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                                                                   Exhibit 10.3

[HOLDINGS]

PREFERRED STOCK INVESTMENT AGREEMENT

        PREFERRED STOCK INVESTMENT AGREEMENT ("Agreement") dated as of August
___, 1996 between ACTV Holdings, Inc., a Delaware corporation ("Holdings"), and
each entity listed as an investor on Schedule I attached to this Agreement (each
individually an "Investor" and collectively the "Investors").

W I T N E S S E T H:

        WHEREAS, Holdings is a wholly-owned subsidiary of ACTV, Inc. ("ACTV");

        WHEREAS, Holdings desires to sell and issue to the Investors, and the
Investors wish to purchase from Holdings, an aggregate of 160,000 shares of
Holdings' 5% Cumulative Convertible Preferred Stock having the rights,
designations and preferences set forth in the Certificate of Incorporation of
Holdings (the "Charter") in the identical form and substance of Exhibit 2.1(c)
attached hereto (the "Preferred Shares"), on the terms and conditions set forth
herein;

        WHEREAS, the Preferred Shares will be exchangeable into shares of common
stock, par value $0.10, of ACTV ("Common Shares") and the Investors will have
registration rights with respect to such Common Shares issuable upon exchange,
pursuant to the terms of that certain Registration Rights and Exchange Agreement
dated the date hereof entered into between ACTV and the Investors ("Exchange
Agreement"), and the Preferred Shares will be subject to certain rights of
redemption of ACTV; and

        WHEREAS, pursuant to the terms of that certain Preferred Stock
Investment Agreement ("Financing Investment Agreement") dated as of the date
hereof entered into between the Investors and ACTV Financing, Inc., a Delaware
corporation and wholly owned subsidiary of ACTV ("Financing"), the Investors
have agreed to purchase 240,000 shares of Financing's 5% Cumulative Convertible
Preferred Stock (the "Financing Preferred Shares") which will be exchangeable
into Common Shares and subject to registration rights pursuant to the Exchange
Agreement;

        NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

ARTICLE I

PURCHASE AND SALE OF PREFERRED STOCK



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        Section 1.1 Purchase and Sale of Preferred Stock. Upon the following
terms and conditions, Holdings shall issue and sell to each Investor severally,
and each Investor severally shall purchase from Holdings, the number of
Preferred Shares indicated next to such Investor's name on Schedule I attached
hereto.

        Section 1.2 Purchase Price. The purchase price for the Preferred Shares
(the "Purchase Price") shall be $25 per share.

        Section 1.3 The Closing. (a) The closing of the purchase and sale of the
Preferred Shares (the "Closing"), shall take place at the offices of the
Investors' counsel, at 10:00 am., local time on the later of the following: (i)
the date on which the last to be fulfilled or waived of the conditions set forth
in Article IV hereof and applicable to the Closing shall be fulfilled or waived
in accordance herewith, or (ii) such other time and place and/or on such other
date as the Investors and Holdings may agree. The date on which the Closing
occurs is referred to herein as the "Closing Date."

        (b) On the Closing Date, Holdings shall deliver to each Investor
certificates (with the number of and denomination of such certificates
designated by such Investor) representing the Preferred Shares purchased
hereunder by such Investor registered in the name of such Investor or deposit
such Preferred Shares into accounts designated by such Investor, and such
Investor shall deliver to Holdings the Purchase Price for the number of
Preferred Shares purchased by such Investor hereunder by wire transfer in
immediately available funds to an account designated in writing by Holdings. The
payment by each Investor of Purchase Price applicable to it to such account
shall constitute payments delivered to Holdings in satisfaction of such
Investor's obligation to pay the Purchase Price hereunder. In addition, each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

        Section 2.1 Representations and Warranties of Holdings. Holdings hereby
makes the following representations and warranties to each of the Investors:

        (a) Organization and Qualification. Holdings is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. Holdings was duly organized on
August 8, 1996 and did not engage in any activities prior to such date. Holdings
does not have any subsidiaries other than those listed on Schedule 2.1(a)
attached hereto. Holdings is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any adverse effect on
the business, operations, properties,



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prospects, or financial condition of the entity with respect to which such term
is used and which is material to such entity and other entities controlling or
controlled by such entity taken as a whole.

               (b) Authorization; Enforcement. (i) Holdings has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Preferred Shares in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by Holdings and the consummation by it
of the transactions contemplated hereby, including the issuance of the Preferred
Shares, have been duly authorized by all necessary corporate action, and no
further consent or authorization of Holdings or its Board of Directors or
stockholders is required, (iii) this Agreement has been duly executed and
delivered by Holdings, and (iv) this Agreement constitutes a valid and binding
obligation of Holdings enforceable against Holdings in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.

        (c) Capitalization. The authorized capital stock of Holdings consists of
100 shares of common stock and 196,000 shares of preferred stock; there are 100
shares of common stock and no shares of preferred stock issued and outstanding;
and, upon issuance of the Preferred Shares in accordance with the terms hereof
there will be 100 shares of common stock and 160,000 shares of preferred stock
issued and outstanding. Holdings has reserved 36,000 shares of preferred stock
for issuance to the Placement Agent (as defined below) upon exercise of the
warrants issued to such Placement Agent as described in Section 7.1 hereof. All
of the outstanding shares of Holdings' common stock have been validly issued and
are fully paid and nonassessable and are owned by ACTV free and clear of any
liens, claims or encumbrances. No shares of common stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of Holdings, or contracts, commitments, understandings, or
arrangements by which Holdings is or may become bound to issue additional shares
of capital stock of Holdings or options, warrants, scrip, rights to subscribe
to, or commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of Holdings, except for the warrants
issued to the Placement Agent. The Charter attached hereto as Exhibit 2.1(c) is
true and correct as in effect on the date hereof, and Holdings has furnished or
made available to the Investors true and correct copies of Holdings' by-laws, as
in effect on the date hereof (the "By-Laws").

        (d) Issuance of Preferred Shares. The issuance of the Preferred Shares
has been duly authorized and, when paid for or issued in accordance with the
terms hereof, the Preferred Shares shall be validly issued, fully paid and
non-assessable, free and clear of any liens, claims or encumbrances, and
entitled to the rights and preferences set forth in the Charter attached hereto.
The Common Shares issuable upon exchange of the Preferred Shares pursuant to the
Exchange Agreement will be duly authorized and reserved for issuance and, upon
exchange in accordance with the Exchange Agreement, will be validly issued,
fully paid and non-assessable, free and clear of all liens, claims and
encumbrances, and the holders shall be entitled to all rights and preferences
accorded to a holder of Common Shares.


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        (e) No Conflicts. The execution, delivery and performance of this
Agreement by Holdings and the consummation by Holdings of the transactions
contemplated hereby do not and will not (i) result in a violation of Holdings'
or ACTV's charter or by-laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which Holdings or ACTV or any of their subsidiaries is a party, or result in
a violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to Holdings or ACTV or any of their subsidiaries or by
which any property or asset of Holdings or ACTV or any of their subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect); provided
that, for purposes of such representation as to Federal, state, local or foreign
law, rule or regulation, no representation is made herein with respect to any of
the same applicable solely to the Investors and not to Holdings. The business of
Holdings and ACTV and their subsidiaries is not being conducted in violation of
any law, ordinance or regulations of any governmental entity, except for
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. Neither Holdings nor ACTV is required under Federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or issue and sell the Preferred Shares
in accordance with the terms hereof, provided that, for purposes of the
representation made in this sentence, Holdings is assuming and relying upon the
accuracy of the relevant representations and agreements of the Investors herein.

        (f) SEC Documents; Financial Statements. The Common Stock of ACTV is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and ACTV has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by ACTV with the SEC (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
Documents"). Holdings has delivered or made available to the Investors true and
complete copies of all SEC Documents (including, without limitation, proxy
information and solicitation materials and registration statements) filed with
the SEC since December 31, 1995 and all annual SEC Documents filed with the SEC
since December 31, 1994. Holdings has not provided to the Investor any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by ACTV but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted 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. The financial statements of ACTV included in the SEC Documents



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comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of ACTV as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).

        (g) No Material Adverse Change. Since March 31, 1996, the date through
which the most recent quarterly report of ACTV on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to Holdings or ACTV
or their subsidiaries, except as otherwise disclosed or reflected in other SEC
Documents prepared through or as of a date subsequent to March 31, 1996.

        (h) No Undisclosed Liabilities. Holdings and ACTV and their subsidiaries
have no liabilities or obligations not disclosed in the SEC Documents, other
than those incurred in the ordinary course of ACTV's or their subsidiaries'
respective businesses since March 31, 1996 or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on ACTV or its
direct or indirect subsidiaries.

        (i) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to Holdings or ACTV or their subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by ACTV but which has not been so publicly announced
or disclosed.

        (j) No General Solicitation. Neither Holdings, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Libra Investments, Inc. ("Placement Agent")), has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act of 1933, as amended (the"Act")) in connection with
the offer or sale of the Preferred Shares.

        (k) No Integrated Offering. Neither Holdings, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Preferred Shares
under the Act.

        (l) Brokers. Holdings has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any or all of the Investors relating to this Agreement or the transactions
contemplated hereby, except for amounts owing to the Placement Agent, which
amounts shall be paid by ACTV.



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        (m) ACTV Representations. All of the representations and warranties of
ACTV set forth in the Exchange Agreement are true and correct.

               Section 2.2 Representations and Warranties of the Investors. Each
of the Investors, severally and not jointly, hereby makes the following
representations and warranties to Holdings:

               (a) Authorization; Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Preferred Shares being sold hereunder, (ii) the execution and
delivery of this Agreement by such Investor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Agreement constitutes a valid
and binding obligation of such Investor enforceable against the Investor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.

               (b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of the Investor's
organizational documents, or (ii) conflict with any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Investor. Such Investor is not required
to obtain any consent or authorization of any governmental agency in order for
it to perform its obligations under this Agreement.

               (c) Investment Representation. Such Investor is purchasing the
Preferred Shares for its own account and not with a view to distribution in
violation of any securities laws. Such Investor has no present intention to sell
the Preferred Shares and such Investor has no present arrangement (whether or
not legally binding) to sell the Preferred Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold the Preferred Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares at any
time in accordance with Federal and state securities laws applicable to such
disposition.

               (d) Accredited Investor. Such Investor is an "accredited
investor" as defined in Rule 501 promulgated under the Act. The Investor has
such knowledge and experience in financial and business matters in general and
investments in particular, so that such Investor is able to evaluate the merits
and risks of an investment in the Preferred Shares and to protect its own
interests in connection with such investment. In addition (but without limiting
the effect of Holdings' representations and warranties contained herein), such
Investor has received such information as it considers necessary or appropriate
for deciding whether to purchase the Preferred Shares pursuant hereto. Such
Investor acknowledges that no representation or warranty is made by the
Placement Agent or any persons representing the Placement Agent with respect to
Holdings or the sale of the Preferred Shares.



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               (e) Rule 144. Such Investor understands that there is no public
trading market for the Preferred Shares, that none is expected to develop, and
that the Preferred Shares must be held indefinitely unless such Preferred Shares
are exchanged or registered under the Act or an exemption from registration is
available. Such Investor has been advised or is aware of the provisions of Rule
144 promulgated under the Act.

               (f) Brokers. Such Investor has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by Holdings relating to this Agreement or the transactions
contemplated hereby, except for amounts owing to the Placement Agent, which
amounts shall be paid by ACTV.

               (g) Reliance by Holders. Such Investor understands that the
Preferred Shares are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that Holdings is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the Preferred Shares.

ARTICLE III

COVENANTS

        Section 3.1 Registration and Listing. Until three (3) years after all
Preferred Shares have been exchanged into Common Shares, Holdings will use its
best efforts to cause ACTV to cause the Common Shares to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in all
respects with its reporting and filing obligations under the Exchange Act, to
comply with all requirements related to any registration statement filed
pursuant to the Exchange Agreement and to not take any action or file any
document (whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
ACTV's reporting and filing obligations under said acts, except as permitted
herein. Until three (3) years after all Preferred Shares have been exchanged
into Common Shares, Holdings will use its best efforts to take all action within
its power to cause ACTV to continue the listing or trading of the Common Shares
on the NASDAQ Small Capitalization Market or National Market and the Boston
Stock Exchange and to comply in all respects with ACTV's reporting, filing and
other obligations under the bylaws or rules of the NASD and NASDAQ and such
exchange or other exchange where the Common Shares are traded.

        Section 3.2   Actions of Holdings.

        (a) Escrow. The parties acknowledge that upon Closing of the
transactions contemplated by Financing Investment Agreement, the aggregate
purchase price thereunder will be deposited in a escrow account and will remain
in escrow until the date which is the fifth business day after the date



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("Release Date") on which all of the following conditions exist: (i) the
Effective Registration (as defined below) has occurred and is continuing, (ii)
the Liberty Sports Contract (as defined below) has been executed and delivered
and is in full force and effect, (iii) the Merger (as defined below) has
occurred and is in effect, and (iv) the Investors have received an opinion of
counsel ("Release Opinion") reasonably acceptable to the Investors that the
conditions contained in clauses (i), (ii), and (iii) above have been satisfied.
"Effective Registration" shall mean that all registration obligations of ACTV
pursuant to the Exchange Agreement shall have been satisfied, such registration
is not subject to any suspension or stop order, the prospectus for the Common
Shares issuable upon exchange of the Preferred Shares is current and such Common
Shares are listed for trading on the NASDAQ Small Capitalization or National
Market, and none of Financing, Holdings or ACTV is subject to any bankruptcy,
insolvency or similar proceeding. The "Liberty Sports Contract" shall mean that
certain agreement to be entered into by ACTV and/or its subsidiaries and Liberty
Sports, Inc. ("LS") or its wholly-owned subsidiary Prime Sports West ("PSW")
providing for immediate commercial use on economically viable terms by ACTV
and/or its subsidiaries of substantially all major professional sports program
content carried by PSW for a term of at least 3 years in connection with the
launch of ACTV's premium regional network within the entire existing 4,200,000
subscriber footprint of PSW. LS is to be rebranded "Fox Sports Net" and PSW is
to be rebranded "Fox Sports West."

        (b) Merger. If the date on which both the Effective Registration has
occurred and is continuing and the Liberty Sports Contract has been executed and
delivered and is in full force and effect (the "Contingency Satisfaction Date")
occurs on or before December 31, 1996, then promptly following such date
Holdings agrees that Financing shall be merged with and into Holdings with each
Financing Preferred Share being exchanged for one Preferred Share of Holdings
with the amount of any accrued and unpaid dividends on any Financing Preferred
Shares constituting the amount of accrued and unpaid dividends on the Preferred
Shares of Holdings received in such exchange, as of the date of the merger (the
"Merger"). If the Contingency Satisfaction Date occurs after December 31, 1996,
then Holdings agrees to cause the Merger to occur promptly after (and not
before) the Offer Period (as defined in the Financing Investment Agreement)
expires. Notwithstanding any of the foregoing, Holdings agrees that Financing
and Holdings shall effect the Merger within five (5) business days of receiving
a written request to so merge at any time by all the then holders of outstanding
Preferred Shares, regardless of whether or when the Contingency Satisfaction
Date occurs. Following the Merger, the Investors (or the then holders of the
Preferred Shares) shall have all the same rights and remedies under the Exchange
Agreement with respect to the Preferred Shares issued upon the Merger as if such
shares were included as "Preferred Shares" therein.

        Section 3.3 Intercompany Transactions. Holdings agrees that, on or prior
to the Closing, all ACTV accounts receivable relating to transactions between
ACTV and any direct or indirect subsidiaries of ACTV occurring prior to Closing,
all cash owned by ACTV, and all of ACTV's interest in any subsidiary, joint
venture or investment, including without limitation ACTV's interest in ACTV
Interactive and all shares of capital stock in the Greenwich Entertainment
Group, Inc. ("Greenwich") owned by ACTV, shall be transferred to Holdings as a
capital contribution in exchange for common stock of Holdings, and ACTV shall
use its best efforts to transfer all options for capital stock in Greenwich
owned by ACTV to Holdings as a common stock capital contribution.



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Until the Restrictive Covenant Termination Date (as defined in the Exchange
Agreement), any monies or assets paid or transferred from Holdings or any direct
or indirect subsidiary of Holdings to ACTV, or from Holdings to any direct or
indirect subsidiary of Holdings, for any reason whatsoever, shall be treated and
deemed as a loan from Holdings or such subsidiary to ACTV, or from Holdings to
such subsidiary, as the case may be, provided that Holdings may transfer up to
$3,000,000 of the $6,000,000 in funds received from Financing upon the Merger
after the Release Date to The Los Angeles Individualized Television Network,
Inc., a wholly-owned subsidiary of Holdings ("LA Sub"), as an equity capital
contribution by Holdings to LA Sub. Holdings agrees that, on or prior to the
Closing, ACTV and Holdings shall enter into the License Agreement in the form
and substance satisfactory to the Investors pursuant to which ACTV shall grant
to Holdings a perpetual worldwide exclusive royalty free license to use and
exploit all of ACTV's patents.

        Section 3.4 Certificates on Exchange. Upon any exchange by an Investor
(or then holder of Preferred Shares) of the Preferred Shares pursuant to the
Exchange Agreement, Holdings shall issue and deliver to such Investor (or
holder) within 48 hours of the Exchange Date (as defined in the Exchange
Agreement) a new certificate or certificates for the number of Preferred Shares
which such Investor (or holder) has not yet elected to exchange but which are
evidenced in part by the certificate(s) submitted to ACTV in connection with
such exchange (with the number of and denomination of such new certificate(s)
designated by such Investor or holder).

        Section 3.5 Replacement Certificates. The certificate(s) representing
the Preferred Shares held by any Investor (or then holder) may be exchanged by
such Investor (or such holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Preferred Shares, as requested by such Investor (or such holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.

        Section 3.6 No Senior Securities. Until the Restrictive Covenant
Termination Date (as defined in the Exchange Agreement), Holdings agrees that
neither Holdings nor ACTV shall (i) create, incur, assume, guarantee, secure or
in any manner become liable in respect of any indebtedness, other than the
obligations specifically referred to herein to the Investors or holders of
Preferred Shares, or permit any liens, claims or encumbrances to exist against
ACTV or Holdings or any of their assets, except for trade payables incurred in
the ordinary course of business consistent with past practices, and (ii) issue
any shares of its preferred stock or any securities convertible into its
preferred stock (except for warrants and preferred stock issuable upon exercise
thereof given to the Placement Agent as described in Section 7.1 above) without
prior written approval of such preferred stock (or convertible security)
issuance by a majority in interest of the holders of outstanding Preferred
Shares.

        Section 3.7 Use of Proceeds. Holdings agrees that the proceeds received
by Holdings from the sale of the Preferred Shares hereunder and the funds
received by Holdings as a result of the Merger shall be used for developing the
chief markets of ACTV and its subsidiary companies in the areas of in-home
entertainment, education (with an emphasis on distance learning), site-based
entertainment and Internet applications as well as working capital and other
uses not inconsistent with the above.



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ARTICLE IV

CONDITIONS

        Section 4.1 Conditions Precedent to the Obligation of Holdings to Sell
the Preferred Shares. The obligation hereunder of Holdings to issue and/or sell
the Preferred Shares to the Investors is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
are for Holdings' sole benefit and may be waived by Holdings at any time in its
sole discretion.

        (a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).

        (b) Performance by the Investors. Each Investor shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
such Investor at or prior to the Closing.

        (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Exchange Agreement.

        Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Preferred Shares. The obligation hereunder of each Investor to
acquire and pay for the Preferred Shares is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Investors' sole benefit and may be waived by the Investors at any
time in their sole discretion.

        (a) Accuracy of Holdings' Representations and Warranties. The
representations and warranties of Holdings shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).

        (b) Performance by Holdings. Holdings shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
Holdings at or prior to the Closing.

        (c) NASDAQ. From the date hereof to the Closing Date, trading in ACTV's
Common Stock shall not have been suspended by the SEC or the NASDAQ Small
Capitalization Market, and trading in securities generally as reported by NASDAQ
shall not have been suspended or limited, and the Common Shares shall not have
been delisted from any exchange or market where they are currently listed.



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        (d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Exchange Agreement.

        (e) Opinion of Counsel. At the Closing the Investors shall have received
an opinion of counsel to Holdings substantially in the form and substance
satisfactory to the Investors and such other opinions, certificates and
documents as the Investors or their counsel shall reasonably require incident to
the Closing.

        (f) Registration Rights and Exchange Agreement. ACTV and the Investors
shall have executed and delivered the Exchange Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.

        (g) Full Subscription. Each other Investor hereto shall have
consummated, or simultaneously with such Investor will consummate, the
transactions contemplated hereby at the Closing and the transactions
contemplated by the Financing Investment Agreement at the Closing thereunder.

        (h) License Agreement. ACTV and Holdings shall have executed and
delivered the License Agreement in the form and substance satisfactory to the
Investors pursuant to which ACTV shall grant to Holdings a perpetual worldwide
exclusive royalty free license to use and exploit all of ACTV's patents.

        (i) Adverse Changes. Since March 31, 1996, no event which had or is
likely to have a Material Adverse Effect on Holdings or ACTV or any of its
subsidiaries shall have occurred.

        (j) Officer's Certificate. Holdings and ACTV shall have delivered to the
Investors a certificate in form and substance reasonably satisfactory to the
Investors, executed by an officer of Holdings and ACTV, certifying as to
satisfaction of closing conditions, incumbency of signing officers, charter,
by-laws and authorizing resolutions of Holdings and ACTV.

        (k) Intercompany Transfers; Standoff Commitments. The Investors shall
have received (1) documentation satisfactory to the Investors evidencing the
completion of the intercompany transfers described in Section 3.3 above, and (2)
copies of the standoff commitments from executive officers and directors of ACTV
as set forth in Section 12.p of the Exchange Agreement.

ARTICLE V

LEGEND AND STOCK

        Each certificate representing the Preferred Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form:



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        THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.

        Holdings agrees to reissue certificates representing the Preferred
Shares without the legend set forth above at such time as (i) the holder thereof
is permitted to dispose of such Preferred Shares pursuant to Rule 144(k) under
the Act, (ii) such Preferred Shares are sold to a purchaser or purchasers who
(in the opinion of counsel to the seller or such purchaser(s), in form and
substance reasonably satisfactory to Holdings and its counsel) are able to
dispose of such shares publicly without registration under the Act, or (iii)
such Preferred Shares are registered under the Act.

ARTICLE VI

TERMINATION

        Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
Holdings and the Investors.

        Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of any Investor or
Holdings at any time if the Closing shall not have been consummated by the fifth
business day following the date of this Agreement.

ARTICLE VII

MISCELLANEOUS

        Section 7.1 Fees and Expenses. Holdings shall pay or use its best
efforts to cause ACTV to pay, at the Closing and promptly upon receipt of any
further invoices relating to same, all reasonable due diligence fees and
attorneys' fees and expenses (using a single counsel) incurred by the Investors,
up to a maximum amount of $85,000, in connection with the preparation,
negotiation, execution and delivery of this Agreement, the Financing Investment
Agreement, the Exchange Agreement, and the related agreements and documents and
the transactions contemplated hereunder and thereunder. Such amount may be paid,
at the Investors' option, by each Investor offsetting its pro rata share (based
on the amount of Preferred Shares purchased hereunder) of the estimated amount
due for such fees and expenses from the payment of the Purchase Price by such
Investor under this Agreement. In the event such estimate is ultimately less
than the actual fees and expenses, Holdings or ACTV shall promptly pay such
deficiency upon receipt of an invoice regarding same, and in the event such
estimate is ultimately greater than the actual fees and expenses, each Investor
shall promptly pay to ACTV its pro rata share (based on the amount of Preferred
Shares purchased hereunder) of such overage upon a determination regarding same.
To the extent the $85,000 maximum amount hereunder exceeds the actual fees and
expenses, such excess amount shall be used to reimburse the Holders for (or pay
for) any fees and expenses (including attorneys' fees and expenses) incurred by
the Holders in connection with their review and due diligence with respect to
the Registration Statement (as defined in the Exchange Agreement). Holdings
shall pay or use its best efforts to cause ACTV to pay all stamp and other taxes
and duties levied in connection with the issuance of the Preferred Shares
pursuant hereto and the Common Shares issued pursuant to the Exchange Agreement.
Holdings and/or ACTV shall be responsible for paying the compensation due



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to the Placement Agent in connection with the transactions contemplated hereby
and under the Financing Investment Agreement and the Exchange Agreement. The
Placement Agent's compensation includes a cash payment of $750,000 and the
issuance to the Placement Agent by Holdings of warrants to purchase 36,000
shares of Holdings' 5% Cumulative Exchangeable Preferred Stock (with 40% of such
cash payment and such warrants being paid and issued, respectively, at Closing,
and the remaining 60% of such cash payment and such warrants being paid and
issued on the Release Date). All fees, charges and costs of the escrow agent
under the Escrow Agreement (as defined in the Financing Investment Agreement)
shall be paid for by Holdings and/or ACTV, and not by Financing or the
Investors.

        Section 7.2   Specific Enforcement; Consent to Jurisdiction.

        (a) Holdings and the Investors acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.

        (b) Holdings (i) hereby irrevocably submits to the jurisdiction of the
United States District Court, the New York State courts and other courts of the
United States sitting in New York County, New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Holdings consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.

        Section 7.3 Entire Agreement; Amendment. This Agreement, together with
the Exchange Agreement and the agreements and documents executed in connection
herewith and therewith, contains the entire understanding of the parties with
respect to the matters covered hereby and thereby and, except as specifically
set forth herein or therein, neither Holdings nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.

        Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal



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business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

                      to Holdings:             ACTV Holdings, Inc.
                                               Attn: William Samuels
                                               1270 Avenue of the Americas
                                               New York, New York 10020
                                               Fax: (212) 459-9548

                      with copies to:    Wesley C. Fredericks, Jr., Esq.
                                               Gersten Savage Kaplowitz & Curtin
                                               575 Lexington Avenue, 27th Floor
                                               New York, New York 10022
                                               Fax: (212) 980-5192

                      to the Investors:  
                                               To each Investor at the address
                                               and/or fax number set forth on
                                               Schedule I of this Agreement.

                      with copies to:         
                                         Kleinberg, Kaplan, Wolff & Cohen, P.C.
                                               551 Fifth Avenue
                                               New York, New York 10176
                                               Fax: (212) 986-8866
                                               Attn: Stephen M. Schultz

Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.

        Section 7.5 Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Agreement.

        Section 7.6 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.

        Section 7.7 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.


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        Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. The parties hereto may amend this Agreement
without notice to or the consent of any third party. Holdings may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of all Investors (which consent may be withheld for any reason in their
sole discretion). Any Investor may assign this Agreement or any rights or
obligations hereunder without the consent of Holdings in connection with any
sale or transfer of the Preferred Shares held by such Investor.

        Section 7.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

        Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.

        Section 7.11 Survival. The representations and warranties and the
agreements and covenants of Holdings and each Investor contained herein shall
survive the Closing.

        Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.

        Section 7.13 Publicity. Holdings agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

        Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.



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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.

                             HOLDINGS:

                             ACTV HOLDINGS, INC.

                             By:__________________________
                             Name:
                             Its:

                             INVESTORS:


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