SCHEDULE 14A

                     INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION
           Proxy Statement Pursuant to Section 14(a) of the Securities
                              Exchange Act of 1934

Filed by the registrant |X|

Filed by a party other than the registrant

Check the appropriate box:

     |_|  Preliminary proxy statement
     |X|  Definitive proxy statement
     |_|  Definitive additional materials
     |_|  Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

                            INTERACTIVE NETWORK, INC.
                (Name of Registrant as Specified in Its Charter)

                            INTERACTIVE NETWORK, INC.
                   (Name of Person(s) Filing Proxy Statement)



Payment of filing fee (Check the appropriate box):

     |X|  No fee required.
     |_|  Fee computed on table below per Exchange Act Rules 14a-6(i)(2) and
          0-11.

     (1)      Title of each class of securities to which transaction applies:

     (2)      Aggregate number of securities to which transactions applies:

     (3)      Per unit price or other underlying value of transaction computed
              pursuant to Exchange Act Rule 0-11:

     (4)      Proposed maximum aggregate value of transaction:

     (5)      Total Fee paid:

     |_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the filing by registration statement number, or the form or
schedule and the date of its filing.

     The aggregate market value of the voting stock held by non-affiliates
(non-officers, directors and 10% shareholders and excluding the shares held by a
certain voting trust of the Registrant), based on the closing price of the
common stock on March 29, 2000, as reported on the OTC Bulletin Board for the
last trading day prior to that date, was approximately $116.9 million. Shares of
common stock held by each executive officer and director and holder of 5% or
more of the outstanding common stock have been excluded from this computation in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes. As of March 29, 2000, the Registrant had outstanding 39,368,364 shares
of common stock.




                                  June 5, 2000

To Our Shareholders:

         On May 26, 2000 an "Interactive Network Independent Shareholders
Committee" filed a preliminary proxy statement with the Securities and Exchange
Commission, indicating that it intended to start a proxy fight to take control
of our Company's Board of Directors by increasing the size of our Board from
five to nine directors and electing five new directors to our Board.

         One of the Independent Shareholders Committee's nominees, Robert H.
Hesse, is currently on the Company's Advisory Board of Consultants, but your
Board and Management do not believe Mr. Hesse or any other of the Committee's
nominees should be added to our Board of Directors, or take control of the
Company, or that our By-laws need to be amended. Your Board and Management is
actively seeking to diversify board membership and obtain additional funding
through strategic corporate investors who can assist management in forming
alliances and partnerships in the iTV industry. If the Independent Shareholders
Committee is successful in electing their five nominees to the Board, management
may be prevented from executing its strategy of adding strategic corporate
directors to the Board. WE THEREFORE URGE THAT YOU SIGN AND RETURN TO THE
COMPANY THE ENCLOSED WHITE PROXY CARD, TO RE-ELECT THE EXISTING BOARD OF
DIRECTORS, BRUCE W. BAUER, JOHN J. BOHRER, WILLIAM H. GREEN AND WILLIAM L.
GROENEVELD, AND THAT YOU NOT SIGN OR RETURN THE BLUE PROXY CARD THAT MAY BE SENT
TO YOU BY THE INDEPENDENT SHAREHOLDERS COMMITTEE. THE EXECUTION OF THE WHITE
PROXY CARD ALSO WILL GIVE THE MANAGEMENT'S PROXY HOLDERS THE AUTHORITY TO VOTE
AGAINST THE BY-LAWS PROPOSAL SUBMITTED BY THE INDEPENDENT SHAREHOLDERS COMMITTEE
AND WILL REVOKE ANY EARLIER PROXY YOU MAY HAVE GIVEN TO THE INDEPENDENT
SHAREHOLDERS COMMITTEE.

         The Independent Shareholders Committee has indicated in its Preliminary
Proxy Statement that it intends to give notice of its intention to vote shares
cumulatively. Every shareholder voting for the election of directors may
cumulate such shareholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of shares held
by such shareholder, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder may select, up to the number of
directors to be elected. However, no shareholder shall be entitled to cumulate
votes unless the name of the candidate or candidates for whom such votes are
proposed to be cast has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the Meeting prior to
the voting of the intention to cumulate the shareholder's votes. The execution
of the Company's WHITE proxy card will give the Management's proxy holders the
authority to cumulate votes in the manner described below should any shareholder
give notice of his/her intention to vote shares cumulatively at the Meeting.

         Management is soliciting discretionary authority to cumulate votes in
relation to the election of directors. Whether or not the Independent
Shareholders Committee's proposal to amend the By-laws is approved, in the event
that additional persons are nominated for election as directors by either the
Independent Shareholders Committee or by other shareholders, Management's proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of the
current directors as possible, and, in addition, one or more nominees of
shareholders (other than nominees of the Independent Shareholders Committee) and
in such event, the specific nominees to be voted for will be determined by
Management's proxy holders in their sole discretion. Should such shareholders
decide to propose candidates for directors sufficiently prior to the annual
meeting so that the Company is able to notify its shareholders of such proposed
candidates, it will do so by mailing supplementary proxy materials to its
shareholders and post the information on its website. Should a shareholder give
instruction on the proxy card to withhold his/her votes with respect to one or
more of the Company's nominees, such shareholder's vote(s) will be cumulated
among the remaining Company's nominee(s) and also for nominees of other
shareholders that the Management's proxy holders choose to vote for at their
discretion.

         There is presently one vacancy on the Board, and if candidates are
nominated in addition to the current four directors, and the By-laws are not
amended to increase the size of the Board, the five candidates receiving the
highest number of affirmative votes of the shares voting at the Meeting will be
elected directors of the Company. The term of office of each person elected as a
director will continue until the next Annual Meeting of Shareholders or until
such time as his successor has been duly elected and qualified.

         As described in detail in the Company's accompanying proxy statement
and annual report to shareholders, your Company has made major accomplishments
during the past year. Don't allow a dissident group to disrupt this progress and
the strategic plans for its future. VOTE THE WHITE PROXY CARD!

         For more information on Interactive Network, please visit our web page
at www.InteractiveNetwork.net.



                                             Sincerely,

                                             /s/ Bruce W. Bauer

                                             Bruce W. Bauer






June 5, 2000



TO THE SHAREHOLDERS OF
INTERACTIVE NETWORK, INC.:


         You are cordially invited to attend the annual meeting of the
shareholders of Interactive Network, Inc. on June 30, 2000, at 10:00 a.m., local
time, which will be held at the San Mateo Marriott, 1770 South Amphlett
Boulevard, San Mateo, California 94402.


         At the annual meeting, you will consider and vote upon a proposal to
approve the grant to TWIN Entertainment Inc., a Delaware corporation, of an
exclusive license to use certain of our intellectual property for developing,
marketing and providing digital and analog interactive services, products and
technology in specified territories pursuant to the terms and conditions of a
joint venture license agreement we entered into with TWIN Entertainment and Two
Way TV Ltd., a corporation organized under the laws of England and Wales, on
January 31, 2000.


         A copy of the joint venture license agreement is attached as Attachment
A to the proxy statement.


         In addition, you will consider and vote upon proposals to (1) increase
the number of shares of our common stock authorized for issuance under our 1999
stock option plan from 3,650,000 shares to 5,000,000 shares, (2) re-elect our
four directors, and (3) ratify the appointment of Marc Lumer & Company as our
independent accountants for the fiscal year ending December 31, 2000, each as
more fully described in the attached proxy statement.

         AFTER CAREFUL CONSIDERATION, OUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE EXCLUSIVE LICENSE GRANT PURSUANT TO THE TERMS AND CONDITIONS OF THE
JOINT VENTURE LICENSE AGREEMENT AND DETERMINED THAT IT IS FAIR AND IN OUR BEST
INTERESTS AND THE BEST INTERESTS OF OUR SHAREHOLDERS. FURTHER, OUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE (1) APPROVAL OF THE
EXCLUSIVE LICENSE GRANT PURSUANT TO THE JOINT VENTURE LICENSE AGREEMENT, (2)
increase the number of AUTHORIZED shares under OUR 1999 Stock Option Plan, (3)
election of the listed directors and (4) ratification of the appointed
accountants.

         You do not need to attend the annual meeting. Whether or not you
attend, after reading the proxy statement, please mark, date, sign and return
the enclosed proxy card in the accompanying reply envelope. If you decide to
attend the annual meeting, please notify our company secretary at the meeting if
you wish to vote in person and your proxy will not be voted.


         YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" ON PAGE
12 OF THE ENCLOSED PROXY STATEMENT BEFORE VOTING. WE URGE YOU TO CAREFULLY
REVIEW ALL THE INFORMATION IN THE PROXY STATEMENT AND THE EXHIBITS.


         A copy of our 1999 annual report has been mailed concurrently with this
proxy statement to all shareholders entitled to notice of and to vote at the
annual meeting.

                                       Sincerely yours,


                                       /s/ Bruce W. Bauer

                                       Bruce W. Bauer
                                       CHAIRMAN OF THE BOARD, PRESIDENT AND
                                       CHIEF EXECUTIVE OFFICER




                            INTERACTIVE NETWORK, INC.
                              1161 Old County Road
                            Belmont, California 94002

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                           TO BE HELD ON JUNE 30, 2000

================================================================================

         The annual meeting of the shareholders of Interactive Network, Inc.
will be held at San Mateo Marriott, 1770 South Amphlett Boulevard, San Mateo,
California 94402, on June 30, 2000, at 10:00 a.m., local time, to:

         1. Approve the grant to TWIN Entertainment Inc., a Delaware
corporation, of an exclusive license to use our intellectual property for
developing, marketing and providing digital and analog interactive services,
products and technology in specified territories pursuant to the terms and
conditions of a joint venture license agreement we entered into with TWIN
Entertainment and Two Way TV Ltd., a corporation organized under the laws of
England and Wales, on January 31, 2000;

         2. Approve an amendment to our 1999 stock option plan increasing the
number of shares of our common stock authorized for issuance under the plan from
3,650,000 shares to 5,000,000 shares;

         3. Re-elect our four directors to serve until the 2001 annual meeting
of shareholders or until their successors are elected and qualified;

         4. Ratify the appointment of Marc Lumer & Company as our independent
accountants for the fiscal year ending December 31, 2000; and

         5. Transact any other business which may properly come before the
annual meeting and any adjournments or postponements thereof.

         Each of the foregoing items of business are more fully described in the
proxy statement that accompanies this notice.

         Only shareholders of record at the close of business on May 19, 2000
will be entitled to notice of, and to vote at, the annual meeting and at any
continuation or adjournment thereof.

         All shareholders are cordially invited to attend the annual meeting. In
any event, to ensure your representation at the annual meeting, please carefully
read the accompanying proxy statement which describes the matters to be voted on
at the annual meeting and sign, date and return the enclosed proxy card in the
reply envelope provided. Should you receive more than one proxy because your
shares are registered under different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. If you attend the annual
meeting and vote by ballot, your proxy will be revoked automatically and only
your vote at the annual meeting will be counted. The prompt return of your proxy
card will assist us in preparing for the annual meeting.

                                    BY ORDER OF THE BOARD OF DIRECTORS


                                    /s/ Bruce W. Bauer


                                    Bruce W. Bauer
                                    CHAIRMAN OF THE BOARD, PRESIDENT AND
                                    CHIEF EXECUTIVE OFFICER
Belmont, California
June 5, 2000


- --------------------------------------------------------------------------------
IMPORTANT: EVERY SHAREHOLDER, WHETHER NOT HE OR SHE EXPECTS TO ATTEND THE ANNUAL
MEETING IN PERSON, IS URGED TO EXECUTE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ACCOMPANYING REPLY ENVELOPE.
- --------------------------------------------------------------------------------



                                 PROXY STATEMENT

                  FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
                            INTERACTIVE NETWORK, INC.


         This proxy statement is furnished in connection with the solicitation
by the board of directors of Interactive Network, Inc., a California
corporation, of proxies for an annual meeting of the shareholders to be held at
10:00 a.m., local time, on June 30, 2000, and any adjournment or postponement
thereof. The annual meeting will be held at San Mateo Marriott, 1770 South
Amphlett Boulevard, San Mateo, California 94402. Our principal executive offices
are located at 1161 Old County Road, Belmont, California 94002. Our telephone
number at that address is (650) 508-8793.

         These proxy solicitation materials will be first mailed on or about
June 9, 2000 to all of our shareholders entitled to vote at the annual meeting.

PURPOSE OF THE ANNUAL MEETING

         At our annual meeting, holders of our common stock will consider and
vote upon proposals to:

         1.       Approve the grant to TWIN Entertainment Inc., a Delaware
                  corporation, of an exclusive license to use our intellectual
                  property for developing, marketing and providing digital and
                  analog interactive services, products and technology in
                  specified territories pursuant to the terms and conditions of
                  a joint venture license agreement we entered into with TWIN
                  Entertainment and Two Way TV Ltd., a corporation organized
                  under the laws of England and Wales, on January 31, 2000;

         2.       Approve an amendment to our 1999 stock option plan increasing
                  the number of shares of our common stock authorized for
                  issuance under the plan from 3,650,000 shares to 5,000,000
                  shares;

         3.       Re-elect our four directors to serve until the 2001 annual
                  meeting of shareholders or until their successors are elected
                  and qualified; and

         4.       Ratify the appointment of Marc Lumer & Company as our
                  independent accountants for the fiscal year ending December
                  31, 2000.


         For a description of the terms of the exclusive license grant proposal,
see "Proposal 1 -- Approval of the Exclusive License Grant Pursuant to the Joint
Venture License Agreement" on page 3. For a description of the amendment to our
1999 stock option plan, see "Proposal 2 -- Approval of an Amendment to the 1999
Stock Option" on page 16. For a description of the directors for election, see
"Proposal 3 -- Election of Directors" on page 21. For a description of the
appointment of our independent accountants, see "Proposal 4 -- Ratification of
Independent Public Accountants" on page 29. Our shareholders also will consider
and vote on any other matter that may properly come before the annual meeting.


RECORD DATE

         Shareholders of record at the close of business on May 19, 2000 will be
entitled to notice of, and to vote at, the annual meeting and any continuations
or adjournments thereof.

REVOCABILITY OF PROXIES

         Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the proxy is exercised by: (1) sending
written notice of revocation to our company secretary; (2) executing and
delivering a proxy bearing a later date; or (3) attending the annual meeting and
voting in person.

                                       1


VOTING RIGHTS OF SHAREHOLDERS


         As of the close of business on May 19, 2000, we had 39,427,605 shares
of our common stock outstanding and entitled to vote at the annual meeting, held
by 647 shareholders of record. The presence at the annual meeting of a majority
of these shares of our common stock, either in person or by proxy, will
constitute a quorum for the transaction of business at the annual meeting. Votes
cast by proxy or in person at the annual meeting will be tabulated by the
inspector(s) of election appointed for the annual meeting and the inspector(s)
will determine whether or not a quorum is present. Each outstanding share of our
common stock on May 19, 2000 is entitled to one vote on all matters to come
before the annual meeting.


         If any shareholder is unable to attend the annual meeting, the
shareholder may vote by proxy. The enclosed proxy is solicited by our board of
directors, and, when the proxy card is returned properly completed, it will be
voted as directed by the shareholder on the proxy card. Shareholders are urged
to specify their choices on the enclosed proxy card. If a proxy card is signed
and returned without choices specified, in the absence of contrary instructions,
the shares of our common stock represented by the proxy will be voted FOR
Proposals 1, 2, 3 and 4 and will be voted in the proxyholders' discretion as to
other matters that may properly come before the annual meeting.

         Each of the proposals requires the affirmative vote of the holders of a
majority of the shares of our common stock voting by proxy or in person at the
annual meeting, except for the following: (1) the approval of the exclusive
license grant requires the affirmative vote of the holders of a majority of the
outstanding shares of our common stock entitled to vote; and (2) our directors
shall be elected by a plurality of the votes cast.

         Abstentions are included in the determination of the number of shares
of our common stock present and voting for quorum purposes but will not be
counted for purposes of calculating the vote with respect to such matters. If a
broker returns a "non-vote" proxy as to any matter, including a lack of
authority to vote on such matter, then the "broker non-vote" proxy will not be
considered as present or voting with respect to such matter.


         As of May 19, 2000, our directors and executive officers and their
affiliates were beneficial owners of an aggregate of 2,548,225 shares of our
common stock (exclusive of any shares issuable upon the exercise of stock
options remaining unexercised as of that date), or approximately 6.40% of the
39,427,605 shares of our common stock that were issued and outstanding as of
that date. See "Security Ownership of Certain Beneficial Owners and Management"
on page 26 of this proxy statement.


COST OF SOLICITATION

         We will bear the entire cost of solicitation by management, including
the preparation, assembly, printing and mailing of the proxy solicitation
materials. In addition, we may reimburse brokerage firms and other persons
representing beneficial owners of our common stock for their expenses in
forwarding proxy solicitation materials to such beneficial owners. Proxies may
also be solicited by certain of our directors, officers and regular employees,
without additional compensation, personally or by telephone, telegram, email or
facsimile. Except as described above, we do not intend to solicit proxies other
than by mail.

         OUR ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, HAS BEEN
MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT TO ALL SHAREHOLDERS ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL
MEETING. THE ANNUAL REPORT IS NOT INCORPORATED INTO THIS PROXY STATEMENT AND IS
NOT CONSIDERED PROXY SOLICITING MATERIAL.

                                       2


                                   PROPOSAL 1

               APPROVAL OF THE EXCLUSIVE LICENSE GRANT PURSUANT TO
                       THE JOINT VENTURE LICENSE AGREEMENT


         THIS SECTION OF THE PROXY STATEMENT DESCRIBES ASPECTS OF THE PROPOSED
EXCLUSIVE LICENSE GRANT. THE DESCRIPTION OF THE JOINT VENTURE LICENSE AGREEMENT
SET FORTH BELOW IS ONLY A SUMMARY OF THE KEY TERMS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE JOINT VENTURE LICENSE
AGREEMENT. A COPY OF THE JOINT VENTURE LICENSE AGREEMENT IS ATTACHED AS
ATTACHMENT A TO THIS PROXY STATEMENT AND IS INCORPORATED INTO THIS PROXY
STATEMENT BY REFERENCE. YOU ARE URGED TO READ THE ENTIRE AGREEMENT CAREFULLY.


GENERAL

         We are currently engaged primarily in the business of developing and
licensing intellectual property for interactive television systems and other
telecommunications applications. Since the approval of our plan of
reorganization by the U.S. Bankruptcy Court and the consummation of a settlement
agreement with various creditors in April 1999, we have concentrated primarily
on the further development and exploitation of our patent portfolio through
potential licenses, joint ventures and other methods that will not involve
substantial capital requirements or large overhead expenses.

         Two Way TV Ltd. is a company organized under the laws of England and
Wales and is an affiliate of Cable & Wireless Communications PLC, which has a
50.1% stake in Two Way. Two Way is a leading company in the development and
deployment of interactive television services in Europe and is currently
offering interactive television services to approximately 100,000 subscribers of
Cable & Wireless' digital cable television services, and has agreements in place
to extend its services to other operators of digital television networks in the
United Kingdom. To enable delivery of these services, Two Way has developed an
extensive technology infrastructure which is also the subject of various current
patent filings. This infrastructure can be targeted to deliver services over a
wide range of digital television software systems. Two Way has also developed an
extensive library of games and other applications that are delivered using Two
Way's technology infrastructure. These games are currently the most popular
elements of Cable and Wireless' digital interactive services.

         In April 2000, Two Way entered into an agreement with Liberate
Technologies pursuant to which Liberate was licensed, on a non-exclusive basis,
the right to incorporate certain elements of Two Way's interactive technologies
into its platform for the purpose of enabling its platform to offer Two Way's
interactive entertainment services. This agreement also includes joint marketing
commitments. In the event that our license grant to TWIN Entertainment becomes
exclusive, in which case Two Way's license grant will also become exclusive, the
benefit of this agreement may be transferred to TWIN Entertainment in the United
States and Canada. Otherwise, Two Way will continue to support this agreement
and derive resulting benefits independently.

         On December 6, 1999, we entered into a joint venture and stock purchase
agreement with Two Way which resulted in the formation of TWIN Entertainment
Inc., a new company 50-50 jointly owned and co-managed by us and Two Way. TWIN
Entertainment will develop interactive products, services and technology for
distribution initially in the United States and Canada and, additionally, in
other mutually agreed upon areas (collectively, the "Territory"). On January 31,
2000, we further entered into a joint venture license agreement with Two Way and
TWIN Entertainment setting forth which of our and Two Way's existing
intellectual property will be initially licensed to TWIN Entertainment. Pursuant
to the joint venture license agreement, we granted TWIN Entertainment a
non-exclusive, royalty-free, non-transferable license for all of our existing
patents specifically disclosed and existing as of the date of the joint venture
and stock purchase agreement, as well as any potential patents based on those
patents (the "IN Patents") in the Territory. Similarly, Two Way granted TWIN
Entertainment a non-exclusive, royalty-free, non-transferable license in the
Territory for all patents, trade secrets, copyrights and certain other
intellectual property and proprietary rights now existing or developed after or
coming into existence during the term of the joint venture license agreement
("TW's Proprietary Rights"). Additionally, Two Way granted TWIN Entertainment a
similar license for certain of its trademarks, service marks, trade names and
logos. TWIN Entertainment may, among other things, develop, market and supply
products and services embodying the IN Patents and TW's Proprietary Rights in
the Territory.

                                       3


         In the joint venture and stock purchase agreement, we also agreed to
seek the requisite approval from our shareholders to convert our license grant
to TWIN Entertainment in the Territory from nonexclusive to exclusive, at which
time, Two Way's license grant to TWIN Entertainment will also become exclusive.

         We believe that the IN Patents constitute a substantial portion of our
assets. Accordingly, we feel that it is important for our shareholders to
approve the exclusive license grant of the IN Patents to TWIN Entertainment in
the Territory. Further, shareholders' approval for the exclusivity of the
license grant may be required under California law if such license grant is
perceived as an exchange of substantially all of our assets. Upon the
affirmative vote by holders of a majority of the outstanding shares of our
common stock entitled to vote, our license grant for the IN Patents and Two
Way's license grant for TW's Proprietary Rights to TWIN Entertainment in the
Territory will become exclusive.

BOARD OF DIRECTORS' RECOMMENDATION

         Our board of directors has unanimously determined that the terms and
conditions of the joint venture license agreement are fair and in our best
interests and in the best interests of our shareholders, and has approved the
exclusive license grant of IN Patents to TWIN Entertainment in the Territory.
Our board of directors unanimously recommends that our shareholders vote "FOR"
approval of the exclusive license grant.

BOARD OF DIRECTORS' REASONS FOR RECOMMENDING THE EXCLUSIVE LICENSE GRANT

         The decision of our board of directors to approve the exclusive license
grant of the IN Patents to TWIN Entertainment in the Territory is based on an
analysis of our current and future business prospects, as well as pursuant to
discussions with our advisory panel of consultants.

         Our board of directors' decision is based primarily on the following
factors:

         o        Our patents, primarily related to the interactive television
                  market and other interactive technology, expire between 2004
                  and 2015;

         o        There is a large potential market for interactive
                  communications and applications in the fields of
                  entertainment, advertising, games and gambling through
                  Internet and television delivery;

         o        Because of the approaching date of expiration of some of our
                  patents, coupled with the current high degree of interest in
                  interactive communications and applications, we have an
                  opportunity to capitalize on our patent portfolio, and we
                  believe the most expeditious manner to do so would be to
                  provide TWIN Entertainment with the anticipated exclusive
                  access to our and Two Way's intellectual property;

         o        Our cash resources are limited due to our involvement in
                  various bankruptcy proceedings, as well as other litigation
                  and settlement proceedings with our creditors. As a result, we
                  must effectively exploit our patent portfolio without
                  incurring large operating or overhead expenses;

         o        Licensing our intellectual property allows us to retain
                  ownership of our patent portfolio, while simultaneously
                  delivering shareholder value by capitalizing on this valuable
                  asset;

         o        Two Way is a suitable strategic partner because of our
                  existing relationship and the similar line of business it is
                  engaged in;

         o        We believe Two Way can leverage its operating experience to
                  help enable TWIN Entertainment to more rapidly exploit IN's
                  Patents. If our license grant remains non-exclusive, this
                  expertise will also be available to our potential competitors
                  and potential competitors of TWIN Entertainment;

                                       4


         o        We believe the incorporation of IN's Patents into Two Way's
                  technology platform could accelerate the realization of value
                  for our shareholders. If our license grant remains
                  non-exclusive, Two Way's license grant will also remain
                  non-exclusive and its technology platform will be available
                  for license to our potential competitors and potential
                  competitors of TWIN Entertainment;

         o        If our license grant remains non-exclusive, Two Way's popular
                  interactive games will be available for license to our
                  potential competitors and potential competitors of TWIN
                  Entertainment;

         o        If our license grant becomes exclusive, Two Way's license
                  grant also will become exclusive, in which case, TWIN
                  Entertainment may enjoy any benefits derived from the
                  agreement that Two Way has in place with Liberate
                  Technologies. If our license grant remains non-exclusive, this
                  agreement could accelerate the ability of Liberate, or its
                  customers, to compete with us or TWIN Entertainment;

         o        Our cooperation with Two Way to co-manage TWIN Entertainment
                  will significantly enhance our ability to capitalize on our
                  patent portfolio without incurring operating and overhead
                  costs and allow us to secure the necessary cash reserve to
                  prepare and file additional patent applications to safeguard
                  our intellectual property; and

         o        The anticipated exclusivity of our and Two Way's license
                  grants to TWIN Entertainment diminishes its burden of
                  competing with us or Two Way or with any third party using our
                  or Two Way's intellectual property, and thus allowing it to
                  have greater opportunities and resources to advance in the
                  interactive television market.

         The terms of the joint venture license agreement, including the
provision contemplating the exclusive license grant of the IN Patents to TWIN
Entertainment in the Territory, are the result of our arm's length negotiations
with Two Way.

         Our board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the exclusive
license grant of the IN Patents to TWIN Entertainment in the Territory,
including the following:

         o        The fact that our U.S. and Canadian patent portfolio is our
                  most valuable asset and the exclusive license grant of such
                  patents to TWIN Entertainment will be royalty-free and
                  perpetual (subject to certain termination rights);

         o        TWIN Entertainment has no operating history and thus we cannot
                  assure you that it will successfully develop, market and sell
                  products and services embodying the combined intellectual
                  property licensed from us and Two Way or that it will ever
                  earn a profit on such activities;

         o        We will be significantly dependent on TWIN Entertainment, a
                  third party (although a 50% affiliate), to generate revenues
                  that capitalize upon the patents we are licensing in the
                  Territory; and

         o        We cannot assure you that the combined transfer of our and Two
                  Way's intellectual property to TWIN Entertainment will produce
                  the intended benefits.

                                       5


         As a result of the foregoing considerations, our board of directors has
determined that the potential advantages of the exclusive license grant outweigh
the associated potential risks. Our board of directors believes that TWIN
Entertainment will have better capital resources to develop, market and sell
products and services embodying our patent portfolio than if we were to
internally develop, market and sell our own products and services in the
Territory. Our board of directors further believes that the exclusive licensing
arrangement is more cost-effective and has better revenue-generating potential
because such an arrangement diminishes TWIN Entertainment's burden of competing
with us or Two Way or with any third party using our or Two Way's intellectual
property. However, the foregoing discussion of the information and factors
considered by our board of directors is not intended to be exhaustive; rather it
is a summary of the material factors that our board of directors considered in
making its recommendation. Our board of directors considered these factors in
light of its knowledge of our business, the interactive communications industry
in general and information provided by our management and advisory panel of
consultants. In view of the variety of factors considered in connection with its
evaluation of the proposed exclusive license grant, our board of directors did
not find it practicable to and did not quantify or otherwise assign relative
weight to the specific factors considered in reaching its determination.

REQUIRED VOTE

         Upon the affirmative vote of the holders of a majority of the
outstanding shares of our common stock entitled to vote, our license grant for
the IN Patents will become exclusive, at which time Two Way's license grant also
will become exclusive. Shareholders abstaining from voting on this proposal will
be counted for purposes of determining a quorum, but will not be counted for
purposes of calculating the vote with respect to this proposal. If a broker
returns a "non-vote" proxy as to this proposal, including a lack of authority to
vote on this proposal, then the "broker non-vote" proxy will not be considered
as present or voting with respect to this proposal.

RECOMMENDATION OF THE BOARD

         OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE EXCLUSIVE LICENSE GRANT OF THE IN PATENTS TO TWIN ENTERTAINMENT IN THE
TERRITORY.

BACKGROUND TO THE JOINT VENTURE LICENSE AGREEMENT

         As disclosed in our 1998 annual report to shareholders, in connection
with the reassessment of our business strategy, we concluded that it is in our
best interests and the best interests of our shareholders to reaffirm and
further develop our relationship with Two Way. We entered into a know-how
license agreement with Two Way originally in 1992 whereby we granted Two Way an
exclusive license covering our know-how related to our interactive systems and
other telecommunications applications for Two Way's use in the United Kingdom
and certain other European countries. This exclusive license grant was
terminated in January 2000 in connection with our entering into the joint
venture with Two Way, pursuant to which we entered into a termination and
license agreement with Two Way for this intellectual property and related
patents.

         In connection with the termination and license agreement, on December
6, 1999, we entered into a joint venture and stock purchase agreement with Two
Way under which we established TWIN Entertainment, a 50-50 jointly owned and
co-managed Delaware corporation, to develop, market and provide digital and
analog interactive products, services and technology in the Territory embodying
our and Two Way's intellectual property. In connection therewith, we agreed and
Two Way also agreed to purchase 2,500,000 shares of TWIN Entertainment's common
stock at a purchase price of $500,000 or $0.20 per share. Further, we agreed to
immediately cease all discussion or negotiation with any person or group
relating to any acquisition of our company, substantial sale of our assets or
any other action that would inhibit the exclusivity of our and Two Way's license
grants to TWIN Entertainment as contemplated by the joint venture license
agreement. In the event that we fail to abide by this obligation, we will pay
Two Way a fee of $150,000 plus reasonable out-of-pocket expenses incurred by Two
Way in connection with the transactions contemplated by the joint venture and
stock purchase agreement.

                                       6


         In exchange for the equity investment in TWIN Entertainment, we and Two
Way were granted certain governance and other rights pursuant to various related
agreements we entered into with TWIN Entertainment and Two Way. These rights
include (1) written notice upon and restrictions on the sale and transfer of any
shares of TWIN Entertainment's common stock; (2) in the event either of us
wishes to sell our interest in TWIN Entertainment, first TWIN Entertainment and
then the other party has the right to purchase the shares and the right to
participate in the sale or transfer the shares pursuant to the same terms and
conditions; (3) right to elect a certain number of directors based on our and
Two Way's ownership percentage of TWIN Entertainment's common stock; (4) our and
Two Way's right to approve certain of TWIN Entertainment's major actions; (5)
specified procedures upon the occurrence of a deadlock on any matter properly
before TWIN Entertainment's board of directors; (6) subject to certain
restrictions, the right of each of Interactive Network and Two Way to demand
TWIN Entertainment to register the TWIN Entertainment common stock under the
Securities Act of 1933, as amended, and the right for our and Two Way's stock to
be included among the securities to be registered in any other public offering
TWIN Entertainment may engage in; and (7) access to certain of TWIN
Entertainment's financial information.

         We and Two Way have also agreed that Two Way, subject to certain
limitations, shall make the day-to-day operating decisions for TWIN
Entertainment. In April 2000, TWIN Entertainment hired Robert J. Regan, an
experienced executive in the interactive television industry, to serve as
president and chief executive officer. He comes from GTE mainStreet Interactive
Television, a division of GTE, where he was senior vice president of
programming.

         We believe that TWIN Entertainment will have better resources to
develop, market and provide digital and analog interactive products, services
and technology in the Territory with access to both our and Two Way's
intellectual property. As a result, we entered into the joint venture license
agreement setting forth which of our and Two Way's existing intellectual
property will be initially licensed to TWIN Entertainment. Further, we believe
that the exclusive licensing arrangement is more cost-effective and has better
revenue-generating potential because such an arrangement diminishes TWIN
Entertainment's burden of competing with us or Two Way or with any third party
using our or Two Way's intellectual property.

SUMMARY OF THE JOINT VENTURE LICENSE AGREEMENT

         The joint venture license agreement contains a grant by the licensors,
comprised of us and Two Way, to TWIN Entertainment of a license to use certain
of our and Two Way's intellectual property for its development, marketing and
provision of digital and analog interactive products, services and technology in
the Territory. In return, TWIN Entertainment agreed to grant each licensor a
right of first refusal to license for use, outside the Territory, certain
intellectual property that TWIN Entertainment may develop in the future. Two Way
further agreed to supply TWIN Entertainment with certain technical training,
maintenance and support services.

THE LICENSE GRANTS

         OUR LICENSE GRANT TO TWIN ENTERTAINMENT. We granted TWIN Entertainment
a non-exclusive, royalty-free, perpetual (subject to certain termination
rights), non-transferable license to all of the IN Patents, for the life of such
patents, in the Territory to, among other things, develop, market and sell
products, services and technology embodying the IN Patents.

         TWO WAY'S LICENSE GRANT TO TWIN ENTERTAINMENT. Two Way granted TWIN
Entertainment a non-exclusive, royalty-free, perpetual (subject to certain
termination rights), non-transferable license to TW's Proprietary Rights in the
Territory and to, among other things, develop, use, modify and sell products,
services and technology embodying TW's Proprietary Rights in the Territory.
Further, Two Way agreed to grant TWIN Entertainment a non-exclusive,
non-transferable, royalty-free license for certain of its trademarks, service
marks, trade names and logos.

         RESERVED INTELLECTUAL PROPERTY RIGHTS. Other than the license rights
granted under the joint venture license agreement, each licensor retains
ownership of its respective intellectual property. Similarly, TWIN Entertainment
retains ownership of any intellectual property it develops in the future,
irrespective of whether such intellectual property is subsequently licensed to
one of the licensors.

TERMS AND CONDITIONS UPON THE EXCLUSIVITY OF THE LICENSE GRANTS

         OUR LICENSE GRANT TO TWIN ENTERTAINMENT. Our non-exclusive license
grant of the IN Patents to TWIN Entertainment in the Territory becomes exclusive
upon our shareholders' approval of this arrangement. Upon approval of
exclusivity by our shareholders, TWIN Entertainment may sublicense, on a
non-exclusive basis, the rights granted by our license in the Territory, subject
to our prior written approval (not to be unreasonably withheld) and TWIN
Entertainment's notification to Two Way and us of the sublicensee's identity.
The right to sublicense terminates automatically if our license grant reverts to
non-exclusive for any reason.

                                       7


         TWO WAY'S LICENSE GRANT TO TWIN ENTERTAINMENT. Upon our license grant
becoming exclusive, Two Way's non-exclusive license grant of TW's Proprietary
Rights in the Territory becomes exclusive. Upon Two Way's license grant becoming
exclusive, TWIN Entertainment may sublicense, on a non-exclusive basis, the
rights granted by Two Way's license in the Territory, subject to Two Way's prior
written approval (not to be unreasonably withheld), and TWIN Entertainment's
notification to Two Way and us of the sublicensee's identity. The right to
sublicense terminates automatically if our license grant to TWIN Entertainment
reverts to non-exclusive. Further, upon our license grant becoming exclusive,
Two Way will exclusively license certain of its trademarks, service marks, trade
names and logos to TWIN Entertainment for use in the Territory for products and
services incorporating the TW's Proprietary Rights.

         NON-COMPETITION OBLIGATIONS. Upon our shareholders' approval of the
exclusivity of our license grant, we are and Two Way is prohibited from
competing, directly or indirectly, with TWIN Entertainment in the Territory for
so long as each of our license grants remains exclusive and has not been
transferred or assigned by TWIN Entertainment to a third party. Notwithstanding
our foregoing non-competition obligations, we have the right to create, develop
or engage in business activities within or outside the scope of TWIN
Entertainment's business, provided that such business activities do not directly
compete with TWIN Entertainment's then-current primary business activities.
Prior to our shareholders' approval of the exclusivity of our license grant, we
agree that Two Way also agrees not to compete directly with TWIN Entertainment
so long as the license grants remain in effect and have not been transferred or
assigned by TWIN Entertainment to any third party, provided we have and Two Way
has the right to grant sublicenses of our respective technology and proprietary
rights to unaffiliated persons in the Territory.

         ENFORCEMENT OF RIGHTS IN THE TERRITORY. Upon our license grant becoming
exclusive, TWIN Entertainment will become solely responsible for policing,
protecting and enforcing our and Two Way's respective intellectual property
exclusively licensed to it in the Territory. If TWIN Entertainment fails to
adequately fulfill this obligation, the infringed licensor may take whatever
action it deems appropriate. If the infringed licensor exercises its right of
action, it will bear all associated expenses and receive all resulting benefits.

TWIN ENTERTAINMENT'S OBLIGATIONS

         Pursuant to the joint venture license agreement, TWIN Entertainment is
obligated to fulfill certain performance criteria, including (1) execution of a
definitive agreement with a multiple system operator or other distributor
whereby such entity will offer TWIN Entertainment's interactive television
service to an excess of 1 million subscribers by September 1, 2000; (2)
execution of definitive agreements(s) whereby TWIN Entertainment receives
funding of at least $10 million by January 1, 2001; and (3) commercial launch by
TWIN Entertainment of an interactive service by April 1, 2001. In the event that
TWIN Entertainment fails to meet any of these performance criteria, each
licensor has the option, exercisable upon written notice to TWIN Entertainment
and the other licensor within a specified period, to convert its license grant
from exclusive to non-exclusive and/or terminate its non-competition
obligations. However, if one licensor unreasonably prevents TWIN Entertainment
from meeting any of its performance criteria, such licensor will not have the
right to convert its license grant from exclusive to non-exclusive basis or
terminate its non-competition obligations. In the event of such a "prevention,"
the other licensor will have the option, exercisable upon written notice to TWIN
Entertainment and the "preventing" party within a specified period, to convert
such other licensor's license grant from exclusive to non-exclusive basis,
provided the "preventing" party does not cure the breach within 30 days of
receipt of notice. Any such license conversion or termination of non-competition
obligations by the "non-preventing" party will not modify, terminate or
otherwise affect the exclusivity of the license grant by or the non-competition
obligations of the "preventing" party.

OUR AND TWO WAY'S OBLIGATIONS

         TWO WAY'S SUPPORT AND TRAINING SERVICES. Subject to certain
limitations, Two Way is obligated to provide TWIN Entertainment with initial as
well as on-going technical training and support services in connection with TW's
Proprietary Rights. TWIN Entertainment agrees to pay Two Way support fees (and
reimbursements for certain initial transition services) in the amount of four
percent of TWIN Entertainment's gross revenues received prior to the fifth
anniversary of the date of the joint venture license agreement, and three
percent of TWIN Entertainment's gross revenues received any time afterwards.
Subject to our prior written approval, TWIN Entertainment may elect to terminate
Two Way's technical training and support services. Upon termination, TWIN
Entertainment will cease to have payment obligations to Two Way, and Two Way
will have no further technical training and support, delivery and
non-competition obligations to TWIN Entertainment, and Two Way's license grant
to TWIN Entertainment becomes non-exclusive.

                                       8


         DELIVERY OBLIGATIONS. Subject to the terms of the joint venture license
agreement, Two Way must deliver its current technology and proprietary rights in
tangible form to TWIN Entertainment. Further, subject to the terms of the joint
venture license agreement, Two Way must, on an on-going basis, deliver all new
Two Way technology and proprietary rights that are related to TWIN
Entertainment's business to TWIN Entertainment. We must deliver to TWIN
Entertainment a copy of each IN Patent and related documents in existence as of
the date of the joint venture license agreement.

RIGHT OF FIRST REFUSAL

         RESERVATION OF RIGHTS. We have no obligation to license any of our
respective technology or proprietary rights developed after the date of the
joint venture license agreement to TWIN Entertainment. Two Way has no obligation
to license any of its technology or proprietary rights independently developed
by it after the date of the joint venture license agreement or coming into
existence after the date of the joint venture license agreement to TWIN
Entertainment, provided such technology or proprietary right is entirely new and
not related to TWIN Entertainment's business. However, we must and Two Way must
offer TWIN Entertainment a right of first refusal to any such technology or
proprietary rights pursuant to the procedures described below. Subject to the
board determination and the procedures described below, the joint venture
license agreement sets forth that the determination of "related to TWIN
Entertainment's business" will be broadly interpreted.

         OUR AND TWO WAY'S RIGHT OF FIRST REFUSAL. In any country where only one
licensor (either us or Two Way) is actively marketing products or services, that
licensor has the right of first refusal to enter into an exclusive license in
that country for any technology wholly-owned by TWIN Entertainment. In any
country where both licensors are actively marketing their products and services,
each licensor has the opportunity to enter into a non-exclusive license with
TWIN Entertainment in that country on substantially similar terms and
conditions. Further, TWIN Entertainment is prohibited from licensing its
technology to a third party in that country. If neither licensor is actively
marketing its products or services in a country, both licensors are free to
negotiate for an exclusive or non-exclusive license for the technology for that
country. Further, if TWIN Entertainment wishes to license its technology to a
third party, it must provide each licensor with a 30-day prior written notice of
its intent prior to doing so. If either licensor delivers a written notice to
TWIN Entertainment within 30 days indicating a desire to enter into a license
agreement for such technology in the specified country, TWIN Entertainment must
negotiate exclusively and in good faith with such licensor for a period of 60
days. If no agreement is reached after 60 days, TWIN Entertainment may proceed
to license that technology to a third party, provided the license is on no
better terms than those offered to the last licensor that negotiated with TWIN
Entertainment.

         EXCLUSION OF TWO WAY'S TECHNOLOGY OR PROPRIETARY RIGHTS. If Two Way
excludes any of its technology or proprietary rights from the license grant to
TWIN Entertainment based on Two Way's good faith belief that such technology or
proprietary right is not related to TWIN Entertainment's business, Two Way must
notify us and TWIN Entertainment of its intent and present such technology or
proprietary right to TWIN Entertainment's board of directors for their review
prior to making the same available to a third party. TWIN Entertainment's board
of directors will hold a special meeting to decide whether the specified
technology or proprietary right is related to TWIN Entertainment's business. An
unanimous decision that the specified technology or proprietary right is not
related to TWIN Entertainment's business is conclusive if such a decision was
determined by director(s) representing us and Two Way. If the decision is not
unanimous, the specified technology or proprietary right will be deemed as
related to TWIN Entertainment's business. Except for an unanimous vote in which
director(s) representing us and Two Way participated, we may or Two Way may
request arbitration if either believes the final vote to be unreasonable.
Further, we may or Two Way may request arbitration if either believes the final
vote to be unreasonable and neither was represented by a representative director
on TWIN Entertainment's board of directors. If neither us nor Two Way was
represented by a representative director on TWIN Entertainment's board, then the
entire board will decide whether the specified technology or proprietary right
of Two Way is related to TWIN Entertainment's business and unless such vote is
unanimous, either Two Way or us may request arbitration.

                                       9


         TWIN ENTERTAINMENT'S RIGHT OF FIRST REFUSAL. After the date of the
joint venture license agreement, if we develop any technology that is not
related to TWIN Entertainment's business or if Two Way develops any technology
that is not related to TWIN Entertainment's business and either of us desires to
disclose, license or otherwise make such developed technology available to a
third party in the Territory, such licensor must promptly notify the other
licensor and TWIN Entertainment of its intent, and for a period of 30 days
following the receipt of notice, TWIN Entertainment has the right to accept the
terms such licensor offers in such notice, or negotiate further if the licensor
is willing. If TWIN Entertainment does not unconditionally accept the offered
terms, then such licensor may license such technology to a third party on terms
and conditions no more favorable than those offered to TWIN Entertainment.

LIMITATION OF LIABILITY

         REPRESENTATIONS AND WARRANTIES. Two Way represented in the joint
venture license agreement that (1) it and its licensors are the sole and
rightful owners of all right, title and interest in and to its technology and
proprietary rights, except as disclosed in the joint venture license agreement;
(2) the same do not infringe or misappropriate any third-party copyright or
trade secret rights; and (3) to the best of its knowledge, no claims have been
made with respect to the same. Similarly, we represented that (1) other than
third-party licenses disclosed in the joint venture license agreement, we and
our licensors are the sole and rightful owners of all right, title and interest
in and to the IN Patents and we have the unrestricted right to license the IN
Patents; (2) to the best of our knowledge, except as disclosed in the joint
venture license agreement, no claims have been made with respect to the same;
and (3) as of the date of the joint venture license agreement, the patents and
patent applications listed in the joint venture license agreement comprised of
all of IN Patents issued or filed in the Territory.

         LIMITATION OF LIABILITY. Neither licensor made any warranty as to the
validity of any of its respective patents or that its respective patents are or
will be free from claims of infringement by third parties. Also, all implied
warranties and claims to consequential damages were disclaimed by all parties to
the joint venture license agreement. Notwithstanding the foregoing, each party's
liability arising out of or related to the joint venture license agreement is
limited to five million dollars; except, Two Way's liability will not exceed ten
million dollars if that liability arises out of or relates to a third-party
claim based on Two Way's breach of its representations regarding (1) ownership
of its technology and proprietary rights; or (2) infringement or
misappropriation by Two Way of its technology of any third-party copyright or
trade secret rights; or any claim that TW's Proprietary Rights licensed to TWIN
Entertainment infringes or misappropriates any copyright, trade secret,
trademark or other proprietary rights (other than patents) of any third party.

         INDEMNIFICATION. We agreed and Two Way similarly agreed to defend,
indemnify and hold TWIN Entertainment and the other licensor harmless against
any liability based on a breach of any representation and warranty made in the
joint venture license agreement. Further, Two Way agreed to defend, indemnify
and hold TWIN Entertainment and us harmless against any claim that TW's
Proprietary Rights licensed to TWIN Entertainment infringes or misappropriates
any copyright, trade secret, trademark or other proprietary rights (other than
patents) of any third party. However, Two Way will have no indemnification
obligations if the claim is based on TWIN Entertainment's modification of TW's
Proprietary Rights. The sole remedy by TWIN Entertainment and Two Way for our
breach of representation regarding our ownership of the IN Patents is the right
to seek monetary damages if the breach is material. Each licensor's
indemnification obligations require written notice of the claim, control of
defense by the indemnifying party and cooperation from the other parties.

CONFIDENTIALITY

         Without express authorization and except under specific circumstances,
for a period of 10 years from the date of disclosure, each party to the joint
venture license agreement agrees not to disclose, use or permit the disclosure
or use by others of any of the other party's source code and other information
or materials marked or orally identified as "confidential" or "proprietary" by
the disclosing party. A longer non-disclosure period may apply upon request.

                                       10


TERMINATION OF THE JOINT VENTURE LICENSE AGREEMENT

         Either we may or Two Way may terminate each's respective license grant
upon written notice if TWIN Entertainment materially breaches certain material
obligations and fails to cure or make a reasonable effort to cure such breach
within 30 days of written notice of the breach. A material obligation includes
(1) observing the terms and conditions of our and Two Way's license grant; (2)
paying technical training and support fees to Two Way; and (3) observing
confidentiality obligations. Upon termination, such licensor's rights and
obligations under the joint venture license agreement are released and the other
licensor may terminate its license grant to TWIN Entertainment upon written
notice. Further, if TWIN Entertainment enters into a bankruptcy, reorganization,
liquidation or receivership proceeding, all license grants to TWIN Entertainment
terminate and each's respective license grants are released from the
non-competition obligations.

         Similarly, upon our or Two Way's material breach of any material
provision of the joint venture license agreement and failure to cure or make a
reasonable effort to cure such breach within 30 days of written notice of the
breach, TWIN Entertainment has to right to seek arbitration or injunctive
relief, terminate the breaching licensor's license upon written notice and/or
purchase the breaching licensor's equity interest in TWIN Entertainment at its
fair market value less 25 percent. The non-breaching licensor has the right, if
TWIN Entertainment elects to terminate the breaching licensor's license, to
convert its own license grant from exclusive to non-exclusive and/or to purchase
the breaching licensor's equity interest in TWIN Entertainment at the same
discount if TWIN Entertainment fails to do so. If any bankruptcy, liquidation or
winding-up proceeding is instituted against us or Two Way, TWIN Entertainment
has the right to purchase such licensor's equity interest in TWIN Entertainment
at its fair market value or allow the other licensor to do so if TWIN
Entertainment fails to do so.

GOVERNING LAW AND ARBITRATION

         The joint venture license agreement is governed by the laws of the
State of California, U.S.A. If a dispute arises, any party may choose to settle
the matter by binding arbitration under the rules of the American Arbitration
Association in San Francisco, California, U.S.A. or such other mutually agreed
upon location. The parties agree that any judgment resulting from such
arbitration proceeding is final and binding.

OUR OPERATIONS AFTER THE EXCLUSIVE LICENSE GRANT

         If the proposed exclusive license grant of the IN Patents to TWIN
Entertainment in the Territory is approved by our shareholders, our license
grant of the IN Patents and Two Way's license grant of TW's Proprietary Rights
to TWIN Entertainment will become exclusive. Upon the exclusivity of our and Two
Way's license grants, TWIN Entertainment will be solely responsible for
developing, marketing and providing digital and analog interactive products,
services and technology, as well as policing, protecting and enforcing our and
Two Way's intellectual property licensed to it in the Territory. We will,
however, have to the right to create, develop or engage in business activities
within or outside the scope of TWIN Entertainment's business, provided that such
business activities do not directly compete with TWIN Entertainment's
then-current primary business activities.

         We will receive no royalty payment for the perpetual (except for
certain termination rights), exclusive license grant of the IN Patents to TWIN
Entertainment in the Territory. Rather, we seek to receive a favorable return on
our equity investment in TWIN Entertainment.

         With access to both the IN Patents and TW's Proprietary Rights, we
believe that TWIN Entertainment will have better resources to develop, market
and provide digital and analog interactive products, services and technology in
the Territory. Further, we believe that the exclusive licensing arrangement is
more cost-effective and has better revenue-generating potential because such an
arrangement diminishes TWIN Entertainment's burden of competing with us or Two
Way or with a third party using our or Two Way's intellectual property. For
greater detail of our board of directors' decision to recommend the exclusive
license grant, see "Board of Directors' Reasons for Recommending the Exclusive
License Grant."

SELECTED FINANCIAL DATA

         The selected financial data is contained in the Annual Report on Form
10-K for the fiscal year ended 1999 filed with the Commission on April 14, 2000
and in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
filed with the Commission on May 15, 2000, and both reports are incorporated
herein by reference.

                                       11


RISK FACTORS RELATED TO THE EXCLUSIVE LICENSE GRANT

         IN ADDITION TO OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT, OUR SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE RISKS
DESCRIBED BELOW IN DETERMINING WHETHER TO APPROVE THE EXCLUSIVE LICENSE GRANT AT
THE ANNUAL MEETING.

WE WILL DEPEND SUBSTANTIALLY ON A THIRD PARTY TO GENERATE REVENUE FROM PRODUCTS,
SERVICES AND TECHNOLOGY EMBODYING OUR CURRENT INTELLECTUAL PROPERTY.

         Upon approval by our shareholders, the exclusive license grant will
shift all responsibility for the development, marketing and provision of
products, services and technology for interactive television systems and other
telecommunications applications embodying our current patents in the Territory
to a third party, TWIN Entertainment. A favorable return on our equity
investment in TWIN Entertainment will depend significantly on its ability to
generate substantial sales and revenues from these products and services. We
cannot assure you that we will receive a favorable return of our equity
investment in TWIN Entertainment in exchange for our exclusive license grant of
IN Patents in the Territory. In addition, while we are contributing the
exclusive use of our intellectual property in our primary markets to TWIN
Entertainment upon approval of the exclusivity of the license grant, we will
receive only half of any dividend declared by TWIN Entertainment.

WE MAY NOT HAVE AN ADEQUATE REMEDY IF TWIN ENTERTAINMENT FAILS TO SATISFY ITS
OBLIGATIONS UNDER THE JOINT VENTURE LICENSE AGREEMENT.

         If TWIN Entertainment does not meet its obligations under the joint
venture license agreement, our primary remedies will be to convert our license
grant from exclusive to non-exclusive or to terminate the joint venture license
agreement. The conversion to non-exclusivity or the termination of the joint
venture license agreement are feasible remedies only if we can identify and
secure other favorable strategic partners or third parties to license our
intellectual property or if we are able to internally develop, market and sell
products and services embodying our intellectual property before our patents
expire. We cannot assure you that we will be able to meet these challenges in
the event that TWIN Entertainment fails to satisfy its obligations under the
joint venture license agreement, and if we cannot, our business, prospects and
financial condition will be harmed.

THE BENEFITS FROM THE INTEGRATION OF OUR AND TWO WAY'S INTELLECTUAL PROPERTY MAY
NOT BE REALIZED.

         Achieving the benefits of our exclusive license grant will depend in
part on the successful integration of our and Two Way's intellectual property by
TWIN Entertainment and its successful development, marketing and provision of
products, services and technology for interactive television systems and other
telecommunications applications incorporating the combined intellectual
property. None of the parties to the joint venture license agreement has
significant experience relating to a strategic alliance on the scale and under
the circumstances contemplated by the joint venture license agreement. We cannot
assure you that we will be successful in integrating our intellectual property
with Two Way's or that the combined intellectual property will be successfully
incorporated by TWIN Entertainment. Further, we cannot assure you that the
successful business operations of TWIN Entertainment can be effected in a timely
manner, if at all. If the anticipated benefits from the exclusive license grant
are not realized due to the occurrence of any one of the above risks, our
business and operating results could be seriously harmed.

WE ARE SUBJECT TO NON-COMPETITION OBLIGATIONS UNDER THE JOINT VENTURE LICENSE
AGREEMENT WHICH COULD LIMIT OUR ABILITY TO CONDUCT OTHER BUSINESS.

         If the exclusive license grant is approved and to the extent that
either TWIN Entertainment or Two Way challenges any of our business activities
unrelated to TWIN Entertainment's business based on our non-competition
obligations under the joint venture license agreement, we may be required to
incur significant time, effort, expense and possibly litigation to enforce our
rights to conduct business activities that do not directly compete with TWIN
Entertainment's then-current primary business activities. Litigation, whether
successful or not, could harm our relationship with TWIN Entertainment and/or
Two Way, divert our management's time and result in substantial costs, any of
which could seriously harm our business.

                                       12


IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY BE
LIABLE TO TWO WAY AND TWIN ENTERTAINMENT UNDER THE JOINT VENTURE LICENSE
AGREEMENT.

         We rely or may in the future rely on a combination of patent,
trademark, trade secret and copyright law and contractual restrictions to
protect the proprietary aspects of our technology. Despite our efforts, we may
not be successful in protecting our intellectual property or unauthorized
parties may attempt to copy aspects of our technology. Litigation may be
necessary in the future to enforce and protect our intellectual property rights
and determine the validity and scope of our and others' proprietary rights.
Pursuant to the terms and conditions of the joint venture license agreement, we
have represented that to our knowledge, we own all right, title and interest in
and to the IN Patents and all related proprietary rights. If there are unknown
defects in our ownership of those rights, we may be liable to Two Way and TWIN
Entertainment if a third party successfully challenges our ownership and our
financial condition may be harmed.

CHANGE IN OUR BUSINESS STRATEGY UPON THE APPROVAL BY OUR SHAREHOLDERS OF THE
EXCLUSIVITY OF THE LICENSE GRANT MAY DEPRESS THE PRICE OF OUR COMMON STOCK.

         Completion of the proposed exclusive license grant and other related
transactions represent a significant departure from our initial business
strategy. Subsequent to the approval of the exclusive license grant, all
responsibility for the development, marketing and sale of products, services and
technology for interactive television systems and other telecommunications
applications embodying our patents in the Territory will be shifted to a third
party (although a 50% affiliate). We have plans to engage in other activities,
but cannot assure you that we will successfully develop other technologies or
services or that any such new businesses will generate sufficient revenue. There
is no operating history upon which to assess whether or not our strategic
alliance with Two Way and TWIN Entertainment to develop, market and sell
products, services and technology embodying our and Two Way's intellectual
property will succeed or whether the anticipated return on our equity investment
in TWIN Entertainment will be realized. As a result of these uncertainties, the
price of our common stock may be adversely affected.

THERE IS NO PUBLIC MARKET FOR THE TWIN ENTERTAINMENT'S COMMON STOCK WE
PURCHASED.

         Pursuant to the stock purchase agreement, we purchased half of the
outstanding shares of TWIN Entertainment's common stock. There is currently no
public market for TWIN Entertainment's common stock nor can we assure you that a
trading market for this common stock will develop in the future. Further, TWIN
Entertainment has no obligation to pay us dividends on its common stock, and we
may not be able to resell TWIN Entertainment's common stock at a price that
reflects its fair market value, if at all. Upon the approval of the exclusivity
of our license grant to TWIN Entertainment, our business and financial condition
will depend significantly on receiving a favorable return on our purchase of
TWIN Entertainment's common stock. If we are unable to divest our equity
investment in TWIN Entertainment or if we divest our equity investment at a
discount, our operating results and financial condition could be adversely
affected.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR THE EXCLUSIVE
LICENSE GRANT

         THE FOLLOWING DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY
VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCE. MOREOVER, THIS
DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL
TAX CONSEQUENCES OF THE PROPOSED EXCLUSIVE LICENSE GRANT. THIS DISCUSSION DOES
NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE PROPOSED
EXCLUSIVE LICENSE GRANT.

                                       13


         The exclusive license grant of the IN Patents to TWIN Entertainment in
the Territory is intended to qualify for non-recognition of gain or loss for
federal income tax purposes. However, the federal income tax treatment of the
exclusive license grant is not entirely clear. The exclusive license grant
(either taken together with the exclusive license grant by Two Way, or taken
together with all of the transactions under the joint venture and stock purchase
agreement and the joint venture license agreement) could be viewed for federal
income tax purposes as a transaction qualifying for tax-free treatment under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"): that
is, a transfer of property by one or more transferors to a domestic corporation
controlled by the transferors, without the receipt by the transferors of any
consideration other than stock of the controlled corporation. The exclusive
license grant will also qualify for non-recognition treatment if it is
determined for federal income tax purposes to be a non-taxable, voluntary
shareholder contribution to the capital of TWIN Entertainment. If the Internal
Revenue Service were to successfully assert that the exclusive license grant
does not qualify for non-recognition treatment due to the absence of any
applicable authority directly on point, we could recognize taxable income or
gain equal to the fair market value of the TWIN Entertainment common stock and
related rights considered for federal income tax purposes to have been received
in exchange for the exclusive license grant.

         Although it is our intention to do so, we have not filed federal and
state income tax returns for the years ended December 31, 1994 through December
31, 1999. As of December 31, 1993, we had approximately $47 million and $23
million of federal and California net operating losses, respectively. We also
had approximately $456,000 and $190,000 of federal and California research and
experimentation credits carryforwards, respectively.

         We have not determined whether the reorganization of our business or
the lack of proper filing of income tax returns from December 31, 1993 through
December 31, 1998 has caused us to forfeit our net operating loss carryforwards.

         Should the net operating losses and credits described above be
available for use, such carryforwards may be restricted in the event of an
"ownership change", as defined in Section 382 of the Internal Revenue Code. We
did have such a change in July 1989, and again in November 1991, subjecting
$13.9 million of our net operating loss carryforwards to an annual limitation
not to exceed $1.6 million. We have not determined whether an ownership change
has occurred after December 31, 1993. Further, Section 382 provides that in the
event we cease our trade or business, our net operating losses and credit
carryforwards would be forfeited.

         Management believes there are sufficient net operating loss
carryforwards to offset any taxable income earned in 1999.

         Even if the exclusive license grant were determined to be a taxable
transaction as described above, there should not be any federal income tax
consequences for our shareholders. However, you should consult your own tax
advisors if you have specific questions regarding the tax consequences of the
proposed exclusive license grant.

ACCOUNTING TREATMENT FOR THE PROPOSED EXCLUSIVE LICENSE GRANT

         We intend to account for the exclusive license grant of the IN Patents
to TWIN Entertainment in the Territory as an additional investment in a
fifty-percent-owned domestic subsidiary. Income and losses will be recognized on
the equity method in proportion to our proportion of ownership, when earned by
TWIN Entertainment.

DIVIDEND POLICY RELATING TO THE PROPOSED EXCLUSIVE LICENSE GRANT

         We have never paid any dividend on our common stock since our inception
and do not anticipate paying any dividend as a result of the transactions
contemplated by the joint venture license agreement. We do not anticipate
distributing any TWIN Entertainment common stock received pursuant to the joint
venture and stock purchase agreement.

REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE PROPOSED EXCLUSIVE
LICENSE GRANT

         No regulatory filings and approvals will be required to complete the
proposed exclusive license grant of the IN Patents to TWIN Entertainment in the
Territory.

                                       14


AVAILABILITY OF PRINCIPAL ACCOUNTANTS

         A representative of Marc Lumer & Company is expected to be present at
the annual meeting, will have the opportunity to make a statement about the
proposed exclusive license grant, and will be available to respond to
appropriate questions.



                                       15



                                   PROPOSAL 2

             APPROVAL OF AN AMENDMENT TO THE 1999 STOCK OPTION PLAN


         THIS SECTION OF THE PROXY STATEMENT DESCRIBES ASPECTS OF THE 1999 STOCK
OPTION PLAN. THE DESCRIPTION OF THE 1999 PLAN SET FORTH BELOW IS ONLY A SUMMARY
OF THE KEY TERMS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE PLAN. A COPY OF THE 1999 PLAN IS ATTACHED AS ATTACHMENT B TO THIS
PROXY STATEMENT AND IS INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE. YOU
ARE URGED TO READ THE ENTIRE PLAN CAREFULLY


         At this annual meeting, our shareholders will be asked to vote on the
proposed amendment to our 1999 stock option plan to increase the number of
shares authorized for issuance under the plan from 3,650,000 shares to 5,000,000
shares.

         The 1999 plan, which was approved by our shareholders at our 1999
annual meeting, provides for the issuance of stock options and stock awards
covering up to 3,650,000 shares of our common stock. Stock awards issued under
the 1999 plan may be made in the form of stock options, stock grants or
purchases. Our board of directors has concluded that the number of shares
authorized under the 1999 plan will not be sufficient to achieve our objective
of providing sufficient incentives to our management and employees. The increase
in the authorized number of shares will enable us to retain talented employees
and to attract talented new employees by offering them participation in the 1999
plan. Although we have no current plans to issue additional options, our
management believes that without the ability to offer these incentives, we will
not be able to attract and retain the services of those individuals essential to
our growth and financial success.

         Shareholder approval of the amendment to our 1999 stock option plan is
being sought to (1) permit options under the plan to qualify as incentive stock
options under Section 422 of the Internal Revenue Code; (2) permit stock options
and stock appreciation rights granted to our executive officers under the plan
to qualify as "performance-based compensation" under 162(m) of the Internal
Revenue Code; and (3) permit the 1999 plan to be eligible under the "plan
lender" exemption from the margin requirements of Regulation G promulgated under
the Exchange Act of 1934.

         OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE
1999 STOCK OPTION PLAN AND UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE FOR
APPROVAL OF THE PROPOSAL.

GENERAL DESCRIPTION

         The 1999 plan was approved by our shareholders at our 1999 annual
meeting. A total of 3,650,000 shares of our common stock were initially reserved
for issuance over the ten year term of the 1999 plan. Options granted under the
1999 plan may be either incentive stock options, as defined in Section 422 of
the Internal Revenue Code, or nonstatutory stock options. See "Federal Income
Tax Consequences" below for information concerning the tax treatment of both
incentive stock options and nonstatutory stock options. As of December 31, 1999,
options to purchase approximately 2,737,500 shares were outstanding under the
1999 plan, no options to purchase shares had been exercised, and approximately
912,500 shares remained reserved for issuance.

SUMMARY OF 1999 STOCK OPTION PLAN

         The essential terms of the 1999 plan, as proposed to be amended, are
summarized below. This summary is not intended to be a complete description of
all terms of the 1999 plan.

PURPOSE

         The purpose of the 1999 plan is to advance our interests and the
interests of our shareholders by giving employees, directors and consultants a
proprietary interest in our success, thus providing them with an additional
incentive to contribute toward our success.

                                       16


ADMINISTRATION

         The 1999 plan is administered by our board of directors, or by a
committee appointed by our board. The interpretation and construction of any
provision of the 1999 plan by our board or the designated committee shall be
final and conclusive.

ELIGIBILITY

         The 1999 plan provides that options may be granted to our and certain
related entities' employees (including officers and employee directors),
non-employee directors and consultants. The appointed committee selects the
participants and determines the number of shares to be subject to each option.

         The value of the shares subject to all incentive stock options held by
an optionee that become exercisable for the first time during any calendar year
cannot exceed $100,000 (determined as of the date of grant). The 1999 plan
provides that options to purchase a maximum of 1,000,000 shares of our common
stock may be granted to any employee in any fiscal year.

VALUATION

         For purposes of establishing the option price and for all other
valuation purposes under the 1999 plan, the fair market value per share of our
common stock on any relevant date under the 1999 plan, in most cases, will be
the closing selling price per share of our common stock on that date, as the
price is reported on the OTC Bulletin Board.

TERMS OF OPTIONS

         Each option is evidenced by a stock option agreement between us and the
person to whom such option is granted, which sets forth the terms and conditions
of the option. The following terms and conditions generally apply to all
options, unless the stock option agreement provides otherwise:

         EXERCISE OF OPTIONS. The administrator determines when options granted
under the 1999 plan may be exercisable. An option is exercised by giving written
notice of exercise to us specifying the number of full shares of our common
stock and tendering payment to us of the purchase price. Unless otherwise
provided in the stock option agreement, the purchase price of shares purchased
upon exercise of an option may be paid by any of the following means, or by any
combination thereof: (1) cash; (2) check; (3) other shares of our common stock;
(4) the optionee's instruction to us to withhold from the shares that would
otherwise be issued upon exercise of the option that number of whole shares
having a fair market value equal to the purchase price; (5) a cashless
exercise/sale procedure (through which the funds to pay for the shares purchased
upon exercise of an option are delivered to us by a broker upon receipt of stock
certificates representing the shares being purchased).

         EXERCISE PRICE. The exercise price of options granted under the 1999
plan is determined by the administrator and must not be less than the fair
market value of our common stock on the date the option grant. Where the
participant owns stock representing more than ten percent of the total combined
voting power of our or the related entities' outstanding capital stock, the
exercise price for an incentive stock option must not be less than 110% of such
fair market value.

         TERMINATION OF EMPLOYMENT. If an optionee's employment or other service
with us terminates, for any reason other than permanent and total disability or
death, options under the 1999 plan may be exercised not later than three months
after such termination, but may be exercised only to the extent the options were
exercisable on the date of termination subject to the condition that no option
may be exercised after expiration of its term.

         DISABILITY. If an optionee should become permanently disabled and
unable to carry out the responsibilities of the position held by the optionee by
reason of any medically determinable physical or mental impairment while
employed by or engaged in other service for us, options may be exercised at
anytime within twelve months following the date of termination, but only to the
extent the options were exercisable on the date of termination, subject to the
condition that no option may be exercised after expiration of its term.

                                       17


         DEATH. If an optionee should die while employed by or engaged in other
service to us, or within three months after termination of employment or other
service (or within twelve months if such termination is due to disability),
options may be exercised at any time within twelve months following the date of
death, but only to the extent the options were exercisable on the date of death,
subject to the condition that no option maybe exercised after expiration of its
term.

         TERMINATION OF OPTIONS. Each option granted under the 1999 plan expires
no more than ten years after the date of grant. In no event shall the term of
any option exceed five years in the case of any participant who owns stock
possessing more than ten percent of the total combined voting power of our, or
the related entities' outstanding capital stock.

         NONTRANSFERABILITY OF OPTIONS. An option is not transferable by the
optionee other than by will or the laws of descent and distribution and is
exercisable during his lifetime only by him, or in the event of his death, by a
person who acquires the right to exercise the option by bequest or inheritance
or by reason of the death of the optionee.

         OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1999 plan as may be
determined by our board of directors or the appointed committee.

ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

         In the event of any change in our capital structure (whether by reason
of any recapitalization, stock dividend, stock split, combination of shares or
other similar change in corporate structure), appropriate adjustments shall be
made in the number of shares subject to each option and the per share exercise
price. The 1999 plan provides for appropriate adjustment to the maximum
aggregate number of shares subject to options that may be granted to any
employee. The designated committee may also adjust the number or class of
securities covered by any option, as well as the exercise price, in the event
that we effect a reorganization, recapitalization, rights offering or other
increase or reduction of shares of our outstanding common stock or is merged or
consolidated with or into any other corporation. Upon any merger or
consolidation in which we are not the surviving entity, the sale or other
disposition of all or substantially all of our assets, or an acquisition of more
than fifty percent of the total combined voting power of our securities (except
as otherwise determined by our board of directors or the designated committee),
the options granted under the 1999 plan shall be assumed by the surviving entity
or its parent, and if not assumed, the options shall terminate. In the event of
the disposition of a related entity, the service of the optionees to the related
entity shall be deemed to terminate, and the options of such optionees will be
exercisable in accordance with the terms of the option agreements. However, the
service of such optionees will not be deemed to terminate if such options are
assumed by the successor entity or its parent.


                                       18



AMENDMENT AND TERMINATION OF THE 1999 STOCK OPTION PLAN

         Our board of directors may amend the 1999 plan at any time or from time
to time or may terminate the 1999 plan and, to the extent required by any
applicable law, we must obtain shareholder approval of any amendment. However,
no such action by our board or shareholders may alter or impair any option
previously granted under the 1999 plan without the consent of the optionee. In
any event the 1999 plan shall terminate in February 2009.

FEDERAL INCOME TAX CONSEQUENCES

         INCENTIVE STOCK OPTIONS

         Section 422 of the Internal Revenue Code provides favorable federal
income tax treatment for "incentive stock options." When an option granted under
the 1999 plan qualifies as an incentive stock option, the optionee does not
recognize income for federal income tax purposes upon grant or exercise of the
incentive stock option (unless the alternative minimum tax applies as discussed
below). We are not allowed a deduction for federal income tax purposes as a
result of the exercise of the incentive stock option regardless of the
applicability of the alternative minimum tax. Upon a sale of the shares
(assuming that the sale occurs no sooner than two years after the grant of the
option and one year after the receipt of the shares by the optionee), any gain
or loss will be treated as long-term capital gain or loss for federal income tax
purposes.

         The favorable federal income tax consequences described above will not
apply to the extent the optionee disposes of the shares acquired within one year
of the date of exercise or two years of the date of grant of the option. In the
event of a disqualifying disposition, the optionee generally will recognize
ordinary income in the year of disposition equal to the difference between the
exercise price and the lesser of (i) the fair market value of the stock at the
date of exercise or (ii) the sale price of the shares. Any additional gain will
be long-term or short-term gain, depending on how long the optionee has held the
stock.

         ALTERNATIVE MINIMUM TAX

         The excess of the stock's fair market value over the exercise price of
an incentive stock option, which is generally not subject to tax at the time of
exercise, is treated as an item of income in determining an individual
taxpayer's alternative minimum tax liability.

         NONSTATUTORY STOCK OPTIONS

         Options granted under the 1999 plan that do not qualify as incentive
stock options are considered "nonstatutory" stock options and will not qualify
for any special tax benefits to the optionee. Because our stock options are not
deemed to have a readily ascertainable value, the optionee will not recognize
any taxable income at the time he or she is granted a nonstatutory option.
However, upon exercise of a nonstatutory stock option, the optionee will
recognize ordinary income measured by the excess of the then fair market value
of the shares over the option price. Upon a sale of the shares by the optionee,
any difference between the sale price and the exercise price, to the extent not
recognized as ordinary income, will be treated as capital gain or loss.

         The income recognized by the optionee will be treated as wage
compensation and will be subject to income and employment tax and withholding by
us out of the current earnings paid to the optionee.

         COMPANY TAX DEDUCTIONS

         We generally will be allowed a tax deduction to the extent and in the
year that compensation income is recognized by the optionee upon the exercise of
nonstatutory stock options, provided we have withheld income and employment
taxes in accordance with the law. We receive no deduction in connection with the
exercise of an incentive stock option. In the event of a disqualifying
disposition, however, we will be allowed a deduction for the amount of income
recognized by the optionee for the tax year in which the disqualifying
disposition occurs.

                                       19


         As amended in 1993, the Internal Revenue Code limits the tax deduction
for expenses in connection with remuneration of our chief executive officer and
our four other most highly compensated executive officers during any fiscal year
to the extent the remuneration of any such person exceeds $1,000,000 for such
fiscal year. Under the Code, the remuneration to which this limit applies
excludes certain types of "qualified performance-based compensation." The 1999
plan is designed to qualify option grants to such officers for the qualified
performance-based compensation exception to the deduction limitation.

AMENDED PLAN BENEFITS

         We cannot currently determine the number of options to be granted in
the future under the 1999 plan to all current executive officers as a group, all
current members of our board of directors excluding current executive officers
as a group, or all employees (excluding current executive officers) as a group.
The following table sets forth information with respect to options granted under
the 1999 plan during fiscal year 1999. There are no grants to these persons
which would have been made in 1999 had the proposed amendment to the plan been
approved:


                                                                                                   Weighted
                                                                                                    Average
                                                 Options                 % of Total             Exercise Price
           Identity of Group                     Granted              Options Granted              Per Share
           -----------------                     -------              ---------------              ---------
                                                                                            
Bruce Bauer, CEO                                1,000,000                  36.5%                     $0.59
All current executive officers, as a            1,300,000                  47.5%                     $0.58
     group
Directors that are not executive                 237,500                    8.7%                     $0.71
     officers, as a group
Employees that are not officers, as a               0                        0%                       --
     group


REQUIRED VOTE

         The affirmative vote of the holders of a majority of the shares of our
common stock by proxy or in person at the annual meeting is required for the
approval of the amendment to our 1999 stock option plan. Shareholders abstaining
from voting on this proposal will be counted for purposes of determining a
quorum, but will not be counted for purposes of calculating the vote with
respect to this proposal. If a broker returns a "non-vote" proxy as to this
proposal, including a lack of authority to vote on this proposal, then the
"broker non-vote" proxy will not be considered as present or voting with respect
to this proposal.

RECOMMENDATION OF THE BOARD

         OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE PROPOSED AMENDMENT TO OUR 1999 STOCK OPTION PLAN.


                                       20


                                   PROPOSAL 3

                              ELECTION OF DIRECTORS

         At the annual meeting, four directors, which constitute our entire
current board of directors, are to be elected to serve until the next annual
meeting of the shareholders or until their successor are elected and qualified,
or until the death, resignation, or removal of the director.

         The California General Corporation Law as well as our articles of
incorporation and bylaws require shareholder election of the nominees for
director.

         It is intended that the proxies will be voted for the four nominees
named below for election to our board of directors unless authority to vote for
any of the nominee is withheld. There are four nominees, all of whom are
currently our directors. Each person nominated for election has agreed to serve
if elected, and our board has no reason to believe that any nominee will be
unavailable or will decline to serve. In the event, however, that any nominee is
unable or declines to serve as a director at the time of the annual meeting, the
proxies will be voted for any nominee who is designated by the current board to
fill the vacancy. Unless otherwise instructed, the proxyholders will vote the
proxies received by them for the nominees named below. The four candidates
receiving the highest number of the affirmative votes of the shares entitled to
vote at this annual meeting will be elected our directors. The proxies solicited
by this proxy statement may not be voted for more than four nominees.

NOMINEES

         Set forth below is information regarding the nominees to our board of
directors.



           NAME                AGE              POSITION                          FIRST ELECTED DIRECTOR
           ----                ---              --------                          ----------------------
                                                                                   
Bruce W. Bauer                 49     Chairman of the Board of Directors,                   1995
                                      President and Chief Executive Officer
John J. Bohrer                 77     Secretary, Treasurer and Director                     1995
William H. Green               73     Director                                              1998
William L. Groeneveld          34     Director                                              1998


         BRUCE W. BAUER has served as our chairman of the board of directors,
president and chief executive officer since June 1998. Prior to that, he served
as our secretary from November 1996 through June 1998, and has been a member of
our board since October 1995. From 1980 to June 1998, Mr. Bauer owned and
operated Unlimited Services and Marathon Management Services, which provided
building and clean room services, supplies and consulting. Mr. Bauer received a
B.S. degree from Wittenberg University in 1974.

         JOHN J. BOHRER has served as our secretary and treasurer since June
1998 and a member of our board of directors since October 1995. From July 1978
to June 1993, Mr. Bohrer served as a branch manager of Dickinson & Company, a
firm rendering investment services. From June 1993 until his retirement in June
1997, he served as vice president and a branch manager of BDF Investments, which
also renders investment services. He is now a semi-retired investor. Mr. Bohrer
graduated from the New York Institute of Finance in 1947.

         WILLIAM H. GREEN has served as a member of our board of directors since
June 1998. Since 1998, Mr. Green has served as a vice president of D.S.I.
Corporation, a dredging specialty company. From 1993 to 1998, he served as a
consultant in the aggregate division of Martin Marietta. He currently sits on
the boards of various private companies. Mr. Green attended the University of
Nebraska at Omaha from 1946 through 1949.

         WILLIAM L. GROENEVELD has served as a member of our board of directors
since 1998. Since January 1995, Mr. Groeneveld has served as a head trader and
vice president of Program Trading Corp.

                                       21


VOTE REQUIRED

         The approval of the nominees as directors requires the affirmative vote
of the holders of a plurality of the shares of our common stock voting by proxy
or in person at the annual meeting. Shareholders abstaining from voting on this
proposal will be counted for purposes of determining a quorum, but will not be
counted for any other purpose; broker non-votes will not be considered as
present or voting, and as such broker non-votes will have no effect on the vote
for this proposal.

RECOMMENDATION OF THE BOARD

         THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS
VOTE FOR ELECTION OF ALL OF THE NOMINEES FOR DIRECTORS.

BOARD MEETINGS AND COMMITTEES

         The board of directors held five meetings during fiscal year 1999.
During fiscal year 1999, each director attended more than seventy-five percent
of the aggregate of (1) the total number of meetings of the board of directors;
and (2) the total number of meetings held by all committees of the board on
which the director served. Additionally, the executive committee established by
the board of directors held five meetings during fiscal year 1999. We have no
audit or compensation committee.

         There are no family relationships among our executive officers or
directors.

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

         SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION


         The following summary compensation table sets forth the compensation
earned by our current chief executive officer in fiscal year 1999 for his
services rendered to us for the fiscal years ended December 31, 1999, 1998 and
1997. We had no other executive officer in fiscal year 1999 whose compensation
exceeded $100,000.00.



                                            SUMMARY COMPENSATION TABLE

                                                                                                    LONG-TERM
                                                             ANNUAL COMPENSATION               COMPENSATION AWARDS
                                                             -------------------               -------------------
                                                                                                   SECURITIES
                                                                SALARY              BONUS       UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION                        YEAR            $                  $                   (#)
- ---------------------------                        ----    ----------------   ----------------  -------------------
                                                                                            
       Bruce W. Bauer                              1999          131,771                  0             1,000,000
       Chairman of the Board of Directors,         1998           67,708(1)               0               900,000
       Chief Executive Officer and President       1997                0                  0                     0


- -----------------

(1)  Represents partial year salary from June 14, 1998 through December 31, 1998
     ($125,000 on an annualized basis).

OPTION GRANTS

         The following table sets forth information concerning the stock options
granted to the named executive officer in the summary compensation table for the
1999 fiscal year. In accordance with the Securities and Exchange Commission
rules, also shown below is the potential realizable value over the term of the
option (the period from the grant date to the expiration date) based on 5% and
10% assumed annual rates of compounded stock price appreciation. These amounts
are based on certain assumed rates of appreciation and do not represent our
estimate of future stock price. Actual gains, if any, on stock option exercises
will be dependent on the future performance of our common stock.

                                       22



                                           OPTION GRANTS IN FISCAL 1999
                                               INDIVIDUAL GRANTS (1)

                         NUMBER OF                                                         POTENTIAL REALIZABLE
                        SECURITIES       PERCENT OF                                      VALUE AT ASSUMED ANNUAL
                        UNDERLYING      TOTAL OPTIONS                                      RATES OF STOCK PRICE
                          OPTIONS        GRANTED TO       EXERCISE                       APPRECIATION FOR OPTION
                          GRANTED         EMPLOYEES         PRICE       EXPIRATION                TERM
        NAME                (#)            IN 1999        ($/SHARE)        DATE            5%              10%
- --------------         ------------     -------------     ---------     ----------       ----------   -------------
                                                                                       
Bruce W. Bauer         1,000,000(2)        90.91%           $0.59        6/16/2004         165,200       359,000


       --------------------

(1)  Gains are reported net of the option exercise price but before taxes
     associated with exercise. These amounts represent certain assumed rates of
     appreciation daily. Actual gains, if any, on stock option exercises are
     dependent on future performance of our common stock.

(2)  All options under this grant were fully exercisable as of the date of the
     grant.

OPTION HOLDING AND EXERCISES AND OPTION VALUES

         The following table sets forth information concerning option holdings
and exercises for the 1999 fiscal year and the aggregate value of unexercised
options as of December 31, 1999 held by the named executive officer in the
summary compensation table.


                                    AGGREGATED OPTION EXERCISES IN FISCAL 1999
                                      AND OPTION VALUES AT DECEMBER 31, 1999

                                                 NUMBER OF SECURITIES UNDERLYING       VALUE OF UNEXERCISED
                             AGGREGATE OPTION         UNEXERCISED OPTIONS AT         IN-THE-MONEY OPTIONS AT
                            EXERCISES IN 1999           DECEBMER 31, 1999              DECEMBER 31, 1999 (1)
                          ----------------------   ----------------------------    ---------------------------
                             SHARES
                            ACQUIRED     VALUE
                          ON EXERCISE   REALIZED
         NAME                  (#)      ($)(2)     EXERCISABLE    UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
   -----------------      ------------ ----------  ------------   -------------    -----------   -------------
                                                                                     
Bruce W. Bauer                 0           0        2,050,000           0          $13,005,000         0


       --------------------------

(1)  Calculated on the basis of the closing price of our common stock as
     reported on the OTC Bulletin Board on March 1, 2000 of $6.75 per share,
     minus the exercise price.

(2)  Calculated on the basis of the broker's reported sale price of our common
     stock subject to the option, minus the exercise price.

EMPLOYMENT AGREEMENTS

         BRUCE BAUER

         On June 15, 1999, we entered into an employment agreement with Bruce
Bauer, our chief executive officer. This agreement provides for an annual salary
of $135,000 from June 15, 1999 through June 14, 2000, $145,000 from June 15,
2000 through June 14, 2001, and $155,000 from June 15, 2001 through June 14,
2002. No specific bonus provisions are included in this employment agreement.
Should we terminate this employment agreement without cause or should Mr. Bauer
terminate his employment for good reason, all earned salary amounts not
previously paid plus an amount equal to the greater of Mr. Bauer's then-present
salary for six months or the remainder of the term of the agreement shall become
due and payable effective immediately and paid within a twenty four-hour period
after the termination. A penalty of ten percent per annum interest, compounded
daily shall be added effective after twenty-four hours on all unpaid balances
due Mr. Bauer.

                                       23


         On June 16, 1999, our board of directors granted Mr. Bauer, in
connection with his renewed employment agreement, a fully vested option to
purchase 1,000,000 shares of our common stock with a term of five years and an
exercise price equal to $0.59 per share, the fair market value of our common
stock at the time of the option grant.

         ROBERT BROWN

         On June 15, 1999, we entered into an employment agreement with Dr.
Robert Brown, our chief technology officer. This agreement provides for an
annual salary of $125,000 from June 22, 1999 through June 21, 2000, $135,000
from June 22, 2000 through June 21, 2001, and $145,000 from June 22, 2001
through June 21, 2002, and an option to purchase 300,000 shares of our common
stock, vesting 1/3 on each anniversary of the agreement. No specific bonus
provisions are included in the employment agreement. Dr. Brown is also entitled
to vacation and standard benefits. Should we terminate the employment agreement
without cause or should Dr. Brown terminate his employment for good reason, all
earned salary amounts not previously paid plus an amount equal to the greater of
Dr. Brown's then-present salary for six months or the remainder of the term of
the agreement shall be paid upon such termination.

DIRECTOR COMPENSATION

         Our directors who are also employees do not receive any additional
compensation for their services as directors. Directors who are not employees
receive an annual stock option grant of 50,000 shares in lieu of cash
competition. All directors are reimbursed for expenses incurred in connection
with attending board of directors and committee meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Bruce Bauer and John Bohrer were officers of Interactive Network and
during the last fiscal year participated in deliberations of our board of
directors concerning executive officer compensation.

BOARD REPORT ON EXECUTIVE COMPENSATION

         Annual compensation of our executive officers is determined by our
board of directors. Our board of directors was also responsible for
administering the 1999 stock option plan, including the grant of options under
such plan. Messrs. Bauer and Bohrer are our employees and have voted on matters
relating to executive compensation and stock option grants, including their own
compensation and stock option grants.

         We are currently operating with a skeleton staff of three officers (Mr.
Bauer as president and chief executive officer, Mr. Bohrer as secretary and
treasurer and Dr. Robert Brown as chief technology officer), and one
administrative assistant and one secretary/receptionist, to conserve resources.
We plan to rehire additional staff, as appropriate, in the future as our
business develops. In that connection, we have and may also use and compensate
consultants, including our advisory panel, to assist our management.

         Our compensation philosophy is to provide strong incentives to our
executives to maximize the overall value of our company. Our executive officers
are given an opportunity to participate in our growth through equity
participation in the form of stock options granted under our option plan. As a
result, our executive officers are directly rewarded for our performance as
reflected in our stock price and given an additional incentive to contribute to
our future success. Recent option grants have been made fully vested in order to
induce our executives and directors to remain with us through the settlement
with our creditors and in lieu of substantial cash compensation.

                                       24


         Base salaries and stock option grants are initially determined on the
basis of (1) the individual officer's position, and (2) our desire to attract
and retain qualified personnel in a competitive marketplace. Salaries are
generally reviewed annually and are subject to increases based on our
determination that the individual's level of contribution to us has increased
since his or her salary had last been reviewed and increases in competitive pay
levels and the cost of living. Under normal circumstances, our board of
directors also determines initial awards of stock options, within a range
established for employees at various salary levels, based on the employee's
position and responsibilities. As stock options held by employees, including
executive officers, vest, we may approve grants of additional options based on
the employee's past performance and contributions to us. There is no provision
for bonus in the employment agreement of the current president and chief
executive officer, although we may decide to award such in our discretion. No
particular weighting is given to any of the factors considered.

PERFORMANCE GRAPH

         The following graph compares the cumulative total shareholder return on
our common stock with that of the Standard & Poor's 500 Index and the Nasdaq
Telecommunications Index. The comparison for each of the periods assumes that
$100 was invested on December 31, 1994 in our common stock including
reinvestment of dividends. These indices, which reflect formulas for dividend
reinvestment and weighing of individual stocks, do not necessarily reflect
returns that could be achieved by individual investors.

                            [PERFORMANCE GRAPH HERE]

         Notwithstanding anything to the contrary set forth in any of our
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings, the
preceding compensation committee report on executive compensation and the
preceding performance graph shall not be incorporated by reference into any such
filings, nor shall such report or graph be incorporated by reference into any
future filings.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of our common stock and other equity securities. Officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.

         To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required during the fiscal year ended December 31, 1999, Section 16(a) filing
requirements applicable to Messrs. Bauer, Brown, Bohrer, Green and Groeneveld,
and former director Mr. Donald Graham were not complied with on a timely basis.
However, all but former director Mr. Graham have since filed a Form 5 disclosure
to bring their required disclosure up to date.

                                       25


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of May 19, 2000, by
(i) each shareholder known to us to own beneficially more than 5% of our common
stock; (ii) each of our directors; (iii) the named executive officer in the
summary compensation table; and (iv) all of our directors and executive officers
as a group.




                                                                                                 APPROXIMATE
                                                                                SHARES           PERCENT
                                                                                BENEFICIALLY     BENEFICIALLY
NAME OF BENEFICIAL OWNER                                                        OWNED(1)         OWNED(1)
- ------------------------                                                        --------         --------
                                                                                           
AT&T Corp. (2) .................................................                7,773,815           19.70%
      32 Avenue of the Americas
      New York, NY  10013-2412
National Broadcasting Company Holding, Inc. (3) ................                3,645,575            9.20%
     30 Rockefeller Plaza
     New York, NY 10112
Gannett Co., Inc. (4)...........................................                2,196,666            5.50%
     1000 Wilson Boulevard
     Arlington, VA 22209

Voting Agreement (5) ...........................................                7,814,589           19.80%
David B. Lockton (6) ...........................................                2,250,000            5.70%
Bruce W. Bauer (7) .............................................                2,150,500            5.40%
John J. Bohrer (8) .............................................                  222,850            *
William H. Green (9)............................................                   75,000            *
William L. Groeneveld (10)......................................                   62,500            *
Robert Brown (11)...............................................                  137,375            *
All executive officers and directors as a group (5 persons) (12)                2,648,225            6.70%
- -------------------


*      Less than 1% of outstanding shares.

(1)    The percentage calculation is based on an aggregate of 39,427,605 shares
       outstanding as of May 19, 2000. Except as indicated and pursuant to
       applicable community property laws, we believe that all persons named in
       the table have sole voting and investment power with respect to all
       shares of Common Stock beneficially owned by them.

(2)    Includes 2,942,907 shares held by Tele-Communications, Inc., a
       wholly-owned subsidiary of AT&T Corp.

(3)    Includes 1,902,279 shares held by National Broadcasting Company Holding,
       Inc., a wholly-owned subsidiary of General Electric Company which are
       subject to the Voting Agreement (see footnote 5 below).

                                       26


(4)    Pursuant to a Stock Purchase Agreement dated December 2, 1992, Gannett
       Co., Inc. ("Gannett"), so long as it owns at least 500,000 shares of the
       Company's Common Stock, has the right to cause the Company to include one
       person designated by Gannett in the slate of nominees recommended for
       election as director. The Company is required to use its best efforts to
       cause such designee to be elected as a director, and David B. Lockton has
       agreed to vote his shares to cause such designee of Gannett to be elected
       to the Board of Directors. Gannett has advised the Company that it will
       not exercise any rights it has under the 1992 Agreement to designate a
       person to be elected to the Company's Board of Directors at the annual
       meeting.

(5)    Pursuant to a certain voting agreement, each of the parties to a certain
       settlement agreement agreed to vote their shares issued in such agreement
       as directed by a committee (except for matters relating to David Lockton
       and certain major transactions of our company), which will currently
       consists of John Bohrer, William H. Greene and Bruce Bauer. This
       agreement does not provide for any other joint action by the parties
       thereto. The parties to the voting agreement disclaim beneficial
       ownership of shares owned by other parties thereto, and the committee
       disclaims beneficial ownership of all of the shares subject to the voting
       agreement.

(6)    David Lockton is claiming ownership of options to purchase 2,250,000
       shares. He claims that one option granted in October of 1994 gave him the
       right to purchase 450,000 shares that may be acquired upon exercise of
       stock options that are currently exercisable and a second option granted
       as of November 3, 1995 gave him the right to purchase 1,800,000 shares
       that may be acquired upon exercise of stock options that are currently
       exercisable. We dispute the ownership and validity of these options.
       Trial on these matters is set for May 8, 2000 in U.S. Bankruptcy Court.
       We have no knowledge regarding Lockton's ownership of any other shares.

(7)    Includes (i) 100,500 shares of Common Stock acquired prior to October 27,
       1995; (ii) 150,000 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable pursuant to an
       option grant on October 27, 1995 at an exercise price of $0.09 per share;
       and (iii) 900,000 shares that may be acquired upon exercise of stock
       options that are currently exercisable pursuant to an option grant on
       June 14, 1998 at an exercise price of $0.21 per share.

(8)    Includes (i) 150,000 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable pursuant to an
       option grant on August 17, 1999 at an exercise price of $0.09 per share;
       (ii) 22,850 shares of Common Stock acquired prior to October 27, 1995;.
       5,000 shares of Common Stock acquired on May 14, 1998; and (iii) 50,000
       shares of Common Stock acquired on August 17, 1999. Mr. Bohrer disposed
       of 5,000 shares of Common Stock on September 18, 1999.

(9)    Includes (i) 25,000 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable pursuant to an
       option grant on February 26, 1999 at an exercise price of $0.42 per
       share; and (ii) 50,000 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable pursuant to an
       option grant on May 14, 1999 at an exercise price of $0.77 per share.

(10)   Includes (i) 12,500 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable pursuant to an
       option grant on February 26, 1999 at an exercise price of $0.42 per
       share; and (ii) 50,000 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable pursuant to an
       option grant on May 14, 1999 at an exercise price of $0.77 per share.

(11)   Includes 100,000 shares of Common Stock that may be acquired upon
       exercise of stock options that are currently exercisable within 60 days
       of March 1, 2000.

(12)   Includes 2,337,500 shares of Common Stock that may be acquired upon
       exercise of stock options that are exercisable within 60 days of March 1,
       2000.



CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

GANNETT AGREEMENTS

         We entered into a stock purchase agreement with Gannett and David B.
Lockton, dated December 2, 1992, as amended (the "Gannett Agreement"). Under the
Gannett Agreement, we sold 1,000,000 shares of common stock to Gannett at a
price of $5.00 per share. The shares sold to Gannett were subject to adjustment
for certain dilutive issuances of securities by us and an aggregate of 1,196,666
shares of common stock have been issued to Gannett pursuant to such
anti-dilution provisions (which have since expired). Under the Gannett
Agreement, Gannett has the right to cause us to include in the slate of nominees
recommended by our board of directors or management to shareholders for election
as directors at each annual meeting of shareholders one person designated by
Gannett. We are required to use our best efforts to cause any common stock for
which our management or directors hold proxies, or are otherwise entitled to
vote, to be voted in favor of the election of such designee. In addition, Mr.
Lockton is required to vote all shares of common stock owned by him in favor of
such designee. Gannett has advised us that it does not choose to exercise its
right to designate a director at this time. Under the Gannett Agreement, we have
also agreed, inter alia, to coordinate with Gannett in developing and marketing
certain electronic news services and to provide Gannett with a right of first
refusal to participate exclusively in a partnership or joint venture with us in
doing so. While we have assumed our obligations under the Gannett Agreement, we
has no present plans that would involve the types of business activities
contemplated by that agreement.

         The Gannett Agreement also provided Gannett with certain rights with
respect to the registration of its shares of our common stock under the
Securities Act of 1933, as amended (the "Securities Act"). Under the agreement,
if we propose to register any of the securities under the Securities Act, either
for our own account or for the account of other security holders exercising
registration rights, Gannett is entitled to notice of such registration and is
entitled to include shares of such common stock therein. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of a registered underwritten offering to limit the number of shares
included in that registration. In addition, Gannett has the right to demand that
we file a registration statement under the Securities Act at our expense with
respect to its shares of common stock, and we are required to use our best
efforts to effect such registration, subject to certain conditions and
limitations, including our right not to effect a requested registration within
three months following an offering of its securities. Gannett may also require
us to file registration statements on Form S-3 when such registration form is
available to us. We are generally obligated to pay all expenses incurred in
connection with such registrations, except for underwriting discounts, selling
commissions and stock transfer taxes.

OTHER AGREEMENTS

         We have entered into indemnification agreements with each of our
directors and executive officers. These agreements require us to indemnify our
directors and executive officers to the fullest extent permitted by California
law.

         All future transactions between us and our executive officers,
directors, principal stockholders and affiliates will be approved by a majority
of our board of directors, including a majority of the disinterested,
non-employee directors on our board of directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.


                                       28


                                   PROPOSAL 4

                 RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS

         Marc Lumer & Company served as our independent public accountants for
fiscal year 1999. As a matter of corporate policy, our board of directors is
asking our shareholders to ratify the selection of Marc Lumer & Company as our
independent public accountants for the fiscal year ending December 31, 2000.

         In the event our shareholders fail to ratify the appointment of Marc
Lumer & Company as our independent public accountants, our board of directors
will consider it as a direction to select other auditors for the subsequent
year. Even if the selection is ratified, our board in its discretion may direct
the appointment of a different independent accounting firm at any time during
the year if our board determines that the change would be in our best interests
and the best interests of our shareholders.

         A representative of Marc Lumer & Company is expected to be present at
the annual meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.

         On May 26, 1999, we filed a Form 8-K Report announcing that Interactive
Network and KPMG LLP have each decided that it was in our best interest that
KPMG LLP, our former independent accountants engaged to audit the Registrant's
financial statements, be replaced with an accountant more suitable to our
current budgetary needs. This decision was made for Interactive Network by Bruce
Bauer, our chief executive officer, and ratified by the executive committee of
our board of directors.. KPMG LLP's resignation was effective on May 20, 1999.
On March 3, 2000, we engaged Marc Lumer & Company as our independent public
accountants for the fiscal year ended December 1999.

         As is required by disclosure rules of the Securities and Exchange
Commission, we must state any qualification in KPMG LLP's opinion for either of
the last two years. KPMG LLP did state in its opinion for fiscal years ended
December 31, 1998 and 1997 that certain contingencies described in its opinion
and the uncertainties inherent in the bankruptcy process to which we were then
subject raised substantial doubts about our ability to continue as a going
concern. The following contingencies were referred to in KPMG LLP's opinion as
the basis for its opinion, namely, our ability to: (1) formulate an acceptable
plan of reorganization that will be confirmed by the Bankruptcy Court, and be
able to fully implement that plan in compliance with a certain settlement
agreement; (2) settle the claims of unsecured creditors within available cash
resources as currently contemplated by our management; (3) develop an
appropriate business plan and strategic direction for our planned future
operations after reorganization, including conservation of available capital and
working capital as we seek to further develop and exploit our patent portfolio;
(4) confirm the availability of net operating tax losses after reorganization;
and (5) generate adequate sources of working capital and other liquidity as
necessary to meet future obligations. Subsequent to the issuance of KPMG LLP's
opinion, the contingencies referred to in its opinion were resolved as follows:
(1) the U.S. Bankruptcy Court confirmed our plan of reorganization under Chapter
11 of the Bankruptcy Act; (2) we consummated that certain settlement agreement
with our senior secured creditors, as a result of which $38.4 million in
principal and accrued interest of our senior secured debt was converted at $5.00
per share into 7,814,588 shares of our common stock, clear title to our patent
portfolio and other assets was returned to us, and the senior secured creditors
paid $10.3 million to us; (3) we began paying allowed claims of unsecured
creditors in full and setting aside a reserve for claims we expect to contest
within available cash resources; (4) we began to implement our business plan for
developing and exploiting our patent portfolio, including the joint license
agreement which is the subject of proposal one to this proxy statement; and (5)
we believe we currently have adequate working capital to meet our obligations,
based on our current business plan. We intend to undertake steps to calculate
our available net operating tax losses. There were no disagreements in the two
most recent fiscal years with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. We
have authorized KPMG LLP to respond fully to the inquiries of Marc Lumer &
Company, its successor accountant. There were no "reportable events" (as defined
in Item 304 of Regulation S-K) in our two most recent fiscal years.

                                       29



         KPMG LLP's letter to the Securities and Exchange Commission, dated May
26, 1999, in response to our disclosure in the Form 8-K Report, filed on May 26,
1999, relating to KPMG LLP's resignation is attached as Attachment C.



REQUIRED VOTE

         The approval of the ratification of the selection of Marc Lumer &
Company as our independent public accountants for the fiscal year ended December
31, 2000 requires the affirmative vote of the holders of a majority of the
shares of our common stock voting by proxy or in person at the annual meeting.
Shareholders abstaining from voting on this proposal will be counted for
purposes of determining a quorum, but will not be counted for purposes of
calculating the vote with respect to this proposal. If a broker returns a
"non-vote" proxy as to this proposal, including a lack of authority to vote on
this proposal, then the "broker non-vote" proxy will not be considered as
present or voting with respect to this proposal.

RECOMMENDATION OF THE BOARD

         OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS
VOTE FOR THE PROPOSAL TO RATIFY THE SELECTION OF MARC LUMER & COMPANY AS OUR
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.


                                       30


                                 OTHER BUSINESS

         Our board of directors is not aware of any other matter which may be
presented for action at the annual meeting. Should any other matter requiring a
vote of the shareholders arise, the enclosed proxy card gives authority to the
persons listed on the proxy card to vote at their discretion in our best
interests.

                              SHAREHOLDER PROPOSALS


         Proposals of shareholders that are intended to be presented at our
annual meeting of shareholders for the fiscal 2001 year must be received by
February 5, 2001, in order to be included in the proxy statement and proxy
relating to that meeting. The deadline for submitting a shareholder's proposal
that will not be included in the proxy statement and form of proxy for our 2001
Annual Meeting but nonetheless will be eligible for consideration is April 21,
2001.



                     INCORPORATION OF DOCUMENTS BY REFERENCE

         The selected financial data is contained in the Annual Report on Form
10-K for the fiscal year ended 1999 filed with the Commission on April 14, 2000
and in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
filed with the Commission on May 15, 2000, and both reports are incorporated
herein by reference.



                                   BY ORDER OF THE BOARD OF DIRECTORS

                                   /s/ Bruce W. Bauer
                                   Bruce W. Bauer
                                   CHAIRMAN OF THE BOARD, PRESIDENT AND
                                   CHIEF EXECUTIVE OFFICER


Dated:  June 5,  2000


                                       31


                      THIS PROXY IS SOLICITED ON BEHALF OF
               THE BOARD OF DIRECTORS OF INTERACTIVE NETWORK, INC.
                   FOR THE ANNUAL MEETING OF THE SHAREHOLDERS
                           TO BE HELD ON JUNE 30, 2000

         The undersigned shareholder of INTERACTIVE NETWORK, INC., a California
corporation, hereby acknowledges receipt of the notice of the annual meeting of
INTERACTIVE NETWORK, INC. and the proxy statement, each dated June 5, 2000, and
hereby appoints Bruce W. Bauer and Dr. Robert Brown or any one of them, proxies,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the annual meeting to be held on
June 30, 2000 at 10:00 a.m., local time, at San Mateo Marriott, 1770 South
Amphlett Boulevard, San Mateo, California 94402, and at any adjournment or
postponement thereof, and to vote all shares of the common stock of INTERACTIVE
NETWORK, INC., which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.


         THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE PROPOSALS SET FORTH BELOW, AS MORE FULLY
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AND A SEPARATE LETTER TO
SHAREHOLDERS FROM BRUCE W. BAUER, DATED JUNE 5, 2000, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.


         1. APPROVE THE EXCLUSIVE LICENSE GRANT OF INTERACTIVE NETWORK'S PATENTS
TO TWIN ENTERTAINMENT IN THE TERRITORY PURSUANT TO THE JOINT VENTURE LICENSE
AGREEMENT, DATED AS OF JANUARY 31, 2000:

         _____    FOR               _____     AGAINST           _____    ABSTAIN



         2. APPROVE THE AMENDMENT TO INTERACTIVE NETWORK'S 1999 STOCK OPTION
PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER:


         _____    FOR               _____     AGAINST           _____    ABSTAIN



         3. ELECTION OF DIRECTORS:

                                              
    _____    FOR all nominees listed below        _____    WITHHOLD AUTHORITY to vote for all
             (except as indicated)                         nominees listed below

    

If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below.


         Bruce W. Bauer
         John J. Bohrer
         William H. Green
         William L. Groeneveld





         4. RATIFY THE APPOINTMENT OF MARC LUMER & COMPANY AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF INTERACTIVE NETWORK FOR THE FISCAL YEAR ENDING DECEMBER
31, 2000:


         _____    FOR               _____     AGAINST           _____    ABSTAIN



                                       DATED:  _____________________, 2000


                                       _________________________________________
                                       Signature


                                       _________________________________________
                                       Signature

                                       This Proxy should be marked, dated and
                                       signed by the shareholder(s) exactly as
                                       his or her name appears hereon, and
                                       returned promptly in the enclosed
                                       envelope. Persons signing in a fiduciary
                                       capacity should so indicate. If shares
                                       are held by joint tenants or as community
                                       property, both should sign.