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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1998
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 22, 1998
INTERACTIVE NETWORK, INC.
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA
(State or Other Jurisdiction of Incorporation)
0-19579 94-3025019
(Commission File Number) (I.R.S. Employer Identification No.)
1161 OLD COUNTY ROAD, BELMONT, CA 94002
(Address of Principal Executive Offices) (Zip Code)
(650) 508-8793
(Registrant's Telephone Number, Including Area Code)
With a copy to:
Marshall L. Small, Esq.
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.
On December 22, 1998, the Registrant filed a Plan of Reorganization and
related Settlement Agreement (which is attached as an exhibit thereto) with the
United States Bankruptcy Court for the Northern District of California, a copy
of which is attached hereto as Exhibit 1.1 and incorporated herein by reference.
On December 22, 1998, the Registrant issued a press release, a copy of which
is attached hereto as Exhibit 1.2 and incorporated herein by reference.
On December 23, 1998, the Registrant sent a letter to its shareholders, a
copy of which is attached hereto as Exhibit 1.3 and incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
--------
1.1 Plan of Reorganization and Settlement Agreement filed with the United
States Bankruptcy Court for the Northern District of California on
December 22, 1998.
1.2 Press Release issued by the Registrant dated December 22, 1998.
1.3 Letter of Shareholders first mailed to shareholders of the Registrant on
December 23, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 23, 1998
INTERACTIVE NETWORK, INC.
By: /s/ Bruce Bauer
---------------
Bruce Bauer
President and Chief Executive Officer
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EXHIBIT 1.1
ADAM A. LEWIS (BAR NO. 88736)
RICHARD L. VILLASENOR (BAR NO. 162923)
MORRISON & FOERSTER LLP
425 Market Street
San Francisco, California 94105-2482
Telephone: (415) 268-7000
Attorneys for Debtor and Debtor in Possession
INTERACTIVE NETWORK, INC.
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
<TABLE>
<S> <C>
In re | Case No. 98-34055-DM-11
|
INTERACTIVE NETWORK, INC., | Chapter 11
a California corporation, |
| CHAPTER 11 PLAN OF DEBTOR AND
| DEBTOR IN POSSESSION
Debtor. | INTERACTIVE NETWORK, INC.
Tax ID. No. 94-3025019 |
| Date: [NO HEARING SET]
| Time:
| Place:
- -----------------------------------------------------------------
</TABLE>
<PAGE>
TABLE OF CONTENTS
PAGE(S)
---------
I. DEFINITIONS................................................... 1
II. INTRODUCTION.................................................. 3
A. Purpose, Cautions and Disclaimers of this Article.......... 3
B. Initial Operations......................................... 3
C. The Litigation; Shutdown; Securities Class Action.......... 4
D. The Settlement Agreement; Removal of Mr. Lockton........... 5
1. Required Bankruptcy Filing............................... 5
2. Conversion of Secured Debt to Equity and Release of Liens 5
3. Payment of $12.5 Million to/for the Debtor............... 6
4. Releases................................................. 6
E. The Case................................................. 7
III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.......... 8
A. General Overview........................................... 8
B. Unclassified Claims........................................ 9
1. Administrative Expenses.................................. 9
2. Priority Tax Claims...................................... 9
C. Classified Claims and Interests............................ 9
1. Classes of Secured Claims................................ 9
2. Classes of Priority Unsecured Claims..................... 10
3. Classes of General Unsecured Claims...................... 10
4. Classes of Interested Holders............................ 11
IV. MEANS OF EFFECTUATING THE PLAN................................ 11
A. Funding for the Plan....................................... 11
B. Reserve for Disputed Claims................................ 11
C. Claims Objections.......................................... 11
D. Revesting of Property of the Estate........................ 11
E. Post-Confirmation Management Operations.................... 12
V. TREATMENT OF MISCELLANEOUS ITEMS.............................. 13
A. Executory Contracts and Unexpired Leases................... 13
1. Assumptions.............................................. 13
2. Rejections............................................... 13
3. Effected Confirmation Order.............................. 13
4. Objections to Treatment of Executory Contracts........... 13
5. Bar Date for Rejection Claims........................... 13
B. Retention of Jurisdiction.................................. 14
VI. EFFECT OF CONFIRMATION OF PLAN................................ 14
A. Binding Effect............................................. 14
B. Discharge.................................................. 14
C. Revesting of Property in the Debtor........................ 14
D. Modification of Plan....................................... 15
E. Final Decree............................................... 15
i.
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Debtor and debtor in possession Interactive Network, Inc., a California
corporation hereby proposes this Chapter 11 Plan of Reorganization.
I. DEFINITIONS
As used in herein, the following terms shall have the meanings set forth
below (unless the context clearly requires otherwise):
"Allowed Claim" or "Allowed Interest" means a Claim against, or Interest
in, the Debtor to the extent that:
(a) a proof of such Claim or Interest was
(1) timely filed by the Bar Date,
(2) deemed filed pursuant to Bankruptcy Code section 1111(a); and
(b) (1) which was not a Disputed Claim, or
(2) which was allowed by a Final Order to the extent so allowed.
"Bankruptcy Code" means Title 11 of the United States Code.
"Bankruptcy Court" means the United States Bankruptcy Court for the
Northern District of California.
"Bar Date" means the date set by the Bankruptcy Court as the final date for
the filing of proofs or claim or interest, currently January 18, 1999 for all
but governmental entities.
"Case" means case no. 98-34055-DM before the Bankruptcy Court.
"Claim" means any right to payment or right to an equitable remedy within
the meaning of section 101(5) of the Bankruptcy Code.
"Claimant" means holder of an Allowed Claim.
"Confirmation Date" means the date upon which the Confirmation Order is
entered on its docket by the Bankruptcy Court.
"Confirmation Order" means the order of the Bankruptcy confirming the Plan
entered on the Bankruptcy Court's docket.
"Creditor" means the holder of a Claim.
"Debtor" means Interactive Network, Inc., a California corporation, the
debtor and debtor in possession in the Case.
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"Disputed Claim" or "Disputed Interest" means a Claim against, or an
Interest in, the Debtor: (a) which has been included in the Debtor's Schedules
as disputed, contingent or unliquidated but for which the Bar Date has not
passed; or (b) as to which (i) an objection has been filed that has not been
withdrawn and is not the subject of a Final Order, or (ii) the time to file an
objection has not yet expired.
"Effective Date" means the earlier of: (a) the date upon which the
Confirmation Order becomes a Final Order, or (b) any date after the
Confirmation Date that the Debtor and the Settling Parties shall mutually agree
upon, provided that the Debtor and the Settling Parties shall serve and file
written notice thereof.
"Estate" means the bankruptcy estate of the Debtor created pursuant to
Bankruptcy Code section 541.
"Final Order" or "Final Judgment" means an order or judgment of the
Bankruptcy Court or any other court as to which (a) any appeal that has been
taken has been dismissed or finally determined without possibility of further
appeal of that order, or (b) the time for appeal has expired without the timely
filing of a notice of appeal.
"Interest" means (a) a share in a corporation, whether or not transferable
or denominated "stock", or a similar security in a corporation, or (b) a warrant
or right -- other than a right to convert -- to purchase, sell or subscribe to a
share or other similar security in a corporation.
"Interest Holder" means holder of any Interest in the Debtor.
"Litigation" means Interactive Network, Inc. v. Tele-Communications, Inc.,
Alameda County, California Superior Court, Case No. 754933-7.
"Plan" means this Chapter 11 Plan of Reorganization as amended or modified
in accordance with applicable law.
"Reorganized Debtor" means the Debtor after the Effective Date.
"Secured Claim" means a Claim secured by a lien on property of the Estate.
"Settlement Agreement" means that certain Mutual Release and Settlement
Agreement (dated as of July 10, 1998) between the Debtor, on the one hand, and
the Settling Parties, on the other hand,
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resolving the Litigation subject to the Bankruptcy Court's approval; a true
and correct copy of the Settlement Agreement is attached to this Plan as
Exhibit A..
"Settling Parties" means Tele-Communications, Inc., TCI Communications,
Inc., TCI Development Corporation, Inc., TCI Programming Holding Company, III,
TCI Cablevision of California, Inc., Gary S. Howard, National Broadcasting
Company, Inc., Sprint Corporation, and Motorola, Inc.
"Unsecured Claim" means a Claim that is not secured by a lien on property
of the Estate.
II. INTRODUCTION
A. PURPOSE, CAUTIONS AND DISCLAIMERS OF THIS ARTICLE
Under this Plan, no Creditor or Interest Holder is impaired within the
meaning of Bankruptcy Code section 1124 as all Allowed Claims will be paid in
full and all holders of Allowed Interests will retain those Allowed Interests.
Hence, the Debtor is neither required to obtain approval by the Bankruptcy Court
of, nor solicit acceptances with, a separate disclosure statement as otherwise
contemplated by Bankruptcy Code section 1125. Nevertheless, the Debtor believes
that holders of Claims and Interests should have some background information
with which to put the Plan's provisions in context. This Article II of the Plan
provides that background. In reading this Article II, holders of Claims and
Interests should bear in mind that others may have different views of the facts,
events and occurrences described herein. Holders of Claims and Interests should
also remember that this background material has not been submitted to the
Bankruptcy Court for its approval (as the Debtor would have done with a
disclosure statement had it been required to use one to solicit the acceptances
of a class of impaired claims or interests).
B. INITIAL OPERATIONS
The Debtor was founded in 1986. From that time until about mid-1995, its
business was the design, development and marketing of a subscription-based
interactive television entertainment system. Despite the expenditure of well
over a hundred million dollars, that business failed. However, the business was
based upon a portfolio of intellectual property (the "IP") owned by the Debtor
that the Debtor believes is very valuable. While the Debtor has valued the IP
at $40,000,000
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for purposes in its Schedules filed in the Case, the Debtor makes no
representation as to what the IP may in fact be worth when the company is free
to exploit it.
Among the Debtor's early stockholders were certain of the Settling Parties.
Certain of the Settling Parties also made loans to the Debtor that were secured
by liens on substantially all of the Debtor's assets, including -- most
importantly -- the IP. These Settling Parties had the right to convert their
loan indebtedness into common shares of the Debtor at the ratio of $4.00 per
share (before anti-dilution protection).
C. THE LITIGATION; SHUTDOWN; SECURITIES CLASS ACTION
In August of 1995, the Debtor commenced the Litigation against the Settling
Parties. In essence, the Debtor contended that the Settling Parties had
conspired to acquire the IP by obtaining their liens on it through the loans,
reneging on commitments to make further loans and then seeking to foreclose on
the IP when the Debtor could not sustain its business without additional funds.
The Settling Parties denied the Debtor's allegations and counterclaimed to
foreclose their liens through the Litigation.
From the time the Litigation commenced until recently, the Debtor's
management, led by Mr. Lockton, was occupied principally with the Litigation.
Among other things, the Debtor thus shut down its business, laid off virtually
all of its employees, abandoned the expensive new facility that it had just
leased, did not continue to maintain its books and records, did not have audited
financial statements prepared, did not make any filings with the Securities and
Exchange Commission, let its stock transfer agency agreement lapse and held no
shareholders' meeting after that conducted in May of 1995.
On January 4, 1995, certain plaintiffs commenced a securities class action
against the Debtor, Mr. Lockton, Peter Sealy and Tele-Communications, Inc.
(which no longer is a party). In that case, In re Interactive Network, Inc.
Securities Litigation, United States District Court, Northern District of
California, Case No. C-95-0026, the plaintiffs alleged that the Debtor, aided by
the other defendants, made materially false statements during the period January
19, 1994 through March 31, 1995. That action is still pending, but the Debtor
believes that a settlement is imminent that will limit the Debtor's out-of-
pocket costs to the $500,000 deductible under its liability insurance.
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D. THE SETTLEMENT AGREEMENT; REMOVAL OF MR. LOCKTON
In early 1998, settlement discussions between the Debtor and the Settling
Parties grew serious. Ultimately, upon the recommendations of the Debtor's
counsel in the Litigation, Joseph W. Cotchett and Mark C. Molumphy of Cotchett,
Pitre & Simon, and of the advisor to the Debtor's Board of Directors appointed
by the Superior Court in the Litigation, the Hon. Charles B. Renfrew (Ret.),
five of the six members of the Board voted to approve the resulting Settlement
Agreement. Mr. Lockton dissented. The other five members of the Board replaced
Mr. Lockton as Chairman, Chief Executive Officer and President on June 15, 1998.
Three of those other five members, Messers. Bauer, Bohrer and Graham, are the
current Board members whom Mr. Lockton hand-picked in 1995 (and who voted to
replace Mr. Lockton last June). Mr. Lockton, who remains a director and
shareholder, commenced a proxy fight in mid-November to regain control of the
Debtor.
1. REQUIRED BANKRUPTCY FILING
At the Settling Parties' insistence, the Settlement Agreement required that
the Debtor file a bankruptcy case within 60 days to obtain approval of the
Settlement Agreement by the Bankruptcy Court through a plan of reorganization.
Hence, the Debtor filed its voluntary petition commencing the Case on September
14, 1998. Since filing the Case, the Debtor has been, and it remains, the duly
constituted debtor in possession pursuant to Bankruptcy Code sections 1107 and
1108.
The principal substantive terms of the Settlement Agreement are as follows:
2. CONVERSION OF SECURED DEBT TO EQUITY AND RELEASE OF LIENS
First, on the Effective Date of the Plan the Settling Parties will convert
their claims against the Debtor to common shares in the Debtor. At the same
time, they will release their liens on the Debtor's property, including the
crucial IP. Currently, those claims are fixed by the Settlement Agreement at
just over $39,000,000.00. The Settlement Agreement permits the Debtor's Board
to set the conversion ration at anywhere up to $5.00 per share. The Debtor's
Board has set the ratio at the maximum of $5.00 per share. The Debtor currently
has authorized 150,000,000 shares of common stock, of which approximately
30,000,000 are issued and outstanding. Thus, the conversion will mean that
approximately 7.8 million of the currently authorized but unissued shares will
be issued, making the total issued shares approximately 38 million and leaving
approximately 112,000,000
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common shares that are authorized but still not issued and outstanding. The
conversion will mean that the Settling Parties, with the 7.8 million shares
added to their existing shares, will hold approximately 14.6 million of the
then approximately 38 million outstanding common shares. Had the Settling
Parties exercised their existing conversion rights under the secured notes,
they would have obtained approximately 9.8 million additional shares (not
counting any additional shares that might have had to be issued to them
through the anti-dilution provisions) instead of the 7.8 million shares they
will obtain through the Settlement Agreement conversion.
The Settlement Agreement further provides that the Settling Parties
receiving common stock will vote those shares in accordance with the directions
of a committee of Independent Persons that will operate by majority vote for the
next four years. The initial members of the committee are three members of the
Debtor's Board, Messers. Bauer, Bohrer and Graham (the three Board members that
Mr. Lockton caused to be appointed in 1995 who joined in voting for his ouster
last June). A procedure is established for replacing committee members that
excludes only Mr. Lockton or persons who are affiliates or associates of Mr.
Lockton. The Settling Parties that are shareholders will also retain their
existing shares and any accompanying voting or other rights (as will all
shareholders in accordance with the terms of the Plan).
3. PAYMENT OF $12.5 MILLION TO/FOR THE DEBTOR
The Settlement Agreement also provides that upon the Effective Date, the
Settling Parties will pay the Debtor $10,000,000.00, plus an additional $2.5
million in connection with the attorneys' fees of the Debtor's counsel in the
Litigation, Cotchett, Pitre & Simon. These funds are on deposit in an escrow
accounts.
4. RELEASES
Finally, the Settlement Agreement provides for mutual general releases
between the Debtor and the Settling Parties regarding all matters occurring to
the date of the Settlement Agreement.
E. THE CASE
Since filing the Case, the Debtor has undertaken a variety of initiatives.
In doing so, it has had to contend with its limited resources. It currently
rents a small office space at below market terms in Belmont, California. Its
staff consists of Bruce W. Bauer, its Chairman, President and Chief
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Executive Officer, John Bohrer, a Board member who is the Treasurer and
Secretary, and who carries out occasional administrative tasks, an
administrative assistant and a full-time secretary. As noted below, the Debtor
also is seeking to engage auditors. The Debtor has access to funds from the
settlement of other litigation that the Settling Parties have released from
their liens to enable the Debtor to fund its activities in the Case. The
Debtor has had to expend a substantial sum from these funds in connection with
Mr. Lockton's effort --described below -- to regain control of the Debtor
during the Case.
The Debtor has been trying to reconstruct its books and records. In part,
this was to enable it to make a considered judgment whether it could propose a
plan of reorganization that provides for payment in full of all Allowed Claims
and retention of all Allowed Interests, as does this Plan. Indeed, the process
of trying to resurrect its books and records has occupied a significant
percentage of the time of the Debtor's management since Mr. Lockton's dismissal
last June. The Debtor now is attempting to engage its former auditors (with the
Bankruptcy Court's approval) to prepare audited financial statements.
The Debtor also has been actively looking for opportunities through which
to capitalize on the IP. It believes that the IP presents the potential for
very profitable development through such activities as licensing, joint ventures
and strategic alliances. The Debtor has in the recent past received and
continues to receive indications of interest in the IP from responsible
businesses, including Cable and Wireless Communications and Two Way TV, that it
intends to pursue actively. The Debtor envisions beginning to add persons with
relevant experience and contacts to its Board, management and staff after the
Effective Date to assist it in the exploitation of its IP and other business
operations. In addition, the Debtor intends to put in place an Advisory Board,
made up of several independent analysts who are expert in the area of
intellectual property and technology transfer as related to the Debtor's IP, to
assist the Debtor in developing the opportunities the Debtor believes may be
available to it in the internet, telecommunications and entertainment
industries.
The Debtor began taking the steps necessary for it to call a shareholders'
meeting at which it, along with other shareholders, can solicit proxies to elect
its Board in accordance with law. At present, it cannot solicit proxies under
federal law because it lacks audited financial statements since
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none were prepared after Mr. Lockton commenced the Litigation. It hopes to
have such financial statements by early next year. Mr. Lockton, who is not
constrained by the Debtor's lack of audited financials even though that
situation arose during his stewardship of the Debtor, attempted to solicit
proxies and call a shareholders' meeting for December 30, 1998. Pursuant to an
action the Debtor brought in connection with Mr. Lockton's effort to set a
shareholders' meeting for December 30, 1998, on December 17, 1998 the San
Mateo County, California Superior Court set the shareholders' meeting for
March 31, 1999, with the record date being March 1, 1999.
Finally, the Debtor has formulated this Plan. The Plan is based
essentially upon the benefits of the Settlement Agreement. The Debtor will use
its funds from the Settlement Agreement (along with such other funds as it may
still have) to pay all Allowed Claims upon the Effective Date or as soon
thereafter as a Claim becomes an Allowed Claim. All those holding Allowed
Interests will retain those Interests as allowed. Thereafter, the Debtor, as the
Reorganized Debtor, will use its remaining funds to pursue exploitation of its
valuable IP. In addition, the Debtor holds a tax-loss carryforward of
approximately $130,000,000.00.
III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
A. GENERAL OVERVIEW
As required by the Bankruptcy Code, the Plan classifies Claims and
Interests in various classes according to their right to priority of payments as
provided in the Bankruptcy Code. The Plan provides the treatment each class
will receive under the Plan. There are no impaired classes of Claims or
Interests under this Plan. All Allowed Claims will be paid in full, with
interest to the extent required by law, on the Effective Date, and all holders
of Allowed Interests will retain those Allowed Interests.
B. UNCLASSIFIED CLAIMS
Certain types of Claims are not placed into classes; instead they are
unclassified. Creditors holding such Claims are not considered impaired and
they do not vote on the Plan because they are automatically entitled to specific
treatment provided for them in the Bankruptcy Code. Accordingly, the Plan does
not classify the following Claims:
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1. ADMINISTRATIVE EXPENSES
Administrative expenses are claims for cost or expenses of administering
the Case which are allowed under Bankruptcy Code section 507(a)(1). The
Bankruptcy Code requires that each Allowed administrative Claim be paid in full
on the Effective Date of the Plan or the date thereafter upon which it becomes
an Allowed Claim unless a particular Claimant agrees to a different treatment.
Those who assert administrative Claims, other than those professionals
employed pursuant to Bankruptcy Code sections 327, 328 and 330, must file a
request for payment not later than 30 days after the Confirmation Date, and the
Debtor must file any objection thereto not later than 30 days thereafter. Those
whose right to payment is governed by Bankruptcy Code sections 327, 328 and 330
must serve, file and properly notice applications for allowance and payment of
their fees and costs not later than 45 days after the Confirmation Date. Such
applications will be adjudicated in accordance with applicable practice and
procedure.
2. PRIORITY TAX CLAIMS
Priority tax Claims include certain unsecured income, property and other
taxes described by Bankruptcy Code section 507(a)(8). The Bankruptcy Code
requires that each holder of such a section 507(a)(8) priority tax Allowed Claim
receive the present value of such Allowed Claim in deferred cash payments, over
a period not exceeding six years from the date of assessment of such tax. If
there are any such Allowed Claims, the Debtor will pay them in full on the
Effective Date or as soon thereafter as they are Allowed.
C. CLASSIFIED CLAIMS AND INTERESTS
1. CLASSES OF SECURED CLAIMS
There are two subclasses of Secured Claims:
a. SETTLING PARTIES' SECURED CLAIMS
Certain of the Settling Parties hold Secured Claims. Upon the Effective
Date, those secured claims will be deemed converted into common shares of the
Debtor at the ratio of $5.00 per share. The Debtor will issue the appropriate
number of such common shares to the respective Claimants, and the Claimants will
release their liens on the Debtor's property of all kinds.
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b. OTHER SECURED CLAIMS
This subclass of Secured Claims consists of all Secured Claims except those
of the Settling Parties. The Debtor will pay all such Allowed Secured Claims in
full on the Effective Date or such date thereafter as they become Allowed
Claims. Upon the payment in full of such an Allowed Claim, the Claimant's lien
will be deemed released; the Claimant will also be required to take or cooperate
in such steps with respect to document the release of the lien (such as
executing a termination statement) as would be required under otherwise
applicable law upon the payment of the underlying obligation in full, provided
however, that such steps shall be for the Debtor's benefit and convenience
rather than to effect the release of the lien (which shall be deemed released as
provided above).
2. CLASSES OF PRIORITY UNSECURED CLAIMS
Certain priority Claims that have been referred to in Bankruptcy Code
sections 507(a)(3), (4), (5), (6), and (7) are required to be placed in classes.
To the extent that they are Allowed, these types of Claims are entitled to
priority treatment as follows: the Bankruptcy Code requires that each holder of
such a Claim receive cash on the Effective Date equal to the Allowed amount of
such a Claim. However, a class of unsecured priority Claim holders may vote to
accept deferred cash payments of a value, as of the Effective Date, equal to the
allowed amount of such claims. If there are any such Creditors, all such
Allowed Claims will be paid in full on the Effective Date or as soon thereafter
as their Claims become Allowed Claims.
3. CLASSES OF GENERAL UNSECURED CLAIMS
General Unsecured Claims are Unsecured Claims not entitled to priority
under Bankruptcy Code section 507(a). On the Effective Date of the Plan or as
soon thereafter as such Claims are Allowed, general Unsecured Claims will paid
in full to the extent that the Claims are Allowed Claims.
4. CLASSES OF INTERESTED HOLDERS
All holders of Interests will retain their Interests.
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IV. MEANS OF EFFECTUATING THE PLAN
A. FUNDING FOR THE PLAN
The Debtor will assume the Settlement Agreement pursuant to Bankruptcy Code
section 365(a). The Plan will be funded by such money as the Debtor has on hand
on the Effective Date and the funds to be paid by the Settling Parties under the
Settlement Agreement.
B. RESERVE FOR DISPUTED CLAIMS
Upon the Effective Date the Debtor will create a Unpaid Claims Reserve
Account (the "Account"), separate from all its other accounts, into which it
will deposit funds sufficient to pay 75% of all Disputed Claims in full. Upon
motion to the Bankruptcy Court, the Debtor may seek authority to deposit a
lesser amount than 75% of the amount of a particular Claim in the Account on the
grounds that the Claimant is unlikely have his Claim Allowed in more than the
lesser amount. As Disputed Claims are resolved, the Debtor will pay the holders
of such claims the Allowed Amount (if any) of the Claim and will be entitled to
transfer to its other accounts the difference, if any, between the Allowed
amount of the Claim and the amount reserved for the Claim.
C. CLAIMS OR INTERESTS OBJECTIONS
Except as otherwise specifically provided in Article III.B.1 above, the
Debtor shall have 60 days from the Effective Date in which to file objections to
Claims or Interests. The filing of such an objection shall commence a
proceeding in accordance with Local Bankruptcy Rules 3007-1 and 9013-1, 9013-2,
9013-3 and 9014-1. Any settlements of Claims or Interests objections under this
provision or Article III.B.1 shall be approved by the Bankruptcy Court in
accordance with Rule 9019 of the Federal Rules of Bankruptcy Procedure. The
Debtor may exercise its reasonable judgment in aggregating such settlements for
omnibus motions.
D. REVESTING OF PROPERTY OF THE ESTATE
Upon the Effective Date, all property of the Estate shall revest in the
Debtor, free and clear of liens, claims and encumbrances except as otherwise
expressly provided in this Plan, including, without limitation, the IP and any
and all causes of action that the Debtor may have (other than causes of action
created by Bankruptcy Code sections 544-550).
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E. POST-CONFIRMATION MANAGEMENT OPERATIONS
As of the Effective Date, the Debtor will manage its own affairs. It shall
be entitled to do all things lawful under otherwise applicable law and its
Articles and By-Laws (including, without limitation, employing and compensating
professionals), except such things as conflict with the terms of the Plan.
Except as otherwise specifically provided in this Plan, the Debtor shall be free
of the supervision of the Bankruptcy Court.
The Debtor anticipates that the following will constitute its Board of
Directors on the Effective Date:
Bruce W. Bauer (Chairman)
John Bohrer
Donald Graham
William Green
William Groeneveld
David B. Lockton.
The Debtor also anticipates that the following persons will be its officers
and their compensation on the Effective Date:
Bruce W. Bauer, President and Chief Executive Officer (contract date: June
14, 1998)
Term: one year.
Salary: $125,000 annually, with the full year's salary payable if the
contract is terminated or the position ends prior to the expiration of
the year.
A vested option to purchase 900,000 shares of the Debtor's common
stock at $.21 per share).
John Bohrer, Secretary and Treasurer (contract date June 14, 1998)
Term: monthly
Salary: $3,000 per month, with the full month's salary payable if the
contract is terminated or the position ends prior to the expiration of
the month.
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As noted in Article II.E above, the Debtor envisions beginning to add
persons with relevant experience and contacts to its Board, management and
staff, as well as begin assembling an Advisory Board, after the Effective Date
to assist it in the exploitation of its IP and other business operations.
F. AMENDMENT OF ARTICLES
As of the Effective Date, the Debtors' Articles of Incorporation shall be
deemed amended to prohibit the issuance of non-voting securities.
V. TREATMENT OF MISCELLANEOUS ITEMS
A. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. ASSUMPTIONS
As of the Effective Date, the Debtor will assume the Settlement Agreement,
its employment and compensation agreements with its current officers and
employees, and its sublease of its office space at 1161 Old County Road,
Belmont, California 94002. .
2. REJECTIONS
As of the Effective Date, all executory contracts and unexpired leases to
which the Debtor is a party, other than those specified in Article V.A.1 above,
shall be deemed rejected.
3. EFFECT CONFIRMATION ORDER ON AGREEMENTS
Except as otherwise ordered, the Confirmation Order shall constitute an
order approving the assumption or rejection of the leases and contracts as of
the Effective Date.
4. OBJECTIONS TO TREATMENT OF EXECUTORY CONTRACTS
Any party to an executory contract or lease that objects to the treatment
of that party's executory contract or lease as provided in this Article V.A must
file and serve such party's objection within the deadline objecting to
confirmation of the Plan in accordance with the Debtor's Motion for Confirmation
of Its Chapter 11 Plan of Reorganization.
5. BAR DATE FOR REJECTION CLAIMS
The bar date for filing a proof of claim based on a claim arising from the
rejection of a lease or contract is thirty (30) days after the Effective Date.
Any claim based on the rejection of a contract or lease will be barred if the
proof of claim is not timely filed. Any objection to the proof of claim shall
be initiated and governed in accordance with Article IV.C.
13
<PAGE>
B. RETENTION OF JURISDICTION
The Court will retain jurisdiction to the extent provided by law,
including, without limitation, jurisdiction to: interpret and enforce the terms
of this Plan, the Settlement Agreement, and any orders or judgments connected
therewith; modify this Plan in accordance with Bankruptcy Code section 1127;
hear and determine claims objections or estimations, and matters related
thereto; hear and determine the Debtor's claims against other persons; and hear
and determine any matter necessary or appropriate under Bankruptcy Code section
505; .
VI. EFFECT OF CONFIRMATION OF PLAN
A. BINDING EFFECT
The Confirmation of the Plan shall, as of the Effective Date, bind the
Debtor and all those who hold Claims or Interests.
B. DISCHARGE
The confirmation of the Plan shall, as of the Effective Date, discharge
from any Claim that arose before the Effective Date, and any Claim of a kind
specified in Bankruptcy Code sections 502(g)-(i) in accordance with section
1141(d)(1)(A) of the Bankruptcy Code. Thus, as of the Effective Date, and in
accordance with Bankruptcy Code section 524(a), as of the Effective Date the
confirmation of the Plan:
(1) voids any judgment at any time obtained, whether or not discharge of
such debt is waived; and
(2) operates as an injunction against the commencement or continuation of
an action, the employment of process, or an act, to collect, recover or offset
any such debt as a personal liability of the Debtor, whether or not discharge of
such debt is waived.
C. REVESTING OF PROPERTY IN THE DEBTOR
As of the Effective date, all property of the Estate of the Debtor will
revest in the Debtor.
D. MODIFICATION OF PLAN
The Debtor may modify the Plan at any time before confirmation. However,
the Court may require a disclosure statement and/or revoking on the Plan if
appropriate.
14
<PAGE>
The Debtor may also seek to modify the Plan at any time after confirmation
only if (1) the Plan has not been substantially consummated and (2) the court
Authorizes the proposed modification after notice and a hearing.
E. FINAL DECREE
Once the Plan has been substantially consummated in accordance with
Bankruptcy Code section 1101(2) and no property remains in the Estate, the
Debtor may file a motion with the Court to obtain a final decree to close the
Case.
Dated: December 21, 1998
INTERACTIVE NETWORK, INC., DEBTOR AND DEBTOR IN
POSSESSION
By: /s/ Bruce W. Bauer
------------------
Bruce W. Bauer
Its: Chairman, President and Chief Executive
Officer
Dated: December 21, 1998
ADAM A. LEWIS
RICHARD L. VILLASENOR
MORRISON & FOERSTER LLP
By: /s/ Adam A. Lewis
-----------------
Adam A. Lewis
Attorneys for Debtor and Debtor in
Possession
INTERACTIVE NETWORK, INC.
15
<PAGE>
EXHIBIT A
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
---------------------------------------
This Mutual Release and Settlement Agreement (the "Agreement") is made and
entered into as of the 10th day of July 1998, by and between Interactive
Network, Inc. on the one hand ("IN"), and Tele-Communications, Inc. ("TCI"),
TCI Communications, Inc., TCI Development Corporation, Inc. ("TDC"); TCI
Programming Holding Company, III ("TCI Sub"), TCI Cablevision of California,
Inc., Gary S. Howard, (the TCI entities and Mr. Howard are collectively
referred to herein as the "TCI Parties"), National Broadcasting Company, Inc.
("NBC"), Sprint Corporation ("Sprint") and Motorola, Inc. ("Motorola") on the
other hand. IN, the TCI Parties, NBC, Sprint and Motorola are collectively
referred to as the "Parties," and the Parties exclusive of IN are collectively
referred to as the "Non-IN Parties." This Agreement shall become effective upon
the entry of a final non-appealable order by the Bankruptcy Court as set forth
in Section 7, below.
A. WHEREAS, IN filed suit against the TCI Parties in Interactive Network,
--------------------
Inc. v. Tele-Communications, Inc., Alameda County Superior Court, State of
- ---------------------------------
California, Case No. 754933-7, seeking damages and injunctive relief allegedly
arising from the TCI Parties' business relationship with IN;
B. WHEREAS, TDC, on its own behalf, and TCI Sub, in its capacity as agent
for TCI, NBC, Sprint and Motorola ("Cross-Complainants") filed a Cross-Complaint
against IN seeking damages arising from alleged breach of promissory notes:
C. WHEREAS, IN filed a Cross-Complaint to the Cross-Complaint against
Cross-Complainants arising from, inter alia, the alleged procurement of such
----- ------
promissory notes (the
1
<PAGE>
entire action, including the Complaint, the Cross-Complaint and the Cross-
Complaint to the Cross-Complaint, is referred to herein as "the Suit");
D. WHEREAS, out of a desire to settle their disputes, including disputes
arising out of the Suit, without any corresponding or resulting admissions of
liability or wrongdoing of any kind, the Parties enter into this Mutual Release
and Settlement Agreement ("the Agreement").
NOW THEREFORE, in consideration of the following terms, covenants, and
conditions, the Parties hereby agree as follows:
SECTION 1. PAYMENTS.
- ---------- --------
1.1. The TCI Parties have caused to be deposited into an interest bearing
escrow account, No. 6029-108453, Wells Fargo Bank, 525 Market Street, San
Francisco, CA 94163, the sum of $10,000,000. The TCI Parties will permit IN to
make one additional change in the type of account; however, any account must be
with Wells Fargo Bank, and must be under terms consistent with this Agreement,
including such liquidity terms that will permit the bank to release funds within
three days of the final order by the Bankruptcy court, without penalty. Subject
to the fulfillment of conditions set forth in Section 2 below, such funds,
together with any accrued interest or appreciation, shall be transferred to the
account of IN within three business days of the entry of the final non-
appealable order by the Bankruptcy Court, pursuant to Section 7 below.
1.2. The TCI Parties have caused to be deposited into an interest bearing
escrow account under the joint control of Legal Strategies Group and Cotchett,
Pitre & Simon, No. 6029-108461, Wells Fargo Bank, 525 Market Street, San
Francisco, CA 94163, the sum of $2,500,000. Subject to the fulfillment of
conditions set forth in Section 2 below, such funds, together with any accrued
interest or appreciation, shall be transferred to the account of Cotchett,
2
<PAGE>
Pitre & Simon within three business days of the entry of the final non-
appealable order by the Bankruptcy Court, pursuant to Section 7 below.
SECTION 2. CONDITIONS PRECEDENT.
- ---------- --------------------
IN shall use its best efforts to verify and confirm in writing the
following information to the TCI Parties:
2.1. The number of outstanding shares of stock which have been issued by
IN as of July 10, 1998 and that no shares thereof or rights or options to
purchase shares thereof have been issued or granted since July 10, 1998;
2.2. The number of shares of stock and/or stock options held or claimed
to be held by David Lockton, or for the benefit of David Lockton, or by or for
the benefit of any members of Mr. Lockton's family or any corporations or
other entity directly or indirectly controlled by Mr. Lockton.
SECTION 3. DISMISSAL OF SUIT.
- ---------- -----------------
Within three business days of the execution of this Agreement, the Parties
shall cause the Suit, including the Complaint, the Cross-Complaint, and Cross-
Complaint to the Cross-Complaint, to be dismissed without prejudice.
Thereafter, simultaneously with the transfer of payments as provided in Section
1, the Parties shall cause the Suit, including the Complaint, the Cross-
Complaint and the Cross-Complaint to the Cross-Complaint to be dismissed with
prejudice. Except as set forth in Paragraph 1.2 above, each party will bear its
own costs and expenses in connection with the Suit.
SECTION 4. RELEASE OF SECURITY INTERESTS.
- ---------- -----------------------------
Within three days of the transfer of payments as provided in Section 1,
Cross Complainants, upon request of IN, and with the cooperation and consent of
NBC, Sprint and
3
<PAGE>
Motorola, shall transfer and return all intellectual property, if any,
acquired from IN, and in addition to Section 7.2 below, shall execute and
cause to be filed releases of all security liens and/or interests held by any
of the TCI Parties, NBC, Sprint or Motorola in any IN patents, accounts and/or
assets, including in any patents, trademarks, or other intellectual property,
with the United States Patent and Trademark Office, the California Secretary
of State, and/or any other appropriate authorities. TCI represents that they
have the authority to act as agent on behalf of NBC, Sprint and Motorola in
this regard.
SECTION 5. ISSUANCE OF COMMON STOCK.
5.1. Immediately following the entry of the final non-appealable order by
the Bankruptcy Court described in Section 7 below, each of TCI, NBC, Sprint
and Motorola (each, a "Holder") will enter into a mutually acceptable exchange
agreement pursuant to which each Holder will transfer (the "Exchange") all of
the Convertible Promissory notes dated April 22, 1994 and 12% Senior Secured
Convertible Notes due September 21, 1996 (the "Notes") of IN held by it to IN
in exchange for the issuance to it of newly issues shares of Common Stock of
IN (each a "Share," and collectively, the "Shares"). The number of Shares to
be received by each Holder will be equal to (x) the aggregate principal amount
of the Notes held by such Holder, together with all interest accrued and
unpaid thereon to February 25, 1998, divided by (y) an amount up to United
States $5.00 (five dollars exact), to be determined by IN's Board of
Directors. The parties acknowledge that the exchange price may bear no
relation to the fair market value of a Share. Upon consummation of the
Exchange, all Notes will be canceled by IN. The Exchange agreement to be
entered into by the Holders and IN shall contain representations and
warranties, conditions to closing including, without limitation, receipt of
any required governmental consents and approvals and the expiration or
termination of any waiting period
4
<PAGE>
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if
necessary, and other terms and provisions which are customary in transactions
of this type (including, without limitation, the parties' covenants to
cooperate in determining the applicability of governmental filing requirements
and in preparing all requisite filings). All Shares issued to the Holders by
IN in the Exchange will be duly authorized, validly issued, fully paid and non-
assessable, free of any liens and subject to no preemptive tights and IN shall
deliver to the Holders an opinion of counsel (such counsel and such opinion to
be reasonably acceptable to the Holders) to such effect.
5.2. The principal amount of Notes held by each Holder, as of May 10,
1998, together with the aggregate accrued but unpaid interest thereon as of
February 25, 1998, is set forth opposite such Holder's name below:
Holder Principal Amount Accrued Interest
------ ---------------- ----------------
TCI $10,008,216.80 $4,706,318.53
NBC $ 6,503,287.65 $3,008,108.34
Sprint $ 5,000,000.00 $2,422,602.74
Motorola $ 5,001,220.88 $2,423,194.28
SECTION 6. VOTING.
- ---------- ------
6.1. Upon receipt of the Shares in the Exchange, each Holder will enter
into a voting agreement with IN which will provide that such Holder will vote
the Shares received by it in the Exchange as directed by a committee of
Independent Persons who shall consist of three persons and shall make its
decisions by majority vote. The committee shall initially consist of John
Bohrer, Donald Graham, and Bruce Bauer. If any of them shall resign, die or
become incapacitated, he shall first be replaced by William Green, if William
Green is then available and
5
<PAGE>
willing to serve in such capacity. If Green is unavailable and/or unwilling,
the members of the committee shall, by majority vote, select a new member or
members in their discretion, provided that no new member shall be David
Lockton or a member of David Lockton's family. If the remaining members are
unable to agree upon a new member by majority vote, then they shall apply to
the Chief Judge of the Superior Court of Alameda County to appoint such a
member. However, (i) each Holder shall be entitled to vote its Shares as it
-------
determines in its sole discretion with respect to the election of David
Lockton or any of his family members as a director of IN, or any other matter
regarding Mr. Lockton, and (ii) each Holder shall be entitled to vote its
Shares (to the extent stockholder approval or a consent to such action is
required, whether sought by IN or any other Person) as it determines in its
sole discretion with respect to the following matters:
(a) any liquidation or dissolution of IN or the filing of any
voluntary bankruptcy petition (other than as contemplated in this Agreement);
(b) any sale of IN; or
(c) the declaration and payment of any cash dividends or other
distributions on the common stock or any other cash payments to stockholders
as such.
6.2. The foregoing voting agreement will terminate upon the fourth
anniversary of the date in which the issuance of stock and the conversion of
the secured debt takes place, unless sooner terminated upon a breach of its
terms.
SECTION 7. BANKRUPTCY PROCEEDINGS.
- ---------- ----------------------
7.1. Within 60 days of this Agreement, IN shall file a petition for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of California (the "Bankruptcy Proceeding").
The Non-IN Parties covenant that they shall not object to the filing of the
Bankruptcy Proceeding. IN subsequently shall file a plan of
6
<PAGE>
reorganization in the Bankruptcy Proceeding, which plan shall be consistent
with the terms of the Agreement. The Non-IN Parties agree that they shall
submit any objection they, or any of them, may have to a plan of
reorganization to the Hon. Charles Renfrew, and that Judge Renfrew can and
will decide such objections. Otherwise the Parties shall reserve all of their
rights and remedies in the Bankruptcy Proceeding, provided that the Parties
shall exercise such rights and remedies in a manner consistent with and in
furtherance of the purposes of this Agreement. A final non-appealable order
authorizing IN to perform the plan must be entered by the Bankruptcy Court as
a condition to the transfer of funds pursuant to Section 1.
7.2. Immediately upon signing of this Agreement, IN may seek release of
funds then held on behalf of IN in an account by, with or through Trump,
Alioto, Trump & Prescott, former counsel for IN. Such funds shall be released
directly to IN's designated bankruptcy counsel, for use by IN to fund its
Bankruptcy proceedings and for its operations during the pendency of the
Bankruptcy proceedings. The Parties do not object to release of such funds,
and further agree to assist IN in obtaining the release and transfer of such
funds, including but not limited to stipulating to a court order and/or
executing and/or causing to be filed releases of all security liens and/or
interests held by any of the TCI Parties, NBC, Sprint or Motorola in such
funds.
SECTION 8. ADVICE OF SPECIAL COUNSEL.
- ---------- -------------------------
The IN board of directors have retained Judge Renfrew who will advise the
board of directors on the following matters:
8.1. The duties of the IN board under the terms of this Agreement;
8.2. The propriety of any monetary payments or the grant or sale of
stock or stock options or any other form of compensation or consideration made
or to be made by IN to David Lockton, or by or to members of Mr. Lockton's
family, including but not limited to the propriety
7
<PAGE>
of payments to Mr. Lockton on any promissory notes and the validity of the
purported grant of stock options to Mr. Lockton.
8.3. Whether Mr. Lockton should continue to serve as an officer of IN.
8.4. The TCI Parties shall pay the reasonable fees and expenses of Judge
Renfrew in connection with his services pursuant to this Agreement, until the
completion of this Agreement.
SECTION 9. RELEASES.
- ---------- --------
9.1. In consideration for the promises made herein, IN, on behalf of
itself, its predecessors, successors, past, present and future shareholders,
officers, directors, agents, heirs, employees, parents, subsidiaries, assigns,
attorneys, representatives, partners and affiliates, does hereby release,
acquit and forever discharge NBC, Sprint, Motorola and TCI, their
predecessors, successors, past, present and future shareholders, officers,
directors, agents, heirs, employees, parents, subsidiaries, assigns,
attorneys, representatives, partners and affiliates, of and from any and all
manner of action or actions, cause or causes of action, in law or in equity,
suits, debts, liens, contracts, agreements, promises, liability, claims,
demands, damages, losses, costs, expenses, or attorneys' fees of any nature
whatsoever, known or unknown, fixed or contingent, which are connected to, or
are related to, or arise out of any matter, conduct, transaction, or activity
involving the Parties to this Agreement up until the date of this Agreement,
including but not limited to such matters, conduct, transactions and/or
activities related to the Suit.
9.2. In consideration for the promises made herein, NBC, Sprint,
Motorola and TCI, on behalf of themselves, their predecessors, successors,
past, present and future shareholders, officers, directors, agents, heirs,
employees, parents, subsidiaries, assigns, attorneys, representatives,
partners and affiliates, do hereby release, acquit and forever discharge IN,
its predecessors, successors, past, present and future shareholders, officers,
directors, agents, heirs,
8
<PAGE>
employees, parents, subsidiaries, assigns, attorneys, representatives,
partners and affiliates, of and from any and all manner of action or actions,
cause or causes of action, in law or in equity, suits, debts, liens,
contracts, agreements, promises, liability, claims, demands, damages, losses,
costs, expenses, or attorneys' fees of any nature whatsoever, known or
unknown, fixed or contingent, which are connected to, or are related to, or
arise out of any matter, conduct, transaction, or activity involving the
Parties to this Agreement up until the date of this Agreement, including but
not limited to such matters, conduct, transactions and/or activities related
to the Suit.
9.3. In consideration for the promises made herein, the Non-IN Parties,
namely NBC, Sprint, Motorola and TCI, on behalf of themselves, their
predecessors, successors, past, present and future shareholders, officers,
directors, agents, heirs, employees, parents, subsidiaries, assigns,
attorneys, representatives, partners and affiliates, do hereby release, acquit
and forever discharge the other Non-IN Parties, their predecessors,
successors, past, present and future shareholders, officers, directors,
agents, heirs, employees, parents, subsidiaries, assigns, attorneys,
representatives, partners and affiliates, of and from any and all manner of
action or actions, cause or causes of action, in law or in equity, suits,
debts, liens, contracts, agreements, promises, liability, claims demands,
damages, losses, costs, expenses, or attorneys' fees of any nature whatsoever,
known or unknown, fixed or contingent, which are connected to, or are related
to, or arise out of any matter, conduct, transaction, or activity related to
the Suit, up until this Agreement.
9.4. Waiver of California Civil Code Section 1542:
Except as provided in this Agreement, it is the intention of the Parties to
this Agreement that the foregoing Release shall be effective as a full and final
accord and satisfaction, and as a
9
<PAGE>
bar to all actions, causes of action, obligations, costs, expenses, attorneys'
fees, damages, losses, claims, debts, obligations, liabilities and demands of
whatsoever nature, character or kind, known or unknown, suspected or
unsuspected, relating to the Suit. The Parties to this Agreement acknowledge
that they are familiar with Section 1542 of the Civil Code of the State of
California which provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
The parties expressly waive and relinquish any and all rights and benefits
which they may have under, or which may be conferred upon them by, the
provisions of Section 1542 of the California Civil Code, to the fullest extent
that they may lawfully waive such rights or benefits pertaining to the subject
matter of this Agreement. In connection with such waiver and relinquishment,
the Parties hereby acknowledge that they are aware that they or their respective
attorneys may hereafter discover claims or facts in addition to or different
from those which they now know or believe to exist with respect to the subject
matter of this Agreement, but that it is their intention to hereby fully,
finally and forever settle and release all of the claims known or unknown,
suspected or unsuspected. In furtherance of such intention, the release herein
given shall be and remain in effect as a full and complete General Release
notwithstanding the discovery or existence of any such additional different
claims or facts.
SECTION 10. NO ADMISSION OF LIABILITY.
- ----------- -------------------------
It is understood and agreed that this Agreement is a compromise of disputed
claims and that neither this Agreement nor the consideration therefore is to be
considered or is an admission of liability or any other wrongdoing on the part
of any of the Parties. It is also understood that
10
<PAGE>
the Parties are settling these claims solely to avoid the expense and
uncertainty of future litigation.
SECTION 11. CONFIDENTIALITY.
- ----------- ---------------
The Parties to this Agreement agree that the terms of this Agreement, and
all negotiations leading up to this Agreement, will be considered confidential
and will not be disclosed to any person other than their respective attorneys
and accountants. The foregoing restriction does not apply if a Party making the
disclosure: (1) has been compelled to do so pursuant to an order of a court of
competent jurisdiction; or (2) has obtained written permission of all other
Parties to this Agreement; or (3) is otherwise required by law to do so.
SECTION 12. MISCELLANEOUS.
- ----------- -------------
12.1. Breach or Failure to Perform: The obligations of the Parties to
----- ----------------------------
this Agreement, and each of them, are expressly conditioned upon the
performance of the obligations of the other Parties to the Agreement.
12.2. Governing Law and Resolution of Disputes: This Agreement and any
----- ----------------------------------------
other documents referred to herein shall be governed by, construed and
enforced in accordance with the laws of the State of California. The Parties
agree that the Hon. Joseph Carson of the California Superior Court for the
County of Alameda may retain jurisdiction over the parties to enforce the
terms of the Agreement until full performance.
12.3. Waiver and Amendment: No breach of any provision of this Agreement
----- --------------------
can be waived by any party hereto unless in writing and signed by each party
hereto. Waiver of any one breach shall not be deemed to be a waiver of any
other breach of the same or any other provision
11
<PAGE>
hereof. This Agreement may be amended only by a written agreement executed by
the Parties, and each of them.
12.4. Entire Agreement: All agreements, covenants, representations and
----- ----------------
warranties, express or implied, oral or written between the Parties concerning
the subject matter hereof are contained herein. No other agreements, covenants,
representations or warranties, express or implied, oral or written that bear on
this Agreement exist and all prior and contemporaneous circumstances,
negotiations, possible and alleged agreements, representations, covenants and
warranties, between and among the Parties to this Agreement and/or the subject
matter hereof are merged herein. This is a fully integrated agreement.
12.5. No Other Parties Have Interests: The Parties represent and warrant
----- -------------------------------
that no other person or entity has or had any legal or beneficial interest in
the claims, demands, obligations, or causes of action referred to in this
Agreement, that they have the sole right and exclusive authority to execute
this Agreement and receive the consideration specified herein, and that they
have not sold, assigned, transferred, conveyed, or otherwise disposed of any
of the claims, demands, obligations, or causes of action referred to in this
Agreement.
12.6. Advice of Counsel: In entering into this Agreement, the Parties
----- -----------------
represent that they have relied upon the legal advice of their attorneys, who
are the attorneys of the Parties' own choice, that the terms of this Agreement
have been completely read and explained to the Parties by their attorneys, and
that those terms are fully understood and voluntarily accepted by the Parties.
The Parties, further represent that, with the aid of their attorneys, they each
have conducted a full and independent investigation of the facts and contentions
underlying the subject matter of this Agreement.
12
<PAGE>
12.7. No Reliance on External Representations: The Parties have not relied
----- ---------------------------------------
upon any facts or representations in entering into this Agreement other than the
facts and representations set forth herein. Should any party discover any fact,
after execution of this Agreement, which differs from the Parties' current
understanding of the facts and representations, such discovery shall not cause
the invalidity or non-enforceability of the Agreement, or any portion thereof,
and shall not be the basis for any Party to assert any claim that has been
released by virtue of this Agreement.
12.8. Counterparts: This Agreement may be executed in counterparts with
----- ------------
the same effect as if the signatures hereto and thereto were upon the same
instrument. Each counterpart shall be deemed an original, which, taken
together, shall constitute a single instrument.
12.9. Authority: The parties and the signatories below each represent and
----- ---------
warrant that they have the power to bind the person or entity on whose behalf
they signed.
12.10. Headings: The headings within this Agreement are for the purpose of
------ --------
reference only and shall not limit or otherwise effect any of the terms or
provisions of this Agreement.
WE, THE UNDERSIGNED, HEREBY CERTIFY THAT WE HAVE READ THIS ENTIRE AGREEMENT
AND HAD THE TERMS THEREIN AND THE CONSEQUENCES
13
<PAGE>
THEREOF EXPLAINED BY OUR RESPECTIVE ATTORNEYS. WE FULLY UNDERSTAND ALL THE
TERMS AND CONSEQUENCES OF THIS AGREEMENT, AND WE HAVE EXECUTED IT.
IT IS SO AGREED:
Dated: July 16, 1998 INTERACTIVE NETWORK, INC.
By: /s/ Bruce Bauer
--------------------------------------
Name
Its:
Dated: July 17, 1998 TELE-COMMUNICATIONS, INC.
By: /s/ Marvin Jones
--------------------------------------
Name
Its: Executive Vice President
Dated: July 17, 1998 TCI COMMUNICATIONS, INC.
By: /s/ Marvin Jones
--------------------------------------
Name
Its: President/CEO
14
<PAGE>
Dated: July 17, 1998 TCI DEVELOPMENT CORPORATION
By: /s/ Marvin Jones
--------------------------------------
Name
Its: Vice President
Dated: July 17, 1998 TCI PROGRAMMING HOLDING COMPANY, III
By: /s/ Mary S. Willis
--------------------------------------
Name
Its: Assistant Secretary
Dated: ______, 1998 TCI CABLEVISION OF CALIFORNIA, INC.
By: /s/ Gary S. Howard
--------------------------------------
Name
Its:
Dated: ______, 1998 GARY HOWARD
By /s/ Gary S. Howard
--------------------------------------
Name
15
<PAGE>
Dated: July 14, 1998 SPRINT CORPORATION
By: /s/ Don A. Jenson
--------------------------------------
Name
Its: Secretary
Dated: ______, 1998 MOTOROLA INC.
By: /s/ Linda Valentine
--------------------------------------
Name
Its: Corporate Vice President and
Assistant General Counsel
Dated: July 16, 1998 NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Thomas A. Rogers
--------------------------------------
Name
Its: Pres., NBC Cable & EUP of NBC
APPROVED AS TO FORM:
Dated: July 16, 1998 COTCHETT, PITRE & SIMON
By: /s/ Mark Molumphy
--------------------------------------
Attorneys for Plaintiff
Interactive Network, Inc.
16
<PAGE>
Dated: July 16, 1998 LEGAL STRATEGIES GROUP
By: /s/ Joshua Floum
--------------------------------------
Attorneys for Defendants
Tele-Communications, Inc.
TCI Development Corporation
TCI Programming Holding Company, III
TCI Cablevision of California, Inc.
and Gary Howard
Dated: July 14, 1998
By: /s/ Charles Hyland
--------------------------------------
Charles Hyland, Esq.
Counsel to Sprint Corporation
Dated: ______, 1998 DICKINSON/WRIGHT
By: /s/ Hans Stucki
--------------------------------------
Hans Stucki, Esq.
Counsel to Motorola Incorporated
Dated: July 17, 1998
By: /s/ Alisa Shudofsky
--------------------------------------
Alisa Shudofsky, Esq.
Counsel to National Broadcasting
Company, Inc.
17
<PAGE>
EXHIBIT 1.2
PRESS RELEASE
INTERACTIVE NETWORK FILES
CHAPTER 11 REORGANIZATION PLAN
Belmont CA, December 22, 1998. Bruce Bauer, Chief Executive Officer of
Interactive Network, announced today that the Company had filed a plan of
reorganization in its pending Chapter 11 bankruptcy proceeding that provides for
payment to all the Company's creditors in full on their allowed claims,
retention by shareholders of their shares in the Company, the conversion by the
Company's principal secured creditors/investors (TCI, NBC, Motorola and Sprint)
of approximately $39,000,000 in secured debt (including accrued interest) into
approximately 7,800,000 shares of the Company's common stock, at a conversion
price of $5 per share, and the release by those secured creditors of their liens
on the Company's assets, including its patent portfolio.
The Company expects its Chapter 11 plan to be confirmed in February 1999,
shortly after which the Company will receive $10,000,000 in cash pursuant to a
Settlement Agreement entered into in July 1998 with its secured
creditors/investors who hold the Company's secured debt that is being converted
into common stock. The Company estimates that approximately 70% of this
$10,000,000 payment will be needed to pay the Company's unsecured creditors.
The Company intends to contest certain claims of creditors, including the
unsecured claim of the Company's former Chief Executive Officer, David Lockton,
who is the Company's largest unsecured creditor.
Mr. Bauer also announced that the California Superior Court in San Mateo
County had entered an order at the Company's request, declaring David
Lockton's call for a special shareholders' meeting to be held on December 30,
1998 ineffective and cancelled, and that it was in the best interests of
shareholders to set a new meeting date of March 31, 1999 to elect directors.
Shareholders of record on March 1, 1999 will be entitled to vote at the March
31, 1999 meeting. The Company is in the process of preparing current audited
financial statements and expects to mail proxy material and an annual report
to its shareholders in early March, 1999.
In the meantime, once its Chapter 11 plan of reorganization is confirmed
and its assets are released from the liens of its secured creditors, the
Company expects to be able to move vigorously to exploit the value of its
patent portfolio.
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EXHIBIT 1.3
December 23, 1998
To the Shareholders of Interactive Network, Inc.
As Chief Executive Officer of your Company, I would like to take this
opportunity to update you on the current status of your company. The Board and
management of Interactive Network have been working diligently over the past
several months attempting to turn your Company from a dormant and failed
operating entity, overrun with the litigious issues of a complicated law suit,
into an aggressive entity that will be actively seeking alternative joint
ventures to grow and develop the primary asset of Interactive Network, which is
its patent portfolio.
After three years of litigation, millions of dollars of fees and deferral
of the opportunity to realize the potential of your Company's most valuable
asset, our patents, your Board of your Company decided to settle its law suit
with its secured creditors, recover the freedom to exploit its patents, and
receive $10.0 million so as to restart the process of enhancing shareholder
value. This decision was made in order to permit the Company to begin to realize
the value of its patent portfolio, which it could not do so long as the patent
portfolio was subject to the liens of its secured creditors who were involved in
the litigation. If the Company had not settled the law suit (which we were
strongly advised to do by independent counsel to the Board, the Honorable
Charles Renfrew, a retired Federal judge with considerable past practical legal
experience), the Company could have been enmeshed in protracted litigation that
would have drained the Company's resources and delayed our ability to exploit
our patents. In July 1998, we reached a final settlement of the litigation with
the secured creditors. As a condition of this settlement demanded by the secured
creditors, the Board agreed to file a Chapter 11 voluntary bankruptcy
proceeding. This action, in the eyes of our secured creditors who were
converting their debt into common stock, provided the only absolute protection
to shareholders from future claims made due to the actions of prior management.
On December 22, 1998 the Company filed a plan of reorganization under its
Chapter 11 bankruptcy proceeding pursuant to the settlement agreement entered
into in July 1998. The plan of reorganization contemplates payment to all the
Company's creditors in full on their allowed claims, and the conversion by the
Company's secured creditors/investors (TCI, NBC, Motorola and Sprint) of
approximately $39,000,000 in debt (including accrued interest) into
approximately 7,800,000 shares of the Company's Common Stock at a conversion
price of $5 per share, and the release by the secured creditors of their liens
on the Company's assets, including its patent portfolio. The Company intends to
contest certain creditors' claims, including an unsecured claim of $3,394,000
asserted by its former Chief Executive Officer, David Lockton, based on an
alleged deferred compensation arrangement, which makes Mr. Lockton the Company's
largest unsecured creditor. The Company may also assert claims against Mr.
Lockton, based on what it believes are his mismanagement, breaches of fiduciary
duty and failure to satisfy a contractual condition to his receipt of
compensation. A copy of the plan of
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reorganization (including the Settlement Agreement) has been sent to
shareholders under separate cover. Shareholders are entitled to file any
objections to the plan with the Bankruptcy Court if they believe it does not
comply with the Bankruptcy Code's standard for confirmation, but confirmation of
the plan is not subject to shareholder approval.
The Company intends to vigorously exploit the Company's patent portfolio
once its Chapter 11 plan is confirmed, which is expected to occur in February
1999, shortly after which the Company will receive $10,000,000 in cash pursuant
to the Settlement Agreement with its secured creditors/investors, approximately
70% of which it anticipates will be required to pay its unsecured creditors (and
less if the Company is successful in resisting Mr. Lockton's claim for deferred
compensation). While the Company has valued its patent portfolio (which
constitutes the largest part of its present assets) at $40,000,000 for purposes
of the Chapter 11 proceedings, the Company makes no representation as to what
the patent portfolio may in fact be worth when the Company is free to exploit
it. The Company has in the recent past received and continues to receive
indications of interest in its patent portfolio from responsible businesses,
including Cable and Wireless Communications and Two Way TV, to which it has
already begun to respond.
Pursuant to an order entered by a California Superior Court in San Mateo
County, David Lockton's call for a special shareholders' meeting to be held on
December 30, 1998 to remove the current board of directors, has been declared
ineffective and cancelled, and, at the Company's request, a new meeting date of
March 31, 1999 has been set to elect directors, as in the best interests of
shareholders. Shareholders of record on March 1, 1999 will be entitled to vote
at the March 31, 1999 meeting. The Company is in the process of preparing
current audited financial statements and expects to mail proxy material and an
annual report to its shareholders in early March, 1999. At that time, the
Company would expect to add nominees to its own slate of directors in addition
to and/or in replacement of one or more of its current directors. In that
connection, the Company has contractual obligations to certain of its larger
shareholders (Gannett, Motorola, NBC, Sprint and TCI) to place nominees of those
shareholders on our Board of Directors should they choose to exercise that
right. These obligations predated and are unaffected by the Settlement
Agreement. The Company intends to actively explore with those shareholders their
desires for Board representation. In addition, the Company intends to put in
place an Advisory Board, made up of several independent analysts who are expert
in the area of intellectual property and technology transfer as related to the
Company's patent portfolio, to assist the Company in developing the
opportunities the Company believes will be available to it in the internet,
telecommunications and entertainment industries.
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We are excited about our prospects. We look forward to presenting to you in
the very near future the results of a very long and arduous process of valuation
and negotiation, and eventual decisions as to the very best of these
opportunities. We believe the shareholders of Interactive Network deserve the
opportunity, free from debt, to engage with all those proven technology
suppliers and creators who would seek to join with this Company and develop the
greatest opportunity for your success.
Sincerely,
/s/ BRUCE BAUER
Bruce Bauer
Chief Executive Officer
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