectly, without the express prior written consent of ACTV, -6- make or otherwise extend any offer of full-time or part-time employment to any officer or employee of ACTV and/or of any ACTV affiliate, or otherwise solicit any officer or employee of ACTV and/or of any ACTV affiliate to seek or accept any full-time or part-time employment, by or with any person or entity other than ACTV or any ACTV affiliate. 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 non-U.S. areas in which ACTV and/or any ACTV affiliate may 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/her varied skill and abilities, he/she does not need to compete with the ACTV Business, and that this Agreement will therefore not prevent him/her 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. 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 -7- opportunity (at least 10 days from the date Employee receives the notice from the Board) to correct the acts or omissions so complained of. In no event shall alleged incompetence of Employee in the performance of Employee's duties be deemed grounds for termination for Cause. (ii) Employer may terminate Employee's employment under this Agreement if, as a result of any physical or mental disability, Employee shall fail or be unable to perform his duties under this Agreement for any consecutive period of 90 days during any twelve-month period. If Employee's employment is terminated under this Section 10(a)(ii): (A) for the first six months after termination, Employee shall be paid 100% of his full compensation under Section 4(a) of this Agreement at the rate in effect on the date of termination, and in each successive 12 month period thereafter Employee shall be paid an amount equal to 67% of his compensation under Section 4(a) of this agreement at the rate in effect on the date of termination; (B) Employer's obligation to pay life insurance premiums on the policy referred to in Section 4(d) shall continue in effect until five years after the date of termination; and (C) Employee shall continue to be entitled, insofar as is permitted under applicable insurance policies or plans, to such general medical and employee benefit plans (including profit sharing or pension plans) as Employee had been entitled to on the date of termination. Any amounts payable by Employer to Employee under this paragraph shall be reduced by the amount of any disability payments payable by or pursuant to plans provided by Employer and actually paid to Employee. (iii) This agreement automatically shall terminate upon the death of Employee, except that Employee's estate shall be entitled to receive any amount accrued under Section 4(a) and the pro-rata amount payable under Section 4(e) for the period prior to Employee's death and any other amount to which Employee was entitled of the time of his death. b. TERMINATION BY EMPLOYEE (i) Employee shall have the right to terminate his employment under this Agreement upon 30 days' notice to Employer given within 90 days following the occurrence of any of the following events (A) through (F) or within three years following the occurrence of event (G): (A) Employee is not elected or retained as Chairman of the Board of Directors, and Chief Executive Officer of Employer. -8- (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 10 miles of midtown Manhattan. (D) A Material Reduction (as hereinafter defined) in Employee's rate of base compensation, or Employee's other benefits. "Material Reduction" shall mean a ten percent (10%) differential; (E) A failure by Employer to obtain the assumption of this Agreement by any successor; (F) A material breach of this Agreement by Employer, which is not cured within thirty (30) days of written notice of such breach by Employer; (G) A Change of Control. (ii) Anything herein to the contrary notwithstanding, Employee may terminate this Agreement upon thirty (30) days written notice. c. If Employer shall terminate Employee's employment other than due to his death or disability or for Cause (as defined in Section 10(a)(i) of this Agreement), or if Employee shall terminate this Agreement under Section 10(b)(i), Employer's obligations under Section 4 shall be absolute and unconditional and not subject to any offset or counterclaim and Employee shall continue to be entitled to receive all amounts provided for by Section 4 and all additional employee benefits under Section 4 regardless of the amount of compensation he may earn with respect to any other employment he may obtain. d. Upon termination for any reason except death, Employee shall have the right to an office of his choice and to -9- an area for an assistant as long as the company has a lease at 225 Park Avenue South, New York, New York 10003 and for as long as the Employee reimburses the company the reasonable pro-rata rental cost. 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. 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 -10- 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 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 January 18, 2001, contains the entire agreement -11- between the parties with respect to the transactions contemplated herein and supersedes, any prior agreement or understanding between Employer and Employee with respect to Employee's employment by Employer. The unenforceability of any provision of this Agreement shall not effect the enforceability of any other provision. This Agreement may not be amended except by an agreement in writing signed by the Employee and the Employer, or any waiver, change, discharge or modification as sought. Waiver of or failure to exercise any rights provided by this Agreement and in any respect shall not be deemed a waiver of any further or future rights. b. The provisions of Sections 4, 8, 9, 10(a)(ii), 10(a)(iii), 10(c), 11, 12, 13, 14, 15, 18, 19 and 20 shall survive the termination of this Agreement. 17. ASSIGNMENT. This Agreement shall not be assigned to other parties. 18. GOVERNING LAW. This Agreement and all the amendments hereof, and waivers and consents with respect thereto shall be governed by the internal laws of the state of New York, without regard to the conflicts of laws principles thereof. 19. NOTICES. All notices, responses, demands or other communications under this Agreement shall be in writing and shall be deemed to have been given when a. delivered by hand; b. sent be telex or telefax, (with receipt confirmed), provided that a copy is mailed by registered or certified mail, return receipt requested; or c. received by the addressee as sent be express delivery service (receipt requested) in each case to the appropriate addresses, telex numbers and telefax numbers as the party may designate to itself by notice to the other parties: (i) if to the Employer: ACTV, Inc. 225 Park Avenue South New York, New York, 10003 Attention: Day Patterson Telephone: (212) 497-7000 -12- 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 -13- General Counsel _________________________ WILLIAM C. SAMUELS -14- EX-10.42(2) 6 a2041842zex-10_422.txt EXHIBIT 10.42.2 Exhibit 10.42.2 ACTV, INC. EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made as of this 1st day of August, 1995, by and between ACTV, INC., a Delaware corporation, having an office at 225 Park Avenue South, New York, New York 10003(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 Vice-Chairman and President of Enhanced Media Services, Inc.; and WHEREAS, Employee is willing to continue to be employed as the Vice-Chairman of Employer and President of Enhanced Media Services, Inc. in the manner provided for herein, and to perform the duties of the Vice-Chairman of Employer and President of Enhanced Media Services, 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 VICE-CHAIRMAN OF ACTV, INC. AND PRESIDENT OF ENHANCED MEDIA SERVICES, INC. Employer hereby employs Employee as Vice-Chairman 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 the date hereof and end on December 31, 2004. Each 12 month period from January 1 through December 31 during the term hereof shall be referred to as an "Annual Period." During the term hereof, Employee shall devote substantially all of his business time and efforts to Employer and its subsidiaries and affiliates. 3. DUTIES. The Employee shall perform any and all duties and shall have any and all powers as may be prescribed by the Chairman of ACTV, Inc. and shall be available to confer and consult with and advise the officers and directors of Employer at such times that may be required by Employer. Employee shall report directly and solely to the Chairman or his designee. 4. COMPENSATION. a. (i) Employee shall be paid a minimum of $345,000 for each Annual Period. 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 yearly 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. 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; 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 at any time within three years of 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 average compensation for the two previous fiscal years. Such compensation shall include salary, bonus, and restricted stock awards. To effectuate this provision, the bonus shall be "grossed-up" to include the amount necessary to reimburse Employee for his federal, state and local income tax liability on the bonus and on the "gross-up" at the respective effective marginal tax rates. In no event shall this bonus exceed 2.7 times Employee's then current base salary. Said bonus shall be paid within thirty (30) days of the Change of Control. c. Employer shall include Employee in its health insurance program available to Employer's executive officers. d. Employer shall maintain a life, accidental death and dismemberment insurance policy on Employee for the benefit of a beneficiary named by Employee in an amount not less than $2,000,000. Ownership of the policy shall be assigned to Employee upon termination of Employee's employment under this Agreement. e. Employee shall also be entitled to participate pari passu in any other program established by Employer pursuant to which any executive officers receive a share of the profits of Employer. f. Employee shall have the right to participate in any other employee benefit plans established by Employer. g. Unless a pre-existing plan of Employer expressly forbids it, all Rights which may become exercisable during the term hereof shall be paid for in cash only if Employee so elects, otherwise they may be paid for. (i) by the transfer by Employee to Employer of so much of Employee's Rights which, when valued at the highest trading price of the underlying securities of Employer during the previous six months, will offset the price of the Rights then being exercised; (ii) by means of 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 by the shares of stock being paid for thereby, which Note shall become due and payable at the earlier of the expiration hereof or, on a pro rata basis, the sale by Employee of all or part of the Rights or underlying stock which constitute security for the Note; or (iii) by any combination of cash and (ii) or (iii), above. 5. EXPENSES. Employee shall be reimbursed for all of his actual out-of-pocket expenses incurred in the performance of his duties hereunder, provided such expenses are acceptable to Employer, which approval shall not be unreasonably withheld, for business related travel and entertainment expenses, and that Employee shall submit to Employer reasonably detailed receipts with respect thereto. 6. VACATION. Employee shall be entitled to receive three (3) weeks paid vacation time after each year of employment upon dates agreed upon by Employer. Upon separation of employment, for any reason, vacation time accrued and not used shall be paid at the salary rate of Employee in effect at the time of employment separation. 7. SECRECY. At no time shall Employee disclose to anyone any confidential or secret information (not already constituting information available to the public) concerning (a) 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, without the express prior written consent of ACTV, 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. Nor shall Employee, during the term of his employment, and for a period of three (3) years thereafter, individually or through any entity, directly or indirectly, without the express prior written consent of ACTV, make or otherwise extend any offer of full-time or part-time employment to any officer or employee of ACTV and/or of any ACTV affiliate, or otherwise solicit any officer or employee of ACTV and/or of any ACTV affiliate to seek or accept any full-time or part-time employment, by or with any person or entity other than ACTV or any ACTV affiliate. 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 non-U.S. areas in which ACTV and/or any ACTV affiliate may 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/her 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. 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 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 10 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 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 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, which has last been modified effective January 18, 2001, contains the entire agreement between the parties with respect to the transactions contemplated herein and supersedes, 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 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 Enhanced Media Services, Inc. 225 Park Avenue South New York, New York, 10003 Attention: Day Patterson Telephone: (212) 497-7000 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. 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 EX-10.51(1) 7 a2041842zex-10_511.txt EXHIBIT 10.51.1 Exhibit 10.51.1 OPTION AGREEMENT OPTION AGREEMENT dated as of 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 1,655,000 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 1,655,000 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 to and including January 1, 2002, in three annual installments of 551,667 (on each of January 1, 2000 and January 1, 2001) and 551,666 (on January 1,2002) 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, the Employee shall have the fully vested right to purchase 1,655,000 Option Shares. In the event that the Employee's employment with the Corporation terminates prior to any January 1 of any year, the Employee shall not have the right or option to purchase any part of the respective annual installment of Option Shares that would have otherwise vested on or after that particular January 1. With respect to the Option, the "Option Period" shall commence on the date hereof and terminate on December 31, 2006. b. The Option may be exercised by the Employee by delivery to the Corporation, at any time commencing one year from the date hereof, of a written notice (the "Option Notice"), which Option Notice shall state the Employee's intention to exercise the Option, the date on which the Employee proposes to purchase the Option Shares (the "Closing Date") and the number of Option Shares to be purchased on the Closing Date, which Closing Date shall be no later than 30 days nor earlier than 10 days following the date of the Option Notice. Upon receipt by the Corporation of an Option Notice from the Employee, the Employee shall be obligated to purchase that number of Option Shares to be purchased on the Closing Date set forth in the Option Notice. c. The purchase and sale of Option Shares acquired pursuant to the terms of this Option Agreement shall be made on the Closing Date at the offices of the Corporation. Delivery of the Stock certificate or other instrument registered in the name of the Employee, evidencing the Option Shares being purchased on the Closing Date, shall be made by the Corporation to the holder of this Option on the Closing Date against the delivery to the Corporation of a check in the full amount of the aggregate purchase price therefor. 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, 2 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 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 EMPLOYEE. 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 3 expiration of the term of the Option. SECTION 6. PIGGYBACK REGISTRATION. a. If, at any time commencing January 1, 2000 and expiring December 31, 2006, the Corporation proposes to register any of its securities under the Securities Act (other than in connection with a merger or pursuant to Form S-8 or other comparable Form) it will give written notice by registered mail, at least thirty (30) days prior to the filing of such registration statement, to the Employee of its intention to do so. If the Employee notifies the Corporation within ten (10) days after receipt of any such notice of his desire to include any Option Shares, owned by him (on a fully vested basis) in such proposed registration statement, the Corporation shall afford the Employee the opportunity to have any of his Option Shares registered under such registration statement, the Corporation shall afford the Employee the opportunity to have any of his Option Shares registered under such registration statement; provided that (i) such inclusion does not pose any significant legal problem and (ii) if such 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, 4 provided that the Corporation will pay, the costs and expenses of Employee's counsel when the Corporation's counsel is representing all selling security holders. SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This Agreement (including the Option) and all rights hereunder shall not be transferable at any time without the prior written consent of the Corporation. This Agreement and all the rights hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and transferees. SECTION 8. NOTICES. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If the Corporation, to: ACTV, Inc. 225 Park Avenue South 18th Floor New York, New York 10020 Attention: Day L. Patterson, EVP/General Counsel 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. SECTION 10. ENTIRE AGREEMENT. This Agreement, as last updated on January 10, 2001, 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. 5 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 L. Patterson EVP/General Counsel Agreed:______________________ WILLIAM C. SAMUELS 6 EX-10.52(1) 8 a2041842zex-10_521.txt EXHIBIT 10.52.1 Ehibit 10.52.1 OPTION AGREEMENT OPTION AGREEMENT dated as of February 21, 1998, between ACTV, Inc., a Delaware corporation (the "Corporation") and Bruce J. Crowley (the "Employee"). The Corporation desires to grant to the Employee the right and option to purchase up to 633,000 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 633,000 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 com-mencing January 1, 2000 to and including January 1, 2002, in three annual installments of 211,000 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, the Employee shall have the fully vested right to purchase 633,000 Option Shares. In the event that the Employee's employment with the Corporation terminates prior to any January 1 of any year, the Employee shall not have the right or option to purchase any part of the respective installment of 211,000 Option Shares that would have otherwise vested on or after that particular January 1. With respect to the Option, the "Option Period" shall commence on the date hereof and terminate on December 31, 2006. b. The Option may be exercised by the Employee by delivery to the Corporation, at any time commencing one year from the date hereof, of a written notice (the "Option Notice"), which Option Notice shall state the Employee's intention to exercise the Option, the date on which the Employee proposes to purchase the Option Shares (the "Closing Date") and the number of Option Shares to be purchased on the Closing Date, which Closing Date shall be no later than 30 days nor earlier than 10 days following the date of the Option Notice. Upon receipt by the Corporation of an Option Notice from the Employee, the Employee shall be obligated to purchase that number of Option Shares to be purchased on the Closing Date set forth in the Option Notice. c. The purchase and sale of Option Shares acquired pursuant to the terms of this Option Agreement shall be made on the Closing Date at the offices of the Corporation. Delivery of the Stock certificate or other instrument registered in the name of the Employee, evidencing the Option Shares being purchased on the Closing Date, shall be made by the Corporation to the holder of this Option on the Closing Date against the delivery to the Corporation of a check in the full amount of the aggregate purchase price therefor. 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. 2 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 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 EMPLOYEE. 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 3 his Will or by the laws of descent and distribution, (ii) to the extent that the Employee was entitled to exercise the Option at the date of his death, and (iii) prior to the expiration of the term of the Option. SECTION 6. PIGGYBACK REGISTRATION. a. If, at any time commencing January 1, 2000 and expiring December 31, 2006, the Corporation proposes to register any of its securities under the Securities Act (other than in connection with a merger or pursuant to Form S-8 or other comparable Form) it will give written notice by registered mail, at least thirty (30) days prior to the filing of such registration statement, to the Employee of its intention to do so. If the Employee notifies the Corporation within ten (10) days after receipt of any such notice of his desire to include any Option Shares, owned by him (on a fully vested basis) in such proposed registration statement, the Corporation shall afford the Employee the opportunity to have any of his Option Shares registered under such registration statement, the Corporation shall afford the Employee the opportunity to have any of his Option Shares registered under such registration statement; provided that (i) such inclusion does not pose any significant legal problem and (ii) if such 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 4 commissions to any underwriter; (b) any stock transfer taxes incurred with respect to Option Shares sold in the offering or (c) the fees and expenses of counsel for Employee, provided that the Corporation will pay, the costs and expenses of Employee's counsel when the Corporation's counsel is representing all selling security holders. SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This Agreement (including the Option) and all rights hereunder shall not be transferable at any time without the prior written consent of the Corporation. This Agreement and all the rights hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and transferees. SECTION 8. NOTICES. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If the Corporation, to: ACTV, Inc. 225 Park Avenue South 18th Floor New York, New York 10003 Attention: Day L. Patterson, EVP/General Counsel If to the Employee, to: Bruce J. Crowley 257 West 17th Street, Apt. 4C New York, New York 10011 or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. If mailed as aforesaid, any such communication shall be deemed to have been given on the third business day following the day on which the piece of mail containing such communication is posted. SECTION 9. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with the laws of the State of New York. SECTION 10. ENTIRE AGREEMENT. This Agreement, as last updated on January 10, 2001, 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, 5 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 L. Patterson, EVP/General Counsel Agreed:_______________________________ BRUCE J. CROWLEY 6 EX-10.53(1) 9 a2041842zex-10_531.txt EXHIBIT 10.53.1 Exhibit 10.53.1 OPTION AGREEMENT OPTION AGREEMENT dated as of 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 1,040,000 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 1,040,000 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 to and including January 1, 2002, in three annual installments of 346,667 (on each of January 1, 2000 and January 1, 2001) and 346,666 (on January 1, 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, the Employee shall have the fully vested right to purchase 1,040,000 Option Shares. In the event that the Employee's employment with the Corporation terminates prior to any January 1, the Employee shall not have the right or option to purchase any part of the respective annual installment of Option Shares that would have otherwise vested on or after that particular January 1. With respect to the Option, the "Option Period" shall commence on the date hereof and terminate on December 31, 2006. b. The Option may be exercised by the Employee by delivery to the Corporation, at any time commencing one year from the date hereof, of a written notice (the "Option Notice"), which Option Notice shall state the Employee's intention to exercise the Option, the date on which the Employee proposes to purchase the Option Shares (the "Closing Date") and the number of Option Shares to be purchased on the Closing Date, which Closing Date shall be no later than 30 days nor earlier than 10 days following the date of the Option Notice. Upon receipt by the Corporation of an Option Notice from the Employee, the Employee shall be obligated to purchase that number of Option Shares to be purchased on the Closing Date set forth in the Option Notice. c. The purchase and sale of Option Shares acquired pursuant to the terms of this Option Agreement shall be made on the Closing Date at the offices of the Corporation. Delivery of the Stock certificate or other instrument registered in the name of the Employee, evidencing the Option Shares being purchased on the Closing Date, shall be made by the Corporation to the holder of this Option on the Closing Date against the delivery to the Corporation of a check in the full amount of the aggregate purchase price therefor. 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. 2 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 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 EMPLOYEE. 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 3 his Will or by the laws of descent and distribution, (ii) to the extent that the Employee was entitled to exercise the Option at the date of his death, and (iii) prior to the expiration of the term of the Option. SECTION 6. PIGGYBACK REGISTRATION. a. If, at any time commencing January 1, 2000 and expiring December 31, 2006, the Corporation proposes to register any of its securities under the Securities Act (other than in connection with a merger or pursuant to Form S-8 or other comparable Form) it will give written notice by registered mail, at least thirty (30) days prior to the filing of such registration statement, to the Employee of its intention to do so. If the Employee notifies the Corporation within ten (10) days after receipt of any such notice of his desire to include any Option Shares, owned by him (on a fully vested basis) in such proposed registration statement, the Corporation shall afford the Employee the opportunity to have any of his Option Shares registered under such registration statement, the Corporation shall afford the Employee the opportunity to have any of his Option Shares registered under such registration statement; provided that (i) such inclusion does not pose any significant legal problem and (ii) if such 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 4 commissions to any underwriter; (b) any stock transfer taxes incurred with respect to Option Shares sold in the offering or (c) the fees and expenses of counsel for Employee, provided that the Corporation will pay, the costs and expenses of Employee's counsel when the Corporation's counsel is representing all selling security holders. SECTION 7. TRANSFER OF OPTION; SUCCESSORS AND ASSIGNS. This Agreement (including the Option) and all rights hereunder shall not be transferable at any time without the prior written consent of the Corporation. This Agreement and all the rights hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and transferees. SECTION 8. NOTICES. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to the Corporation, to: ACTV, Inc. 225 Park Avenue South 18th Floor New York, New York 10003 Attention: Day L. Patterson, EVP/General Counsel If to the Employee, to: David Reese 30 Maclay Road Montville, New Jersey 07045 or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. If mailed as aforesaid, any such communication shall be deemed to have been given on the third business day following the day on which the piece of mail containing such communication is posted. SECTION 9. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with the laws of the State of New York. SECTION 10. ENTIRE AGREEMENT. This Agreement, as last updated on January 10, 2001, 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, 5 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 L. Patterson, EVP/General Counsel Agreed:______________________ DAVID REESE 6 EX-10.54(1) 10 a2041842zex-10_541.txt EXHIBIT 10.54.1 Exhibit 10.54.1 FIRST AMENDMENT TO LEASE ------------------------ AGREEMENT, dated as of May 23, 2000 between 225 FOURTH, LLC, a Delaware limited liability company whose address is c/o Orda Management Corporation, 225 Park Avenue South, New York, New York 10003 ("LANDLORD"), and ACTV, INC., 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 ("TENANT"). WITNESSETH: ----------- WHEREAS, pursuant to a Lease, dated as of December 1, 1999, between Landlord and Tenant (the "LEASE"), Tenant is leasing from Landlord the entire 19th Floor and the 19th Floor Mezzanine (the "ORIGINAL PREMISES" or the "PREMISES") of the office building known as 225 Park Avenue South, New York, New York ("BUILDING A") and the entire 10th floor (the "FIRST TEMPORARY SPACE") of 233 Park Avenue South, New York, New York ("BUILDING B"; together with Building A, the "BUILDING"). WHEREAS, Landlord and Tenant desire to amend the Lease to provide that Landlord leases to Tenant and Tenant hires from Landlord the entire 18th floor of Building A, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, Landlord and Tenant agree as follows: 1. DEFINED TERMS. All capitalized terms used herein but not defined shall have the meanings ascribed to them in the Lease. 2. EXPANSION SPACE. Landlord and Tenant hereby acknowledge that Tenant has exercised Tenant's Expansion Option pursuant to Article 10 of the Lease and that the Expansion Space shall become part of the Premises, on the terms and conditions set forth in Article 10 of the Lease, on the ES Inclusion Date. 3. LEASE OF NEW SPACE. (a) Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, upon and subject to the terms, covenants, provisions and conditions of the Lease and this Agreement, the entire 18th floor of Building A substantially as shown hatched on the plan attached hereto as EXHIBIT A (the "NEW SPACE"). The New Space shall be conclusively deemed to contain 25,902 rentable square feet. Effective as of the date hereof, the terms "PREMISES" and "ORIGINAL PREMISES" as used in the Lease shall (except as set forth to the contrary in this SECTION 3) be deemed to include the New Space. (b) The lease of the New Space by Tenant shall be on all of the terms and conditions of the Lease (as amended hereby), except that: (i) (A) The term of the lease of the New Space shall commence on the New Space Possession Date (as defined below) and shall end, unless sooner terminated as provided in the Lease, on the Expiration Date (as defined in Section 1.02 of the Lease). "NEW SPACE POSSESSION DATE" shall mean the day on which Landlord's New Space Work (as defined below) is substantially completed in accordance with SECTION 3(b)(i)(C) below. Landlord shall use reasonable efforts to substantially complete Landlord's New Space Work on or before February 1, 2001. If Landlord's New Space Work is substantially completed prior to February 1, 2001, such date of substantial completion shall be the New Space Possession Date. Landlord shall advise Tenant of the date Landlord's New Space Work is substantially completed and Landlord and Tenant shall promptly confirm the New Space Possession Date and the New Space Rent Commencement 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 the Lease. Tenant shall have the right to dispute the determination of the New Space 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 New Space or otherwise taken exclusive possession of the New Space prior to Landlord's proposed New Space Possession Date. Pending the resolution of any dispute as to the New Space Possession Date, Tenant shall pay New Space Rent based upon Landlord's determination. (B) Landlord shall provide Tenant with written notice upon Landlord obtaining vacant possession of the New Space from The City University of New York and the Insurance Trust Fund, the tenants in possession of the space as of the date of this Agreement. Landlord also shall provide Tenant with 5 business days' written notice of the anticipated date of completion of Landlord's New Space Work; PROVIDED, that failure to deliver the New Space to Tenant on the anticipated date of completion of Landlord's New Space Work shall not impair the validity of this Agreement nor shall it delay the New Space Possession Date. (C) Landlord's New Space Work shall be deemed to have been substantially completed on the date upon which Landlord's New Space Work has been completed, except for (x) minor details or adjustments, (y) items which, in accordance with good construction practice, should be performed after completion of Tenant's Initial Improvements with respect to the New Space and (z) any part of Landlord's New Space Work that is not completed due to Tenant Delay; PROVIDED, that in each case Landlord shall nevertheless remain obligated to complete Landlord's New Space Work. If Tenant takes exclusive possession of the New Space for the performance of Tenant's Initial Improvements with respect to the New Space or for any other reason, Landlord's New Space Work shall be deemed to be substantially complete. For purposes of this SECTION 3(b)(i)(C), Tenant shall be deemed to have taken exclusive possession of the New Space, notwithstanding the fact that Landlord may be performing the work described in items (x), (y) and (z) of this SECTION 3(b)(i)(C) in the New Space at such time as Tenant commences performance of Tenant's Initial Improvements with respect to the New Space. (D) If for any reason (including, without limitation, any holdover in the New Space by any prior tenant or occupant thereof) Landlord shall be unable to deliver possession of the New Space to Tenant on any date specified in this Agreement for such delivery, Landlord shall have no liability to Tenant therefor and the validity of this Agreement shall not be impaired, nor shall the term of this Agreement be extended, by reason thereof. This -2- SECTION 3(b)(i)(D) 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. (E) In no event shall the New Space Possession Date occur prior to July 1, 2000. (F) Notwithstanding anything to the contrary contained herein, if Landlord does not deliver the New Space to Tenant on or prior to February 1, 2002 (the "NEW SPACE FIRST TERMINATION DATE"), then Tenant shall have the right to terminate this Agreement upon thirty (30) days prior written notice (a "NEW SPACE TERMINATION NOTICE") to Landlord given at any time after the occurrence of the New Space First Termination Date, and if the New Space Possession Date shall not have occurred within thirty (30) days after such New Space Termination Notice is given, then this Agreement shall terminate upon the expiration of such thirty (30) day period as if such date were the date originally set forth for the expiration of this Agreement; PROVIDED, HOWEVER, that the Lease shall remain unmodified and in full force and effect. If Tenant has not delivered a New Space Termination Notice and the New Space has not been delivered to Tenant on or prior to May 1, 2002 (the "NEW SPACE SECOND TERMINATION DATE"), either Tenant or Landlord shall have the right to terminate this Agreement by sending a New Space Termination Notice to the other party given at any time after the occurrence of the New Space Second Termination Date, and if the New Space Possession Date shall not have occurred within thirty (30) days after the date such New Space Termination Notice is given, then this Agreement shall terminate upon the expiration of such thirty (30) day period as if such date were the date originally set forth for the expiration of this Agreement; PROVIDED, HOWEVER, that the Lease shall remain unmodified and in full force and effect. (ii) Fixed Rent in respect of the New Space ("NEW SPACE RENT") shall be payable from and after the New Space Rent Commencement Date (as hereinafter defined) as follows: (A) for the period commencing on the New Space Rent Commencement Date and ending on the day immediately preceding the 5th anniversary of the New Space Rent Commencement Date, One Million One Hundred Ninety One Thousand Four Hundred Ninety Two and 00/100 ($1,191,492.00) Dollars per annum, payable in equal monthly installments of Ninety Nine Thousand Two Hundred Ninety One and 00/100 ($99,291.00) Dollars (an annual rate of $46.00 per rentable square foot contained in the New Space); (B) for the period commencing on the 5th anniversary of the New Space Rent Commencement Date and ending on the day immediately preceding the 10th anniversary of the New Space Rent Commencement Date, One Million Two Hundred Ninety Five Thousand One Hundred and 00/100 ($1,295,100.00) Dollars per annum, payable in equal monthly installments of One Hundred Seven Thousand Nine Hundred Twenty Five and 00/100 ($107,925.00) Dollars (an annual rate of $50.00 per rentable square foot contained in the New Space); and (C) for the period commencing on the 10th anniversary of the New Space Rent Commencement Date and ending on the Expiration Date, One Million Four -3- Hundred Twenty Four Thousand Six Hundred Ten and 00/100 ($1,424,610.00) Dollars per annum, payable in equal monthly installments of One Hundred Eighteen Thousand Seven Hundred Seventeen and 50/100 ($118,717.50) Dollars (an annual rate of $55.00 per rentable square foot in the New Space). New Space Rent shall be payable by Tenant in equal monthly installments in advance commencing on the New Space Rent Commencement Date and on the first day of each calendar month thereafter; PROVIDED, that Tenant shall pay, upon the New Space Possession Date, the first full monthly installment of New Space Rent and PROVIDED FURTHER, that if the New Space Rent Commencement Date is not the first day of a month, then the New Space Rent for the month in which the New Space Rent Commencement Date occurs shall be prorated and paid on the New Space Rent Commencement Date. "NEW SPACE RENT COMMENCEMENT DATE" means the date occurring in the fourth (4th) month after the New Space Possession Date which is the same numerical date in the month as the New Space Possession Date except that if no same numerical date shall exist in such fourth (4th) month, the New Space Rent Commencement Date shall be the last day of such fourth (4th) month. (iii) From and after the New Space Possession Date, Tenant shall pay Tenant's tax share in respect of the New Space ("NEW SPACE TAX SHARE") in the manner provided in SECTION 2.04 of the Lease. The New Space Tax Share shall mean 5.5027%. The parties hereto agree that the rentable square foot area of the New Space shall be deemed to be 25,902 rentable square feet and, for the purpose of calculating the New Space Tax Share, the rentable square foot area of Building A shall be deemed to be 470,717 rentable square feet. The New Space Tax Share has been determined by dividing the rentable square foot area of the New Space by the rentable square foot area of Building A. (iv) (A) Upon the execution of this Agreement, Tenant has delivered to Landlord, as security for the performance of Tenant's obligations under the Lease and this Agreement, either (i) the sum of $500,000.00, in certified or official bank check (the "INITIAL NEW SPACE SECURITY DEPOSIT"), or (ii) an unconditional, irrevocable letter of credit in the amount of $500,000.00 in a form and issued by a bank reasonably satisfactory to Landlord (the "INITIAL NEW SPACE LETTER OF CREDIT"). Within ten (10) days after notice from Landlord to Tenant that the New Space is vacant and Landlord is in possession of the New Space, Tenant shall deliver to Landlord, as further security for the performance of Tenant's obligations under the Lease and this Agreement, either (i) the sum of $2,200,000.00, in certified or official bank check (the "ADDITIONAL NEW SPACE SECURITY Deposit"; together with the Initial New Space Security Deposit, the "NEW SPACE SECURITY DEPOSIT") or (ii) an unconditional, irrevocable letter of credit in the amount of $2,200,000.00 in a form issued by a bank reasonably satisfactory to Landlord (the "ADDITIONAL NEW SPACE LETTER OF CREDIT"; together with the Initial New Space Letter of Credit, the "NEW SPACE LETTER OF CREDIT"). The New Space Letter of Credit and the New Space Security Deposit shall be subject to the terms and conditions set forth in Section 2.09(a) of the Lease. (B) In the event that Tenant shall have prior to the expiration of the Election Period elected to forego receipt of Landlord's New Space Contribution pursuant -4- to SECTION 3(b)(viii) below, the amount of the New Space Security Deposit required hereunder shall be reduced by $647,550.00. (C) If, from and after the New Space Possession Date, (A) there is not a monetary default beyond any applicable notice and grace period under the Lease, as amended by this Agreement and (B) Tenant delivers to Landlord evidence that it has a NOI (as defined in the Lease) of at least $8,000,000.00 and that the Tenant has maintained a NAV (as defined in the Lease) of at least $40,000,000.00 during the preceding twenty-four (24) month period, then the New Space Security Deposit shall be reduced to $1,191,492.00. (D) If the New Space Security Deposit has been reduced pursuant to SECTION 3(b)(iv)(C) above, then if, during the first nine (9) years of the Term, there is not a monetary default beyond any applicable notice and grace period under the Lease, as amended by this Agreement, then upon the tenth (10th) anniversary of the New Space Rent Commencement Date, the New Space Security Deposit shall be reduced by $99,291.00; and if, during each succeeding year of the Term, there is not a monetary default beyond any applicable notice and grace period, then upon each succeeding anniversary of the New Space Rent Commencement Date, the New Space Security Deposit shall be reduced by an additional $99,291.00. (E) If the Security Deposit is reduced pursuant to SECTION 3(b)(iv)(D) above, and after the date of any such reduction there is a monetary default beyond any applicable notice and grace period, the New Space Security Deposit required shall be increased to $1,191,492.00 (the amount of the New Space Security Deposit prior to any reduction pursuant to SECTION 3(b)(iv)(C) above) 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 3(b)(iv)(A) above, the difference between $1,191,492.00 and the then current amount of the New Space Security Deposit. (F) In the event that Tenant is entitled to a reduction in the amount of the New Space Security Deposit under SECTIONS 3(b)(iv)(C) or (D) above, Landlord shall (1) if the New Space Security Deposit was paid in cash, return the amount of such reduction to Tenant by check or (2) if the New Space Security Deposit was given in the form of a letter of credit, exchange the existing New Space Letter of Credit for a letter of credit in the amount of the reduced New Space Security Deposit. If, within thirty (30) days after receiving notice from Tenant that Tenant is entitled to a reduction in the New 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 New Space Security Deposit, then Tenant shall be entitled to interest, at the Interest Rate, on the amount of the reduction of the New Space Security Deposit. (G) If, the New Space Security Deposit has been reduced pursuant to SECTION 3(b)(iv)(C) above, and at any time during the Term, after such reduction, -5- Tenant's NOI falls below $8,000,000.00 and/or Tenant's NAV falls below $40,000,000.00, then the New Space Security Deposit required shall be increased to $2,700,000.00 (less any reduction in the New Space Security Deposit pursuant to SECTION 3(b)(iv)(B) above, if applicable) and Tenant shall be required to deliver to Landlord as further security for the performance of Tenant's obligations under the Lease, as amended by this Agreement, within ten (10) days notice from Landlord and in accordance with the provisions of SECTION 3(b)(iv)(A) above, an amount equal to the difference between $2,700,000.00 (less any reduction in the New Space Security Deposit pursuant to SECTION 3(b)(iv)(B) above, if applicable) and the then current amount of the New Space Security Deposit. (v) From and after the New Space Possession Date, Landlord shall supply the New Space with electric service as set forth in SECTION 2.07 of the Lease and Tenant shall pay for electricity supplied to the New Space at the rate and in the manner provided therein. (vi) From and after the New Space Possession Date, Tenant shall pay the Wage Increase Charge at the rate and in the manner provided in SECTION 2.10(B) of the Lease. The Multiplication Factor with respect to the New Space shall mean the product obtained by multiplying the area of the New Space (which, for the purposes of this Section, the parties have agreed shall be 25,902 rentable square feet, as the same may be increased or decreased pursuant to the express provisions of the Lease and this Agreement) by one (1). (vii) Unless Tenant shall have elected to forego the same pursuant to SECTION 3(b)(viii) below, Landlord agrees to contribute Twenty-Five ($25) Dollars per rentable square foot of the New Space, for a total of $647,550.00, toward the cost of the Tenant's Initial Improvements with respect to the New Space ("LANDLORD'S NEW SPACE CONTRIBUTION"). Landlord shall pay Landlord's New Space Contribution in the manner set forth in SECTION 4.01(e) of the Lease; and SECTION 4.01(f) and (g) of the Lease shall apply to the Landlord's New Space Contribution as well as to the Landlord's Contribution. (viii) During the Election Period (as defined in the Lease) and provided that Tenant provides Landlord with evidence reasonably satisfactory to Landlord that Tenant's Initial Improvements with respect to New Space will cost a minimum of Twenty-Five ($25) Dollars per rentable square foot of the New Space, Tenant shall have the right to elect not to receive Landlord's New Space Contribution and, in lieu thereof, shall receive a reduction in New Space Rent of $3.02 per year per rentable square foot contained in the New Space (i.e., $78,224.04 per year with respect to the New Space). 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. Tenant may only elect not to receive Landlord's New Space Contribution pursuant to this provision if Tenant also shall elect not to receive Landlord's Contribution pursuant to SECTION 2.02(b) of the Lease. (ix) Landlord shall furnish Tenant with heat, ventilation and air-conditioning to the New 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 -6- wservice at a rate which is the greater of (x) the actual cost to Landlord of providing the service in question and (y) $150.00 per hour, for a minimum of four (4) hours; provided that if other tenants in Building A 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. (x) Landlord shall deliver to the New Space 65 nominal tons of air conditioning per floor with adequate condenser water (up to 65 nominal tons) from Landlord's cooling towers to serve such air conditioning from May 1st to October 15th on Business Days during Business Hours. Tenant shall have the right to install supplementary or auxiliary air-cooled HVAC equipment to serve the New Space, the specifications and installation of which system shall be subject to Landlord's reasonable approval, which shall include, without limitation, the consideration of the structural impact and the aesthetic impact on Building A of such supplementary or auxiliary air-cooled HVAC equipment; PROVIDED, HOWEVER, that if Landlord has excess condenser water capacity, which shall be determined by Landlord in Landlord's sole discretion, Landlord shall permit Tenant to use such excess capacity in lieu of installing supplementary or auxiliary air-cooled HVAC equipment to serve the New Space. Such excess condenser water shall be provided to Tenant, at Tenant's expense, in an amount equal to Landlord's then established rate for the provision of condenser water, which in no event shall be less than $150.00 per hour, for a minimum of four (4) hours. 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 of Building A 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. (xi) Landlord, at Landlord's expense, shall perform or cause to be performed the initial work described on EXHIBIT B ("LANDLORD'S NEW SPACE WORK") in accordance with the provisions thereof. On the New Space Possession Date, Tenant shall accept the New Space in its "as is" condition on such date; PROVIDED that Landlord's New Space Work shall be substantially complete in accordance with SECTION 3(b)(i)(C) above. All other improvements which do not constitute Landlord's Initial Work or Landlord's New Space Work shall be performed by Tenant at Tenant's expense in accordance with SECTIONS 4.01 and 4.02 of the Lease. (xii) The representations made by the Landlord in Section 4.06(d) though (h) of the Lease shall apply to the New Space. (xiii) There shall not be more than 1 subtenant of the New Space and no sublease shall be for less than 5,000 rentable square feet. In all other respects, any assignment or subletting of the New Space shall be subject to the terms and conditions of Article 5 of the Lease. (xiv) 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 elevator lobby of the New Space. -7- (xv) Section 8.18(b) of the Lease is hereby amended by deleting the number "5" from the last line thereof and inserting the number "10" in lieu thereof, so that Tenant shall be entitled to a minimum of 10 spaces in the Building directory. 4. TEMPORARY SPACE. (a) In Section 1.06(a) of the Lease, the reference to "Section 1.08" shall be replaced by "Article 10." (b) Notwithstanding anything to the contrary contained in Section 1.03(a) or Section 1.06 of the Lease, Landlord and Tenant hereby agree that Landlord shall have no obligation to provide Tenant with the Second Temporary Space referenced in Section 1.06(b) of the Lease. 5. TELECOMMUNICATIONS. (a) Tenant shall have the right to install, maintain and operate, at Tenant's sole cost and expense, communications equipment (e.g., a satellite dish or dishes) (the "ROOF EQUIPMENT") in a location on the roof of the Building A, which location shall be determined in Landlord's sole discretion, PROVIDED that in exercising its sole discretion, Landlord shall use commercially reasonable efforts to select a location for the Roof Equipment which does not materially adversely affect the receipt of and/or transmittal of microwave or other similar signals to or from the Roof Equipment. The Roof Equipment shall not exceed a footprint of five (5') feet by five (5') feet and shall weigh no more than twenty (20) pounds. Tenant shall pay to Landlord $1,250.00 per annum for the use of such space on the roof, which charge shall be considered an Additional Charge under the Lease. (b) Tenant shall furnish detailed plans and specifications for the Roof Equipment (or any modification thereof) to Landlord for its approval. Tenant's use of the rooftop of the Building shall be a non-exclusive use and Landlord may permit the use of any other portion of the roof to any other person for any use including installation of other communication equipment. Tenant's use of the rooftop shall not impair any other person's data transmission and reception via its respective communication equipment. If Tenant's construction, installation, maintenance, repair, operation or use of the Roof Equipment shall interfere with the rights of Landlord (including, without limitation, Landlord's right to use the remainder of the roof) or of other tenants in the Building, Tenant shall cooperate with Landlord or such other tenants in eliminating such interference. Tenant shall secure and keep in full force and effect, from and after the time Tenant begins construction and installation of the Roof Equipment, such supplementary insurance with respect to the Roof Equipment as Landlord may reasonably require. Tenant shall pay any additional or increased insurance premiums incurred by Landlord with respect to the Roof Equipment. (c) In connection with the installation, maintenance and operation of the Roof Equipment, Tenant, at Tenant's sole cost and expense, shall comply with all Laws, including, without limitation, any requirement to install screening surrounding such installations, and shall procure, maintain and pay for all permits required therefor, and Landlord makes no warranties whatsoever as to the permissibility of Roof Equipment under applicable Laws or the suitability of the roof of the Building for the installation thereof. If Landlord's structural engineer deems it advisable that there be structural reinforcement of the roof in connection with the installation of the Roof Equipment Landlord shall perform same at Tenants' cost and expense -8- and Tenant shall not perform any such installation prior to the completion of any such structural reinforcement. The installation of the Roof Equipment shall be subject to the provisions of SECTION 4.02 of the Lease applicable to Alterations. For the purpose of installing, servicing or repairing the Roof Equipment (including, without limitation, running wires from the Original Premises and/or the New Space to the Roof Equipment), Tenant shall have access to the rooftop of the Building at reasonable times upon reasonable notice to Landlord and Landlord shall have the right to require, as a condition to such access, that Tenant (or its employee, contractor or other representative) at all times be accompanied by a representative of Landlord. Unless the electricity consumed by the Roof Equipment is included on Tenant's submeters, Landlord shall reasonably estimate the electricity consumed by the Roof Equipment and Tenant shall pay to Landlord on the first day of each month the amount so determined by Landlord. (d) Tenant, at its sole cost and expense, shall promptly repair any and all damage to the rooftop or to any other part of the Building caused by the installation, maintenance, repair, operation or removal of the Roof Equipment. Tenant shall be responsible for all costs and expenses for repairs and maintenance of the roof which result from Tenant's use of the roof for the construction, installation, maintenance, repair, operation and use of the Roof Equipment. All installations made by Tenant on the rooftop or in any other part of the Building pursuant to the provisions of this PARAGRAPH 5 shall be at the sole risk of Tenant, and neither Landlord, nor any agent or employee of Landlord, shall be responsible or liable for any injury or damage to, or arising out of, the Roof Equipment. Tenant's indemnity under SECTION 6.12 of the Lease shall apply with respect to the installation, maintenance, operation, repair, presence or removal of the Roof Equipment. (e) Upon the expiration of the Term, the Roof Equipment shall be removed by Tenant at its sole cost and expense, and Tenant shall repair any damage to and restore the rooftop or any other portions of the Building to their condition existing immediately prior to Tenant's installation of the Roof Equipment. (f) Notwithstanding anything to the contrary contained in this PARAGRAPH 5, Landlord shall have the right, at Landlord's expense, to relocate the Roof Equipment to another location on the roof of the Building, provided that Landlord does not, except on a temporary basis, materially adversely affect the receipt of and/or transmittal of microwaves or other similar signals, and Tenant shall cooperate in all reasonable respects with Landlord in any such relocation; PROVIDED, that if such relocation is done pursuant to any Law, the cost thereof shall be borne by Tenant. (g) The rights granted in this PARAGRAPH 5 are given in connection with, and as part of the rights created under, this Lease and are not separately transferable or assignable but shall inure to and benefit Tenant and its permitted successors and assigns. Tenant shall use the Roof Equipment solely in connection with activities permitted under SECTION 1.05 of the Lease. Tenant shall not sell any services arising out of the use of the Roof Equipment (i) to any other tenant or occupant of the Building (other than subtenants of Tenant) or (ii) to the general public. -9- (h) If the installation of the Roof Equipment or any act or omission relating thereto should revoke, negate or in any manner impair or limit any roof warranty or guaranty obtained by Landlord, then Tenant shall reimburse Landlord for any loss or damage sustained or costs or expenses incurred by Landlord as a result of such impairment or limitation. 6. PASSENGER ELEVATORS. (a) Landlord and Tenant agree that Landlord shall perform such work as is necessary to provide three (3) passenger elevators to the 19th floor. Landlord and Tenant further agree that Tenant shall pay to Landlord, the sum of $300,000.00 ("TENANT'S ELEVATOR CONTRIBUTION") which shall be used by Landlord towards the expenses of providing three (3) passenger elevators to the 19th floor. Such expenses shall include, but shall not be limited to, the cost of the elevators, the cost of the structural work and any fees for the services of architects, engineers or other design professionals related to the extension of the passenger elevator service. Tenant's Elevator Contribution shall be payable in six (6) equal monthly installments of $50,000.00, commencing on June 1, 2000 and on the first day of each calendar month thereafter through and including December 1, 2000. Landlord and Tenant hereby agree that the construction work necessary to extend such passenger elevator service shall be performed pursuant to Landlord's agreements with Republic Elevator Corp., ACC Construction Corp. and Building System Evaluations regarding such construction work. (b) If Landlord shall not have delivered the Original Premises to Tenant and Tenant or Landlord shall elect to terminate the Lease in accordance with Section 1.06(e) of the Lease, then Landlord shall pay to Tenant the amount of Tenant's Elevator Contribution plus interest at the rate of nine (9%) percent calculated from September 1, 2000 through the Termination Date set forth in the Termination Notice. 7. REPAIRS. SECTION 4.05 of the Lease shall be amended to include the following provisions: "(b) Landlord shall maintain, operate and repair the Building in a standard comparable to that of first class multi-tenanted non-institutional office buildings in the Union Square area of Manhattan." 8. INTERIOR STAIRWAY. Tenant shall have the right to install an interior stairway between the New Space and the 19th Floor of the Original Premises, subject to Landlord's consent which shall not be unreasonably withheld or delayed. The installation of such an interior stairway shall be subject to the requirements of Article 4 of the Lease; PROVIDED, however, that if Tenant has constructed an interior stairway in the Premises, then at least six (6) months prior to the expiration of the Term, Tenant shall by written notice to Landlord request that Landlord advise Tenant, in writing, no later than three (3) months prior to the expiration of the Term, of whether Landlord will require that Tenant demolish and remove the interior stairway and close and restore all interior stair openings. In the event that Landlord does not so advise Tenant, as aforesaid, Landlord shall be deemed to have required the demolition, removal and restoration of the stair opening. In connection with such work, Tenant shall at its sole cost and expense repair and close the internal slab-cuts between the floors of the Premises, and the replaced slabs shall have a load-bearing capacity not less than the capacity for such space permitted by the certificate of occupancy for Building A, as appropriate. The structural supports shall be fireproofed and shall provide the same above ceiling clearances as are available on the balance of the appropriate -10- floor. If columns need to be installed, such columns shall be lined up with existing columns on contiguous floors of Building A, as appropriate. 9. CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES. (a) Tenant hereby certifies to Landlord that, as of the date hereof, (i) the Lease is in full force and effect and has not been modified, changed, altered or amended in any respect except pursuant to this First Amendment, (ii) to the best of Tenant's knowledge, there are no defaults existing under the Lease on the part of either Landlord or Tenant, (iii) to the best of Tenant's knowledge, there exist no valid defenses, offsets, credits, deductions in rent or claims against the enforcement of any of the agreements, terms, covenants, or conditions of the Lease, and (iv) there are no actions, whether voluntary or otherwise, pending against Tenant under the bankruptcy laws of the United States or any state thereof. (b) Tenant represents and warrants, on behalf of itself and its successors and assigns, that it has not assigned, pledged, mortgaged or encumbered the Lease or sublet the Premises, or any portion thereof, or done or suffered any other action as a result of which the Lease or the Premises, or any portion thereof, might be subject to any lien, encumbrance or right of occupancy. (c) Landlord hereby certifies to Tenant that, as of the date hereof, (i) the Lease is in full force and effect and has not been modified, changed, altered or amended in any respect except pursuant to this First Amendment, (ii) to the best of Landlord's knowledge, there are no defaults existing under the Lease on the part of either Landlord or Tenant and (iii) to the best of Landlord's knowledge, there exist no valid defenses, offsets, credits, deductions in rent or claims against the enforcement of any agreements, terms, covenants or conditions of the Lease. 10. BROKERS. Each party represents to the other that such party has dealt with no broker other than Insignia/ESG, Inc. (the "BROKER") in connection with this Agreement or the Building, and each party shall indemnify and hold the other harmless from and against all loss, cost, liability and expense (including reasonable attorneys' fees) arising out of any claim for a commission or other compensation by any broker other than the Broker who alleges that it has dealt with the indemnifying party in connection with this Agreement or the Building. Landlord shall be responsible for the commission, if any, due Broker pursuant to a separate agreement with Broker. 11. NO OTHER CHANGES. Except as expressly set forth in this Agreement, the Lease shall remain unmodified and in full force and effect, and the Lease as modified herein is ratified and confirmed. All references in the Lease to "this Lease" shall hereafter be deemed to refer to the Lease as amended by this Agreement. -11- IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First Amendment of Lease as of the day and year first above written. LANDLORD: 225 FOURTH, LLC By: Orda Management Corporation By: s/ Morton F. Silver ------------------------------- Morton F. Silver TENANT: ACTV, INC. By: s/ Christopher Cline ------------------------------- Christopher Cline EVP -12- EXHIBIT A --------- FLOOR PLAN OF NEW SPACE -1- EXHIBIT B --------- LANDLORD'S NEW SPACE WORK The following work shall constitute "LANDLORD NEW SPACE WORK": 1. Demolish the premises, subject to Tenant's demolition plan (to be provided to Landlord). 2. Patch and paint, in the paint color to be chosen by Tenant from among the Building standard paint colors, any and all columns affected by demolition of the premises. 3. Install new windows. 4. Deliver connections to the base building electrical, mechanical, plumbing and Class E sprinkler systems in good working order. 5. Ensure that the elevator call button in the lobby of the New Space complies with the ADA. 6. Provide to Tenant an ACP-5 for the New Space. 7. Provide space in the existing fire-rated chase located in Stairway "C" at the southeast corner of Building A, which space shall be suitable for installation of Tenant's data, fiber and communication risers, from the basement to the 19th floor. Tenant shall be permitted to run its risers from the telephone closet in the basement to said chase. Such space in said chase shall be, at least, approximately 12" by 12", stacked vertically through Building A, and Landlord shall permit Tenant to install conduit within said chase. Reasonable access to said chase shall be provided on each intermediate floor for the purpose of cable installation and maintenance. -2- EX-10.57 11 a2041842zex-10_57.txt EXHIBIT 10.57 Exhibit 10.57 ACTV EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT made as of October 1, 2000 by and between ACTV, INC., a Delaware corporation having an office at 1270 Avenue of the Americas, New York, New York 10020 ("ACTV"), and KEVIN M. LIGA ("Employee"), W I T N E S S E T H : WHEREAS, ACTV desires to employ Employee, and Employee desires to accept employment, as an Executive Vice President of ACTV; NOW, THEREFORE, in consideration of the premises and the mutual agree-ments herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT OF EMPLOYEE. ACTV hereby employs Employee as an Exec- utive Vice President of ACTV. During the term hereof, Employee shall devote all of his business time and efforts to ACTV and its affiliates, and shall perform such services and duties and have such powers as may from time to time be prescribed by the Chief Executive Officer of ACTV ("ACTV'S CEO") or his designee. 2. COMPENSATION AND BENEFITS. a. SALARY. ACTV shall pay Employee a salary at the rate of Two Hundred Twenty Five Thousand dollars ($225,000.00) per year, less applicable withholding taxes and other payroll deductions required by law, payable in accordance with ACTV's customary payroll practices. b. ACCELERATION OF VESTING SCHEDULE. Upon any Acceleration Event (as such term is defined below), all then unvested, unexpired stock options granted by ACTV to Employee, whether prior to, on or after the date hereof and whether under any stock incentive plan or otherwise, shall become and be immediately exercisable, at the respective option price(s) thereof, at any date prior to the respective expiration date(s) thereof. For purposes hereof, an "ACCELERATION EVENT" shall be deemed to occur upon the date that any of the following shall first occur: -1- (i) a majority of the Board-nominated slate of candidates for election to ACTV's Board of Directors shall not be elected thereto; (ii) there shall occur a Change of Control (as such term is defined below) which, prior to the effective date thereof, shall not have been unanimously approved by all of the members of the Board of Directors of ACTV; or (iii) there shall occur a Change of Control which, prior to the effective date thereof, shall have been unanimously approved by all of the members of the Board of Directors of ACTV and, upon or within two years after the effective date of such unanimously-approved Change of Con-trol, there shall also occur a Separation Event (as such term is defined below) (the effective date of such Separation Event to be deemed, for purposes of this clause (iii), the date of the respective Acceleration Event). For purposes hereof, a "CHANGE OF CONTROL" shall be deemed to occur upon the date that any of the following shall first occur: (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 securities having more than 50% of the combined voting power of such of the then outstanding securities of ACTV as may be cast for the election of directors of ACTV; (ii) a merger of ACTV is consummated in which ACTV is not the surviving entity; (iii) substantially all of the assets of ACTV are sold; or (iv) ACTV's stockholders approve the dissolution or liquidation of ACTV. For purposes hereof, a "SEPARATION EVENT" shall be deemed to occur upon the date that (i) ACTV (or the surviving entity) terminates Employee's employment without cause (as such term is defined in Section 3(a)(ii) below) or (ii) Employee terminates his employment hereunder for Good Reason (as such term in defined in Section 3(a)(i) hereof). c. BONUSES. Employee shall be eligible for such bonuses, if any, as may hereafter be determined and paid in accordance with such policies as the Compensation Com-mittee of the Board of Directors of ACTV may set from time to time. d. BENEFITS. Employee shall be entitled to participate in all employee health and other benefit plans or programs of ACTV to the extent that his position, title, tenure, salary and other qualifications make him eligible to participate. ACTV does not guarantee the continuance of any particular employee benefit plan or program during the period of Employee's employment, and Employee's participation in any such plan or program shall be subject to all terms, provisions, rules and regulations applicable thereto. -2- 3. EMPLOYMENT AT-WILL/TERMINATION. a. TERM; TERMINATION. Employee's employment hereunder shall be at-will, without fixed term or duration, and this Agreement and Employee's employment here-under may be terminated at any time as follows: i. BY EMPLOYEE. Employee may terminate this Agreement, and Employee's employment hereunder, at will, upon written notice to ACTV, whereupon this Agreement and Employee's employment hereunder (and all of ACTV's and Employee's respective rights, duties and obligations hereunder) shall terminate, subject in all respects to Section 3(a)(iv) hereof. In the event that Employee shall terminate his employment for Good Reas-on (as such term is hereafter defined), Employee shall be entitled to severance pay equal to six months' of Employee's base salary, in addition to such rights as Employee may have under any other provisions of this Agreement (including Section 2(b)(iii) above) upon any termination of his employment for Good Reason. "GOOD REASON" shall mean any termination of this Agreement effected by Employee on account of (i) a material breach hereof by ACTV (including, without limitation, a reduction in base salary from the amount set forth in Section 2(a) hereof), which breach ACTV shall have failed to cure within 15 days after its receipt of written notice thereof from Employee, which notice shall have made specific reference to this Section of this Agreement, (ii) ACTV's relocation of Employee's office to a location outside of the City of New York, NY, which relo-cation ACTV shall have failed to rescind within 15 days after its receipt of a written rescission request from Employee, which request shall have made specific reference to this Section of this Agreement, or (iii) the assignment to or taking from Employee, upon or after any Change of Con-trol, of any duties, responsibilities, status, title or position that is or are, in the case of any such assignment to Employee materially inconsistent with, or in the case of any such taking from Em-ployee materially detractive from, Employee's duties, responsibilities, status, title and position, viewed in the aggregate, as in effect immediately prior to such Change of Control, which assign-ment or taking ACTV shall have failed to rescind within 15 days after its receipt of a written rescission request from Employee, which request shall have made specific reference to this Section of this Agreement. ii. BY ACTV FOR CAUSE. ACTV may terminate this Agreement, and Employee's employment hereunder, upon written notice for cause. For purposes hereof, "CAUSE" shall mean Employee's (1) refusing to carry out the business of ACTV and its affiliates, as lawfully directed by ACTV, (2) breach of this Agreement or the CIWP Agreement (as such term is defined in Section 6 hereof) in any material respect, (3) engaging in conduct that consti-tutes competitive activity in violation of Section 7 hereof, (4) conviction of a felony, (5) con-tinuing or repeated abuse of alcohol or prescription drugs, (6) abuse of any controlled substance, or (7) inability to perform and fulfill his assigned duties due to a disability. Notwithstanding any-thing to the contrary in this Section 3(a)(ii), ACTV may not terminate Employee's employment for cause under clause (1) hereof unless Employee shall have first received 15 days -3- written notice from ACTV's CEO advising Employee of the specific acts or omissions alleged to constitute cause, and such acts or omissions continue thereafter. Any termination of Employee's employent for disability shall not affect Employee's right to receive any benefits to which he may be entitled pursuant to any of the employee benefit plans or programs referenced in Section 2(e). iii. BY ACTV WITHOUT CAUSE. ACTV may terminate this Agree-ment and Employee's employment hereunder without cause at any time, upon written notice to Employee. In the event that Employee is terminated without cause, Employee shall be entitled to severance pay equal to six months' salary, in addition to such rights as Employee may have under any other provisions of this Agreement (including Section 2(b)(iii) above) upon any termination of his employment without cause. iv. SURVIVAL. Notwithstanding any termination of Employee's em-ployment (whether effected by ACTV, any surviving entity or Employee under this Section 3 or under any other provision of this Agreement), the provisions of Sections 6 (Confidential Inform-ation and Work Product Agreement) and 7 (Covenant Not to Compete) hereof, and Employee's covenants, duties and obligations thereunder, shall survive such termination and shall continue in full force and effect in accordance with the respective terms thereof; provided, that if Employee's employment is terminated by Employee for Good Reason, the provisions of Section 7 (Covenant Not to Compete) shall not survive or have any force or effect after the date of such termination. b. TERMINATION UPON DEATH. This Agreement and Employee's employment hereunder shall automatically terminate upon the death of Employee, except that Employee's estate shall be entitled to receive any amount accrued under Section 2(a) for the period prior to Employee's death and any other amount which Employee was entitled to be paid by ACTV at the time of his death, and Employee's estate shall be entitled to receive any benefits provided pursuant to any of the employee benefit plans or programs referenced in Section 2(d). 4. EXPENSES. Employee shall be reimbursed for all reasonable and necessary out-of-pocket expenses incurred in the performance of Employee's duties hereunder, provided that Employee shall have timely submitted to ACTV reasonably detailed expense reports and receipts with respect thereto on a timely basis. All air travel shall be in accordance with ACTV's established travel policies as in effect from time to time. 5. VACATION. Employee shall be entitled to three weeks of paid vacation time per year, on dates to be agreed upon between ACTV and Employee. In the event that Employ-ee's employment is terminated for any reason other than for cause, Employee's accrued vacation time shall be paid to him at his then current base salary. 6. CONFIDENTIAL INFORMATION AND WORK PRODUCT AGREEMENT. Employee has executed (or is executing, simultaneously herewith) a Confidential Information and Work Product Agreement dated the date hereof (the "CIWP AGREEMENT"). Neither this Agreement nor any employment relationship between Employee and ACTV shall be effective until Employee has executed and delivered the CIWP Agreement. Employee's obligations under the CIWP Agree-ment shall survive termination of this Agreement for any reason. -4- 7. COVENANT NOT TO COMPETE. Employee acknowledges and confirms that ACTV is placing its confidence and trust in Employee. Accordingly, and in consideration of ACTV's execution of this Agreement, 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 asso-ciation, 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, licensing 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. 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, without the express prior written consent of ACTV, 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 affili-ate is a joint or co-venturer, partner or otherwise engaged in any material (or then potentially material) on-going business relationship or discussions or negotiations with a view to entering into such a relationship to provide services or products, without the prior written consent of ACTV, which consent ACTV shall not unreasonably withhold. Nor shall Employee, during the term of his employment, and for a period of two (2) years thereafter, individually or through any entity, directly or indirectly, without the express prior written consent of ACTV, make or otherwise extend any offer of full-time or part-time employment to any officer or employee of ACTV and/or of any ACTV affiliate, or otherwise solicit any officer or employee of ACTV and/or of any ACTV affiliate to seek or accept any full-time or part-time employment, by or with any person or entity other than ACTV or any ACTV affiliate. Employee hereby acknowledges and agrees that the ACTV Business ex-tends 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 non-U.S. areas in which ACTV and/or any ACTV affiliate may be (or has, with Employee's knowledge and assist-ance, 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 ACTV hereby agree that, if the period of time or the scope of the restrictive -5- covenant not to compete contained in this Section 8 shall be adjudged unreasonable by any proper arbiter of a dispute here-under, 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. Notwithstanding anything hereinabove set forth in this Section 8, Employee may - solely in his capacity as a passive investor - make equity investments in any publicly listed company, provided that the amount of any such investment does not exceed 2% of the issued and outstanding shares of the capital stock of the respective class of equity securities of such company and provided, further, that such investment does not violate any then current investments policy published by ACTV. Notwithstanding anything hereinabove set forth in this Section 8, the provi-sions of this Section 8 shall not survive or otherwise apply to Employee from and after any date upon which Employee may terminate his employment hereunder for Good Reason. As used in this Agreement, the term "AFFILIATE" shall mean any person, corp-oration, partnership, joint venture, limited liability company or other legal entity that is controlled by ACTV. For purposes of the foregoing definition, the term "CONTROL" shall mean the capability (whether by ownership of, or the right to vote, such equity stock or other ownership interests as shall enable the party owning or voting same, or by the right to elect or appoint a majority of those directors or other such persons having the authority) to direct the policies and management of such legal entity. Accordingly, at the date hereof, such of ACTV's affiliates as are operating companies are ACTV Entertainment, Inc., Bottle Rocket, Inc., Digital ADCO, Inc., HyperTV Networks, Inc. and Media Online Services, Inc. 8. ENTIRE AGREEMENT. This Agreement, together with the CIWP Agreement as executed by Employee, contains (with the exception of any stock options that ACTV may have heretofore granted to Employee) the entire agreement between the parties at the date hereof with respect to the employment and compensation of Employee by or on behalf of ACTV or any affili-ate of ACTV and supersedes in all respects any prior agreement or understanding between Em-ployee and ACTV or any affiliate of ACTV with respect to the employment and compensation of Employee by or on behalf of ACTV or any affiliate of ACTV. The unenforceability of any provi-sion of this Agreement shall not affect the enforceability of any other provision. This Agreement may not be amended or modified in any way except by an agreement in writing signed by ACTV, as one party, and by Employee, as the other party. Any delay in exercising, or any failure to exer-cise, any rights provided by this Agreement shall not be deemed a waiver thereof, and any express written waiver thereof shall not be deemed a waiver of any further or future rights. 9. ASSIGNMENT. Neither party shall have the right to assign any of his or its respective rights, duties or obligations hereunder to any third party without the prior written con-sent of the other party hereto, provided that Employee's consent thereto shall not be required for or in connection with ACTV's assignment of this Agreement to any entity that shall succeed -6- ACTV as a consequence of any sale of all or substantially all of ACTV's assets, merger, con-solidation or Change of Control. 10. 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, with receipt confirmed; b. transmitted by facsimile, with receipt confirmed, provided that a copy is mailed on that same transmittal date by certified or registered mail, return receipt requested; or c. delivered by express delivery service, with receipt confirmed; in each case to the appropriate addresses or telecopier numbers set forth below, or to such address or facsimile number as the respective party may hereafter otherwise designate in writing: (i) if to ACTV, to: ACTV, Inc. 1270 Avenue of the Americas, Suite 2401 New York, NY 10020 Attn: William C. Samuels, Chairman and CEO Facsimile: (212) 459-9548 with a separate and complete copy, under separate cover, to: ACTV, Inc.. 1270 Avenue of the Americas New York, NY 10020 Attn: Day L. Patterson, Law Department Facsimile: (212) 459-9548 and (ii) if to Employee, to: Mr. Kevin M. Liga 221 Country Ridge Drive Rye Brook, NY 10573 11. SPECIFIC PERFORMANCE AND INJUNCTIVE RELIEF. Employee hereby recog-nizes and acknowledges that irreparable injury or damage may result to ACTV and its affiliates -7- in the event of a breach or threatened breach by Employee of certain of the terms or provisions of this Agreement including, without limitation, Employee's covenants in Section 8 hereof, and that ACTV and its affiliates may have no adequate remedy at law for such breach or threatened breach. Accordingly, Employee hereby agrees that, in addition to any other available remedies in equity or at law, ACTV and its affiliates shall be entitled to an injunction restraining Employee from engaging in any activity constituting such breach or threatened breach and requiring specific performance of the terms hereof. Nothing contained herein shall be construed as prohibiting ACTV or any ACTV affiliate from pursuing any other remedies available to ACTV or any ACTV affiliate at law or in equity for such breach or threatened breach, including but not limited to, the recovery of damages from Employee and the termination of his employment with ACTV in accordance with the terms and provisions of this Agreement. 12. ARBITRATION. All controversies which may arise between the parties hereto shall be determined by binding arbitration applying the laws of the State of New York. Any arbi-tration pursuant to this Agreement shall be conducted in New York, New York before the Ameri-can Arbitration Association ("AAA") in accordance with its arbitration rules. Any dispute to be submitted to arbitration must be reduced to writing and shall be provided to the other party and to the AAA in order to initiate the proceedings. The award of the arbitrator(s), or a majority of them, shall be final, and judgment upon the award may be confirmed and entered in any state or federal court having jurisdiction; provided, that the arbitrators shall not have the right to award any punitive damages (and each of the parties hereto waives any right to claim or receive any punitive damages, whether in any arbitration proceeding or otherwise). Nothing in this Section 13 will prevent ACTV or any ACTV affiliate from resorting to judicial proceedings if interim injunc-tive relief under the laws of the State of New York from a court is necessary to prevent serious and irreparable injury or harm to ACTV or any ACTV affiliate. 13. GOVERNING LAW. This Agreement and any amendments hereto, and wai-vers and consents with respect thereto, shall be governed by the internal laws of the State of New York, without regard to the conflict of laws principles thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ACTV, INC. By: -------------------------------------- Day L. Patterson, Exec. Vice President and General Counsel ------------------------------------------ KEVIN M. LIGA (Employee) EX-10.58 12 a2041842zex-10_58.txt EXHIBIT 10.58 Exhibit 10.58 ACTV EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT made as of October 1, 2000 by and between ACTV, INC., a Delaware corporation having an office at 1270 Avenue of the Americas, New York, New York 10020 ("ACTV"), and DAVID D. ALWORTH ("EMPLOYEE") W I T N E S S E T H : WHEREAS, ACTV desires to employ Employee, and Employee desires to accept employment, as an Executive Vice President of ACTV; NOW, THEREFORE, in consideration of the premises and the mutual agree-ments herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT OF EMPLOYEE. ACTV hereby employs Employee as an Exec-utive Vice President of ACTV. During the term hereof, Employee shall devote all of his business time and efforts to ACTV and its affiliates, and shall perform such services and duties and have such powers as may from time to time be prescribed by the Chief Executive Officer of ACTV ("ACTV'S CEO") or his designee. 2. COMPENSATION AND BENEFITS. a. SALARY. ACTV shall pay Employee a salary at the rate of Two Hundred Twenty Five Thousand dollars ($225,000.00) per year, less applicable withholding taxes and other payroll deductions required by law, payable in accordance with ACTV's customary payroll practices. b. ACCELERATION OF VESTING SCHEDULE. Upon any Acceleration Event (as such term is defined below), all then unvested, unexpired stock options granted by ACTV to Employee, whether prior to, on or after the date hereof and whether under any stock incentive plan or otherwise, shall become and be immediately exercisable, at the respective option price(s) thereof, at any date prior to the respective expiration date(s) thereof. For purposes hereof, an "ACCELERATION EVENT" shall be deemed to occur upon the date that any of the following shall first occur: -1- (i) a majority of the Board-nominated slate of candidates for election to ACTV's Board of Directors shall not be elected thereto; (ii) there shall occur a Change of Control (as such term is defined below) which, prior to the effective date thereof, shall not have been unanimously approved by all of the members of the Board of Directors of ACTV; or (iii) there shall occur a Change of Control which, prior to the effective date thereof, shall have been unanimously approved by all of the members of the Board of Directors of ACTV and, upon or within two years after the effective date of such unanimously-approved Change of Con-trol, there shall also occur a Separation Event (as such term is defined below) (the effective date of such Separation Event to be deemed, for purposes of this clause (iii), the date of the respective Acceleration Event). For purposes hereof, a "CHANGE OF CONTROL" shall be deemed to occur upon the date that any of the following shall first occur: (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 securities having more than 50% of the combined voting power of such of the then outstanding securities of ACTV as may be cast for the election of directors of ACTV; (ii) a merger of ACTV is consummated in which ACTV is not the surviving entity; (iii) substantially all of the assets of ACTV are sold; or (iv) ACTV's stockholders approve the dissolution or liquidation of ACTV. For purposes hereof, a "SEPARATION EVENT" shall be deemed to occur upon the date that (i) ACTV (or the surviving entity) terminates Employee's employment without cause (as such term is defined in Section 3(a)(ii) below) or (ii) Employee terminates his employment hereunder for Good Reason (as such term in defined in Section 3(a)(i) hereof). c. BONUSES. Employee shall be eligible for such bonuses, if any, as may hereafter be determined and paid in accordance with such policies as the Compensation Com-mittee of the Board of Directors of ACTV may set from time to time. d. BENEFITS. Employee shall be entitled to participate in all employee health and other benefit plans or programs of ACTV to the extent that his position, title, tenure, salary and other qualifications make him eligible to participate. ACTV does not guarantee the continuance of any particular employee benefit plan or program during the period of Employee's employment, and Employee's participation in any such plan or program shall be subject to all terms, provisions, rules and regulations applicable thereto. -2- 3. EMPLOYMENT AT-WILL/TERMINATION. a. TERM; TERMINATION. Employee's employment hereunder shall be at-will, without fixed term or duration, and this Agreement and Employee's employment here-under may be terminated at any time as follows: i. BY EMPLOYEE. Employee may terminate this Agreement, and Employee's employment hereunder, at will, upon written notice to ACTV, whereupon this Agree-ment and Employee's employment hereunder (and all of ACTV's and Employee's respective rights, duties and obligations hereunder) shall terminate, subject in all respects to Section 3(a)(iv) hereof. In the event that Employee shall terminate his employment for Good Reas-on (as such term is hereafter defined), Employee shall be entitled to severance pay equal to six months' of Employee's base salary, in addition to such rights as Employee may have under any other provisions of this Agreement (including Section 2(b)(iii) above) upon any termination of his employment for Good Reason. "GOOD REASON" shall mean any termination of this Agreement effected by Employee on account of (i) a material breach hereof by ACTV (including, without limitation, a reduction in base salary from the amount set forth in Section 2(a) hereof), which breach ACTV shall have failed to cure within 15 days after its receipt of written notice thereof from Employee, which notice shall have made specific reference to this Section of this Agreement, (ii) ACTV's relocation of Employee's office to a location outside of the City of New York, NY, which relo-cation ACTV shall have failed to rescind within 15 days after its receipt of a written rescission request from Employee, which request shall have made specific reference to this Section of this Agreement, or (iii) the assignment to or taking from Employee, upon or after any Change of Con-trol, of any duties, responsibilities, status, title or position that is or are, in the case of any such assignment to Employee materially inconsistent with, or in the case of any such taking from Em-ployee materially detractive from, Employee's duties, responsibilities, status, title and position, viewed in the aggregate, as in effect immediately prior to such Change of Control, which assign-ment or taking ACTV shall have failed to rescind within 15 days after its receipt of a written rescission request from Employee, which request shall have made specific reference to this Section of this Agreement. ii. BY ACTV FOR CAUSE. ACTV may terminate this Agreement, and Employee's employment hereunder, upon written notice for cause. For purposes hereof, "CAUSE" shall mean Employee's (1) refusing to carry out the business of ACTV and its affiliates, as lawfully directed by ACTV, (2) breach of this Agreement or the CIWP Agreement in any material respect, (3) engaging in conduct that constitutes competitive activity in violation of Section 7 hereof, (4) conviction of a felony, (5) continuing or repeated abuse of alcohol or pres-cription drugs, (6) abuse of any controlled substance, or (7) inability to perform and fulfill his assigned duties due to a disability. Notwithstanding anything to the contrary in this Section 3(a)(ii), ACTV may not terminate Employee's employment for cause under clause (1) hereof unless Employee shall have first received 15 days written notice from ACTV's CEO advising -3- Employee of the specific acts or omissions alleged to constitute cause, and such acts or omissions continue thereafter. Any termination of Employee's employment for disability shall not affect Employee's right to receive any benefits to which he may be entitled pursuant to any of the em-ployee benefit plans or programs referenced in Section 2(e). iii. BY ACTV WITHOUT CAUSE. ACTV may terminate this Agree-ment and Employee's employment hereunder without cause at any time, upon written notice to Employee. In the event that Employee is terminated without cause, Employee shall be entitled to severance pay equal to six months' salary, in addition to such rights as Employee may have under any other provisions of this Agreement (including Section 2(b)(iii) above) upon any termination of his employment without cause. iv. SURVIVAL. Notwithstanding any termination of Employee's em-ployment (whether effected by ACTV, any surviving entity or Employee under this Section 3 or under any other provision of this Agreement), the provisions of Sections 6 (Confidential Inform-ation and Work Product Agreement) and 7 (Covenant Not to Compete) hereof, and Employee's covenants, duties and obligations thereunder, shall survive such termination and shall continue in full force and effect in accordance with the respective terms thereof; provided, that if Employee's employment is terminated by Employee for Good Reason, the provisions of Section 7 (Covenant Not to Compete) shall not survive or have any force or effect after the date of such termination. b. TERMINATION UPON DEATH. This Agreement and Employee's employment hereunder shall automatically terminate upon the death of Employee, except that Employee's estate shall be entitled to receive any amount accrued under Section 2(a) for the period prior to Employee's death and any other amount which Employee was entitled to be paid by ACTV at the time of his death, and Employee's estate shall be entitled to receive any benefits provided pursuant to any of the employee benefit plans or programs referenced in Section 2(d). 4. EXPENSES. Employee shall be reimbursed for all reasonable and necessary out-of-pocket expenses incurred in the performance of Employee's duties hereunder, provided that Employee shall have timely submitted to ACTV reasonably detailed expense reports and receipts with respect thereto on a timely basis. All air travel shall be in accordance with ACTV's established travel policies as in effect from time to time. 5. VACATION. Employee shall be entitled to three weeks of paid vacation time per year (except as to calendar years 2001 and 2002, in each of which Employee shall be entitled to four weeks of paid vacation time), on dates to be agreed upon between ACTV and Employee. In the event that Employee's employment is terminated for any reason other than for cause, Em-ployee's accrued vacation time shall be paid to him at his then current base salary. 6. CONFIDENTIAL INFORMATION AND WORK PRODUCT AGREEMENT. Employee has executed (or is executing, simultaneously herewith) a Confidential Information and Work Product Agreement (the "CIWP AGREEMENT"). Neither this Agreement nor any employment relationship between Employee and ACTV shall be effective until Employee has executed and -4- delivered the CIWP Agreement. Employee's obligations under the CIWP Agreement shall survive termination of this Agreement for any reason. 7. COVENANT NOT TO COMPETE. Employee acknowledges and confirms that ACTV is placing its confidence and trust in Employee. Accordingly, and in consideration of ACTV's execution of this Agreement, 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 asso-ciation, 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, licensing 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. 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, without the express prior written consent of ACTV, 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 affili-ate is a joint or co-venturer, partner or otherwise engaged in any material (or then potentially material) on-going business relationship or discussions or negotiations with a view to entering into such a relationship to provide services or products, without the prior written consent of ACTV, which consent ACTV shall not unreasonably withhold. Nor shall Employee, during the term of his employment, and for a period of two (2) years thereafter, individually or through any entity, directly or indirectly, without the express prior written consent of ACTV, make or otherwise extend any offer of full-time or part-time employment to any officer or employee of ACTV and/or of any ACTV affiliate, or otherwise solicit any officer or employee of ACTV and/or of any ACTV affiliate to seek or accept any full-time or part-time employment, by or with any person or entity other than ACTV or any ACTV affiliate. Employee hereby acknowledges and agrees that the ACTV Business ex-tends 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 non-U.S. areas in which ACTV and/or any ACTV affiliate may be (or has, with Employee's knowledge and assist-ance, 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 -5- affiliates in light of the foregoing and in light of the promises to Employee contained herein. Employee and ACTV 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 here-under, 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. Notwithstanding anything hereinabove set forth in this Section 8, Employee may - solely in his capacity as a passive investor - make equity investments in any publicly listed company, provided that the amount of any such investment does not exceed 2% of the issued and outstanding shares of the capital stock of the respective class of equity securities of such company and provided, further, that such investment does not violate any then current investments policy published by ACTV. Notwithstanding anything hereinabove set forth in this Section 8, the provi-sions of this Section 8 shall not survive or otherwise apply to Employee from and after any date upon which Employee may terminate his employment hereunder for Good Reason. As used in this Agreement, the term "AFFILIATE" shall mean any person, corp-oration, partnership, joint venture, limited liability company or other legal entity that is controlled by ACTV. For purposes of the foregoing definition, the term "CONTROL" shall mean the capability (whether by ownership of, or the right to vote, such equity stock or other ownership ------- interests as shall enable the party owning or voting same, or by the right to elect or appoint a majority of those directors or other such persons having the authority) to direct the policies and management of such legal entity. Accordingly, at the date hereof, such of ACTV's affiliates as are operating companies are ACTV Entertainment, Inc., Bottle Rocket, Inc., Digital ADCO, Inc., HyperTV Networks, Inc. and Media Online Services, Inc. 8. ENTIRE AGREEMENT. This Agreement, together with the CIWP Agreement as executed by Employee, contains (with the exception of any stock options that ACTV may have heretofore granted to Employee) the entire agreement between the parties at the date hereof with respect to the employment and compensation of Employee by or on behalf of ACTV or any affili-ate of ACTV and supersedes in all respects any prior agreement or understanding between Em-ployee and ACTV or any affiliate of ACTV with respect to the employment and compensation of Employee by or on behalf of ACTV or any affiliate of ACTV. The unenforceability of any provi-sion of this Agreement shall not affect the enforceability of any other provision. This Agreement may not be amended or modified in any way except by an agreement in writing signed by ACTV, as one party, and by Employee, as the other party. Any delay in exercising, or any failure to exer-cise, any rights provided by this Agreement shall not be deemed a waiver thereof, and any express written waiver thereof shall not be deemed a waiver of any further or future rights. 9. ASSIGNMENT. Neither party shall have the right to assign any of his or its respective rights, duties or obligations hereunder to any third party without the prior written con-sent of the other party hereto, provided that Employee's consent thereto shall not be required for -6- or in connection with ACTV's assignment of this Agreement to any entity that shall succeed ACTV as a consequence of any sale of all or substantially all of ACTV's assets, merger, con-solidation or Change of Control. 10. 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, with receipt confirmed; b. transmitted by facsimile, with receipt confirmed, provided that a copy is mailed on that same transmittal date by certified or registered mail, return receipt requested; or c. delivered by express delivery service, with receipt confirmed; in each case to the appropriate addresses or telecopier numbers set forth below, or to such address or facsimile number as the respective party may hereafter otherwise designate in writing: (i) if to ACTV, to: ACTV, Inc. 1270 Avenue of the Americas, Suite 2401 New York, NY 10020 Attn: William C. Samuels, Chairman and CEO Facsimile: (212) 459-9548 with a separate and complete copy, under separate cover, to: ACTV, Inc. 1270 Avenue of the Americas New York, NY 10020 Attn: Day L. Patterson, Law Department Facsimile: (212) 459-9548 and (ii) if to Employee, to: Mr. David D. Alworth 18 Nevinwood Place Huntington Station, NY 11746 -7- 11. SPECIFIC PERFORMANCE AND INJUNCTIVE RELIEF. Employee hereby recogni-zes and acknowledges that irreparable injury or damage may result to ACTV and its affiliates in the event of a breach or threatened breach by Employee of certain of the terms or provisions of this Agreement including, without limitation, Employee's covenants in Section 8 hereof, and that ACTV and its affiliates may have no adequate remedy at law for such breach or threatened breach. Accordingly, Employee hereby agrees that, in addition to any other available remedies in equity or at law, ACTV and its affiliates shall be entitled to an injunction restraining Employee from engaging in any activity constituting such breach or threatened breach and requiring specific performance of the terms hereof. Nothing contained herein shall be construed as prohibiting ACTV or any ACTV affiliate from pursuing any other remedies available to ACTV or any ACTV affiliate at law or in equity for such breach or threatened breach, including but not limited to, the recovery of damages from Employee and the termination of his employment with ACTV in accordance with the terms and provisions of this Agreement. 12. ARBITRATION. All controversies which may arise between the parties hereto shall be determined by binding arbitration applying the laws of the State of New York. Any arbi-tration pursuant to this Agreement shall be conducted in New York, New York before the Ameri-can Arbitration Association ("AAA") in accordance with its arbitration rules. Any dispute to be submitted to arbitration must be reduced to writing and shall be provided to the other party and to the AAA in order to initiate the proceedings. The award of the arbitrator(s), or a majority of them, shall be final, and judgment upon the award may be confirmed and entered in any state or federal court having jurisdiction; provided, that the arbitrators shall not have the right to award any punitive damages (and each of the parties hereto waives any right to claim or receive any punitive damages, whether in any arbitration proceeding or otherwise). Nothing in this Section 13 will prevent ACTV or any ACTV affiliate from resorting to judicial proceedings if interim injunc-tive relief under the laws of the State of New York from a court is necessary to prevent serious and irreparable injury or harm to ACTV or any ACTV affiliate. 13. GOVERNING LAW. This Agreement and any amendments hereto, and wai-vers and consents with respect thereto, shall be governed by the internal laws of the State of New York, without regard to the conflict of laws principles thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ACTV, INC. By: ---------------------------------- Day L. Patterson, Exec. Vice President and General Counsel -8- ---------------------------------------- DAVID D. ALWORTH (Employee) -9- EX-21 13 a2041842zex-21.txt EXHIBIT 21 Exhibit 21 LIST OF SUBSIDIARIES HyperTV Networks, Inc. (Delaware Corporation) -----END PRIVACY-ENHANCED MESSAGE-----