SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)
INTERACTIVE NETWORK, INC.
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(Name of Issuer)
Common Stock No Par Value
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(Title of Class of Securities)
45837P108
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(CUSIP Number)
Daniel O'Rourke, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601-1003
(312) 609-7500
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
November 16, 1998
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(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ]
(Page 1 of 6 Pages)
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SCHEDULE 13D
CUSIP No. 45837P108 Page 2 of 6 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
David B. Lockton
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ] (b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* PF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 2,656,000
BY EACH REPORTING -----------------------------------
PERSON WITH 8 SHARED VOTING POWER
- 0 -
-----------------------------------
9 SOLE DISPOSITIVE POWER
2,656,000
-----------------------------------
10 SHARED DISPOSITIVE POWER
- 0 -
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,656,000
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
[ ] SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
(11.6%)
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14 TYPE OF REPORTING PERSON*
IN
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SEC 1746 (9-88) 2 of 92 *SEE INSTRUCTIONS BEFORE FILLING OUT!
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SCHEDULE 13D
CUSIP No. 45837P108 Page 3 of 6 Pages
Item 1. Security and Issuer.
-------------------
This Schedule 13D relates to the shares of Common Stock, no par value
(the "Common Stock"), of Interactive Network, Inc. ("IN" or the "Company"), a
corporation organized under the laws of the State of California. The principal
executive offices of the Company are located at 1161 Old County Road, Belmont,
California 94002.
Item 2. Identity and Background.
-----------------------
(a) - (c) This Schedule 13D is being filed by David B. Lockton. Mr.
Lockton resides at 9 Miramonte Road, Carmel Valley, California 93942. Mr.
Lockton is currently a director of the Company and is otherwise not presently
employed.
(d) During the past five years, Mr. Lockton has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) During the past five years, Mr. Lockton has not been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
(f) Mr. Lockton is a citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
The source of the funds used by Mr. Lockton to purchase shares of
Common Stock listed in Item 5(a) was personal funds. The amount of the funds
used to purchase such shares aggregated approximately $150,000 (exclusive of
commissions) and a transfer of intellectual property.
Item 4. Purpose of Transaction.
----------------------
The shares of Common Stock held by Mr. Lockton were acquired for the
purpose of investment. Mr. Lockton intends to participate in calling a special
shareholder meeting for the purposes of electing directors and amending the
by-laws of the Company as described in the copy of a preliminary proxy statement
attached hereto as Appendix A.
Except as described in this Item 4, Mr. Lockton has not formulated any
plans or proposals which relate to or would result in:
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SCHEDULE 13D
CUSIP No. 45837P108 Page 4 of 6 Pages
(a) the acquisition by any person of additional securities of the
Company, or the disposition of securities of the Company;
(b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Company;
(c) a sale or transfer of a material amount of assets of the Company;
(d) any material change in the present capitalization or dividend
policy of the Company;
(e) any other material change in the Company's business or corporate
structure;
(f) causing a class of securities of the Company to be delisted from a
national securities exchange or to cease to be authorized to be quoted in any
inter-dealer quotation system of a registered national securities association;
(g) a class of equity securities of the Company becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934, as amended; or
(h) any action similar to any of those enumerated above.
Mr. Lockton will review his investment in the Company from time to time
and reserves the right to take or not to take any action he deems to be in his
best interest or to change his intention as set forth in this Item 4.
Item 5. Interest in the Securities of the Issuer.
----------------------------------------
(a) As of November 16, 1998, based upon the last shareholder
list available to Mr. Lockton, there were 30,840,441 shares of Common Stock
outstanding. The percentage set forth in the Item 5(a) was derived using such
number.
Mr. Lockton is the beneficial owner of 2,656,000 shares of Common
Stock. This includes vested options with respect to 2,103,000 shares. Mr.
Lockton is the beneficial owner of approximately 11.6% of the outstanding shares
of Common Stock on such basis.
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SCHEDULE 13D
CUSIP No. 45837P108 Page 5 of 6 Pages
(b) Mr. Lockton has sole power to vote and to dispose of the shares of
Common Stock owned by him.
(c) During the last sixty days, Mr. Lockton has not effected any
purchases of shares of Common Stock.
(d) No person other than Mr. Lockton has the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale of,
the shares of Common Stock owned by Mr. Lockton.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
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Mr. Lockton does not have any contract, arrangement, understanding or
relationship (legal or otherwise) with any person with respect to any securities
of the Company, including, but not limited to, the transfer or voting of any
such securities, finders' fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of profits, division of profits or loss, or the giving
or withholding of proxies except as set forth in Appendix A.
Item 7. Material to be Filed as Exhibits.
--------------------------------
None.
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SCHEDULE 13D
CUSIP No. 45837P108 Page 6 of 6 Pages
SIGNATURE
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After reasonable inquiry and to the best of my knowledge and belief,
the undersigned certifies that the information set forth in this statement with
respect to it is true, complete and correct.
By:/s/ David B. Lockton
-----------------------------------
David B. Lockton
Date: November 16, 1998
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APPENDIX A
PRELIMINARY COPY
THE COMMITTEE TO REVITALIZE
INTERACTIVE NETWORK, INC.
Thomas T. M. Donaher N. Ann McArtor
Peter B. Fritzsche Robert J. Regan
David B. Lockton Jerome Rubin
Dear Fellow Shareholders of Interactive Network:
A Special Meeting of Shareholders of Interactive Network, Inc. ("IN")
has been called by the holders of _______ shares, being more than 10% of the
Common Stock of IN. The Special Meeting will be held pursuant to applicable
California law including Section 305(c) of the California General Corporation
Law which provides that holders of more than 5% of the Common Stock of IN may
call a shareholders' meeting in the situation where a majority of the board of
directors has not been elected by shareholders. Only David B. Lockton, one of
the founders of IN and an inventor of several key IN patents, and a member of
The Committee to Revitalize Interactive Network, Inc. (the "Committee"), is an
IN director elected by you, the shareholders. The other incumbent members of the
IN Board, appointed to the Board by the existing directors without a shareholder
vote, are not the directors IN and you need going forward.
It is the opinion of the Committee that the Unelected Incumbents have
not used sound business judgment in carrying out their duties as directors of
your Company. We further believe that many of their actions and decisions since
the settlement of the shareholder litigation against TCI have been shortsighted
and potentially detrimental to the maximization of IN shareholder value. The
Company has not elected directors at a meeting of shareholders since May, 1995.
Now is the time for new IN leadership - and we are the right people!
The following is what the Committee believes the Unelected Incumbents
have accomplished over the past ten months on your behalf:
1. A PALTRY $.10 SHARE SETTLEMENT AGAINST TCI. The Settlement of the
significant litigation claim against TCI, yielding less than $4 million after
payment of all known IN liabilities, also allows TCI to convert its debt into an
additional eight million shares of stock (20%) in your Company while requiring
the voting rights to be personally held by the Unelected Incumbents. This
settlement will yield IN shareholders less than a paltry $.10 per share and, in
the Committee's view, was decidedly not in the best interest of IN shareholders.
Mr. Lockton voted against this settlement as a member of the IN Board.
2. AN EXPENSIVE AND UNNECESSARY BANKRUPTCY. The Unelected Incumbents
agreed to put your Company into Chapter 11 Bankruptcy, which the Committee
believes was totally
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unwarranted given the fact that the total amount of cash in the Company after
receipt of the settlement payment will exceed all of the liabilities. This
unnecessary action will cost the IN shareholders an additional estimated
$200,000-$300,000, plus the significant incremental interest on the unsecured
debt and ongoing depreciation of the IN intellectual property during this
time-consuming, unnecessary procedure. Mr. Lockton opposed this action as an IN
board member.
3. NO BOARD MINUTES. The Board has refused, despite repeated requests
by Mr. Lockton, to keep any minutes of the Board meetings held over the past
eleven months. It was during this time that the Board maintains it approved the
settlement of the TCI litigation and the filing of the Bankruptcy, in both cases
on terms the Committee believes are more beneficial to TCI than to IN
shareholders. Section 7.3 of IN's by-laws provides that the minutes of all
directors meetings must be kept in written form.
4. NO REORGANIZATION PLAN. Since the announcement of the Settlement on
February 26, 1998 and the filing of the bankruptcy on September 14, there still
is no reorganization or strategic plan developed by the Unelected Incumbents to
increase your shareholder value through possible utilization of IN's technology
and patents, nor for the use of the cash resources IN will have after exiting
bankruptcy.
5. NO RESPONSE TO FORMAL REVITALIZATION PROPOSAL. The Board requested a
formal proposal from Mr. Lockton to revitalize the IN technological assets and
received such a proposal on September 25, 1998. The proposal, in the Committee's
view, offered the potential to increase several times the current market value
of the assets (based on the Committee's opinion of the market value). The
Unelected Incumbents refused to hold a board meeting to even discuss the
proposal.
6. WASTEFUL USE OF CORPORATE FUNDS. The Unelected Incumbents have
appointed two of their members to serve as IN officers. Bruce Bauer has been
elected president of IN at a salary of $125,000 a year. Before this appointment
Bauer ran a building maintenance/custodian business. John Bohrer was elected
treasurer of IN at a salary of $50,000 a year.
YOU NEED TO ACT NOW. The Unelected Incumbents do not, in the
Committee's opinion, have the experience, knowledge or capabilities to manage IN
to maximize shareholder value. The Committee believes that you will agree that a
change in management is needed and that time is of the essence. We believe that
you deserve a Board of Directors that has the relevant business experience and
is also committed to a plan that will take full advantage of the opportunity
remaining to revitalize IN. You deserve a Board that will strive hard to restore
some of the value that was lost as the result of TCI's actions which resulted in
the IN litigation against TCI.
We urge you to carefully consider our views and the facts as we see
them described in this letter and the accompanying Proxy Statements. Please help
us, your fellow investors, to revitalize IN by voting in favor of our proposed
slate of Directors. Please complete, sign and date the enclosed BLUE proxy card
and return it today in the envelope provided.
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AREN'T YOU CONCERNED?
AREN'T YOU CONCERNED that the present IN management and Unelected
Incumbents approved a Settlement with TCI that was less than it should have
been?
It is the Committee's opinion that the actions of the Unelected
Incumbents are more likely to benefit themselves than the interests of
IN shareholders. Despite the vigorous opposition of then Chairman and
CEO, David Lockton, the Unelected Incumbents, after three years of
trial preparation, a court date set, a judge and a jury selected, voted
to accept an out-of-court settlement of the litigation against TCI,
worth less than $.10 per share to the IN shareholders. The Settlement
represented only a fraction of the lawsuit's potential value in excess
of $400 million in damages and losses suffered by the IN shareholders,
according to an expert witness prepared to testify in the TCI trial.
AREN'T YOU CONCERNED that the Unelected Incumbents committed IN to a
bankruptcy, at an estimated cost of $300,000 and for no apparent reason
beneficial to the IN shareholders?
The Settlement of the TCI litigation not only gives TCI and its
co-defendants eight million shares of IN stock (20%) but will yield an
estimated maximum of $4 million in cash to the IN shareholders after
all known expenses and liabilities, thereby negating any obvious reason
for declaring bankruptcy. The only apparent reason for entering
bankruptcy, in the Committee's opinion, was to mitigate any potential
personal liability the directors might have as a result of their
settlement of the litigation on unfavorable terms to IN.
AREN'T YOU CONCERNED that the current management and Unelected
Incumbents are not communicating directly with IN shareholders on their plans
for the future of the Company or any other corporate matters?
The current management of IN has refused Mr. Lockton's repeated
requests to communicate with the shareholders since assuming control of
IN, to express their reasons for accepting the settlement or for going
into bankruptcy or to discuss their plans for the future of the
Company. WHY NOT?
AREN'T YOU CONCERNED that the Unelected Incumbents won't allow Dave
Lockton to inspect IN corporate files which under California law he has the
"absolute right" to inspect?
California General Corporation Law, Section 1602 states, ". . . Every
director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind [of
the Corporation] . . . ". Despite repeated oral and written requests,
the Unelected Incumbents, claiming various privileges, have refused to
give Mr. Lockton, an IN director obligated under law to supervise the
business of IN, necessary access to the relevant books and records!
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AREN'T YOU CONCERNED that eight months after the TCI Settlement was
announced, the present management and Unelected Incumbents still have not
developed or submitted a reorganization plan, detailed or otherwise, that would
benefit the shareholders and maximize the potential that remains in the original
IN patents and technology while refusing to consider a formal proposal from the
founder of the Company which was presented at their request?
The Committee believes that the future value of IN's intellectual
property will be optimized by immediately selling, joint venturing,
and/or licensing the technology to a qualified entity to generate the
greatest economic value to the IN shareholders.
AREN'T YOU CONCERNED that the current management and Unelected
Incumbents do not have, in the Committee's opinion, the requisite business
background and experience to develop, organize, and successfully implement a
plan of action that will benefit all of us?
In the Fall of 1995, the IN lawsuit against TCI was filed and IN's
Board of Directors consisted of individuals who had extensive technological and
business experience. They had assisted IN in forging alliances and guiding the
Company to the threshold of a national launch of its innovative consumer
technology. Because the IN lawsuit against TCI represented the most significant
asset of the Company at that time, David Lockton as IN CEO recommended that,
until the litigation was resolved, a board of directors made up of IN
shareholders might better serve the shareholders' interests during the
litigation. Three new shareholder/directors--Bruce Bauer, President of Unlimited
Services (a Belmont, California building maintenance company); John Bohrer (a
retired Dickerson & Co. stock broker living in Corpus Cristi, Texas); and Donald
Graham, owner of an Omaha, Nebraska construction and asphalt paving company and
Mr. Bohrer's client--were added to the Board by the then-existing directors, all
of whom, with the exception of David Lockton, then retired from the Board.
Subsequently, on March 6, 1998 Mr. Graham nominated his friend, William Green,
who was elected to the Board. Up until the present time, the other Board members
still have not been provided with Mr. Green's phone number, business background,
business experience, or other relevant information and, to the Committee's
knowledge, Mr. Graham is the only IN director who has ever met Mr. Green. Mr.
Green has missed 80% of IN's Board meetings since his addition to the Board.
In June 1998, four months after the TCI Settlement was announced, Mr.
Bauer nominated his stockbroker and friend, William Groeneveld, a principal in
Program Trading, Inc. of Orlando, Florida, who was also subsequently added to
the Board. It is the Committee's opinion that none of the current IN board, with
the exception of Mr. Lockton, has had any experience as an officer, director or
key employee of a company even remotely comparable to your Company in terms of
technology, business, or marketplace potential.
The Committee urges you to compare the business background and
experience of the Unelected Incumbents with the experience of the Committee's
nominated slate as follows:
THOMAS T.M. DONAHER (57)--Mr. Donaher served as Vice President of
Network Operations of IN from June 1991 to January 1994 when he became
Senior Vice
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President of Network Operations (supervising the team that developed
the custom software for the Company's competitive scoring system), and
also served as Secretary of the Company from 1993 to 1995. He was
responsible for the development and operations management of the
Company's data distribution and collection network and its game
production facilities. Prior to coming to IN, Mr. Donaher was Vice
President of Applications Operations and Development of B.T. Tymnet, a
$300 million company. Mr. Donaher currently is a founder of ATM Tix, an
Internet start up. Mr. Donaher holds an A.A. degree from Pasadena City
College.
PETER B. FRITZSCHE (63)--Mr. Fritzsche was formerly Vice President of
Business Development for the Quaker Oats Company from 1968-1976;
Executive Vice President of CVC Capital and Evergreen Capital (venture
capital firms) from 1976-1982; and is currently Chairman of EAC
Industries, Inc., a holding company with interests in the printing
industry. Mr. Fritzsche holds a B.S. from Yale 1957, and an MBA from
the School of Management at Case Western Reserve University in 1961.
DAVID B. LOCKTON (61)--Dave Lockton founded Interactive Network in
1987 and is an inventor of four of the Company's seven major patents.
Mr. Lockton served as Chief Executive Officer until his removal on June
15, 1998 and has been a director of the Company since its inception.
Mr. Lockton was elected Chairman of the Board of Directors in January
1994. From 1980 until June 1985 he was employed as Chairman and Chief
Executive Officer of Data Broadcasting, Inc. where he developed and
marketed mobile and personal real-time digital receiving devices,
including the QuoTrek and Signal products. Mr. Lockton received a B.A.
degree from Yale University and a J.D. from the University of Virginia
Law School.
N. ANN MCARTOR (51)--Ann McArtor joined Interactive Network in March,
1993 from Viacom International, Inc. where she served as Regional
Director of Marketing and Sales from 1990 until 1993. At IN she served
as Director of Member Services and then as Vice President of Member
Marketing. Ms. McArtor oversaw the development and implementation of IN
customer service operations and the contest and award administration
programs. After leaving IN in July 1995, Ms. McArtor was a Senior
Associate with Lexicon Branding, Inc. consulting on electronic commerce
branding for Time Warner, Pac Bell and other clients. Ms. McArtor was
Vice President of Marketing of Big Book, a direct Internet marketing
firm from January 1998 until October 1998. Currently, Ms. McArtor is
consulting to various internet companies.
ROBERT J. REGAN (43)--In 1993, Mr. Regan joined Interactive Network as
a consultant and acting Director of Programming. Upon leaving in 1994,
he continued his involvement in interactive television and assumed his
current position with GTE MainStreet as Senior Vice President of
Programming and Content Development.
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MainStreet is the nation's first two-way cable network and largest
commercially deployed interactive television channel. Mr. Regan was
Executive Producer for NBC Productions, and until 1991, was Senior Vice
President of Programming and Operations for Financial News Network (now
CNBC). Mr. Regan has a Bachelor of Science in Media from Worcester
State College in Worcester, MA, and a Master of Science in Broadcasting
from Boston University.
JEROME RUBIN (73)--Mr. Rubin is currently an Advisory Managing Director
at Veronis, Suhler & Associates, New York. He was director of
Interactive Network from 1988 to 1995. As the founder of Lexis-Nexis,
Mr. Rubin in 1985 was the recipient of the Information Industry
Association Hall of Fame Award for his pioneering achievements in
electronic publishing. Mr. Rubin is the former Chairman of the
Association of American Publishers, and the former head of the News in
the Future Consortium at the MIT Media Lab. Mr. Rubin was a major
contributor to IN's electronic information strategies, is also an
expert in distant learning, an area in which IN will need to focus to
leverage the value of its remaining assets.
WHAT CAN BE DONE
The Committee recognizes that it will require an extraordinary effort
to successfully revitalize IN but the Committee's nominees are prepared to make
the effort because of their ownership positions and their strong belief that
with the proper guidance and counsel, they can achieve for the shareholders
something far in excess of the current per share value of their ownership in the
Company. The Committee has a long-range plan and mission to increase shareholder
value through taking advantage of three separate opportunities available to the
Company:
1. REVITALIZE THE INTELLECTUAL PROPERTY. One of Interactive Network's
greatest assets, the Committee believes, is the pioneering real-time distributed
processing software and encryption technology developed by a large staff of
software engineers and technicians. This software library now needs to be
repurposed for today's technology, including digital set-top boxes, lap-top
computers, and broad-band cable modems. The former IN employees who helped
create this technology now hold leadership engineering positions in a variety of
Internet and electronic gaming companies. To create any significant value from
the Company patents, those unique people who can repurpose this technology and
software will need to be recruited back to join the Company, and significant
resources and new capital will need to be obtained and employed. Accomplishing
this task will be difficult, but the Committee believes the potential rewards
will justify the effort.
The Committee will pursue the maximum potential return from this
intellectual property for IN shareholders and will consider various strategic
options, including:
a) License the software to an operating entity with the necessary
assistance from key ex-Interactive Network personnel who uniquely have the
ability to make the technology work;
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b) Sell or license the intellectual property to a privately-held
company which would raise separate development capital and seek to attract a
critical mass of the founding IN engineers;
c) Recapitalize IN and offer significant equity incentives to the
former IN engineers and technological managers necessary for the technology to
be repurposed; or
d) Sell the IN technology and patents outright to the highest cash
bidder.
Key to the success of any of these strategies will be quick and
decisive action by the Committee's nominees as the new Board, as the key IN
patent now has less than 57 months before expiration. The Committee's nominees
can draw upon their prior experience and first hand knowledge of the relative
values of the engineering team, available funds, and the IN intellectual
property to optimize the most significant opportunity for the IN shareholders.
2. EXPLOIT THE EXISTING IN CORPORATE STRUCTURE. The Committee believes
that Interactive Network has approximately 5,000 holders of shares, including
beneficial owners, who have been loyal and long-suffering. After paying off the
unsecured creditors, the Company should be left with approximately $3,500,000 in
cash, no debt, and a $130,000,000 tax loss carry-forward. The Company will rely
on the experience of various Committee members as well as outside expert
advisers to determine the best strategy for optimizing the value of the
corporate entity. This may include a possible merger of the Company with another
suitable operating company, if this can be achieved without destroying the tax
loss carry-forward.
3. LIQUIDATE THE TANGIBLE HARDWARE ASSETS. Interactive Network regains
title to approximately 40,000 Interactive Control Units. While now obsolete for
use in the home, these assets may have some value in the training, home
education, market research or international segments. Key former employees would
need to be recruited in order to liquidate the hardware inventory. Quick and
decisive action will be necessary to obtain any value at all from these
"tangible" assets.
* * *
We believe that we can achieve this plan and mission for the benefit of
all IN shareholders. We need action NOW. In this rapidly growing and changing
market, where windows of opportunity open and close in the blink of an eye, the
Company needs a Board of Directors that can respond to the rapid changes using
sound business judgment and take decisive action on your behalf.
THE COMMITTEE IS COMMITTED. The members have a substantial investment
in the Company reflecting our commitment to promote the future of IN and to
protect the shareholders' investment in the Company.
NO MATTER HOW MAY SHARES YOU OWN, YOUR VOTE IS IMPORTANT. WE URGE YOU
TO REGISTER YOUR SUPPORT OF OUR PLAN TO CHANGE IN'S MANAGEMENT BY
SIGNING, DATING
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AND MAILING THE ENCLOSED BLUE PROXY CARD TODAY. YOU MAY VOTE IN FAVOR
OF THE COMMITTEE'S NOMINEES WHETHER OR NOT YOU HAVE PREVIOUSLY RETURNED
A PROXY CARD.
IF YOU HAVE ALREADY GIVEN THE COMPANY A PROXY, OUR LATER DATED BLUE
PROXY WILL REVOKE THE EARLIER ONE GIVEN TO THE COMPANY.
<PAGE>
THE COMMITTEE TO REVITALIZE INTERACTIVE NETWORK, INC.
9 Miramonte Road
Carmel Valley, California 93942
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
These proxy materials are furnished in connection with the solicitation
of proxies by The Committee to Revitalize Interactive Network, Inc.
("Committee") for the Special Meeting of Shareholders of Interactive Network,
Inc. ("IN" or "Company") to be held at 10:00 a.m., on December 30, 1998, at
________________________________________________________. The Committee's proxy
materials regarding the Special Meeting are being mailed or delivered to
Shareholders on or about November ____, 1998.
The shareholders of the Company last elected directors at its 1995
annual meeting on May 18, 1995, over 41 months ago. Several shareholders of the
Company, including David Lockton, a member of the Committee, and in accordance
with California law (the state in which IN is incorporated), have demanded the
Special Meeting to elect a new board of directors and for the other purpose
disclosed herein. The California General Corporation Law, Section 305(c)(1),
allows holders of more than 5% of IN shares to demand a Special Meeting when a
majority of the Company's Board has not been elected by the shareholders.
Section 601(d) of the California General Corporation Law allows holders of more
than 10% of IN shares to call a Special Meeting.
THE COMMITTEE TO REVITALIZE INTERACTIVE NETWORK, INC.
The Committee was formed on November 16, 1998, to solicit proxies in
connection with the Special Meeting. The members of the Committee formed the
Committee because of dissatisfaction with the actions of the current board, the
Committee's negative views as to the prospects of the Company under the existing
Board's leadership, and a desire to change the management of the Company to
better serve the interests of IN shareholders. The members of the committee are
Thomas T.M. Donaher, Peter B. Fritzsche, David B. Lockton, N. Ann McArtor,
Robert J. Regan and Jerome Rubin. If the Committee's nominees are elected at the
Special Meeting, they intend to review the Company's present operations and as
promptly as feasible implement a plan designed to increase the shareholder value
of IN, including consideration of the following strategies:
The Committee slate for Board of Directors believes that the future
value of IN's intellectual property will be optimized by selling, joint
venturing, licensing and spinning off such technology to generate the
greatest economic value to the IN shareholders. This would allow IN's
basic technology and patents to migrate to the digital set-top box, PCS
and the Internet, while applying IN's existing test market experience
and success in developing the broadest market segments for the product.
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The Committee's plan includes the need to identify and, if possible,
recruit talented engineers and managers to provide the technological
leadership as well as to establish alliances with major TV, cable and
television partners. The Committee's plan also includes the need to
attract substantial investment from a variety of sources either
directly in the Company or indirectly through subsidiaries, joint
venture partners or licensees. The Committee recognizes that all these
strategic initiatives require substantial financial, personnel and
other resources which the Committee does not presently have.
Nevertheless the Committee is dedicated to the task of developing and
gathering these resources.
If the Committee's nominees are elected, the Company may, as
appropriate, hire or engage for compensation one or more members of the
Committee or their affiliates, although the Committee has no specific plans with
respect to employment of any such persons.
VOTING RIGHTS AND SOLICITATION
If you are a Shareholder of record of IN Common Stock at the close of
business on __________ __, 1998 (the "Record Date"), you are entitled to vote
your shares at the Special Meeting. Each share entitles you to one vote on each
matter to come before the Shareholders, except as described below under
"Election of Directors." As of ___________ __, 1998, based upon the last
shareholder list available to the Committee, there were 30,840,441 shares of IN
Common Stock outstanding and entitled to vote.
At the Special Meeting the presence in person or by proxy of the
holders of a majority of the shares entitled to vote constitutes a quorum for
the transaction of business at the Special Meeting. Failure of a quorum to be
present at the Special Meeting may result in an adjournment. The proxy holder
may also move for an adjournment of the Special Meeting to permit further
solicitation of proxies with respect to any of the proposals if the proxy holder
determines that adjournment and further solicitation is reasonable and in the
best interests of shareholders. Under the Company's Bylaws an adjournment of a
shareholder meeting requires the affirmative vote of a majority of the shares
present in person or represented by proxy at the meeting.
The cost of soliciting proxies, consisting of the printing, handling,
and mailing of the proxy and related materials, and the actual expenses incurred
by brokerage houses, custodians, nominees and fiduciaries in forwarding proxy
material to the beneficial owners of IN Common Stock will be borne by the
Committee in a to-be-determined manner. Members of the Committee and other
representatives who may also solicit proxies by telephone, telefax, telegraph or
in person will receive no compensation for their solicitation services. It is
estimated that the Committee will spend up to $__________ in connection with the
solicitation of proxies from Shareholders. As of the date of this Proxy
Statement, the committee has incurred expenses of approximately $75,000. If the
Committee's nominees are elected, the Committee intends to seek reimbursement
from the company for its expenses in connection with the solicitation, without
submitting the issue of reimbursement to a vote of Shareholders. Due to the fact
that the Company has filed for bankruptcy under
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Chapter 11 of the Federal Bankruptcy Law, the approval of the Bankruptcy Court
may be necessary for such reimbursement to be made.
Any person giving a proxy for the Special Meeting has the power to
revoke it at any time before its exercise. A proxy given to the Committee may be
revoked by (i) filing with the Committee, c/o Daniel O'Rourke, Vedder, Price,
Kaufman & Kammholz, 222 North LaSalle Street, Chicago, IL 60601-1003, a written
notice of revocation; (ii) [delivering to the Company a proxy that is duly
executed with a later date;] or (iii) attending the Special Meeting and voting
in person. Attendance at the Special Meeting will not in and of itself
constitute a revocation.
ELECTION OF DIRECTORS
Each Director to be elected at this Special Meeting will hold office
until the next annual meeting and until his successor is elected and qualified,
or until his/her earlier death, resignation or removal. Unless otherwise
instructed, the proxy holder will vote the proxies received by him for the
nominees named below. The six candidates receiving the highest number of
affirmative votes of the shares entitled to vote at the Special Meeting will be
elected Directors of the Company to serve until the next annual meeting and
until their successors are elected and qualified.
If the candidates names have been placed in nomination prior to
commencement of voting and a shareholder has given notice prior to commencement
of the voting of the shareholder's interest to cumulate votes, shareholders may
cumulate votes for candidates placed in nomination and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which that shareholder's shares are entitled, or distribute
such votes on the same principle among any or all of the candidates, as the
shareholder thinks fit. Otherwise, each Shareholder is entitled to one vote for
each nominee for each share held of record on the Record Date. If shareholders
may cumulate votes, the proxy holder will cumulate votes and vote the proxies
received by him in a manner so as to elect the largest number of the nominees
listed in the table below. The Committee currently does not know which of the
nominees it intends to elect if Shareholders cumulate votes.
NOMINEES
The following table sets forth the Committee's nominees for election as
Directors and their beneficial ownership of shares of Common Stock of the
Company. For this purpose, beneficial ownership includes the right to vote or
dispose of the shares, either individually or in conjunction with others.
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Percent
Number of Shares of Class
Nominee Age Beneficially Owned (approx.)
- ------- --- ------------------ ---------
Thomas T.M. Donaher 57 10,000 ***
2504 Neville Avenue
San Jose, CA 95130
Peter B. Fritzsche 63 10,000 ***
625 West Madison Street
Apt. 4-3004
Chicago, IL 60661
David B. Lockton 61 [2,656,000]* 11.6%
405 El Camino Real #423
Menlo Park, CA 94025
N. Ann McArtor 51 10,000 ***
2613 Isabelle Avenue
San Mateo, CA 94403
Robert J. Regan 43 10,000 ***
4341-C Freedom Drive
Calabasas, CA 91302
Jerome Rubin 73 [248,986]** .8%
606 Indian Field Road
Greenwich, CT 06830
- ----------------------
[*Includes vested options of 2,103,000]
[**Includes vested options of 150,000]
***Less than .1%
BUSINESS EXPERIENCE OF NOMINEES
See the description of the background and business experience of the
Committee's nominees set forth on page ___ hereof.
POTENTIAL CONFLICTS OF INTEREST
The following information was provided in the Company's 1995 Proxy
Statement. The Company entered into an employment agreement in January 1991 with
David B. Lockton, the Chairman of the Board, President and Chief Executive
Officer, which provided for a base salary and a bonus that is determined on the
basis of a percentage of the Company's pre-tax earnings. The employment
agreement was amended effective in October 1994, to increase to $250,000 the
base compensation payable to Mr. Lockton during the time he served as Chief
Executive Officer. Mr. Lockton was also granted an option to purchase 425,000
shares of Common Stock at an exercise price of $4.625 per share, which option
vested in four equal annual installments commencing in
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October 1995. The grant of the additional options and the increase
in his base compensation were in response to the increased duties and
responsibilities of Mr. Lockton when he re-assumed the position of President and
the disparity between his previous base salary of $144,000, the fourth highest
salary of the executive officers in the Company at that time. In May 1994, Mr.
Lockton agreed to amend the payment terms of a promissory note in the principal
amount of $2,000,000 issued by the Company to Mr. Lockton in December 1986 to
make the payments tax deductible to the Company. The debt and equity financing
obtained by the Company in September 1994 satisfied the financing goals and
payments under the New Deferred Compensation Agreement were to commence under
the revised payment terms. In view of the Company's cash needs, the Company and
Mr. Lockton agreed to cancel the promissory note and enter into a Deferred
Compensation and Non-Competition Agreement under which the Company made a cash
payment of $150,000 to Mr. Lockton and agreed to make a cash payment of $55,000
on January 1, 1996 and $62,500 on each January 1, April 1, July 1 and October 1
thereafter through October 1, 2002, provided that the Company's unrestricted
cash was sufficient to satisfy the Company's requirements following the 90-day
period. In consideration of and as a condition to such payments, Mr. Lockton
agreed that during the period ending on December 31, 2002 he will not engage in
or become associated with any person or entity engaged in any activity in the
United States or Canada that is competitive with the business of the Company.
Concurrently with the execution of the Deferred Compensation and Non-Competition
Agreement, the promissory note described above was canceled.
In October of 1995, the then-shareholder elected Board modified Mr.
Lockton's employment agreement wherein he agreed to accrue his $250,000 salary,
plus interest over the next three years to be paid from litigation proceeds, if
any. In return, he was granted an additional stock option to purchase 600,000
shares of stock annually over the next 3 years, vesting at 50,000 shares per
month at an option price of 10 cents per share. On November 5, 1995, the current
Board ratified this modification of the employment agreement and stock option.
Mr. Lockton claims that under the terms of the Deferred Compensation
Agreement, replacing the $2,000,000 note, the transfer of the intellectual
property to TCI and the secured creditors was an event of acceleration under the
terms of the Agreement. Mr. Lockton's deferred salary and the accelerated
deferred compensation, plus other contractual agreements, and the reimbursement
of expenses total approximately $3.7 million, including interest and penalties.
The Company acknowledged in its bankruptcy filing Mr. Lockton's claims
for salary and deferred compensation against the Company as contingent,
unliquidated and disputed. These claims make Mr. Lockton the largest unsecured
creditor identified in the Company's bankruptcy filings. In addition, the
Company has asserted that any amount is subject to set-off for alleged breach of
fiduciary duties by Mr. Lockton. Mr. Lockton denies any such allegations and
intends to contest any such allegations in Bankruptcy court.
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REASONS FOR THE SOLICITATION
The Committee believes that the Board of Directors of IN, as presently
constituted, does not adequately represent the interests and concerns of
Shareholders in the challenge to create value from the Company's now moribund
intellectual property. The Committee believes that the election of its six
nominees to the Board would provide the Company a new management approach more
committed to serving Shareholder interests and addressing Shareholder concerns.
It is the Committee's view that the challenge facing the Company can
better be met by individuals who understand how the Company's patents,
structure, and technology can best be exploited in the current environment. It
is the Committee's view that none of the Unelected Incumbents have any
experience as an officer or director in technology, intellectual property, or
services addressed and utilized by IN. The Committee also believes it is
important for the board to include directors who have, or represent, a
significant ownership stake in the performance of IN. The Committee owns or
controls the voting of more than ____ of IN Common Stock. Mr. Lockton, who owns
or controls the voting of approximately ____% of the outstanding shares of the
Company, including ____ that he individually owns of record, is the largest
individual Shareholder of record in the Company.
COMMITTEE'S BYLAW PROPOSAL
Section 2.8 of Company's Bylaws, in relevant part, states the following
with respect to the election of Directors:
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one
or more candidates a number of votes greater than the number of the
shareholders' shares) unless the candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has
given notice prior to commencement of the voting of the shareholder's
intention to cumulate votes. If any shareholder has given such a
notice, then every shareholder entitled to vote may cumulate votes for
candidates placed in nomination and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which that shareholder's shares are entitled, or
distribute the shareholder's votes on the same principle among any or
all of the candidates, as the shareholder thinks fit.
The Committee proposes that Shareholders approve an amendment to the Bylaws to
eliminate the language above, to become effective if and when the Company
becomes a listed corporation within the meaning of Section 301.5 of the
California General Corporation Law. The Committee believes that this Bylaw, by
allowing for cumulative voting for directors, provides for the possibility of a
segmented board of directors, which could lead to continuing divisiveness and
discord on the board, and is not in the best interests of IN shareholders.
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The Committee intends to present and vote on the Bylaw proposal at the
Special Meeting. As soon as practicable thereafter, if elected, the Committee's
nominees will vote as directors to adopt the By-law amendment, which will become
effective when the Company becomes a listed corporation. Currently the Committee
intends to take such steps necessary to re-list the Company as qualified for
trading as a "national market system security" on the National Association of
Securities Dealer Automatic Quotation System ("NASDAQ"). There are a number of
qualifications for this status which IN and its common stock currently do not
meet. No representation is given by the Committee that these qualifications can
be met.
Pursuant to the Company's Bylaws, any amendment to the Bylaws must be
approved by holders of a majority of the outstanding Common Shares entitled to
vote thereon.
OTHER INFORMATION
Certain information regarding the Company has been omitted from the
proxy statement in accordance with Rule 14a-5(b) under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). Such information relates to the
Company and management in general and in particular the ownership of Common
Stock by beneficial owners of more than 5% of the Common Stock. Such information
is not reasonably within the power of the Committee to ascertain or procure
primarily because the Company has not filed an annual report pursuant to Section
13 or 15(d) of the 1934 Act on Form 10-K nor a proxy statement with the
Securities and Exchange Commission since 1995. The Committee is therefore unable
to provide any reliable information about such matters.
OTHER BUSINESS
Except as set forth in this Proxy Statement, the Committee is not aware
of any other matter to be considered at the Special Meeting. If any other
matters requiring a vote of the Shareholders arise, the enclosed proxy card
gives discretionary voting authority to the persons specified therein regarding
any other business that may properly come before the Special Meeting.
Respectfully,
THE COMMITTEE TO REVITALIZE
INTERACTIVE NETWORK, INC.
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