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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE):
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-22334
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LODGENET ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 46-0371161
(State of (I.R.S. Employer
Incorporation) Identification
Number)
</TABLE>
808 WEST AVENUE NORTH, SIOUX FALLS, SOUTH DAKOTA 57104
(Address of Principal Executive Offices)(Zip Code)
(605)330-1330 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No
____.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form
10-K or any amendment to this Form 10-K. / /
As of March 12, 1997, the aggregate market value of the common stock held by
non-affiliates of the Registrant was approximately $136 million.The number of
shares of common stock of the Registrant outstanding as of March 12, 1997 was
11,208,369.
DOCUMENTS INCORPORATED BY REFERENCE--Part III of this From 10-K is incorporated
by reference from Registrant's definitive proxy statement for the 1997 Annual
Meeting of Stockholders which will be filed within 120 days of the fiscal year
ended December 31, 1996.
This Report contains a total of 62 pages, excluding exhibits. The exhibit index
appears on page 39.
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<PAGE>
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING, WITHOUT
LIMITATION, STATEMENTS IN ITEM 1, INCLUDING CERTAIN STATEMENTS UNDER THE
HEADINGS "OVERVIEW", "BUSINESS STRATEGY", "STRATEGIC INITIATIVES", "SERVICES AND
PRODUCTS", "OPERATIONS", "COMPETITION" AND "REGULATION", IN ITEM 3 UNDER THE
HEADING "LEGAL PROCEEDINGS", AND IN ITEM 7 UNDER THE HEADING "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WHEN
USED IN THIS ANNUAL REPORT, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES,"
"BELIEVES," "NO ASSURANCE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE COMPANY'S
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN ADDITION TO THE RISKS AND UNCERTAINTIES DISCUSSED
IN THE FOREGOING SECTIONS, SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:
THE IMPACT OF COMPETITION AND CHANGES TO THE COMPETITIVE ENVIRONMENT FOR THE
COMPANY'S PRODUCTS AND SERVICES, CHANGES IN TECHNOLOGY, RELIANCE ON STRATEGIC
PARTNERS, UNCERTAINTY OF LITIGATION, CHANGES IN GOVERNMENT REGULATION AND OTHER
FACTORS DETAILED, FROM TIME TO TIME, IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY
AS OF THE DATE OF THIS ANNUAL REPORT. THE COMPANY EXPRESSLY DISCLAIMS ANY
OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE
COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS
OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
ITEM 1--BUSINESS
OVERVIEW
LodgeNet provides video on-demand, network-based video games, cable
television programming and other interactive entertainment and information
services to the lodging and multi-family dwelling unit ("MDU") markets utilizing
its proprietary broadband local area network ("B-LAN"-SM- ) system architecture.
Through its rapid growth, the Company has become the second largest provider of
such services to the lodging market (based on total rooms served), currently
serving over 516,000 rooms in over 3,400 hotel properties throughout the United
States and Canada. In January 1996, the Company formed ResNet Communications,
Inc. ("ResNet") to extend its B-LAN-SM- system architecture and operational
expertise into the MDU market. In October 1996, TCI Satellite MDU, Inc. ("TCI
Satellite"), an affiliate of Tele-Communications, Inc. ("TCI"), agreed to invest
up to $40 million in ResNet in exchange for up to a 36.99% interest in ResNet
and agreed to provide ResNet with long-term access to the digital DBS signals
provided by TCI Satellite for the MDU market on a nationwide basis.
LodgeNet and ResNet generally operate under exclusive long-term contracts in
the lodging and MDU markets. The Company's lodging guest pay contracts typically
have terms of 5 to 7 years and ResNet's MDU contracts are expected to have terms
of 8 to 12 years. The exclusive nature of these contracts allows the Company to
estimate, based on certain operating assumptions, future revenues, cash flows
and rates of return related to the contracts prior to making a capital
investment decision.
The Company has experienced substantial growth in the number of guest pay
rooms served, total revenue and earnings before interest, taxes, depreciation
and amortization ("EBITDA"). From 1991 through 1996, guest pay rooms served
increased from 73,415 to 400,245, revenues increased from $19.6 million to $97.7
million, and EBITDA increased from $2.9 million to $24.7 million.
LODGING SERVICES. The Company provides its services in the lodging market
to corporate-managed hotel chains such as ITT Sheraton, The Ritz-Carlton
Company, Harrah's Casino Hotels, Delta Hotels and Resorts, Outrigger, La Quinta
Inns, Red Roof Inns and Budgetel Inns, as well as many individual
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properties flying the Marriott, Holiday Inn, Hilton, Inter-Continental, Prince,
Radisson, Westin, Doubletree, Embassy Suites, and other flags. The lodging
market in the United States comprises approximately 3.4 million rooms. The
Company believes that approximately 1.9 million of these rooms are located in
the Company's target market of hotels having more than 100 rooms. The Company
provides its services under exclusive, long-term contracts throughout the United
States and Canada, and in other select countries through licensing arrangements
with strategic partners. The average remaining life of the Company's existing
guest pay contracts is over four years, with less than 7% of these contracts due
to expire before 1998.
In the lodging market, the Company's services include Guest Scheduled-SM-
on-demand movies, network-based Super Nintendo-Registered Trademark- video
games, PRIMESTAR digital-Registered Trademark- satellite-delivered basic and
premium cable television programming, and other interactive entertainment and
information services. On-demand services enable a guest to purchase and start a
movie on-demand, rather than restricting the guest to a predetermined start
time. Video games can be started on-demand by a hotel guest who is charged an
hourly rate for play time. Free-to-guest services typically involve a customized
package of basic and premium cable television programming which the hotel
purchases from the Company and provides at no charge to guests. Other services,
which are typically provided at no charge to the guest, include guest surveys,
folio review and video checkout. The Company is able to offer its interactive
services by virtue of the high-speed, two-way digital communications design of
its proprietary B-LAN-SM- system architecture. The Company's open-architecture,
UNIX-based platform enables the Company to upgrade system software to support
the introduction of new services or integrate new technologies as they become
commercially available and economically viable.
The Company believes it is a leader in providing innovative products and
services to the lodging industry. The Company believes that it was the first in
the lodging market to install network-based interactive video games, the first
to install in-room printers for video checkout and other applications, and the
first to utilize a Video Room Card-SM- (an image-based menu and purchasing
protocol, utilizing pictures and graphics to replace the simple text menus
traditionally utilized by its competitors). In 1995, LodgeNet redesigned its
interactive system, enabling the Company to deliver what it believes is the
first cost-effective system for on-demand movies and network-based video games
to mid-size hotels of 100 to 150 rooms, a market segment the Company believes
has been historically underserved by guest pay providers. The Company believes
that the scalability and advanced features of its redesigned system for mid-size
hotels were principal factors in the recent awarding by La Quinta Inns of its
over 30,000-room account, Red Roof Inns of its over 27,000-room account and
Budgetel Inns of its over 8,000-room account to the Company over other
competitors. The Company believes that the mid-size hotel segment represents a
large and attractive market for the Company's services that will generate
financial returns similar to those achieved by the Company in larger
full-service hotels. In April 1996, the Company entered into an agreement with
PRIMESTAR Partners L.P. ("PRIMESTAR") pursuant to which the Company was
appointed as the exclusive third-party provider (other than the partners in
PRIMESTAR and their affiliated distributors) of the
PRIMESTAR-Registered Trademark- DBS signal to the lodging industry. This
arrangement enables the Company to provide free-to-guest, digital
satellite-delivered cable television programming to a broader segment of the
lodging industry than can be cost-effectively served with traditional C-band
satellite systems. Since February 1997, the Company has been testing an Internet
browser at a hotel property that enables the hotel guest to access and navigate
the World Wide Web from any guest room television in the hotel, and the Company
intends to install and test the Internet browser at additional hotels over the
next several months.
MULTI-FAMILY RESIDENTIAL SERVICES. The Company views the MDU market as
attractive due to: (i) the large market size; (ii) the portability to this
market of the Company's B-LAN-SM- system architecture and operating expertise
developed for the lodging market; (iii) the favorable regulatory environment
available to operators such as ResNet who qualify as "private cable" operators
under applicable federal regulations (including the absence of franchise
requirements, "must-carry" obligations and rate regulations applicable
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to traditional franchised cable operators); and (iv) the exclusive long-term
contracts that have customarily been available in the MDU market.
The Company believes it is well positioned to pursue the large MDU private
cable market with its proprietary B-LAN-SM- system architecture and the ability
to offer the DBS signals provided by TCI Satellite on a nationwide basis. The
Company believes there are approximately 6 million multi-family residential
units in the United States that are located in apartment complexes having more
than 200 units, the Company's primary market, which represents a market more
than three times as large as the Company's traditional lodging market. The
Company believes that its proprietary B-LAN system architecture enables ResNet
to offer a differentiated and cost effective solution for the video service
needs of property owners and their tenants. In addition, the Company believes
that its existing nationwide installation and field service organization enables
ResNet to operate effectively throughout the United States wherever MDU
contracts may be obtained, which the Company believes is a significant strategic
advantage for ResNet over local satellite master antenna television ("SMATV")
and franchised cable operators in addressing the needs of large multi-state
property portfolios.
ResNet's video service agreement with each property owner grants ResNet the
exclusive right and access on a long-term basis to provide video services to
tenants of the MDU complex, in return for which the owner receives a monthly
commission based on revenues. These agreements generally prohibit the property
owner from installing or marketing an alternative video system and prohibit the
owner from allowing tenants to install an antenna, satellite or microwave dish
on the exterior of the building.
ResNet's private cable television system has the capacity to deliver over
100 channels, although the Company expects that the typical system will deliver
35 to 50 channels of basic and premium programming, depending principally upon
the size of the property, the length of the contract and local competitive
considerations. ResNet may elect to provide approximately 10 to 35 additional
channels for scheduled pay-per-view, video on-demand, and other interactive
services, such as Internet access. ResNet intends to tailor the programming
lineup at each multi-family residential complex, based on the particular
demographic profile of that complex. ResNet's private cable television system is
based on the proprietary B-LAN-SM- system architecture deployed by the Company
in the lodging market and will utilize the DBS signal provided by TCI Satellite
nationwide. ResNet's access to TCI Satellite's digital Ku-band technology
provides it with a more capable and cost-effective system than the C-band
systems generally used by most SMATV cable operators. ResNet's private cable
television system also utilizes addressable interdiction technology, enabling
ResNet to remotely initiate, modify or terminate service, prevent signal theft
and respond to many other service needs.
In February 1996, ResNet entered into an agreement with GE Capital-ResCom,
L.P. ("GE ResCom"), an affiliate of General Electric Co. and a provider of
private telephony services to MDUs, pursuant to which GE ResCom was appointed
the exclusive sales and marketing agent for ResNet in the MDU market. Pursuant
to the terms of the agreement, ResNet was prohibited from selling, marketing or
providing video services in the MDU market other than to customers obtained by
GE ResCom. Subject to the terms of the agreement, GE ResCom was required to
provide ResNet contracts for a minimum of 200,000 passings by January 31, 1998,
including 70,000 passings by January 31, 1997, such contracts to have an average
term of not less than ten years. At January 31, 1997, ResNet had contracts
covering approximately 3,225 passings, less than the required benchmark under
its agreement. Pursuant to the terms of ResNet's agreement with GE ResCom,
ResNet will now be able to independently market and provide its services
directly to large property portfolios, property management companies, and owners
of MDU properties and pursue other available opportunities in the MDU market
(whereas previously it had been restricted contractually from doing so).
On March 6, 1997, in connection with a reevaluation of its business plan, GE
ResCom entered into an agreement with Shared Technologies Fairchild, Inc.
("STF"), one of the nation's larger providers of private telephony services to
commercial office buildings. GE ResCom has advised the Company that its revised
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business plan calls for the formation of a new venture ("ResCom"), to be managed
by STF, that will continue the business of GE ResCom and in which GE Capital and
STF will hold significant equity interests. The restructuring of ResCom is
subject to certain consents, including the successful transition of GE ResCom's
portfolio of telephony contracts. There can be no assurance that ResCom will be
successfully restructured or that, if restructured, that the Company and ResNet
will be able to continue their contractual relationship with ResCom on terms
similar to the existing video services agreement or otherwise on mutually
acceptable terms.
ResNet intends to grow its business by (i) taking over the management and
control of the sales and marketing of its unique B-LAN-SM- solution and customer
service capabilities to large multi-state MDU property portfolios, property
owners and property managers, and (ii) considering selected acquisitions of
private cable operations where the expected return on capital meets ResNet's
investment criteria.
The Company's predecessor commenced business in 1980 as Satellite Movie
Company, incorporated as a South Dakota corporation in February 1983 and changed
its name to LodgeNet Entertainment Corporation in September 1991. On October 13,
1993, LodgeNet Entertainment Corporation changed its state of incorporation from
South Dakota to Delaware by merging with and into the Company, its newly-formed
Delaware subsidiary, which then adopted the LodgeNet name. Interested persons
may access additional information concerning the Company and ResNet through the
Company's Web Site at: HTTP:// WWW.LODGENET.COM.
BUSINESS STRATEGY
The Company's business strategy is to: (i) continue to expand its lodging
industry base of guest pay and free-to-guest rooms; (ii) expand into the MDU
private cable television market; (iii) maximize the revenue generated per
lodging room or residential unit served by exploiting new revenue opportunities;
(iv) extend the application of the Company's proprietary B-LAN-SM- system
architecture and operating expertise to new markets; and (v) enhance financial
performance by increasing operating margins and reducing the average capital
invested per new unit installed.
EXPANDING THE COMPANY'S LODGING INDUSTRY FRANCHISE. The Company believes
that there are substantial opportunities for continued domestic growth in an
estimated pool of over 1.9 million rooms located in hotels having more than 100
rooms (from the approximately 3.4 million guest rooms industry-wide), of which
the Company estimates approximately 500,000 are either served by the Company's
competitors under contracts due to expire before the end of 1997 or are
presently unserved by any movie system vendor. The Company's marketing plan is
to capitalize on the strength of its innovative product offerings, deliverable
by virtue of the high-speed, two-way digital communications design of its
scalable proprietary B-LAN-SM- system architecture, together with its expertise
in installation, programming, technical support and customer service.
Internationally, the Company is expanding into selected countries in the Far
East, South America, Central America and other regions through licensing
agreements with established partners in these countries. Under these agreements,
the Company generally sells equipment at cost plus an agreed markup and receives
a royalty based on gross revenues. The Company believes there are additional
opportunities to enter into international strategic alliances in other regions
to exploit further the Company's proprietary B-LAN-SM- system architecture and
multimedia capabilities.
EXPANDING INTO THE MULTI-FAMILY RESIDENTIAL MARKET. The Company believes
there are substantial opportunities to provide its services in the MDU market.
The Company believes there are approximately 6 million multi-family residential
units located in apartment complexes having more than 200 units, the Company's
primary market. This represents a market that is more than three times the size
of the Company's target lodging market.
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MAXIMIZING REVENUE PER UNIT. In addition to increasing and expanding its
installed customer base, the Company also seeks to maximize the revenue
generated by each of its installed guest rooms and apartment units. In
furtherance of this strategy, the Company intends in the lodging market to
continue to install its interactive Guest Scheduled-SM- on-demand movie and
network-based Super Nintendo-Registered Trademark- video game system in all new
guest pay hotel rooms. From the Company's experience, rooms with this system
generate significantly more revenue and gross profit than comparable rooms
having only the scheduled format which allows guests to watch movies only at
predetermined times. The Company's current installed guest pay base of over
400,000 rooms hosts more than 90 million guests each year (based on current
average hotel occupancy and length-of-stay data). The Company believes there may
be significant opportunities to generate revenues from third-party providers of
content and services who would pay the Company for access to its valuable
consumer base, as well as from usage fees charged to the guests who utilize such
services. Since February 1997, the Company has been testing an Internet browser
at a hotel property that enables the hotel guest to access and navigate the
World Wide Web from any guest room television in the hotel, and the Company
intends to install and test the Internet browser at additional hotels over the
next several months. The Company is reviewing other new services, such as
advertiser-supported visitor information for specific cities, as well as
"advertorials" and other "push media" strategies to deliver targeted product or
service information directly to the consumer. The Company is evaluating these
and other opportunities as well as appropriate business models that would enable
the Company to maximize the return on its investment in these activities.
EXPANDING INTO NEW MARKETS. The Company seeks to extend the application of
its proprietary B-LAN-SM- system architecture, products and services to an
increasingly broad range of property sizes and types. In addition to the
mid-size hotel, international lodging and multi-family residential markets,
other future potential markets may include hospitals, single-family residences,
cruise ships and educational institutions, among others.
ENHANCING FINANCIAL PERFORMANCE. Complementing the Company's growth
objective is its ongoing goal to enhance financial performance. The Company
seeks to increase its operating margins by reducing direct and overhead
expenses, as measured on a percentage of revenue and on a per-installed unit
basis. As a result of its efforts, the Company has experienced increasing EBITDA
margins during the past three years as it has reduced per-room operating costs
and leveraged its infrastructure over a larger base of installed rooms.
Additionally, the Company will continue its program to reduce the average
capital invested per new unit, thereby increasing its return on investment. As a
result of engineering efforts to reduce the cost of its system, increased
installation efficiencies and the ability of the Company to negotiate guest pay
contracts under which hotels are sharing a greater percentage of the cost of
installing televisions, the Company's average investment per new guest pay room
decreased approximately 17% during 1996 from approximately $450 in 1995 to
approximately $375 in 1996.
STRATEGIC INITIATIVES
The Company has recently implemented the following strategic initiatives to
further its goal of creating a more diversified revenue base.
EXPANSION INTO THE RESIDENTIAL MARKET. The Company believes it is well
positioned with its proprietary B-LAN-SM- system architecture and nationwide
field service organization to pursue the promising MDU private cable market, a
potential market that is over three times larger than the Company's targeted
lodging market. The Company believes its existing nationwide installation and
field service organization enables ResNet to operate effectively throughout the
United States wherever its sales force may obtain MDU contracts. For large
multi-state MDU portfolios, this capability represents a significant strategic
advantage over franchised cable operators which are limited to their designated
service area and other private cable operators, the majority of which operate on
a more limited regional or local basis.
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On October 21, 1996, the Company and ResNet entered into agreements with TCI
Satellite pursuant to which TCI Satellite acquired a 4.99% interest in ResNet
for $5.4 million (the "Stock Payment") and agreed to provide ResNet with
long-term access to a DBS signal on a nationwide basis. In addition, TCI
Satellite agreed to advance ResNet up to $34.6 million to purchase certain DBS
reception equipment pursuant to a subordinated convertible term loan agreement
(the "TCI Convertible Note"). ResNet has delivered to TCI Satellite an initial
purchase order for equipment in an amount equal to the Stock Payment. The TCI
Convertible Note has a five year term (subject to a one year extension at the
option of ResNet), is non-recourse to the Company and is payable solely in
shares of ResNet's common stock. Subject to certain vesting provisions, the TCI
Convertible Note is subject to mandatory conversion into up to an additional 32%
interest in ResNet at such time as conversion is not restricted by Federal
Communication Commission ("FCC") regulations (as described below). As part of
the transaction, TCI Satellite was granted an option (the "TCI Option"),
exercisable after three years, to acquire an additional 13.01% interest in
ResNet for a purchase price equal to the fair market value of such shares at the
time of exercise. ResNet and TCI Satellite also agreed to rights of first
refusal on the sale of any interest in ResNet and to certain standstill
provisions that, among other things, prohibit TCI Satellite from acquiring more
than 10% of the Company's outstanding common stock or participating in any
effort to influence or control the Company's management or Board of Directors.
Under current interpretations of FCC regulations relating to restrictions on
cross-ownership of franchised cable and SMATV operations, TCI Satellite may be
prevented from holding 5% or more of ResNet's capital stock and consequently
could not exercise the conversion and purchase rights under the TCI Convertible
Note and the TCI Option. TCI Satellite is required to convert the loan into
ResNet common stock at such time as conversion would not violate the
aforementioned FCC restrictions. Upon the maturity date of the loan, if TCI
Satellite has been prevented from converting the loan or exercising the option
in full due to such FCC restrictions, the unconverted portion of the TCI
Convertible Note and the TCI Option will be canceled and replaced with newly
issued warrants to acquire a like number of ResNet shares. The exercise price of
the warrants for the shares issuable upon conversion of the loan will be de
minimis, because ResNet will already have received the funds pursuant to the
loan, and the purchase price of the warrants for the option shares will be
equivalent to the exercise price under such option agreement.
PRIMESTAR AGREEMENT. In April 1996, the Company and PRIMESTAR entered into
an agreement appointing the Company as the exclusive third party provider (other
than the partners in PRIMESTAR and their affiliated distributors) of the
PRIMESTAR DBS signal to the lodging industry. PRIMESTAR is a consortium of the
nation's largest cable companies, including TCI, Time-Warner Cable, Comcast
Cable, Continental Cablevision, Cox Cable Communications and GE-Americom
Communications. The Company expects that the alliance, bringing together
PRIMESTAR's digital satellite technology and the Company's programming and
marketing expertise, will provide the Company with a technologically superior
and more flexible service, and extend the market for free-to-guest systems to a
much broader segment of the lodging industry than can be served cost-effectively
with traditional C-band satellite systems. The Company markets the "PRIMESTAR by
LodgeNet" service as a complement to its interactive guest pay systems and on a
stand-alone basis to hotels not served by the Company's guest pay system.
EXPANSION INTO MID-SIZE HOTEL MARKET. In addition to the large hotel
market, which traditionally has been the segment subject to the most competition
for guest pay services, the Company is now targeting mid-size hotels of 100 to
150 rooms as part of its marketing strategy. The Company believes that this
market segment, which the Company estimates contains over 500,000 rooms, has not
been broadly served by the guest pay industry because of certain diseconomies of
scale resulting from the smaller average property size. In 1995, the Company
redesigned and modified its B-LAN-SM- system architecture to permit the delivery
of on-demand movies and network-based Super Nintendo video games more
cost-effectively to mid-size hotels. The Company believes that its ability to
deliver this full array of services (in contrast to competing systems that do
not offer network-based video games and require the guest to take the extra
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step of ordering the movie purchase by telephone) and the scalability of its
system for mid-size hotels, were significant factors in the recent awarding by
La Quinta Inns of its over 30,000-room account, Red Roof Inns of its over
27,000-room account and Budgetel Inns of its over 8,000-room account to the
Company over other competitors. The Company believes that the mid-size hotel
segment represents a large and attractive new market for the Company's services
and expects that its scalable B-LAN-SM- system architecture will allow it to
generate financial returns similar to those achieved by the Company in larger
full-service hotels.
"INTERNET AND OTHER INTERACTIVE SERVICES." The Company is continuing the
development and implementation of Internet and other interactive services
deliverable over the Company's B-LAN system, accessible by the hotel guest
through the in-room television, designed to bring consumers together
electronically with providers of merchandising and information services. The
Company believes there may be significant opportunities to generate revenues
from third-party providers of content and services who would pay the Company for
access to its valuable consumer base, as well as from usage fees charged to the
guests who utilize such services. The Company recently completed beta testing of
an interactive, on-screen merchandising service at two hotels in New York City.
Since February 1997, the Company has been testing an Internet browser at a hotel
property that enables the hotel guest to access and navigate the World Wide Web
from any guest room television in the hotel, and the Company intends to install
and test the Internet browser at additional hotels over the next several months.
The Company is reviewing other new services, such as advertiser-supported
visitor information for specific cities, as well as "advertorials" and other
"push media" strategies to deliver targeted product or service information
directly to the consumer. The Company is evaluating these and other
opportunities as well as appropriate business models that would enable the
Company to maximize the return on its investment in these activities.
MARKETS AND CUSTOMERS
LODGING MARKET. The lodging market in the United States comprises
approximately 3.4 million hotel rooms. Guest pay services were introduced in the
lodging market in the early 1970s and have since become a standard amenity
offered by many hotels to their guests. Virtually all hotels offer free-to-guest
services as well. In 1986, certain hotels began offering their guests limited
interactive services and in 1991, on-demand movies became available. Guest pay
services are attractive to hotel operators because they provide an additional
amenity for their guests as well as incremental revenue.
LARGE HOTEL MARKET. The Company's primary market for guest pay services has
been large hotels with over 150 rooms located in metropolitan areas in the U.S.
and Canada, and the Company estimates that this market segment contains
approximately 1.3 million rooms. The Company currently provides its services to
large hotels that are generally part of chains such as ITT Sheraton, The
Ritz-Carlton Hotel Company, Harrah's Casino Hotels, Delta Hotels and Resorts,
Outrigger, Holiday Inn, Inter-Continental, Embassy Suites, Prince, Radisson,
Westin, Hilton and Marriott. No single contract represented greater than 10% of
the Company's combined guest pay and free-to-guest revenues for the twelve
months ended December 31, 1996.
MID-SIZE HOTEL MARKET. The Company is also now targeting mid-size hotels of
100 to 150 rooms as part of its guest pay marketing strategy. The Company
believes that this market segment, which the Company estimates contains over
500,000 rooms, has not been broadly served by the guest pay industry because of
certain diseconomies of scale resulting from the smaller average property size.
In 1995, LodgeNet redesigned its interactive system, enabling the Company to
deliver on-demand movies and network-based video games more cost-effectively to
mid-size hotels. The Company believes that the mid-size hotel segment represents
a large and attractive new market for the Company's services and expects that
its scalable B-LAN-SM- system architecture will allow it to generate financial
returns similar to those achieved by the Company in the large hotel market.
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FREE-TO-GUEST MARKET. Almost all of the approximately 3.4 million hotel
rooms in the United States are served by some form of free-to-guest television
service. Free-to-guest television typically involves a package of basic and
premium programming which the hotel purchases and provides at no charge to its
guests. These services can be purchased on a stand-alone basis or as part of a
package which includes guest pay services. Historically, only hotels with more
than 100 rooms could generally justify the expense of buying or leasing the
large C-band satellite dish required to receive satellite-delivered,
free-to-guest services. Smaller hotels who wanted to offer free-to-guest
services generally purchased the service from local cable operators. The
Company's agreement with PRIMESTAR allows LodgeNet to provide digital
satellite-delivered free-to-guest television programming on a cost-effective
basis to hotels with as few as 50 rooms.
MULTI-FAMILY RESIDENTIAL MARKET. The Company believes that there are
substantial opportunities for growth in the multi-family residential market. The
Company believes there are approximately 26,000 apartment complexes having more
than 200 units, with an aggregate of approximately 6 million multi-family
residential units, in the 70 largest metropolitan areas in the United States.
This represents a market that is more than three times the size of the Company's
target lodging market. The Company's agreement with TCI Satellite will
facilitate the expansion into this market by providing ResNet with DBS equipment
and access to a DBS signal nationwide.
SERVICES AND PRODUCTS
GUEST PAY SERVICES. The Company's primary source of revenue is providing
in-room, interactive television services to the lodging industry, for which the
hotel guest pays on a per-view or per-play basis. The high-speed, two-way
digital communications design of the Company's proprietary B-LAN-SM- system
architecture enables the Company to provide sophisticated interactive features
such as on-demand movies, network-based Super Nintendo video games, and a
variety of other interactive services, such as folio review, video checkout,
in-room printers, guest surveying, advertising and merchandising services.
Guest pay services include in-room television viewing of recently released
major motion pictures and independent films for which a hotel guest pays on a
per-view basis. The Company's Guest Scheduled-SM- interactive video-on-demand
service, which is provided in approximately 90% of the Company's guest pay
rooms, allows a guest to choose from an expanded menu of video selections and
individually start the selected video at the guest's convenience rather than
restricting the guest to a predetermined start time. It has been the Company's
experience that rooms having the on-demand format generate significantly greater
movie revenues than comparable rooms having only the pre-scheduled format. As of
December 31, 1996, the Company served over 400,000 guest pay rooms, of which
nearly 359,000, or approximately 90%, featured the Company's interactive
on-demand system. The Company's original scheduled guest pay service, which is
provided in approximately 10% of the Company's guest pay rooms, offers guests a
choice of up to nine movie titles shown at predetermined times, offering a new
film approximately every half hour. The Company continuously monitors guests'
entertainment selections and adjusts its programming to respond to viewing
patterns. The system also enables hotel owners to broadcast informational and
promotional messages and to monitor room availability.
In May 1993, the Company entered into a seven-year non-exclusive license
agreement with Nintendo to provide hotels with a network-based Super
Nintendo-Registered Trademark- video game playing system. Pursuant to this
agreement, Nintendo provides the Company with access to a minimum of ten popular
Super Nintendo-Registered Trademark- video games, which selection of games is
updated periodically, and the Company uses its proprietary high-speed B-LAN-SM-
system architecture to allow guests to play the video games over the hotel's
master antenna television system. Hotel guests are charged a fee based on the
amount of time they play the video games. Presently, the Company charges $5.95
per hour of play. The Company had over 322,900 rooms installed with the Super
Nintendo-Registered Trademark- system as of December 31, 1996.
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The revenue generated from the guest pay service is dependent upon three
factors at each location: (i) the occupancy rate at the property; (ii) the "buy
rate" or percentage of occupied rooms that buy movies or video games/information
services at the property; and (iii) the price of the movie, video game or
service. For example, a property installed with the Company's interactive system
with a 70% occupancy rate, a buy rate of 11.4% and an $8.95 movie price will
generate an average of $21.71 of gross movie revenue per installed room per
month, plus an average of $3.90 in additional gross revenues per month from
video games and information services (assuming 30.4 days per month), resulting
in total gross revenue per room per month of $25.61. Occupancy rates vary by
property based on the property's competitive position within its marketplace and
over time based on seasonal factors and general economic conditions. Buy rates
generally reflect the hotel's guest mix profile, the popularity of the motion
pictures available and the guests' other entertainment alternatives. Buy rates
also vary over time with general economic conditions. Movie price levels are
established by the Company and are set based on the guest mix profile at each
property and overall economic conditions. Currently, the Company's movie prices
are generally $7.95 or $8.95.
The cost of installation varies depending on the size of the hotel property
and the configuration of the system being installed. The average installed cost
of a new on-demand guest pay room with interactive and video game services
capabilities, including the headend equipment and, in some cases, televisions,
is approximately $375 to $400 per room. In addition to hotel commissions and
royalties paid to movie studios, operating costs of the guest pay systems
include preview tapes, tape duplication, taxes, freight, insurance, personal
property taxes, maintenance and data line costs. The average cost to upgrade a
room from the original scheduled guest pay system to the on-demand system is
approximately $75 to $175 per room, depending on the size of the movie library
installed in the hotel, whether video games are provided and the configuration
of the headend computer and system hardware.
FREE-TO-GUEST SERVICES. In addition to guest pay services, the Company
provides television programming for which the hotel, rather than its guests,
pays the charges. Free-to-guest services allow a hotel to receive one or more
satellite-distributed programming channels via a satellite earth station, which
are then distributed to guest rooms over the hotel's existing master antenna
system.
Traditionally, this service has required little capital expenditure by the
Company, since the earth station equipment either was provided independently by
the hotel or purchased or leased from the Company. For free-to-guest services,
the hotel pays the Company a fixed monthly charge per room for each programming
channel selected and provides these channels to its guests free of charge. The
Company generally charges $2.90 - $3.50 per room per month for each premium
channel and $.15 - $.85 per room per month for each non-premium channel. Premium
channels, such as HBO, Showtime and The Disney Channel, broadcast major motion
pictures and specialty programming, while non-premium channels, such as CNN,
ESPN and WTBS, broadcast news, sports and informational programs. Premium
programming suppliers typically contract only with cable companies and other
large volume subscribers, such as the Company, and will not generally provide
programming directly to individual hotel properties. The Company successfully
competes with local cable television operators by customizing packages of
programming to provide only those channels desired by the hotel subscriber,
which typically reduces the overall cost of the services provided.
In April 1996, the Company and PRIMESTAR entered into an agreement to
provide digital satellite-delivered basic and premium television services to the
lodging industry. The alliance brings together PRIMESTAR's digital satellite
technology and the Company's programming and marketing expertise, will enable
the Company to offer the lodging industry a technologically superior and more
flexible service, and will extend the market for free-to-guest services to a
much broader segment of the lodging industry than can be served cost-effectively
with traditional C-band satellite systems. Pursuant to the agreement with
PRIMESTAR, the Company will pay PRIMESTAR a signal carriage fee for providing
access to the PRIMESTAR-Registered Trademark- signal. The agreement with
PRIMESTAR may be terminated by either party upon notice if certain cash flow
targets are not met during any two consecutive years. The Company is responsible
for the
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installation and servicing of all equipment required by each lodging customer to
receive the PRIMESTAR-Registered Trademark- digital satellite-delivered signal.
Installations began in May 1996 and approximately 50,700 rooms at 329 hotel
properties had been installed through December 31, 1996. The Company intends to
sell or lease such equipment to its customers and is entitled to retain all
revenues associated with the sale, lease, installation and service of all such
PRIMESTAR-related equipment.
MULTI-FAMILY RESIDENTIAL SERVICES. ResNet's multi-family residential
private cable system has the capacity to deliver over 100 channels, although the
typical system will deliver approximately 35 to 50 channels of programming.
ResNet may elect to provide from approximately 10 to 35 additional channels for
scheduled pay-per-view, video on-demand and other interactive services, such as
Internet access. ResNet designs a specific programming lineup for each specific
multi-family residential complex, based on the particular demographic profile of
that complex. These systems include basic programming services, such as CNN,
ESPN, WTBS, TNT, The Discovery Channel and The Weather Channel, premium
programming, such as HBO and Showtime, plus additional channels which carry
local off-air stations, an electronic programming guide, a preview channel, and
a bulletin board channel. Delivery of private cable television services to
multi-family residential complexes involves technology similar to that used in
the Company's hotel systems. The hub of each multi-family residential system is
a headend, which will gather basic and premium cable television programming from
a variety of sources using a combination of the DBS signal provided by TCI
Satellite and off-air antennae and then redistribute these signals throughout
the apartment complex using the Company's proprietary B-LAN-SM- system
architecture.
The Company estimates that the average installed cost per unit passed for
basic and premium cable television services will range from approximately $500
to $700. The Company estimates that the average cost per unit passed to add
scheduled pay-per-view movies and/or video on-demand movies to the basic cable
system will range from $30 to $155, depending on the system configuration and
the size of the movie library installed. The foregoing estimates of installation
costs are forward-looking in nature and actual costs could vary based on the
factors discussed elsewhere herein.
ENTERTAINMENT HARDWARE. The Company also sells and leases entertainment
hardware, including satellite earth stations, televisions and off-air signal
reception and processing equipment, to the lodging industry. The Company
believes that this service complements its goal of being a full-service provider
of in-room entertainment and information services to the lodging industry.
OPERATIONS
CONTRACTS. The Company provides guest pay services under contracts with
lodging properties that generally run for a term of five to seven years. Under
these contracts, the Company installs its system into the hotel free of charge
and retains ownership of all equipment utilized in providing the service.
Traditionally, the hotel provides and owns the television set; however, the
Company in some cases provides televisions incorporating the Company's
integrated guest pay terminal units to hotels which meet certain economic
criteria. The Company's contracts generally provide that the Company will be the
exclusive provider of in-room, scheduled pay-per-view or on-demand television
entertainment services to the hotels, permit the Company to set the movie price
and allow the Company to terminate the contract if the hotel is not meeting the
Company's economic criteria. The contracts also typically grant the Company a
right of first refusal regarding the provision of additional video related
services to the hotel. The hotels collect movie viewing charges from their
guests and retain a commission, generally equal to 10% to 15% of the total guest
pay revenue depending upon the size and profitability of the system. At the
scheduled expiration of a contract, the Company generally seeks to extend the
contract on substantially similar terms. The average remaining life of the
Company's current guest pay contracts is over four years, with less than 7% of
these contracts coming up for renewal before 1998.
The Company typically enters into a separate contract with each hotel for
the services provided. The terms contained in the contracts with the
corporate-managed hotels in any one chain generally are
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negotiated by that chain's corporate management, and the hotels subscribe at the
direction of corporate management. In the case of franchised hotels, the
contracts are generally negotiated separately with each hotel.
ResNet enters into long-term exclusive right-of-entry contracts with
property owners and managers to provide cable television services to
multi-family residential complexes. The lengths of term of such contracts
generally run longer than those in the lodging industry. The form of agreement
to be entered into with each multi-family residential property grants ResNet the
right to provide cable television programming and other video services, such as
video on-demand, merchandising, and access to the Internet. The property owner
or manager typically receives a commission generally from 6% to 12% of
subscriber revenues, depending upon the penetration rate at a particular
property.
TECHNOLOGY, PRODUCT DEVELOPMENT AND PATENTS. The Company designs and
develops high quality interactive, multimedia entertainment and information
systems. Because such systems utilize an open architecture, UNIX-based platform
incorporating industry standard interfaces, the Company can upgrade system
software to support the introduction of new services or integrate new
technologies as they become economically viable. The Company's interactive
system incorporates the Company's scalable proprietary B-LAN-SM- system
architecture with commercially manufactured, readily available components and
hardware such as video cassette players, modulators and computers.
The Company's B-LAN-SM- system architecture utilizes the Company's
proprietary high-speed, two-way digital communications design to process and
respond to keystroke commands from the viewer very rapidly. This capability
enables the Company to provide sophisticated interactive features such as
network-based Super Nintendo video games and on-demand movies, and a variety of
other interactive services such as folio review, video checkout, in-room
printers supporting video checkout and other applications, guest surveying,
advertising and shopping services. The Company recently completed beta testing
of an interactive, on-screen merchandising service at two hotels in New York
City. Since February 1997, the Company has been testing an Internet browser at a
hotel property that enables the hotel guest to access and navigate the World
Wide Web from any guest room television in the hotel, and the Company intends to
install and test the Internet browser at additional hotels over the next several
months.
In the lodging industry, the Company's guest pay systems consist of
equipment located within the guest room connected via a local-area cable
distribution network to a headend located elsewhere in the hotel. Typical
in-room equipment includes a terminal unit, a hand-held remote control and a
video game controller. The in-room terminal unit may be integrated within the
television set or located behind or on top of the set. Movie programming
originates from video cassette players located within the headend rack and is
transmitted to individual rooms over the hotel's master antenna system. Video
game programs are downloaded into dedicated video game processors also located
within the headend rack. The guest's keystrokes are transmitted from the room to
the game processor using the Company's proprietary high-speed communications
infrastructure and the video signal produced by the game processor is
transmitted to the guest room over the hotel's master antenna system. Both movie
and video game starts are controlled automatically by the system computer. The
system computer also automatically records the purchase of a guest pay movie or
video game and reports billing data to the hotel's accounting system, which
automatically posts the charge to the guest's bill.
Although the Company's products are compatible with all brands of
televisions, the Company has arrangements with Zenith Electronics Corporation,
Phillips Electronics and Sony Electronics, Inc., leading suppliers of
televisions to the lodging industry and other markets, who provide the Company
with commercial televisions into which the Company can integrate its
custom-designed circuit boards. The Company is also working with other
television manufacturers to integrate the Company's systems into their
commercial television sets. Integration eliminates the need for an external
terminal unit and costs less than an external unit of comparable utility.
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ResNet's private cable television systems serving the multi-family
residential market are based on the Company's scalable proprietary B-LAN-SM-
system architecture developed for the lodging market. ResNet's private cable
television system has the capacity to deliver over 100 channels, although ResNet
expects that the typical system will deliver 35 to 50 channels of basic and
premium programming, depending principally upon the size of the property, the
length of the contract and local competitive considerations. ResNet may elect to
provide from approximately 10 to 35 additional channels for scheduled
pay-per-view, video on-demand and other interactive services, such as Internet
access. ResNet's interactive cable television systems utilize the DBS signal
provided by TCI Satellite, off-air and/or microwave receiving antennas and
headend equipment which process and amplify the broadcast and cable television
programming signals. These signals are then transmitted to subscribers at the
property via the Company's B-LAN-SM- system architecture. The Company integrates
addressable interdiction jamming technology within its proprietary system.
Addressable interdiction enables the Company to control subscriber access to
premium channels and other enhanced services through a computer located
off-site. This capability eliminates the necessity of having to dispatch field
personnel to a property to initiate, modify or terminate service and eliminates
the costs associated with damage or loss of traditional set-top converters
located in the subscriber's premises. As a result, the relatively high rate of
subscriber turn-over in the multi-family residential market represents an
additional revenue stream for the Company to be generated from "activation" and
"new service" charges paid by subscribers.
The Company designs its systems through its staff of approximately 85
software and hardware engineers and support personnel (as of December 31, 1996).
Development activities are oriented toward the continued enhancement and cost
reduction of the Company's system and the further development of additional
interactive, multimedia entertainment and information services, such as
advertising and shopping services.
It is the Company's policy to apply for patents on those product designs
which management believes may be of significance to the Company. The Company
owns four United States patents, has received an official notice of allowance
from the U.S. Patent and Trademark Office ("USPTO") of its decision to grant
another patent to the Company, and has other applications for patents pending in
the USPTO dealing with various aspects of the Company's interactive multimedia
systems.
The Company uses a number of registered and unregistered trademarks for its
products and services. The Company has applications for registration pending for
certain of the unregistered trademarks, and those trademarks for which the
Company has not sought registration are governed by common law and state unfair
competition laws. Because the Company believes that these trademarks are
significant to the Company's business, the Company has taken legal steps to
protect its trademarks in the past and intends to actively protect these
trademarks in the future. The Company believes that its trademarks are generally
well recognized by consumers of its products and are associated with a high
level of quality and value.
SALES AND MARKETING. The Company focuses its sales and marketing strategies
on acquiring new contracts from hotels and marketing the Company's guest pay,
video game and other interactive services to the hotel guest. The Company's
sales organization consisted of approximately 50 employees as of December 31,
1996, including national account representatives, who develop relationships with
national hotel franchise organizations and management groups, and regional sales
representatives who maintain relationships primarily with regional hotel
management and ownership organizations. The Company has established a separate
sales group responsible for sales and marketing of "PRIMESTAR by LodgeNet." The
Company markets its services and products to hotels by advertising in industry
trade publications, attending industry trade shows, direct marketing and
telemarketing. Sales activities are coordinated from the Company's headquarters.
The Company markets its services to hotel guests by means of its Video Room
Card-SM-, on-screen graphics and by in-room tent cards which contain movie and
video game programming information that are placed near the television set and
highlight the feature film selections of the month. In-room marketing
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advertisements are designed and produced by the Company's marketing department.
The system also generates a "Welcome Channel," which appears on-screen when the
television is turned on and describes the programming and interactive services
available through the Company's system.
INSTALLATION AND SERVICE OPERATIONS. The Company believes that high quality
and consistent systems support and maintenance are essential to competitive
success in its industry. The Company's installation and service organization
consists of approximately 300 installation and service personnel in
approximately 30 locations in the United States and Canada, as of December 31,
1996. The Company emphasizes the use of Company-employed installation and
service personnel, but also uses Company-trained subcontractors in areas where
there is not a sufficient concentration of Company-served hotels to warrant a
Company-employed service representative. Currently, the Company's in-house
installation and service organization has responsibility for approximately 80%
of the guest pay hotel rooms served by the Company. Service personnel are
responsible for systems maintenance and distribution and collection of video
cassettes. The Company's installation personnel prepare site surveys to
determine the type of equipment to be installed at each particular hotel,
install the Company's systems, train the hotel staff to operate the systems and
perform preliminary quality control tests.
The Company maintains a toll-free customer support hot line,
Tech-Connect-SM-, which is monitored 24 hours a day by trained support
technicians. The on-line diagnostic capability of the Company's system enables
the Company to identify and resolve a majority of the reported system
malfunctions from the Company's service control center without visiting the
hotel property. When a service visit is required, the modular design of the
Company's systems permits installation and service personnel to replace
defective components at the hotel site.
In the multi-family residential market, ResNet installation supervisors and
support personnel oversee and coordinate installation crews comprised of
experienced subcontractors. Initially, ResNet will utilize field service and
component assembly resources developed by the Company for the lodging industry.
PROGRAMMING. In the lodging market, the Company obtains non-exclusive
rights to show recently released major motion pictures from motion picture
studios pursuant to a master agreement with each studio. The license period and
percentage fee for each movie are negotiated separately, with the studio
receiving a percentage, generally ranging from 35% to 50%, of the Company's
gross revenue from the movie. For recently released motion pictures, the Company
typically obtains rights to exhibit the picture after the film has been in
theaters, but prior to its release to the home video market or exhibition on
cable television. Generally, studios make master video tapes of their movies
available for duplication sufficiently in advance of the release dates for the
lodging industry so that all of the Company's hotels can offer the movies as of
the first date they are available for exhibition. The Company obtains
independent films, most of which are non-rated and intended for mature
audiences, for a one-time flat fee that is nominal in relation to the licensing
fees paid for major motion pictures and which permits the Company to duplicate
the films as necessary to supply copies to its hotel sites. The Company
continuously monitors guests' entertainment selections and adjusts its
programming to respond to viewing patterns.
The Company obtains its basic and premium cable television programming
pursuant to multi-year license agreements generally containing automatic renewal
provisions and pays its programming suppliers a fixed, monthly fee for each room
or subscriber receiving the service. Management believes that relations with the
programming suppliers are good and expects to renew these contracts as necessary
on competitive terms. The Company intends to tailor the programming lineup at
each multi-family residential complex based on the particular demographic
profile of that complex. Cable operators and multi-channel video programming
distributors such as ResNet, with certain exceptions, are prohibited from
carrying the signal of a commercial television broadcast station without the
broadcaster's "retransmission" consent. ResNet believes it can obtain all
necessary retransmission consents in its markets.
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As part of its transaction with TCI Satellite, ResNet entered into a
long-term signal availability agreement with TCI Satellite pursuant to which
ResNet will be granted nationwide access to a DBS signal, such signal to be the
same as that used by PRIMESTAR to transmit the PRIMESTAR-Registered Trademark-
programming service (the "PRIMESTAR Signal") or the signal of a substantially
comparable service. TCI Satellite is acting solely to make the DBS signal
available to ResNet and is not acting as a distributor of any programming
services to ResNet. ResNet must obtain its own rights, as described above, from
the applicable programmers to receive and distribute such service. TCI Satellite
has informed the Company that counsel for PRIMESTAR has advised TCI Satellite
that its rights to distribute the PRIMESTAR Signal to private cable systems,
such as ResNet, may conflict with the rights of PRIMESTAR under existing
agreements between PRIMESTAR and TCI Satellite (or its affiliates). TCI
Satellite has advised the Company that it believes that its transaction with
ResNet and similar transactions are permitted under its agreements, and TCI
Satellite has represented in its agreement with ResNet that it has all necessary
rights to enter into and perform its obligations thereunder. If TCI Satellite
were to lose its ability to make the PRIMESTAR Signal or a comparable signal
available to ResNet, TCI Satellite is obligated to reimburse ResNet for its
costs in obtaining a comparable digital signal from another source, including
the cost of replacement equipment if the new digital signal is not compatible
with ResNet's equipment.
SYSTEMS PRODUCTION GROUP AND EQUIPMENT SUPPLIERS. The Company contracts
directly with various electronics firms for the manufacture and assembly of its
systems hardware, the design of which is controlled by the Company. The Company
has found these suppliers to be dependable and able to meet delivery schedules
on time. The Company believes that, in the event of a termination of any of its
sources, with proper notification from the supplier, alternate suppliers could
be located without incurring significant costs or delays. Certain electronic
component parts used within the Company's products are available from a limited
number of suppliers and can be subject to temporary shortages because of general
economic conditions and the demand and supply for such component parts. If the
Company were to experience a shortage of any given electronic part, the Company
believes that alternative parts could be obtained or system design changes
implemented. In such event, the Company could experience a temporary reduction
in the rate of new room installations and/or an increase in the cost of such
installations. All other components of the Company's systems are standard
commercial products, such as video cassette players, modulators and amplifiers,
that are available from multiple sources.
The headend electronics are assembled at the Company's facilities for
testing prior to shipping. The Company samples the room units at the supplier's
facilities periodically for reliability. Following assembly of head-end
equipment with a configuration designed specifically for a particular customer,
the system is shipped to the location, where it is installed by Company-employed
technicians or Company-trained subcontractors. The Company believes that its
anticipated growth can be accommodated through existing suppliers.
COMPETITION
LODGING MARKET. The Company is the second largest provider (by total number
of rooms served) of interactive and cable television services to the lodging
industry, currently serving over 516,000 installed hotel rooms. The Company
competes on a national scale primarily with On Command Corporation ("OCC"), the
successor corporation to the merger of SpectraVision, Inc. and On Command Video
Corporation, and on a regional basis with certain other smaller entities. Based
upon publicly available information, the Company estimates that OCC currently
serves approximately 900,000 hotel rooms. The aforementioned merger combined two
of the largest providers of cable television services in the lodging industry
based on the aggregate number of rooms served. The Company historically competed
against these two companies prior to the merger and believes that it will be
able to compete in the same manner against the newly combined entity.
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OCC and DirecTV, Inc. ("DirecTV") have entered into an agreement pursuant to
which OCC will deliver free-to-guest television programming using DirecTV's DBS
signal. The Company believes that its agreement with PRIMESTAR will allow it to
provide comparable services to OCC on a competitive basis.
There are also a number of potential competitors that could use their
existing infrastructure to provide in-room entertainment services to the lodging
industry, including franchised cable operators, wireless cable operators,
telecommunications companies and DBS providers. Some of these potential
competitors are already providing free-to-guest services to the lodging industry
and have announced plans to offer guest pay services. Some of these companies
may have substantially greater financial and other resources than the Company.
Competition with respect to new guest pay contracts centers on a variety of
factors, depending upon the features important to a particular hotel. Among the
more important factors are: (i) the features and benefits of the entertainment
systems; (ii) the quality of the vendor's technical support and maintenance
services; (iii) the financial terms and conditions of the proposed contract
(including payments to the hotel); and (iv) the ability to complete system
installation in a timely and efficient manner. In addition, with respect to
hotel properties already receiving in-room entertainment services, the incumbent
provider may have certain informational and installation cost advantages as
compared to outside competitors.
The Company believes that its competitive advantages include: (i) its
proprietary B-LAN-SM- system architecture that enables the Company to deliver a
broad range of interactive features and services such as on-demand movies and
network-based Super Nintendo-Registered Trademark- video games; (ii) the
flexible design of the Company's system which enables it to add enhancements or
integrate new technologies as they become commercially available and
economically viable; (iii) high quality customer support and nationwide field
service operations; and (iv) an experienced management team and professional and
well-trained sales organization. The Company believes that its success in
securing contracts reflects the strong competitive position of the Company's
products and services.
Because of the high level of penetration in the large hotel segment of the
lodging industry already achieved by guest pay providers, most of the growth
opportunities in this market segment have traditionally involved securing
contracts to serve hotels that are served by a competing vendor. An incumbent
provider may have certain information and installation cost advantages as
compared to outside competitors. These circumstances have led to increasing
competition for contract renewals, particularly at hotels operated by major
hotel chains. The Company believes that certain major hotel chains have awarded
contracts based primarily on the level and nature of financial and other
incentives offered by the guest pay provider. Even if it were able to do so, the
Company may not always be willing to match the incentives provided by its
competitors, some of which have greater access to financial and other resources
than the Company. Because free-to-guest service providers generally have
substantially comparable access to the satellite delivered programming that
comprises the free-to-guest services, competition in this segment has been based
primarily on price and customer service.
While the Company believes that its proprietary B-LAN-SM- system
architecture is comparable or superior to the systems currently being used by
its competitors in the lodging industry, there can be no assurance that such
competitors will not develop a cost-effective system that is comparable or
superior to the Company's system. In order to broaden its market opportunities,
the Company redesigned its system to permit the delivery of on-demand movies and
network-based video games to mid-size hotels of 100 to 150 rooms, a market
segment the Company believes has been historically underserved by guest pay
providers. There can be no assurance that the Company will be successful in this
market segment or that competitors will not develop a cost-effective system that
would allow them to target this market segment. Further, there can be no
assurance that the Company will continue its current level of success in
obtaining new contracts from hotels currently served by other vendors or
previously unserved, or that the Company will be able to retain contracts with
hotels it serves when those contracts expire.
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Although in the free-to-guest market the local franchised cable operator in
a hotel's market may have a substantial market presence, such operators
typically offer the hotel owner only standard packages of programming developed
for the residential market and not the lodging market, and at a fixed price per
room based on all the channels provided. The Company competes with the
franchised cable operator for free-to-guest contracts by customizing packages of
programming to provide only those channels desired by the hotel, typically
reducing the overall cost per room. The Company believes that its agreement with
PRIMESTAR to deliver the PRIMESTAR DBS signal to the lodging industry will
enable it to compete more effectively in the free-to-guest area and to extend
this market segment to smaller sized properties that historically could not be
cost-effectively served with the more expensive traditional C-band technology.
Competitive pressures in the guest pay and free-to-guest segments could
result in reduced market share for the Company, higher hotel commissions, lower
margins and increased expenditures on marketing, product development and systems
installation, each of which could adversely affect the Company's financial
condition and operating results.
MULTI-FAMILY RESIDENTIAL MARKET. The provision of cable television services
to the MDU market is highly competitive and competition is expected to increase.
The Company anticipates that the primary competitors in each of its markets will
include SMATV operators, wireless cable operators, DBS providers, as well as
local franchised cable operators. The Company believes that the largest private
cable competitors are OpTel, Inc., CablePlus and ICS Communications, Inc.
However, the most substantial competitor for ResNet in each of its markets is
expected to be the local franchised cable operator, most of whom have
substantially greater resources than the Company and ResNet. Many of ResNet's
competitors also have brand names that may be more recognizable to consumers
than those of the Company and ResNet, and that may provide such competitors
certain competitive advantages. Further, a growing number of companies have
begun to market, or have announced plans to market, packages of services that
are considerably more extensive than those currently offered by the Company.
ResNet's success in this market will depend in large part upon its ability
to secure a significant number of long-term exclusive right-of-entry contracts
with property owners or managers. These contracts generally involve a revenue
sharing arrangement with the property owner or manager. Certain of ResNet's
competitors have significantly greater financial resources and may offer
property owners and managers more lucrative financial arrangements than ResNet
may be able or willing to offer. As residents of the high-quality MDUs that are
targeted by the Company come to expect a wider selection of cable, interactive
video and telecommunications services, property owners may be inclined to enter
into ROE contracts with companies that can offer such a selection. Increasing
competition among such providers for right of entry contracts could result in
greater financial incentives being offered to property owners, thereby adversely
affecting the financial return expected to be realized by ResNet from such
contracts. The Company believes that ResNet's competitive advantages include (i)
the broad range of features and services made possible by the Company's
proprietary B-LAN-SM- system architecture, (ii) the Company's experience and
capabilities in conducting nationwide installation and field service operations,
and (iii) the availability of the DBS signal and DBS equipment provided by TCI
Satellite at a lower cost than traditional C-band satellite signals and
equipment.
REGULATION
TELECOMMUNICATIONS ACT OF 1996. The Telecommunications Act of 1996 (the
"Act") is intended, in part, to promote substantial competition for telephone
and video services and will alter federal, state and local laws and regulations
regarding telecommunications providers and services. The Act generally removes
previous restrictions preventing cable firms, telephone companies, long distance
carriers and public utilities from entering into certain new markets, removes
many cross-ownership restrictions and modifies rate regulations applicable to
franchised cable operators. In particular, the Act authorizes local telephone
companies to provide video programming directly to subscribers in their service
areas and
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<PAGE>
eliminates the requirement that "private cable" operators serve only buildings
"under common ownership, management or control," but preserves the requirement
that such operations not use closed transmission paths to cross public
rights-of-way. The Act also permits franchised cable operators to offer bulk
discounts to multiple dwelling units; provided, however, that such discounts may
not constitute "predatory pricing." Prior to the adoption of the Act, franchised
cable operators were subject to a uniform rate requirement which generally
prohibited such bulk discounts. There are numerous rulemakings that have and are
still being undertaken by the FCC which will interpret and implement the
provisions of the Act. It is anticipated that the Act will stimulate increased
competition generally in the telecommunications and cable industries which may
adversely impact the Company. No assurance can be given that changes in current
or future laws or regulations adopted by the FCC or state or local regulatory
authorities would not have a material adverse effect on the Company's business.
It is premature to predict the effect of the Act on the cable and
telecommunications industries in general or the Company in particular. The
Company's business may be adversely affected by the entry of additional
competitors in the multichannel video programming distribution market. In part,
the Company's competitiveness also will depend upon the outcome of various FCC
rulemaking proceedings to interpret and implement the provisions of the Act. It
is not possible at this time to predict the outcome of those rulemaking
proceedings or their effect on the Company.
CABLE TELEVISION REGULATION. The Communications Act of 1934, as amended by
the Cable Communications Policy Act of 1984 (the "1984 Cable Act"), the Cable
Television Consumer Protection and Competition Act of 1992 (the "Cable Act"),
and the Act, governs the regulation of "cable systems." The law defines a "cable
system" as a facility, consisting of a set of closed transmission paths and
associated signal generation, reception, and control equipment that is designed
to provide cable service which includes video programming and which is provided
to multiple subscribers within a community, but the law exempts from that
definition, among other facilities, a facility that serves subscribers without
using any public rights-of-way. The Company constructs and operates separate
headend systems at each hotel or MDU complex or transmits cable signals from
microwave transmitters to each separate property, and those systems do not use
public rights-of-way. Thus, with respect to its private cable systems, the
Company is not required to comply with many of the FCC's rules relating to cable
systems, including, among other things, rate regulation and the requirement to
obtain a franchise from local government authorities in order to provide video
services.
As a "multichannel video programming distributor" ("MVPD"), however, the
Company is subject to various provisions of the Communications Act of 1934, as
amended. Laws and regulations applicable to MVPDs generally apply to the
Company. These include laws and regulations that benefit the Company, such as
provisions that ensure the Company access to programming on fair, reasonable and
nondiscriminatory terms, as well as provisions that subject the Company to
additional requirements, such as the requirement to obtain consent from
broadcasters in order to retransmit their signals over the Company's systems.
CABLE AND TELEPHONE WIRING. Although the majority of the states currently
do not prohibit exclusive right-of-entry contracts, current trends at the state
and federal levels, if they continue, may render the legality of such
exclusivity provisions uncertain. Several states have enacted, and additional
states are expected to enact, mandatory access statutes that require MDU owners
to grant a cable franchisee access to its buildings in order to offer cable
services to tenants that want to receive the franchisee's service. The FCC also
has initiated rulemaking proceedings to consider, among other issues, whether to
adopt uniform regulations governing cable and telephone inside wiring, and the
appropriate treatment of inside wiring in MDUs. In addition, the FCC has
initiated a rulemaking proceeding to determine whether to prohibit restrictions
against the placement on rental property of devices designed for over-the-air
reception of television broadcast signals, multichannel multipoint distribution
services, or DBS services. The regulations that the FCC ultimately adopts could
affect the Company's continued ability to enter into or enforce
17
<PAGE>
exclusive contracts, as well as its access to inside wiring used to provide
telephony and video programming services.
SIGNAL CARRIAGE. Private cable operators, with certain exceptions, are
prohibited from carrying the signal of a commercial television broadcast station
without the broadcaster's "retransmission" consent. If the cable operator and
the broadcaster fail to reach an agreement on terms and conditions for
retransmission, the cable operator is prohibited from carrying the broadcaster's
signal. Although there can be no assurance, the Company believes it has obtained
and will continue to obtain all necessary retransmission consents in its
markets.
CROSS-OWNERSHIP. In order to encourage competition in the provision of
video programming, the Cable Act generally prohibits a franchised cable operator
not subject to "effective competition" from holding a license for a multichannel
multipoint service or from offering SMATV service separate and apart from any
franchised cable service, in any portion of the franchise area served by the
cable operator's cable system.
Under current interpretations of FCC rules and regulations implementing the
foregoing provisions, TCI Satellite may be prevented from acquiring a 5% or
greater interest in ResNet and consequently would be unable to exercise its
conversion rights under the TCI Convertible Loan or the TCI Option. TCI
Satellite is required to convert the TCI Convertible Loan into an equity
interest in ResNet at such time as conversion would not violate the
aforementioned FCC restriction. TCI Satellite has advised the Company that it
may seek a formal interpretive letter or waiver by the FCC with respect to the
acquisition of a further interest in ResNet.
MICROWAVE LICENSING. Where appropriate the Company's or ResNet's systems
may use 18 GHz microwave relays to link more than one hotel or MDU complex to a
single headend without using public rights-of-way. The FCC has the power to
issue, revoke, modify, and renew licenses within the radio frequency spectrum
utilized by the Company or ResNet for microwave relays. The FCC also may approve
changes in the ownership of such licenses. The Company and ResNet have obtained
all necessary FCC authorizations to operate their microwave relays. There can be
no assurance, however, that the Company and/or ResNet will continue to be able
to retain or obtain such authorizations in the future or that existing
authorizations will be renewed.
CABLE ENTRY INTO TELECOMMUNICATIONS. The Act declares that no state or
local laws or regulations may prohibit or have the effect of prohibiting the
ability of any entity to provide any interstate or intrastate telecommunications
service. States are authorized to impose "competitively neutral" requirements
regarding universal service, public safety and welfare, service quality, and
consumer protection. The Act further provides that the cable operators and
affiliates providing telecommunications services are not required to obtain a
separate franchise from the local franchising authority for such services. The
Act prohibits local franchising authorities from requiring cable operators to
provide telecommunications services or facilities as a condition of a grant of a
franchise, franchise renewal, or franchise transfer, except that local
franchising authorities can seek "institutional networks" as part of franchise
negotiations. The law also provides that, when cable operators provide
telecommunications services, local franchising authorities may require
reasonable, competitively neutral compensation for management of the public
rights-of-way.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION. The Act allows telephone
companies to compete directly with franchised and private cable operators by
repealing the previous telephone company-cable cross-ownership ban and replacing
the FCC's video dialtone regulations with an "open video system" ("OVS") plan by
which local exchange carriers can provide cable service in their telephone
service area. The FCC has adopted regulations prohibiting an OVS operator from
discriminating among programmers and ensuring that OVS rates, terms, and
conditions for service are reasonable and nondiscriminatory. Further, those
regulations prohibit a local exchange carrier, OVS operator or its affiliates
from occupying more than one-third of a system's activated channels when demand
for channels exceeds supply, although
18
<PAGE>
there are no numeric limits. Additional OVS regulations include rules governing
channel sharing; extending the FCC's sports exclusivity, network nonduplication,
and syndicated exclusivity regulations; and controlling the positioning of
programmers on menus and program guides. Local franchising authorities may
require OVS operators to pay "franchise fees" only to the extent that the OVS
provides or its affiliates provide cable services over the OVS; such fees may
not exceed the franchise fees charged to cable operators in the area, and the
OVS provider may pass through the fees as a separate subscriber bill item. OVS
operators are subject to local franchising authorities' general right-of-way
management regulations.
ELECTRIC UTILITY ENTRY INTO CABLE AND TELECOMMUNICATIONS. The Act provides
that registered utility holding companies and subsidiaries may provide
telecommunications services (including cable television) notwithstanding the
Public Utility Holding Company Act. Electric utilities must establish separate
subsidiaries, known as "exempt telecommunications companies" and must apply to
the FCC for operating authority. Large utility holding companies may become
significant competitors to both cable television and other telecommunications
providers.
COPYRIGHT LICENSING. Both private and franchise cable systems are subject
to federal copyright licensing covering carriage of broadcast signals. In
exchange for making semi-annual payments to a federal copyright royalty pool and
meeting certain other obligations, cable operators obtain a blanket license to
retransmit broadcast signals. Bills have been introduced in Congress over the
past several years that would eliminate or modify the cable compulsory license.
Without the compulsory license, cable operators such as the Company might need
to negotiate rights from the copyright owners for each program carried on each
broadcast station in the channel lineup. Such negotiated agreements could
increase the cost to cable operators of carrying broadcast signals. The Cable
Act's retransmission consent provisions expressly provide that retransmission
consent agreements between the television stations and cable operators do not
obviate the need for cable operators to obtain a copyright license for the
programming carried on each broadcaster's signal.
The foregoing does not purport to describe all present and proposed federal,
state and local regulations and legislation relating to the video programming
industry. Other existing federal, state and local laws and regulations currently
are, or may be, the subject of a variety of judicial proceedings, legislative
hearings, and administrative and legislative proposals that could change in
varying degrees, the manner in which private cable operators and other video
programming distributors operate. The Company cannot estimate the outcome of
these proceedings or their impact upon its operations at this time.
EMPLOYEES
As of December 31, 1996, the Company had 584 employees in the United States
and Canada. None of these employees is covered by a collective bargaining
agreement. The Company has not experienced any significant labor problems and
believes that its relationship with its employees is good.
ITEM 2--PROPERTIES
The Company's present headquarters and principal executive offices are
located in Sioux Falls, South Dakota. This facility is leased from an
unaffiliated third party pursuant to a lease which expires on July 31, 1997
(with month-to-month extensions thereafter, at the option of the Company),
contains approximately 24,000 square feet, and houses the Company's executive,
administrative and operational functions. The Company leases four additional
facilities in Sioux Falls from unaffiliated third parties, including a warehouse
and assembly facility (approximately 15,000 square feet) and three office
facilities for administrative and support personnel (approximately 30,000 square
feet in total). The Company also owns an office building in Sioux Falls
containing approximately 8,000 square feet which previously served as the
Company's headquarters and is currently used in the Company's operations.
The Company leases ten facilities, in various other locations, from
unaffiliated third parties. One, located in Dallas, Texas, is an office facility
for sales and sales-support personnel. The remaining nine are
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<PAGE>
combination warehouse/office facilities for installation and service operations
and are located in Atlanta, Georgia; Honolulu, Hawaii; Las Vegas, Nevada;
Cleveland, Ohio; Buffalo, New York; Los Angeles and San Francisco, California;
Tampa, Florida; and Toronto, Ontario, Canada. Each of these facilities occupies
less than 3,500 square feet.
In June 1996, the Company acquired an approximately 22.6 acre parcel of land
in Sioux Falls for a purchase price of approximately $339,000 and in September
1996 entered into a contract for the construction of the Company's National
Headquarters and Distribution Center. Construction of the approximately $15
million facility began in September 1996 and is expected to be completed in
September 1997. The National Headquarters and Distribution Center will occupy
approximately 228,500 square feet including approximately 116,500 square feet
for executive, administrative and support functions, approximately 60,000 square
feet for assembly and distribution functions, and approximately 42,000 square
feet for warehouse space. The National Headquarters and Distribution Center will
allow the Company to consolidate all of its local operations into a single,
multipurpose facility and is designed to enhance the operational efficiency and
to facilitate any necessary future expansions needs of the Company. The Company
believes that the site of its National Headquarters and Distribution Center is
sufficient to accommodate its foreseeable local operational space requirements.
ITEM 3--LEGAL PROCEEDINGS
On February 16, 1995, OCC filed a lawsuit in Federal District Court for the
Northern District of California asserting patent infringement by the Company
relating to its on-demand video system. The complaint requests an unspecified
amount of damages and injunctive relief. The Company filed an answer and
counterclaim to the lawsuit on April 17, 1995, denying the claims, asserting
affirmative defenses and asserting a counterclaim for declaratory relief. The
Company is currently engaged in litigation with respect to this matter and trial
is expected to begin on September 29, 1997. Based on the advice of special
patent counsel and technical experts retained by the Company, as well as the
Company's independent analysis, the Company believes that the claims of
infringement are unfounded. The Company has and will continue to vigorously
defend itself in this matter. Patent litigation is especially complex, both as
to factual allegations and the legal interpretation of patent claims, which
makes such lawsuits difficult to assess with certainty. While the Company and
its patent counsel believe that the Company has a number of defenses available
which, if properly considered, would eliminate or minimize any liability for the
Company, an unexpected unfavorable resolution, depending on the amount and
timing, could adversely affect the Company. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that the
ultimate disposition of this matter will not have a material adverse effect on
the Company's financial condition or results of operations.
The Company is subject to other litigation arising in the ordinary course of
business. As of the date hereof, the Company believes the resolution of such
other litigation will not have a material adverse effect upon the Company's
financial condition or results of operations.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year ended December 31, 1996.
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PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock currently trades on the NASDAQ National Market
System ("NASDAQ NMS") under the symbol "LNET". The Company's Common Stock began
trading on the NASDAQ NMS on October 14, 1993 upon the effectiveness of its
initial public offering. As of March 12, 1997, there were outstanding 11,208,369
shares of the Company's Common Stock.
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sales prices of the Company's Common Stock as reported by NASDAQ
NMS.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
March 31, 1995............................................................. $ 9.25 $ 7.00
June 30, 1995.............................................................. $ 9.24 $ 6.63
September 30, 1995......................................................... $ 12.25 $ 8.50
December 31, 1995.......................................................... $ 13.00 $ 9.50
March 31, 1996............................................................. $ 14.25 $ 9.00
June 30, 1996.............................................................. $ 15.25 $ 11.50
September 30, 1996......................................................... $ 14.25 $ 9.75
December 31, 1996.......................................................... $ 18.00 $ 11.75
</TABLE>
On March 12, 1997, the closing price of the Company's Common Stock, as
reported by NASDAQ NMS was $14.25. Stockholders are urged to obtain current
market quotations for the Company's Common Stock. As of March 12, 1997, there
were 147 stockholders of record of the Company with approximately 95% of the
shares held in "street name". The Company estimates that as of March 12, 1997
there were more than 3047 stockholders of the Company.
DIVIDENDS
No dividends have been paid to date on the Common Stock of the Company.
Management of the Company does not intend to pay any cash dividends on Common
Stock of the Company in the foreseeable future, rather, it is expected that the
Company will retain earnings to finance its operations and growth. The terms and
conditions of the Company's 10.25% Senior Notes and of the Company's Revolving
Facility (See "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations" elsewhere herein) both contain covenants
which restrict and limit payments or distributions in respect of the Common
Stock of the Company.
RIGHTS PLAN
On February 28, 1997, the Board of Directors of the Company authorized and
adopted a stockholder rights plan ("Rights Plan"). The Rights Plan is intended
to maximize stockholder value by providing flexibility to the Board of Directors
in the event that an offer for the Company is received that is either inadequate
or not in the best interest of all stockholders. The Rights Plan had been under
consideration by the Board of Directors for almost a year and is in a form
recommended by the Company's outside legal counsel and financial advisors, which
form is similar to that adopted by many other public companies.
Pursuant to the Rights Plan, the Board of Directors declared a dividend
distribution of one "Right" for each outstanding share of common stock, par
value $.01 per share (the "Common Stock") of the Company to stockholders of
record at the close of business on March 10, 1997 (the "Record Date"). In
general, each Right, when exercisable, entitles the registered holder to
purchase from the Company one one-thousandth of a share of a new series of
preferred stock, designated as Series A Participating Preferred Stock, par value
$.01 per share (the "Preferred Stock"), at a price of $60.00 (the "Purchase
Price"), subject to adjustment. The terms of the Rights are set forth in a
Rights Agreement (the "Rights
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Agreement") between the Company and Harris Trust and Savings Bank, as "Rights
Agent". The following summary description of the Rights and the terms of the
Rights Agreement does not purport to be complete and is qualified in its
entirety by reference to the Rights Agreement attached as an exhibit hereto.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earliest of (i) a public announcement
that a person, entity or group of affiliated or associated persons and/or
entities (an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock,
other than as a result of repurchases of stock by the Company or certain
inadvertent actions by institutional or certain other stockholders, or (ii) ten
days (unless such date is extended by the Board of Directors ) following the
commencement of (or a public announcement of an intention to make) a tender
offer or exchange offer which would result in any person, entity or group
affiliated or associated persons and/or entities becoming an Acquiring Person.
Until the Distribution Date the Rights will be evidenced, with respect to
any of the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate together with a Summary of Rights. The Rights Agreement
provides that, until the Distribution Date, the Rights will be transferred with
and only with Common Stock certificates. From as soon as practicable after the
Record Date and until the Distribution Date (or earlier redemption or expiration
of the Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuance of the Common Stock will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Common Stock outstanding as of the Record Date (with or
without the Summary of Rights attached) will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates evidencing
the Rights ("Rights Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date, and the
separate Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the earliest of (i) February 28, 2007, (ii) consummation of a merger
transaction with a Person or group who acquired Common Stock pursuant to a
Permitted Offer (as defined below), and is offering in the merger the same price
per share and form of consideration paid in the Permitted Offer, or (iii)
redemption or exchange of the Rights by the Company as described below.
The number of Rights associated with each share of Common Stock shall be
proportionately adjusted to prevent dilution in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the Common Stock. The
Purchase Price payable, and the number of share of Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for Preferred Stock, certain convertible securities or
securities having the same or more favorable rights, privileges and preferences
as the Preferred Stock at less than the current market price of the Preferred
Stock, or (iii) upon the distribution to holders of the Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly cash dividends
out of earning or retained earnings) or of subscription rights or warrants
(other than those referred to above). With certain exceptions, no adjustments in
the Purchase Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price.
In the event that, after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such, the
Company is involved in a merger or other business combination transaction
(whether or not the Company is the surviving corporation) or 50% or more of the
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Company's assets or earning power are sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
(other than an Acquiring Person) shall thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price, that number of
share of common stock of either the Company, in the event that it is the
surviving corporation of a merger or consolidation, or the acquiring company
(or, in the event there is more than one acquiring company, the acquiring
company receiving the greatest portion of the assets or earning power
transferred) which at the time of such transaction would have a market value of
two times the Purchase Price (such right being called the "Merger Right"). In
the event that a Person becomes the beneficial owner of 15% or more of the
outstanding shares of Common Stock (unless pursuant to a tender offer or
exchange offer for all outstanding shares of Common Stock at a price and on
terms determined prior to the date of the first acceptance of payment for any of
such shares by at least a majority of the members of the Board of Directors who
are not officers of the Company and are not Acquiring Persons or Affiliates or
Associates thereof to be both adequate and otherwise in the best interests of
the Company and its stockholders (a "Permitted Offer")), then proper provision
shall be made so that each holder of a Right will for a 60-day period (subject
to extension under certain circumstances) thereafter have the right to receive
upon exercise that number of shares of Common Stock (or, at the election of the
Company, which election may be obligatory if sufficient authorized shares of
Common Stock are not available, a combination of Common Stock, property, other
securities (e.g., Preferred Stock) and/or a reduction in the exercise price of
the Right) having a market value of two times the Purchase Price (such right
being called the "Subscription Right"). The holder of a Right will continue to
have the Merger Right whether or not such holder exercises the Subscription
Right. Notwithstanding the foregoing, upon the occurrence of any of the vents
giving rise to the exercisability of the Merger Right or the Subscription Right,
any Rights that are or were at any time after the Distribution Date owned by an
Acquiring Person shall immediately become null and void.
At any time prior to the earlier to occur of (i) a Person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of the
Board of Directors. Additionally, the Company may thereafter redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price (i) if
such redemption is incidental to a merger or other business combination
transaction or series of transactions involving the Company but not involving an
Acquiring Person or certain related Persons or (ii) following an event giving
rise to, and the expiration of the exercise period for, the Subscription Right
if and for as long as the Acquiring Person triggering the Subscription Right
beneficially owns securities representing less than 15% of the outstanding
shares of Common Stock and at the time of redemption there are no other
Acquiring Persons. The redemption of Rights described in the preceding sentence
shall be effective only as of such time when the Subscription Right is not
exercisable, and in any event, only after ten business days' prior notice. Upon
the effective date of the redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Subject to applicable law, the Board of Directors, at its option, may at any
time after a Person becomes an Acquiring Person (but not after the acquisition
by such Person of 50% or more of the outstanding Common Stock), exchange all or
part of the then outstanding and exercisable Rights (except for Rights which
have become void) for shares of Common Stock at a rate of one share of Common
Stock per Right or, alternatively, for substitute consideration consisting of
cash, securities of the Company or other assets (or any combination thereof).
The Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any other series of preferred stock the Company may
issue (unless otherwise provided in the terms of such stock). If issued, each
share of Preferred Stock will have a preferential quarterly dividend in an
amount equal to 1,000 times the dividend, if any, declared on each share of
Common Stock, but in no event less than $25.00. In the event of liquidation, the
holders of shares of Preferred Stock will receive a preferred
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<PAGE>
liquidation payment equal to the greater of $1,000.00 or 1,000 times the payment
made per share of Common Stock. Each share of Preferred Stock will have 1,000
votes, voting together with the shares of Common Stock. The rights of the
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary antidilution provisions.
Fractional shares of Preferred Stock will be issuable; however, (i) the Company
may elect to distribute depositary receipts in lieu of such fractional share and
(ii) in lieu of fractional shares other than fractions that are multiples of one
one-thousandth of a share, an adjustment in cash will be made based on the
market price of the Preferred Stock on the last trading date prior to the date
of exercise.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. The Company and the Rights Agent retain broad
authority to amend the Rights Agreement; however, following any Distribution
Date any amendment may not adversely affect the interests of holders of Rights.
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ITEM 6--SELECTED FINANCIAL DATA
The following is a summary of Selected Financial Data. The data should be
read in conjunction with the Company's Consolidated Financial Statements, the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations", all included elsewhere herein. Dollar amounts are in
thousands, except for per share and per room amounts.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Guest Pay............................................... $ 13,828 $ 21,471 $ 29,927 $ 50,758 $ 84,504
Free-to-guest........................................... 6,125 7,478 8,397 8,060 8,645
Other................................................... 4,098 2,363 2,070 4,395 4,572
--------- --------- --------- --------- ----------
Total revenues........................................ 24,051 31,312 40,394 63,213 97,721
Direct costs.............................................. 12,827 14,848 18,181 28,910 44,379
--------- --------- --------- --------- ----------
Gross profit.............................................. 11,224 16,464 22,213 34,303 53,342
Operating expenses........................................ 13,238 16,425 24,573 36,741 58,428
--------- --------- --------- --------- ----------
Operating income (loss)................................... (2,014) 39 (2,360) (2,438) (5,086)
Interest expense.......................................... 1,783 2,096 966 4,522 8,243
--------- --------- --------- --------- ----------
Loss before income tax and extraordinary loss............. (3,797) (2,057) (3,326) (6,960) (13,329)
Provision for income taxes................................ -- -- -- 66 28
--------- --------- --------- --------- ----------
Loss before extraordinary loss............................ (3,797) (2,057) (3,326) (7,026) (13,357)
Extraordinary loss (1).................................... -- -- 1,324 -- 3,253
--------- --------- --------- --------- ----------
Net loss.................................................. (3,797) (2,057) (4,650) (7,026) (16,610)
Cumulative preferred dividends............................ 1,872 1,557 -- -- --
--------- --------- --------- --------- ----------
Net loss attributable to Common Stock..................... $ (5,669) $ (3,614) $ (4,650) $ (7,026) $ (16,610)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
OTHER DATA:
EBITDA (2)................................................ $ 3,471 $ 7,215 $ 9,301 $ 15,898 $ 24,729
EBITDA margin (2)......................................... 14.4% 23.0% 23.0% 25.1% 25.3%
Capital expenditures...................................... $ 18,044 $ 14,311 $ 43,521 $ 51,497 $ 85,258
Depreciation and amortization............................. 5,486 7,176 11,661 18,336 29,815
Annualized EBITDA (3)..................................... 4,676 7,990 11,250 18,246 27,290
Ratio of earnings to fixed charges (4).................... -- -- -- -- --
Ratio of long-term debt to annualized EBITDA (3).......... 6.31x .75x 2.49x 3.15x 6.57x
Ratio of EBITDA to interest expense (2)................... 1.95x 3.44x 9.63x 3.52x 3.00x
OPERATING DATA:
Guest Pay rooms served (5)
On-demand............................................... 21,871 59,169 119,680 209,487 358,842
Scheduled............................................... 81,294 77,650 65,351 58,720 41,403
--------- --------- --------- --------- ----------
Total Guest Pay rooms................................. 103,165 136,819 185,031 268,207 400,245
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Rooms with Super Nintendo-Registered Trademark- game
systems (5)............................................. -- 225 69,806 163,879 322,903
Free-to-guest rooms served (5)............................ 176,651 191,893 220,534 249,779 294,882
Total rooms served (5) (6)................................ 227,697 267,171 314,184 388,088 516,348
Average monthly revenue per Guest Pay room:
Movie revenue........................................... $ 13.00 $ 14.68 $ 15.03 $ 17.08 $ 18.38
Video game/information services......................... .27 .39 1.01 2.21 2.93
--------- --------- --------- --------- ----------
Total................................................. $ 13.27 $ 15.07 $ 16.04 $ 19.29 $ 21.31
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 92 $ 12,256 $ 4,302 $ 2,252 $ 86,177
Total assets.......................................... 42,238 64,300 88,265 125,507 279,768
Long-term debt........................................ 29,500 6,000 28,000 57,497 179,233
Redeemable preferred stock (7)........................ 13,519 -- -- -- --
Total stockholders' equity (deficit).................. (7,272) 52,665 47,942 42,726 75,552
</TABLE>
- ------------------------
(1) In 1994--loss on early termination of the Company's bank credit facility of
$1.3 million. In 1996--loss on early redemption of 9.95% and 10.35% Senior
Notes of $3.3 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
(2) EBITDA means earnings before interest expense, income taxes, depreciation
and amortization. EBITDA is not intended to represent an alternative to net
income or cash flows from operating, financing or investing activities (as
determined in accordance with generally accepted accounting principles) as a
measure of performance. Rather, it is included herein because EBITDA is a
widely accepted financial indicator used by certain investors and financial
analysts to assess and compare companies on the basis of operating
performance. Management believes that EBITDA provides an important
additional perspective on the Company's operating results and the Company's
ability to service its long-term debt and to fund the Company's continuing
growth.
(3) "Annualized EBITDA" represents the sum of the quarterly EBITDA for the two
most recently completed fiscal quarters multiplied by two.
(4) Earnings is defined as net loss before income taxes, extraordinary items and
fixed charges, except where capitalized. Fixed charges is defined as the
portion of rental expense under operating leases representing interest, and
interest, including amortization of debt expense, whether expensed or
capitalized. Earnings were insufficient to cover fixed charges for the years
ended December 31 by the amounts indicated: 1992--$(3,797); 1993--$(2,057);
1994--$(3,326); 1995--$(6,690); and 1996-- $(13,329).
(5) At end of year.
(6) Total rooms served include those rooms receiving one or more of the
Company's services.
(7) Includes cumulative preferred dividends payable.
26
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING, WITHOUT
LIMITATION, STATEMENTS IN ITEM 1, INCLUDING CERTAIN STATEMENTS UNDER THE
HEADINGS "OVERVIEW", "BUSINESS STRATEGY", "STRATEGIC INITIATIVES", "SERVICES AND
PRODUCTS", "OPERATIONS", "COMPETITION" AND "REGULATION", IN ITEM 3 UNDER THE
HEADING "LEGAL PROCEEDINGS", AND IN ITEM 7 UNDER THE HEADING "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WHEN
USED IN THIS ANNUAL REPORT, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES,"
"BELIEVES," "NO ASSURANCE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE COMPANY'S
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN ADDITION TO THE RISKS AND UNCERTAINTIES DISCUSSED
IN THE FOREGOING SECTIONS, SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:
THE IMPACT OF COMPETITION AND CHANGES TO THE COMPETITIVE ENVIRONMENT FOR THE
COMPANY'S PRODUCTS AND SERVICES, CHANGES IN TECHNOLOGY, RELIANCE ON STRATEGIC
PARTNERS, UNCERTAINTY OF LITIGATION, CHANGES IN GOVERNMENT REGULATION AND OTHER
FACTORS DETAILED, FROM TIME TO TIME, IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY
AS OF THE DATE OF THIS ANNUAL REPORT. THE COMPANY EXPRESSLY DISCLAIMS ANY
OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE
COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS
OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE HEREIN.
OVERVIEW
The Company provides video on-demand, network-based video games, cable
television programming and other interactive entertainment and information
services to the lodging and multi-family residential unit markets utilizing its
proprietary B-LAN-TM- system architecture.
LODGING SERVICES
GUEST PAY SERVICES. The Company's Guest Pay services include Guest
Scheduled-SM- on-demand movies, network-based Super
Nintendo-Registered Trademark- video games and other interactive entertainment
and information services for which the hotel guest pays on a per-view or
per-play basis. The growth that the Company has experienced has principally
resulted from its rapid expansion of guest pay-per-view services, which the
Company began installing in 1986. In May 1992, the Company introduced and began
installing its on-demand guest pay service. It has been the Company's experience
that rooms featuring the "on-demand" guest pay service generate significantly
more revenue and gross profit per room than comparable rooms having only the
scheduled format. The following table sets forth information in regard to guest
pay rooms installed as of December 31:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
ROOMS % ROOMS % ROOMS %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Scheduled.......................... 65,351 35.3 58,720 21.9 41,403 10.3
On-demand.......................... 119,680 64.7 209,487 78.1 358,842 89.7
--------- --------- --------- --------- --------- ---------
Total.......................... 185,031 100.0 268,207 100.0 400,245 100.0
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
27
<PAGE>
The Company's guest pay revenues depend on a number of factors, including
the number of rooms equipped with the Company's systems, guest pay buy rates,
hotel occupancy rates, the popularity, selection and pricing of the Company's
program offerings and the length of time programming is available to the Company
prior to its release to the home video and cable television markets. The primary
direct costs of providing guest pay services are (i) license fees paid to
studios for non-exclusive distribution rights to recently-released major motion
pictures, generally ranging from 35% to 50% of the Company's gross revenues
derived from each picture, (ii) nominal one-time license fees paid for
independent films, which are duplicated by the Company for distribution to its
operating sites, (iii) license fees for video games and other services, and (iv)
the commission retained by the hotel, generally 10% to 15% of gross revenues,
depending on the services provided and other factors. Guest pay operating
expenses include costs of system maintenance and support, in-room marketing,
video tape duplication and distribution, data retrieval, insurance and personal
property taxes.
The Company also provides video games and interactive multimedia
entertainment and information services through its guest pay systems. Services
include folio review, video check-out and guest satisfaction surveys. In 1993
the Company entered into a seven-year non-exclusive license agreement with
Nintendo of America, Inc. ("Nintendo") to provide hotels with a network-based
Super Nintendo-Registered Trademark- video game playing system. The following
table sets forth the number of guest pay rooms with game systems installed as of
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Super Nintendo-Registered Trademark- game systems rooms....... 69,806 163,879 322,903
</TABLE>
FREE-TO-GUEST SERVICES. In addition to guest pay services, the Company
provides cable television programming for which the hotel, rather than its
guests, pays the charges. Free-to-guest services include the satellite delivery
of various programming channels through a satellite earth station, which
generally is owned or leased by the hotel. For free-to-guest services the hotel
pays the Company a fixed monthly charge per room for each programming channel
provided. Such monthly charges range generally from $2.90 to $3.50 per room per
month for premium channels and from $.15 to $.85 per room per month for non-
premium channels. The Company obtains its free-to-guest programming pursuant to
multi-year agreements with the programmers and pays a fixed monthly fee per
room, which ranges generally from 75% to 80% of revenues for such services,
depending on incentive programs in effect from time to time from the programming
networks. In April 1996, the Company entered into an agreement with PRIMESTAR
pursuant to which the Company was appointed as the exclusive third-party
provider (other than partners in PRIMESTAR and their affiliated distributors) of
the PRIMESTAR-Registered Trademark- DBS (digital direct broadcast satellite)
signal to the lodging industry. Pursuant to this agreement, the Company will pay
a fee to PRIMESTAR for access to the PRIMESTAR signal, which will enable the
Company to provide free-to-guest digital satellite programming to a broader
segment of the lodging industry than can be cost-effectively served with
traditional C-band satellite systems. The following table sets forth the number
of free-to-guest rooms served as of December 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Free-to-guest rooms.......................................... 220,534 249,779 294,882
</TABLE>
RESIDENTIAL SERVICES
In January 1996, the Company formed ResNet for the purpose of extending the
Company's proprietary B-LAN-TM- system architecture and operational expertise
into the Multi-family Residential Unit ("MDU") market. In February 1996, ResNet
entered into an exclusive agreement with GE ResCom, an affiliate of General
Electric Co. and a leading provider of private telephony services to the MDU
market, under which GE ResCom's sales force will exclusively market ResNet's
video and cable services to MDUs
28
<PAGE>
nationwide. In October 1996, TCI Satellite, an affiliate of TCI, agreed to
invest up to $40 million in ResNet in exchange for up to a 36.99% interest in
ResNet and agreed to provide ResNet with long-term access to DBS signals for the
MDU market on a nationwide basis.
The Company believes that the MDU business has financial and technological
requirements similar to those of the Company's lodging industry business. ResNet
began installations of its first systems during the quarter ended September 30,
1996, but its operations did not have a material effect on the consolidated
results of operations of the Company for 1996.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUE ANALYSIS
The Company's total revenue for 1996 increased 54.6%, or $34.5 million, in
comparison to 1995. The following table sets forth the components of the
Company's revenue (in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AMOUNT REVENUES AMOUNT REVENUES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Guest Pay......................................... $ 84,504 86.5 $ 50,758 80.2
Free-to-guest..................................... 8,645 8.8 8,060 12.8
Other............................................. 4,572 4.7 4,395 7.0
--------- ----- --------- -----
Total......................................... $ 97,721 100.0 $ 63,213 100.0
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
GUEST PAY SERVICES. Guest Pay revenues increased 66.5%, or $33.7 million,
in 1996 as compared to 1995. This increase is attributable to (i) a 50.7%
increase in the average number of installed guest pay rooms, all of which were
installed with the Company's on-demand technology, and (ii) a 10.5% increase in
average monthly revenue per guest pay room. The following table sets forth
information with respect to guest pay rooms for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Average monthly revenue per room:
Movie revenue............................................................ $ 18.38 $ 17.08
Video game and information service revenue............................... 2.93 2.21
--------- ---------
Total per Guest Pay room............................................... $ 21.31 $ 19.29
--------- ---------
--------- ---------
For all Guest Pay rooms:
Movie buy rates.......................................................... 10.7% 10.1%
Average movie price...................................................... $ 8.26 $ 8.28
Average hotel occupancy rate............................................. 69.4% 69.0%
For on-demand Guest Pay rooms:
Movie buy rates.......................................................... 11.4% 11.2%
Average movie price...................................................... $ 8.28 $ 8.34
Average hotel occupancy rate............................................. 70.0% 69.8%
</TABLE>
Average movie revenue per room, for all guest pay rooms, was favorably
impacted by a combination of higher average buy rates and higher average
occupancies, all in comparison to the comparable period in the previous year,
and by the comparative increase in the proportion of on-demand rooms. It has
been the Company's experience that buy rates are higher in rooms featuring the
on-demand service than in those rooms with the scheduled service. The
comparative increase in buy rates, for both all and on-demand guest
29
<PAGE>
pay rooms, is attributed to a relatively more popular selection of
newly-released major motion pictures in 1996 as compared to 1995. The slight
decrease in average movie prices for both all and on-demand rooms between the
comparative periods is the result of an increase in the proportion of limited
service hotel rooms in the installed room base, in which rooms movie prices are
generally $7.95. The Company's movie prices were generally $7.95 or $8.95 during
the periods.
Average video game and information service revenue per room, for all guest
pay rooms, increased primarily as a result of the increase in the number of
rooms with video game services installed. On a per-room basis, average monthly
video game revenues were $2.26 and $1.70 during the years ended December 31,
1996 and 1995, respectively.
FREE-TO-GUEST SERVICES. Free-to-guest revenues increased 7.3%, or $585,000,
in 1996 as compared to 1995. The comparative increase in revenues resulted from
the 18.1% increase in the number of installed free-to-guest rooms since December
31, 1995, which installed room increase mitigated a decline in per-room revenues
resulting from a relatively lower proportion of rooms receiving premium services
in the current period.
OTHER. Revenue from other sources, such as the sale of televisions, system
equipment, service parts and labor, and miscellaneous free-to-guest programming
materials, increased by $177,000, or 4.0% in 1996 as compared to 1995, all of
which increase was attributable to sales of systems and equipment to foreign
licensees.
EXPENSE ANALYSIS
DIRECT COSTS. The following table sets forth information regarding the
Company's direct costs (in thousands) and gross profit margin for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Direct costs:
Guest Pay............................................................. $ 34,283 $ 19,053
Free-to-guest......................................................... 6,482 6,117
Other................................................................. 3,614 3,740
--------- ---------
$ 44,379 $ 28,910
--------- ---------
--------- ---------
Gross profit margin:
Guest Pay............................................................. 59.4% 62.5%
Free-to-guest......................................................... 25.0% 24.1%
Other................................................................. 21.0% 14.9%
Composite............................................................. 54.6% 54.3%
</TABLE>
Guest Pay direct costs increased 79.9%, or $15.2 million, in 1996 as
compared to the prior year. Since guest pay direct costs (primarily studio and
other license fees, video game license fees and the commission retained by the
hotel) are primarily based on related revenue, such direct costs generally vary
directly with revenue. As a percentage of guest pay revenue, such costs
increased from 37.5% in 1995 to 40.6% in 1996. The relative increase in guest
pay direct costs (as a percentage of revenue), in 1996 as compared to the prior
year, reflects higher movie-related costs due to proportionately higher revenue
from newly-released motion pictures and substantially increased video game
revenue in the guest pay revenue mix, which increases were mitigated by a slight
decrease in hotel commissions.
Free-to-guest direct costs increased 6.0% to $6.5 million in 1996 from $6.1
million in the prior year. As a percentage of free-to-guest revenue,
free-to-guest direct costs decreased to 75.0% in 1996 from 75.9% in the prior
year. The slight decrease in free-to-guest direct costs (as a percentage of
revenue) reflected the effect of price increases for certain programming.
30
<PAGE>
Direct costs associated with other revenue decreased 3.4%, or $126,000, in
1996 as compared to the prior year. As a percentage of related revenues, such
direct costs decreased to 79.0% of other revenue in 1996 versus 85.1% in 1995,
reflecting the effect of increased system and equipment sales, which have
slightly higher margins than the other sources of other revenue.
The Company's overall gross profit increased 55.5%, or $19.0 million, to
$53.3 million in 1996 on a 54.6% increase in revenues in comparison to the prior
year. The Company's overall gross profit margin was 54.6% in 1996 and 54.3% for
the prior year.
OPERATING EXPENSES. The following table sets forth information in regard to
the Company's operating expenses (in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AMOUNT REVENUES AMOUNT REVENUES
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Operating expenses:
Guest Pay operations............................ $ 15,032 15.4% $ 9,767 15.5%
Selling and marketing............................. 2,708 2.8% 1,871 3.0%
General and administrative........................ 10,873 11.1% 6,767 10.7%
Depreciation and amortization..................... 29,815 30.5% 18,336 29.0%
--------- --- --------- ---
Total operating expenses...................... $ 58,428 59.8% $ 36,741 58.2%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Guest Pay operations expenses increased 53.9%, or $5.3 million, in 1996 from
$9.8 million in the previous year. Such increase is primarily attributable to
the 50.7% increase in average installed Guest Pay rooms in 1996 as compared to
1995. Per average installed guest pay room, such expenses averaged $3.79 per
month in 1996 as compared to $3.71 per month in 1995, primarily reflecting
increased marketing, service and support costs and property taxes.
Selling and marketing expenses increased 44.7%, or $837,000, in 1996 from
$1.9 million in the prior year. This increase reflects the effect of additional
sales and marketing personnel and increased promotional and marketing
activities. As a percentage of revenue, such expenses represented 2.8% of
revenue in 1996 as compared to 3.0% in the prior year.
General and administrative expenses increased 60.7%, or $4.1 million, in
1996 from $6.8 million in the prior year. This increase reflects the effect of
substantially increased legal expenses, an increase in the number of development
and administrative personnel and increased facilities-related expenses. As a
percentage of revenue, general and administrative expenses represented 11.1% of
total revenue in 1996 as compared to 10.7% in the year earlier period.
Depreciation and amortization expenses increased 62.6% to $29.8 million in
1996 from $18.3 million in the prior year. This increase is directly
attributable to the increases in the number of installed guest pay and game
service equipped rooms previously discussed, as well as the associated software
costs and other capitalized costs such as service vans, equipment and computers
that are related to the increased number of rooms in service since the prior
year.
OPERATING LOSS. The Company's operating loss, as a result of the factors
previously discussed, increased to $5.1 million in 1996 from $2.4 million in
1995.
INTEREST EXPENSE. Interest expense increased to $8.2 million in 1996 from
$4.5 million in 1995 due to increases in long-term debt to fund the Company's
continuing expansion of its businesses. Long-term debt increased from $57.5
million at December 31, 1995 to $179.2 million at December 31, 1996, reflecting
the Company's issuance of $150 million principal amount of 10.25% Senior Notes
during 1996. The average principal amount of long-term debt (excluding amounts
outstanding under the revolving credit facility)
31
<PAGE>
outstanding during 1996 was approximately $65.4 million (at a weighted average
interest rate of approximately 10.0%) as compared to an average principal amount
outstanding of approximately $40.6 million (at a weighted average interest rate
of approximately 10.3%) during 1995. The weighted average amount outstanding
under the revolving credit facility was approximately $9.4 million during 1996
as compared to approximately $2.1 million in 1995.
EXTRAORDINARY LOSS. As a result of the early redemption of its 9.95% and
10.35% Senior Notes, the Company incurred a make-whole premium of approximately
$2.8 million, and wrote off unamortized debt issuance costs related to the notes
of approximately $0.4 million.
NET LOSS. For the reasons previously discussed, the Company's net loss
increased to $16.6 million in 1996 from a net loss of $7.0 million in the prior
year.
EBITDA. As a result of increasing revenues from guest pay services, and the
other factors previously discussed, EBITDA ("Earnings Before Interest, Income
Taxes and Depreciation and Amortization") increased 55.5% to $24.7 million in
1996 as compared to $15.9 million in 1995. EBITDA as a percentage of total
revenue increased to 25.3% in 1996 as compared to 25.1% in 1995. EBITDA is not
intended to represent an alternative to net income or cash flows from operating,
financing or investing activities (as determined in accordance with generally
accepted accounting principles) as a measure of performance. Rather, it is
included herein because EBITDA is a widely accepted financial indicator used by
certain investors and financial analysts to assess and compare companies on the
basis of operating performance. Management believes that EBITDA provides an
important additional perspective on the Company's operating results and the
Company's ability to service its long-term debt and to fund the Company's
continuing growth.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUE ANALYSIS
The Company's total revenues increased 56.5% in 1995 as compared to 1994.
The following table sets forth the various components of the Company's total
revenue (in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AMOUNT REVENUES AMOUNT REVENUES
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Guest Pay......................................... $ 50,758 80.2% $ 29,927 74.1%
Free-to-guest..................................... 8,060 12.8% 8,397 20.8%
Other............................................. 4,395 7.0% 2,070 5.1%
--------- ----- --------- -----
Total......................................... $ 63,213 100.0% $ 40,394 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
GUEST PAY SERVICES. Guest Pay revenues increased 69.6%, or $20.8 million,
in 1995 as compared to 1994. This increase is attributable to (i) an approximate
41% increase in the average number of guest pay rooms installed during 1995 as
compared to the prior year and (ii) increases in movie and video game and
information service revenue on a per-room basis of 13.6% and 118.8%,
respectively, both as compared to 1994. Higher average buy rates and higher
average movie prices combined with higher average occupancy rates such that
average monthly movie revenues increased on a per-room basis. Video game and
information service revenues increased from approximately $1.9 million in 1994
to approximately $5.8 million in 1995, primarily as a result of the increase in
the number of rooms with video game services
32
<PAGE>
installed. The following table sets forth information with respect to guest pay
rooms for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Average monthly revenue per room:
Movie revenue............................................................ $ 17.08 $ 15.03
Video game and information service revenue............................... 2.21 1.01
--------- ---------
Total per Guest Pay room............................................... $ 19.29 $ 16.04
--------- ---------
--------- ---------
For all Guest Pay rooms:
Movie buy rates.......................................................... 10.1% 9.5%
Average movie price...................................................... $ 8.28 $ 7.81
Average hotel occupancy rate............................................. 69.0% 68.7%
For on-demand Guest Pay rooms:
Movie buy rates.......................................................... 11.2% 11.1%
Average movie price...................................................... $ 8.34 $ 7.90
Average hotel occupancy rate............................................. 69.8% 69.9%
</TABLE>
FREE-TO-GUEST SERVICES. Free-to-guest revenues decreased 4.0%, or $337,000,
in 1995 as compared to the prior year. The comparative decrease is primarily
attributable to a relative decline in the proportion of free-to-guest rooms
receiving premium services.
OTHER. Revenue from other sources, such as the sale of televisions, system
equipment, service parts and labor, and miscellaneous free-to-guest programming
materials, increased by 112.3%, or $2.3 million, in 1995 as compared to 1994.
This increase is directly attributable to increases in television sales between
the periods.
EXPENSE ANALYSIS
DIRECT COSTS. The following table sets forth information regarding the
Company's direct costs (in thousands) and gross profit margin for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Direct costs:
Guest Pay............................................................. $ 19,053 $ 10,050
Free-to-guest......................................................... 6,117 6,412
Other................................................................. 3,740 1,719
--------- ---------
$ 28,910 $ 18,181
--------- ---------
--------- ---------
Gross profit margin:
Guest Pay............................................................. 62.5% 66.4%
Free-to-guest......................................................... 24.1% 23.6%
Other................................................................. 14.9% 17.0%
Composite............................................................. 54.3% 55.0%
</TABLE>
Guest pay direct costs increased 89.6%, or $9.0 million, in 1995 as compared
to 1994. Since guest pay direct costs (primarily studio and other license fees,
video game license fees and the commission retained by the hotel), are primarily
based on related revenue, such direct costs generally vary directly with
revenue. As a percentage of guest pay revenue, guest pay direct costs were 37.5%
of related revenues versus 33.6% in 1994. The relative increase in guest pay
direct costs (as a percentage of revenue) reflects higher movie-related costs
due to proportionately higher revenue from newly-released motion pictures,
substantially increased video game revenue in the guest pay revenue mix and
increased hotel commissions, as compared to 1994.
33
<PAGE>
Free-to-guest direct costs decreased 4.6%, or $295,000, in 1995 compared to
the prior year, and such direct costs also decreased, as a percentage of
free-to-guest revenues, to 75.9% in 1995 from 76.4% in the prior year, primarily
due to a comparative decrease in the relative proportion of premium channels in
the programming mix, as previously mentioned.
Direct costs related to other revenue increased 117.6%, or $2.0 million, in
1995 as compared to 1994. This increase was directly attributable to the
increased level of television sales discussed above. As a percentage of other
revenue, direct costs increased to 85.1% in 1995 as compared to 83.0% in 1994
due to the relative increase in revenue from television sales, which have a
lower margin than other components of the other revenue category.
The Company's overall gross profit margin was 54.3% in 1995 as compared to
55.0% in 1994. The slight decrease is attributable to the lower guest pay gross
profit margin, and to the effect of the increased sales of televisions in the
other revenue category, both as previously discussed.
OPERATING EXPENSES. The following table sets forth information in regard to
the Company's operating expenses (in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AMOUNT REVENUES AMOUNT REVENUES
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Operating expenses:
Guest Pay operations...................................... $ 9,767 15.5% $ 7,244 17.9%
Selling and marketing..................................... 1,871 3.0% 1,541 3.8%
General and administrative................................ 6,767 10.7% 4,127 10.2%
Depreciation and amortization............................. 18,336 29.0% 11,661 28.9%
--------- --- --------- ---
Total operating expenses................................ $ 36,741 58.2% $ 24,573 60.8%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Guest pay operations expense increased 34.8%, or $2.5 million, in 1995 as
compared to the prior year. This increase was primarily attributable to the
addition of 83,176 guest pay rooms since December 31, 1994. Per installed guest
pay room, such expenses averaged $3.71 per month during 1995 as compared to
$3.88 for 1994. Lower service and maintenance costs and lower administrative
support costs combined to offset higher property taxes, all on a per-room basis.
Selling and marketing expenses increased 21.4%, or $330,000, in 1995 as
compared to 1994, reflecting an increase in marketing and promotional activities
and the addition of sales and marketing personnel. Sales and marketing expenses
represented 3.0% of revenues in 1995 as compared to 3.8% in the prior year.
General and administrative expenses increased 64.0%, or $2.6 million, in
1995 as compared to the prior year, primarily reflecting increases in legal and
personnel-related costs. As a percentage of revenues, general and administrative
costs were 10.7% in 1995 as compared to 10.2% in 1994.
Depreciation and amortization expenses increased 57.2%, or $6.7 million, in
1995 as compared to 1994. This increase directly reflects the effect of the
approximate 45% increase in the number of installed guest pay rooms, as well as
the effect of expenditures to upgrade previously installed rooms to provide
video game and information services, and the associated software and other
capitalized costs such as service vans and equipment, computers and office
furniture, fixtures and other equipment related to the Company's continuing
expansion.
OPERATING LOSS. The Company's operating loss was $2.4 million in both 1995
and 1994.
INTEREST EXPENSE. Interest expense increased 368.1%, or $3.6 million, in
1995 as compared to 1994. The increase is directly attributable to increased
borrowing to fund the Company's continuing investments
34
<PAGE>
in both newly-installed and upgraded rooms. The average amount of long-term debt
outstanding during 1995, excluding amounts outstanding under the Company's then
existing revolving credit facility, was approximately $40.6 million as compared
to an average of approximately $12.4 million during 1994. The average amount
outstanding under the revolving credit facility was approximately $2.1 million
during 1995 as compared to approximately $1.9 million in 1994.
NET LOSS. The Company's net loss increased to $7.0 million in 1995 from
$4.6 million in 1994, as a result of the foregoing factors.
EBITDA. EBITDA increased 70.9%, or $6.6 million, in 1995 as compared to
1994. EBITDA, as a percentage of total revenues, increased to 25.1% in 1995 as
compared to 23.0% in 1994.
SEASONALITY
The Company's quarterly operating results are subject to fluctuation
depending upon hotel occupancy rates and other factors. Typically, occupancy
rates are higher during the second and third quarters due to seasonal travel
patterns.
LIQUIDITY AND CAPITAL RESOURCES
On September 15, 1994, the Company issued $28 million principal amount of
9.95% Senior Notes to three insurance companies in a private placement. On April
13, 1995, concurrently with certain amendments to the Note Purchase Agreement,
the Company issued $5 million principal amount of 10.35% Senior Notes under such
agreement in a private placement to certain holders of the 9.95% Senior Notes.
As part of the transaction in which the Company issued its 10.25% Senior Notes
(discussed further below) the Company redeemed the 9.95% and 10.35% Senior Notes
in their entirety, which represented a use of proceeds of approximately $28.9
million in principal amount, plus accrued interest, and a make-whole premium of
approximately $2.8 million.
On August 9, 1995, the Company issued $20 million principal amount of its
11.5% Senior Subordinated Notes due July 15, 2005 (the 11.5% Senior Notes) to
three insurance companies in a private placement. On October 4, 1995, the
Company issued an additional $10 million principal amount of such 11.5% Senior
Notes to the same purchasers and under identical terms and conditions. In
connection with the issuance of its 10.25% Senior Notes, the Company and the
holders of the 11.5% Senior Notes amended the terms of the 11.5% Senior Notes to
provide that such notes rank pari passu with, and have the same covenants as,
the 10.25% Senior Notes. The 11.5% Senior Notes are unsecured and bear interest
at the fixed rate of 11.5%, payable semi-annually. Mandatory annual principal
payments of $6 million commence July 15, 2001.
Net proceeds of the August 9, 1995 issue of the 11.5% Senior Notes, net of
original issue discount and issuance-related expenses, were approximately $18.1
million, and were used to (i) repay $10.0 million outstanding under the
Company's then existing revolving facility and (ii) provide funding for capital
expenditures to expand the Company's guest pay services business. The net
proceeds from the October 4, 1995 issue of the 11.5% Senior Notes, net of
original issue discount and issuance-related expenses, were approximately $9.2
million and provided additional capital to fund the expansion of the Company's
guest pay services business.
In connection with the December 19, 1996 issuance of its 10.25% Senior
Notes, the Company repaid all of the outstanding borrowing under its then bank
credit facility, approximately $20.4 million, and amended and restated such
facility. The amended and restated bank credit facility (the "1997 Facility")
provides for total lending commitments of $100.0 million (which can be increased
to $175.0 million with the consent of NatWest Bank) and contains certain
covenants, including the maintenance of certain financial ratios, limitations on
the incurrence of additional indebtedness, limitations on the incurrence of
certain liens, limitations on certain payments or distributions in respect of
the common stock and
35
<PAGE>
provisions for acceleration of principal repayment in certain circumstances. The
1997 Facility is secured by (i) a first priority security interest in all of the
Company's and certain of its subsidiaries' tangible and intangible assets and
(ii) a guarantee by ResNet of all amounts advanced to it by the Company. Amounts
borrowed under the 1997 Facility bear interest at either (i) LIBOR plus from
1.25% to 2.00% or (ii) the greater of (a) the NatWest Bank prime rate plus from
.25% to 1.00% or (b) the federal funds rate plus from .75% to 1.50%, depending
on the Company's total leverage, as defined in the agreement. The banks'
commitment under the 1997 Facility is subject to a scheduled reduction of 15%
beginning in December 1998 and annually thereafter as follows: December
1999--20%; December 2000--20%; December 2001--20%; and December 2002--25%.
On May 23, 1996, the Company sold 3,680,000 shares of the Company's Common
Stock for net proceeds of approximately $44.6 million. Such proceeds were used
to repay approximately $25.9 million of borrowings then outstanding under the
Existing Credit Facility, and to provide working capital for the continuing
expansion of the Company's lodging and residential business.
On October 21, 1996, the Company and ResNet entered into agreements with TCI
Satellite pursuant to which TCI Satellite acquired a 4.99% equity interest in
ResNet for a purchase price of $5.4 million in cash (the "Stock Payment") and
agreed to provide ResNet with long-term access to a DBS signal on a nationwide
basis. In addition, TCI Satellite agreed to advance up to $34.6 million to
ResNet during the five years ending October 21, 2001, under a convertible note
agreement (the "TCI Convertible Note") to purchase DBS equipment. The TCI
Convertible Note is subject to mandatory conversion into a maximum 32.0% equity
interest in ResNet at such time as conversion is not restricted by FCC
regulations. The TCI Convertible Note is unsecured, payable solely in shares of
ResNet's common stock, non-recourse to the Company, and subordinated to all
present and future borrowings by ResNet including any borrowings from the
Company by ResNet. Interest accrues (generally at TCI's average borrowing rate)
on amounts outstanding under the TCI Convertible Note, but such interest is not
payable in cash (and does not increase the equity interest into which the TCI
Convertible Note will be converted).
On December 19, 1996, the Company issued $150 million, principal amount, of
unsecured 10.25% Senior Notes (the Notes) in a private offering in accordance
with Rule 144A of The Securities Act of 1933, as amended (the Securities Act).
The proceeds of the Notes, which were issued at par, after placement fees and
offering expenses, were approximately $143.2 million. Approximately $31.7
million of such proceeds was used to redeem the outstanding principal amounts of
the 9.95% and 10.35% Senior Notes and to prepay all outstanding amounts under
the Company's then revolving credit facility, both as previously discussed. The
remaining proceeds, approximately $91.1 million, were invested in highly liquid,
interest-bearing securities pending their use for funding capital expenditures
to expand the Company's lodging and residential businesses.
The Company has incurred operating and net losses due in large part to the
depreciation, amortization and interest expenses related to the capital required
to expand its lodging and residential businesses. The growth of the Company's
business requires substantial indebtedness to finance expansion of its lodging
and multi-family residential businesses. The Company expects that losses will
increase as the Company implements its expansion strategy. Historically, cash
flow from operations has not been sufficient to fund the cost of expanding the
Company's business and to service existing indebtedness. Capital expenditures
were approximately $85.3 million during 1996, and net cash provided by operating
activities was approximately $9.5 million.
Depending on the rate of growth of its lodging and residential businesses
and other factors, the Company expects to incur capital expenditures of between
approximately $90 to $125 million in 1997 and substantial amounts thereafter.
The actual amount and timing of the Company's capital expenditures will vary
(and such variations could be material) depending upon the number of new
contracts for services entered into by the Company, the costs of installations
and other factors; however, this is a forward-looking statement and there can be
no assurance in this regard. In addition, the 1997 Facility limits the amount of
36
<PAGE>
the Company's annual capital expenditures to a certain base amount plus the
amounts of certain additional financing.
The Company believes that the net proceeds from the 10.25% Senior Notes, the
funds to be provided by TCI Satellite, its operating cash flows and borrowings
permitted under the 1997 Facility will be sufficient to fund the Company's cash
requirements for 12 to 18 months; however, this is a forward-looking statement
and there can be no assurance in this regard. After such time, the Company may
incur additional amounts of indebtedness. If the Company's plans or assumptions
change, if its assumptions prove to be inaccurate or if the Company experiences
unanticipated costs or competitive pressures, the Company may be required to
seek additional capital sooner than currently anticipated. There can be no
assurance that the Company will be able to obtain financing, or, if such
financing is available, that the Company will be able to obtain it on acceptable
terms. Failure to obtain additional financing, if needed, could result in the
delay or abandonment of some or all of the Company's expansion plans.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"), encourages, but does not require, a
fair value-based method of accounting for employee stock options or similar
equity instruments. It also allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), but requires pro forma disclosures of
net income and earnings per share as if the fair value method of accounting had
been applied. The Company elected to continue to measure compensation cost in
accordance with APB 25, and to comply with the pro forma disclosure requirements
of Statement 123 as of January 1, 1996.
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was
adopted by the Company as of January 1, 1996. This statement was applied
prospectively, and requires that impairment losses on long-lived assets be
recognized when the book value of the asset exceeds its expected undiscounted
cash flows. The adoption did not have a material impact on the Company's
financial position or results of operations.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14--Exhibits, Financial Statement Schedules and Reports on Form
8-K" for the Company's Consolidated Financial Statements, the Notes thereto and
Schedules filed as a part of this report.
ITEM 9-- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
37
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as hereinafter noted, the information concerning directors and
executive officers of the Company is incorporated by reference from the sections
entitled "Executive Officers", "Election of Directors--Board of Directors and
Nominees" and "Compliance with Reporting Requirements of Section 16 of the
Exchange Act" of the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A within 120 days after the end of the last fiscal year.
ITEM 11--EXECUTIVE COMPENSATION
Information concerning executive remuneration and transactions is
incorporated by reference from the section entitled "Beneficial Ownership of
Principal Stockholders and Management" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the last fiscal year.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference from the section entitled "Beneficial
Ownership of Principal Stockholders and Management" of the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the
end of the last fiscal year.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions with
management is incorporated by reference from the section entitled "Certain
Transactions with Management and Others" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year.
38
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES--Reference is made to
the "Index to Consolidated Financial Statements" of LodgeNet Entertainment
Corporation, located at page F-1 of this PART IV, for a list of the financial
statements and schedules for the year ended December 31, 1996 included herein.
(b) REPORTS ON FORM 8-K--The Company filed one report on Form 8-K, dated
December 4, 1996, during the quarter ended December 31, 1996.
(c) EXHIBITS--Following is a list of Exhibits filed with this report.
Exhibits 10.1 and 10.2 constitute management contracts. Exhibits 10.3, 10.7,
10.8, 10.9, 10.10, 10.11, and 10.12 constitute compensatory plans.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Registrant (1)
4.1 Registration Rights Agreement dated as of December 16, 1996, between LodgeNet Entertainment
Corporation and Morgan Stanley & Co. Incorporated, NatWest Capital Markets Limited and Montgomery
Securities
4.2 Indenture dated as of December 19, 1996, between LodgeNet Entertainment Corporation and Marine
Midland Bank, as trustee, including the form of Senior Note
4.3 Form of Senior Notes (included in Exhibit 4.2)
10.1 Form of Employment Agreement between the Company and each of Tim C. Flynn and Scott C. Petersen (1)
10.2 Form of Agreement between the Company and each of David M. Bankers, John M. O'Haugherty, Douglas D.
Truckenmiller and Steven D. Truckenmiller (1)
10.3 LodgeNet Entertainment Corporation Stock Option Plan (as amended and restated effective August 15,
1996)
10.4 Office and Building Lease dated December 9, 1991, regarding principal office of the Company (1)
10.5 Agreement to Extend Lease dated November 6, 1996, regarding Office and Building Lease dated December
9, 1991
10.6 License Agreement dated May 2, 1993 between Nintendo of America, Inc. and LodgeNet Entertainment
Corporation (2)
10.7 Stock Option Agreements dated as of February 29, 1988 between the Company and Tim C. Flynn, as
extended by Extension Agreement dated as of July 15, 1991 (2)
10.8 Stock Option Agreements dated as of February 29, 1988 between the Company and Scott C. Petersen, as
extended by Extension Agreement dated as of July 15, 1991 (2)
10.9 Stock Option Agreement dated as of December 31, 1992 between the Company and John M. O'Haugherty (2)
10.10 Stock Option Agreement dated as of December 31, 1992 between the Company and David M. Bankers (2)
10.11 Form of Stock Option Agreement for Non-Employee Directors (3)
10.12 Form of Incentive Stock Option Agreement for Key Employees (3)
10.13 Securities Purchase Agreement, by and between LodgeNet Entertainment Corporation, John Hancock Mutual
Life Insurance Company, Allstate Life Insurance Company, Connecticut Mutual Life Insurance and CMA
Life Insurance Company, dated as of August 9, 1995 (4)
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
10.14 Amendment to Securities Purchase Agreement, dated as of December 19, 1996
10.15 Form of Executive Severance Agreement between the Company and each of Tim C. Flynn, Scott C.
Petersen, Jeffrey T. Weisner, John M. O'Haugherty, David M. Bankers, Douglas D. Truckenmiller, Steven
D. Truckenmiller and Eric R. Jacobsen; all dated of July 25, 1995 (5)
10.16 Video Services Agreement by and among GE Capital-ResCom L.P. and ResNet Communications, Inc. and
LodgeNet Entertainment Corporation dated as of February 9, 1996 (6)+
10.17 Amended and Restated Loan Agreement by and among LodgeNet Entertainment Corporation, the Banks
Signatory thereto, National Westminster Bank Plc, as Agent for such Banks, and National Westminster
bank of Canada, as an Issuing bank, dated December 19, 1996
10.18 Equipment Sales Agreement between ResNet Communications, Inc. and TCI Satellite Entertainment, Inc.,
dated as of October 21, 1996 (7)
10.19 Subordinated Convertible Term Loan Agreement between ResNet Communications, Inc. and TCI Satellite
Entertainment, Inc., dated as of October 21, 1996 (7)
10.20 Option Agreement between ResNet Communications, Inc. and TCI Satellite Entertainment, Inc., dated as
of October 21, 1996 (7)
10.21 Standstill Agreement between LodgeNet Entertainment Corporation and TCI Satellite Entertainment,
Inc., dated as of October 21, 1996 (7)
10.22 Stockholders' Agreement between LodgeNet Entertainment Corporation and TCI Satellite Entertainment,
Inc., dated as of October 21, 1996 (7)
10.23 Subscription Agreement between ResNet Communications, Inc. and TCI Satellite Entertainment, Inc.,
dated as of October 21, 1996 (7)
10.24 First Amendment, dated October 17, 1996, to License Agreement between Nintendo of America, Inc. and
LodgeNet Entertainment Corporation
11.1 Statement of computation of earnings per share
12.1 Statement of computation of ratios
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
- ------------------------
+ Confidential Treatment has been requested with respect to certain portions of
this agreement.
(1) Incorporated by Reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1, as filed with the Securities and Exchange Commission,
September 24, 1993.
(2) Incorporated by Reference to the company's Amendment No. 2 to Registration
Statement on Form S-1, as filed with the Securities and Exchange Commission,
October 13, 1993.
(3) Incorporated by Reference to the Annual Report on Form 10-K for the year
ended December 31, 1993, as filed with the Securities and Exchange
Commission, March 25, 1994.
(4) Incorporated by Reference to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, as filed with the Securities and Exchange
Commission, August 14, 1995.
(5) Incorporated by Reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, as filed with the Securities and Exchange
Commission, November 14, 1995.
(6) Incorporated by Reference to the Annual Report on Form 10-K for the year
ended December 31, 1995, as filed with the Securities and Exchange
Commission, April 1, 1996.
(7) Incorporated by Reference to TCI Satellite Entertainment, Inc.'s Amendment
No. 1 to Registration Statement on Form 10 as filed with the Securities and
Exchange Commission, October 29, 1996.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Sioux
Falls, State of South Dakota, on March 17, 1997.
LodgeNet Entertainment Corporation
By: /s/ TIM C. FLYNN
------------------------------------
Tim C. Flynn,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ TIM C. FLYNN President, Chief Executive
------------------------------------------- Officer and Director (Principal March 17, 1997
Tim C. Flynn Executive Officer)
/s/ SCOTT C. PETERSEN
------------------------------------------- Executive Vice President, Chief March 17, 1997
Scott C. Petersen Operating Officer, and Director
/s/ JEFFREY T. WEISNER Vice President--Finance,
------------------------------------------- (Principal Financial and March 17, 1997
Jeffrey T. Weisner Accounting Officer)
/s/ DAVID AUSTAD
------------------------------------------- Director March 17, 1997
David Austad
/s/ LAWRENCE FLINN, JR.
------------------------------------------- Director March 17, 1997
Lawrence Flinn, Jr.
/s/ RICHARD R. HYLLAND
------------------------------------------- Director March 17, 1997
Richard R. Hylland
/s/ R. F. LEYENDECKER
------------------------------------------- Director March 17, 1997
R. F. Leyendecker
</TABLE>
41
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996......................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996......................................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996......................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
INDEX TO FINANCIAL SCHEDULES
Report of Independent Public Accountants on Schedule....................................................... F-20
Schedule II -- Valuation and Qualifying Accounts........................................................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LodgeNet Entertainment Corporation:
We have audited the accompanying consolidated balance sheets of LodgeNet
Entertainment Corporation (a Delaware corporation) and Subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LodgeNet Entertainment
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 28, 1997
F-2
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 2,252 $ 86,177
Accounts receivable, net of allowance for doubtful accounts............................. 12,150 18,428
Prepaid expenses and other.............................................................. 1,462 1,935
---------- ----------
Total current assets.................................................................. 15,864 106,540
Property and equipment, net............................................................... 108,106 164,157
Debt issuance costs, net of accumulated amortization...................................... 1,537 8,509
Other assets, net......................................................................... -- 562
---------- ----------
$ 125,507 $ 279,768
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 14,911 $ 16,775
Current maturities of long-term debt.................................................... 4,254 425
Accrued expenses........................................................................ 3,745 4,596
---------- ----------
Total current liabilities............................................................. 22,910 21,796
Deferred revenue.......................................................................... 2,374 2,956
Long-term debt............................................................................ 57,497 179,233
Minority interest in consolidated subsidiary.............................................. -- 231
---------- ----------
Total liabilities..................................................................... 82,781 204,216
---------- ----------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized; 7,352,113 and 11,125,369
shares outstanding at December 31, 1995 and 1996, respectively........................ 74 111
Additional paid-in capital.............................................................. 71,234 120,539
Accumulated deficit..................................................................... (28,582) (45,098)
---------- ----------
Total stockholders' equity............................................................ 42,726 75,552
---------- ----------
$ 125,507 $ 279,768
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Guest Pay................................................................ $ 29,927 $ 50,758 $ 84,504
Free-to-guest............................................................ 8,397 8,060 8,645
Other.................................................................... 2,070 4,395 4,572
---------- ---------- ----------
Total revenues............................................................. 40,394 63,213 97,721
---------- ---------- ----------
Direct costs:
Guest Pay................................................................ 10,050 19,053 34,283
Free-to-guest............................................................ 6,412 6,117 6,482
Other.................................................................... 1,719 3,740 3,614
---------- ---------- ----------
Total direct costs..................................................... 18,181 28,910 44,379
---------- ---------- ----------
Gross profit............................................................... 22,213 34,303 53,342
---------- ---------- ----------
Operating expenses:
Guest Pay operations..................................................... 7,244 9,767 15,032
Selling and marketing.................................................... 1,541 1,871 2,708
General and administrative............................................... 4,127 6,767 10,873
Depreciation and amortization............................................ 11,661 18,336 29,815
---------- ---------- ----------
Total operating expenses............................................... 24,573 36,741 58,428
---------- ---------- ----------
Operating loss............................................................. (2,360) (2,438) (5,086)
Interest expense, net...................................................... 966 4,522 8,243
---------- ---------- ----------
Loss before income taxes and extraordinary loss............................ (3,326) (6,960) (13,329)
Provision for income taxes................................................. -- 66 28
---------- ---------- ----------
Loss before extraordinary loss............................................. (3,326) (7,026) (13,357)
Extraordinary loss......................................................... 1,324 -- 3,253
---------- ---------- ----------
Net loss................................................................... $ (4,650) $ (7,026) $ (16,610)
---------- ---------- ----------
---------- ---------- ----------
Per common share:
Loss before extraordinary loss........................................... $ (0.45) $ (0.95) $ (1.39)
Extraordinary loss....................................................... (0.18) -- (0.34)
---------- ---------- ----------
Net loss attributable to common stock.................................... $ (0.63) $ (0.95) $ (1.73)
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding........................................ 7,326,748 7,382,471 9,624,226
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.......................... 7,274,248 $ 73 $ 69,468 $ (16,876) $ 52,665
Common stock option activity...................... 4,500 -- 24 -- 24
Net loss.......................................... -- -- -- (4,650) (4,650)
Foreign currency translation adjustment........... -- -- -- (97) (97)
------------ ----- ---------- ------------ ----------
Balance, December 31, 1994.......................... 7,278,748 73 69,492 (21,623) 47,942
Common stock option activity...................... 73,365 1 62 -- 63
Warrants issued................................... -- -- 1,680 -- 1,680
Net loss.......................................... -- -- -- (7,026) (7,026)
Foreign currency translation adjustment........... -- -- -- 67 67
------------ ----- ---------- ------------ ----------
Balance, December 31, 1995.......................... 7,352,113 74 71,234 (28,582) 42,726
Issuance of common stock.......................... 3,680,000 36 44,599 -- 44,635
Common stock option activity...................... 93,256 1 34 -- 35
Net loss.......................................... -- -- -- (16,610) (16,610)
Sale of interest in subsidiary.................... -- -- 4,672 -- 4,672
Foreign currency translation adjustment........... -- -- -- 94 94
------------ ----- ---------- ------------ ----------
Balance, December 31, 1996.......................... 11,125,369 $ 111 $ 120,539 $ (45,098) $ 75,552
------------ ----- ---------- ------------ ----------
------------ ----- ---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss...................................................................... $ (4,650) $ (7,026) $ (16,610)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................... 11,661 18,336 29,815
Non-cash portion of extraordinary loss...................................... 1,324 -- 434
Minority interest........................................................... -- -- (16)
Change in operating assets and liabilities:
Accounts receivable....................................................... (2,765) (3,541) (6,278)
Prepaid expenses and other................................................ 139 (447) (473)
Accounts payable.......................................................... 5,735 6,205 1,864
Accrued expenses and deferred revenue..................................... 505 1,857 1,433
Other..................................................................... -- -- (607)
--------- --------- ----------
Net cash provided by operating activities....................................... 11,949 15,384 9,562
--------- --------- ----------
Investing activities:
Property and equipment additions.............................................. (43,521) (51,497) (85,258)
Proceeds from sale of interest in subsidiary.................................. -- -- 5,396
Proceeds from certificates of deposit......................................... 2,008 -- --
--------- --------- ----------
Net cash used for investing activities........................................ (41,513) (51,497) (79,862)
--------- --------- ----------
Financing activities:
Proceeds from long-term debt.................................................. 28,000 33,630 151,514
Debt issuance costs........................................................... (462) (1,348) (7,969)
Stock issuance costs.......................................................... -- -- (477)
Repayment of long-term debt................................................... (6,000) (89) (33,607)
Borrowings under revolving credit facility.................................... 6,500 10,000 55,958
Repayments of revolving credit facility....................................... (6,500) (10,000) (55,958)
Proceeds from issuance of common stock........................................ -- -- 44,635
Proceeds from issuance of warrants to purchase common stock................... -- 1,680 --
Stock option activity......................................................... 14 63 35
--------- --------- ----------
Net cash provided by financing activities..................................... 21,552 33,936 154,131
--------- --------- ----------
Effect of exchange rates on cash.............................................. 58 127 94
--------- --------- ----------
Increase (decrease) in cash and cash equivalents.............................. (7,954) (2,050) 83,925
Cash and cash equivalents at beginning of period.............................. 12,256 4,302 2,252
--------- --------- ----------
Cash and cash equivalents at end of period.................................... $ 4,302 $ 2,252 $ 86,177
--------- --------- ----------
--------- --------- ----------
Supplemental cash flow information:
Cash paid for interest........................................................ $ 836 $ 3,341 $ 7,870
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
LodgeNet Entertainment Corporation ("LodgeNet" or the "Company") and its
wholly-owned Canadian subsidiary assemble, install and operate guest pay movie
systems and provide satellite-delivered, free-to-guest programming, interactive
games and multimedia entertainment, and guest information systems to the lodging
industry, primarily in the United States and Canada. Through its majority-owned
subsidiary, ResNet Communications, Inc. ("ResNet"), the Company installs and
operates private cable television systems in multi-family residential properties
nationwide. The operations of ResNet were not material to the consolidated
results of operations for 1996.
The Company's operating performance and outlook are strongly influenced by
such factors as overall occupancy levels and economic conditions in the lodging
industry, the number of lodging rooms equipped with the Company's systems, the
popularity and availability of programming, and competitive factors.
The rapid growth of the Company's businesses has and is expected to continue
to require capital resources in excess of operating cash flows. While the
Company's working capital, operating cash flows and its revolving credit
facility are expected to be sufficient to fund its growth for 1997, the Company
will likely, depending on its rate of growth, require additional growth capital
in subsequent years.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company, its wholly-owned Canadian subsidiary, and ResNet
Communications, Inc., which is majority-owned by the Company. All significant
inter-company accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions about certain matters and items. These estimates and assumptions
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities, at the date of the financial statements; and
the reported amounts of revenues, expenses and costs during the reporting
periods. The ultimate outcome of the matters and items may be different from the
estimates and assumptions.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents are comprised of demand
deposits and temporary investments in highly liquid securities having original
maturities of 90 days or less.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost, including
certain payroll costs related to the installation of new systems. Repairs and
maintenance costs, which do not significantly extend the useful lives of the
respective assets, are charged to operations as incurred. Depreciation of guest
pay and free-to-guest systems begins when such systems are installed and
activated. Depreciation on other equipment begins when such equipment is placed
in service. For financial reporting purposes, the
F-7
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company does not assume a salvage value for any equipment, and depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Building............................................................................ 19
Guest Pay systems:
System components................................................................. 5 to 7
In-room equipment................................................................. 3 to 5
Cable television equipment.......................................................... 3 to 10
Free-to-guest systems............................................................... 5
Other equipment..................................................................... 5
</TABLE>
PRODUCT DEVELOPMENT--The Company has capitalized certain costs of developing
software and other components of its guest pay and residential systems. The
capitalization of these costs begins when a system's technological and
commercial feasibility has been established and ends when such systems are
available for use in guest pay or residential properties. Capitalized costs are
reported at the lower of unamortized costs or net realizable value, and are
amortized over the system's estimated useful life. Guest pay system development
costs capitalized were $936,000, $1,480,000 and $1,616,000 during the years
ended December 31, 1994, 1995 and 1996, respectively. Amortization of such costs
was $344,000, $455,000 and $599,000 for the years ended December 31, 1994, 1995
and 1996, respectively.
DEBT ISSUANCE COSTS--Costs associated with the issuance of debt securities
and with obtaining credit facilities are capitalized and amortized over the term
of the related borrowing or facility. The Company capitalized $462,000,
$1,348,000 and $7,969,000 of debt issuance costs during the years ended December
31, 1994, 1995 and 1996, respectively. Amortization of such costs was $203,000
in 1994, excluding $1,324,000 which was reflected as an extraordinary loss
resulting from the early termination of a bank credit facility during 1994 (see
Note 10); $260,000 in 1995; and $564,000 in 1996, excluding $434,000 included in
an extraordinary loss resulting from the early redemption of the Company's 9.95%
and 10.35% Senior Notes (see Note 10). Accumulated amortization was $13,000,
$273,000 and $1,271,000 at December 31, 1994, 1995 and 1996, respectively.
LOSS PER SHARE COMPUTATION--The net loss per common share was computed using
the weighted average shares outstanding during the periods and, when applicable,
outstanding warrants and options.
REVENUE RECOGNITION--Revenues and related costs are recognized when the
services are rendered. The Company has obtained certain programming agreements
which provide for the receipt of low-cost programming in the earlier years of
such agreements. The Company's policy is to record the costs of such programming
on a straight-line basis. At December 31, 1994, 1995 and 1996 the Company had
recorded deferred revenues, relating to such agreements, of $1,654,000,
$1,579,000 and $1,835,000, respectively. Such amounts represent reductions of
programming costs in future years and are included in deferred revenues.
FOREIGN CURRENCY TRANSLATION--The assets and liabilities of the Company's
Canadian subsidiary were translated at year-end exchange rates. Income statement
items were translated at average exchange rates during the periods.
F-8
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISKS AND CUSTOMER DATA--The Company has derived
virtually all of its revenue from entities in the lodging industry, however, no
individual customer accounted for as much as 10% of total revenue in any period
presented in the accompanying consolidated statements of operations. The
allowance for doubtful accounts was $410,000 and $785,000 at December 31, 1995
and 1996, respectively. The provision for doubtful accounts was $226,000 in
1994, $343,000 in 1995, and $922,000 in 1996.
INCOME TAXES--The Company accounts for income taxes under the liability
method, in accordance with the requirements of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax basis of assets and liabilities. Measurement is based on
enacted tax rates applicable to the periods in which such differences are
expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts for items
comprising current assets and current liabilities approximate fair value due to
the short period to maturity of these items. The fair value of long-term debt
instruments is estimated by reference to current yields to maturity on similar
instruments or quotes where available. The fair value of the warrants issued
during 1995 was estimated using option valuation techniques.
STOCK-BASED COMPENSATION--The Company measures compensation costs associated
with its stock option plans in accordance with Accounting Principles Board
Opinion No. 25, as permitted by Statement of Financial Accounting Standards No.
123. The effect of fair value based measurement of such costs on net loss and
net loss per share, in accordance with Statement of Financial Accounting
Standards No. 123, is disclosed on a pro forma basis.
RECENTLY ISSUED ACCOUNTING STANDARDS--Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of" was adopted by the Company on January 1,
1996. The adoption did not have a material impact on the Company's financial
position or results of operations.
RECLASSIFICATIONS--Certain items in the consolidated financial statements
have been reclassified to conform to 1996 classifications. Such
reclassifications had no effect on previously reported consolidated statements
of operations or stockholders' equity.
F-9
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--PROPERTY AND EQUIPMENT, NET
Property and equipment was comprised as follows at (in thousands of
dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Land, building and equipment.......................................... $ 8,976 $ 15,914
Free-to-guest equipment............................................... 5,068 7,369
Cable television equipment............................................ -- 5,291
Guest pay systems:
Installed........................................................... 119,354 173,607
System components................................................... 13,468 23,290
Software costs...................................................... 4,649 6,266
Building construction in progress..................................... -- 2,528
---------- ----------
Total............................................................. 151,515 234,265
Less--depreciation and amortization................................... (43,409) (70,108)
---------- ----------
Property and equipment, net........................................... $ 108,106 $ 164,157
---------- ----------
---------- ----------
</TABLE>
NOTE 4--LONG-TERM DEBT
Long-term debt was comprised as follows at (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Unsecured Senior Notes due December 15, 2006
10.25% interest payable semi-annually............................... $ -- $ 150,000
Unsecured Senior Notes repaid in 1996:
9.95% interest payable quarterly.................................... 28,000 --
10.35% interest payable quarterly................................... 5,000 --
Unsecured Senior Notes due July 15, 2005:
11.5% interest payable semi-annually................................ 30,000 30,000
Less--unamortized discount.......................................... (1,599) (1,384)
Other................................................................. 350 1,042
---------- ----------
61,751 179,658
Less current maturities............................................... (4,254) (425)
---------- ----------
$ 57,497 $ 179,233
---------- ----------
---------- ----------
</TABLE>
Long-term debt has the following scheduled principal maturities for the
years ended December 31 (in thousands of dollars): 1997--$425; 1998--$380;
1999--$221; 2000--$16; 2001--$6,000; thereafter-- $172,616.
10.25% SENIOR NOTES--On December 19, 1996, the Company issued $150 million,
principal amount, of unsecured 10.25% Senior Notes (the "Notes") in a private
offering. The proceeds of the Notes, which were issued at par, after placement
fees and offering expenses, were approximately $143.2 million. Approximately
$31.7 million of such proceeds were used to redeem the outstanding principal
amounts of the 9.95% and 10.35% Senior Notes, $24.5 million and $4.4 million,
respectively, plus a make-whole premium,
F-10
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
resulting from their early redemption, of approximately $2.8 million.
Approximately $20.4 million of the proceeds was used to prepay all outstanding
amounts under the Company's revolving credit facility. The remaining proceeds of
approximately $91.1 million, were invested in highly liquid, interest-bearing
securities pending their use for funding capital expenditures to expand the
Company's businesses.
The Notes were issued to qualified institutional buyers or other accredited
investors pursuant to a registration rights agreement under which the Company is
obligated to either (i) consummate an exchange offer pursuant to an effective
registration statement or (ii) cause resales of the Notes to be registered
pursuant to an effective shelf registration. If one such registration event does
not occur within 180 days of the initial sale, the interest rate on the Notes
will increase by 0.5% per year, and if one such registration event does not
occur within nine months of the initial sale the interest rate on the Notes will
increase by an additional 0.5% per year.
The Notes are unsecured, rank pari passu in right of payment with future
unsubordinated unsecured indebtedness and rank senior in right of payment to all
subordinated indebtedness of the Company. The Notes contain covenants which
restrict the ability of the Company to incur additional indebtedness, create
liens, pay dividends or make certain distributions in respect of its common
stock, redeem capital stock, issue or sell stock of subsidiaries in certain
circumstances, effect certain business combinations, and effect certain
transactions with affiliates or stockholders.
The Notes are redeemable at the option of the Company, in whole or in part,
on or after December 15, 2001, initially at 105.125% of their principal amount
(plus accrued and unpaid interest) declining ratably to 100% of their principal
amount (plus accrued and unpaid interest) on or after December 15, 2003. In
addition, at any time prior to December 15, 1999, the Company may redeem up to
35% of the aggregate principal amount of the Notes with the proceeds of one or
more public equity offerings.
9.95% AND 10.35% SENIOR NOTES--On September 15, 1994, the Company sold $28
million principal amount of 9.95% Senior Notes in a private transaction with
three insurance companies. The 9.95% Senior Notes were issued at par and mature
on August 1, 2003. Proceeds from the sale of the 9.95% Senior Notes, after
issuance expenses, were approximately $27.6 million and such proceeds were used
to repay previous borrowings and to provide approximately $15.1 million of
capital for the continuing growth of the Company's guest pay services business.
On April 13, 1995, the Company and the holders of the Company's 9.95% Senior
Notes amended the Note Purchase Agreement governing such 9.95% Senior Notes and
concurrently the Company issued $5 million principal amount of 10.35% Senior
Notes, under the Note Purchase Agreement, in a private placement to certain
holders of the Company's 9.95% Senior Notes. Proceeds from the issue, after
issuance related expenses, were approximately $4.9 million, and were used to
repay previous borrowings and for expansion of the Company's guest pay services
business. The 9.95% and 10.35% Senior Notes were redeemed as part of the
refinancing in which the 10.25% Senior Notes were issued in 1996.
11.5% SENIOR NOTES--During 1995, the Company issued $30 million principal
amount of 11.5% Senior Subordinated Notes due July 15, 2005 (the "Subordinated
Notes") to three insurance companies in two separate private placements.
Mandatory annual principal payments of $6 million commence July 15, 2001.
Proceeds from the issuance of the Subordinated Notes, net of original issue
discount and issuance-related expenses, were approximately $27.3 million and
were used (i) to repay previous borrowings and (ii) to provide funding for
capital expenditures to expand the Company's guest pay services business. The
Company issued a total of 480,000 warrants (see Note 9) to purchase common stock
of the Company in
F-11
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
connection with the issuance of the Subordinated Notes and the value of the
warrants, $1.68 million, was recorded in stockholders' equity and shown as a
discount on the Subordinated Notes. As part of the refinancing transaction in
which the 10.25% Senior Notes were issued, the holders of the Subordinated Notes
adopted the covenants and ranking of the 10.25% Senior Notes.
At December 31, 1995 and 1996, the estimated fair value of the 11.5% Senior
Notes was approximately $31.5 and $29.2 million, respectively. The fair value of
the 10.25% Senior Notes at December 31, 1996 approximated their carrying value.
NOTE 5--REVOLVING CREDIT FACILITY
On December 19, 1996 the Company amended and restated its revolving credit
facility with National Westminster Bank Plc, as Agent ("NatWest"), to provide
for an increase in the total lending commitments under the facility from $60
million to $100 million. The amended facility is secured by (i) a first priority
security interest in all of the Company's and certain of its subsidiaries
tangible and intangible assets, and (ii) a guarantee by ResNet of all amounts
advanced to it by the Company. Amounts outstanding under the amended facility
bear interest at either (i) LIBOR (London Inter Bank Offered Rate) plus from
1.25% to 2.00% or (ii) the greater of (a) the NatWest Prime Rate plus from .25%
to 1.00% or (b) the federal funds rate plus from .75% to 1.50%; depending on the
Company's total leverage, as defined in the agreement. At December 31, 1996, the
applicable interest rate on the amended facility would have been 9.875%.
The commitment under the amended facility may be increased to $175 million,
subject to the consent of NatWest, but is subject to a scheduled reduction of
15% beginning in December 1998 and annually thereafter as follows: December
1999--20%; December 2000--20%; December 2001--20%; and December 2002--25%. The
amended facility provides for the issuance of Letters of Credit, subject to
customary terms and conditions; and includes terms and conditions which require
the maintenance of certain financial ratios, limit the incurrence of additional
indebtedness, limit the incurrence of certain liens, limit certain payments or
distributions in respect of the Common Stock, and provide for acceleration of
principal repayment in certain circumstances. As of December 31, 1996, the
Company had outstanding Standby Letters of Credit of $1.2 million, there were no
amounts outstanding under the amended facility, and the Company was in
compliance with all covenants, terms and conditions of the amended facility.
NOTE 6--COMMITMENTS AND CONTINGENCIES
PROGRAMMING AGREEMENTS--The Company, through programming agreements,
provides guest pay and free-to-guest programming services to the lodging and
multi-family residential unit industries. These agreements provide that the
Company receives monthly revenue for such services. Such agreements contain
various restrictions, including default and termination procedures, and
generally range from five to seven years in duration. The Company has also
entered into agreements with certain networks and studios which provide their
programs for redistribution. Under these agreements, the Company pays fees which
are based on revenue generated, or on rate schedules based on the number of
sites under license by the Company. The agreements contain various restrictions,
including default and termination procedures, and generally range from three to
five years in duration.
SIGNAL CARRIAGE AGREEMENT--The Company and PRIMESTAR Partners, L.P. have
entered into a Signal Carriage Agreement (the "Agreement") under which, in
exchange for exclusive distribution of satellite-delivered free-to-guest
programming to the lodging industry, the Company agreed to share certain
F-12
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
operating cash flows, as defined in the agreement, with PRIMESTAR Partners, L.P.
The Agreement has an initial term of 15 years and includes various restrictions,
including default and termination provisions.
PURCHASE COMMITMENTS--In connection with the agreements in which the Company
sold an equity interest in ResNet to TCI Satellite (see Note 11), the Company
agreed to purchase $5.4 million of satellite receiving equipment from TCI
Satellite. The Company has other purchase commitments, in the ordinary course of
business, none of which are expected to result in losses.
OPERATING LEASES--The Company has entered into certain operating leases,
which at December 31, 1996 require future minimum lease payments, as follows (in
thousands of dollars): 1997--$339; 1998-- $135; 1999--$119; 2000 and
thereafter--$132.
LITIGATION--On February 16, 1995, On Command Corporation filed a lawsuit in
Federal District Court for the Northern District of California asserting patent
infringement by the Company relating to its on-demand video system. The
complaint requests an unspecified amount of damages and injunctive relief. The
Company filed an answer and counterclaim to the lawsuit on April 17, 1995,
denying the claims, asserting affirmative defenses and asserting a counterclaim
for declaratory relief. The Company is currently engaged in litigation with
respect to this matter and trial is expected to begin on September 29, 1997.
Based on the advice of special patent counsel and technical experts retained by
the Company, as well as the Company's independent analysis, the Company believes
that the claims of infringement are unfounded. The Company has and will continue
to vigorously defend itself in this matter. Patent litigation is especially
complex, both as to the factual allegations and the legal interpretation of
patent claim language, which makes such lawsuits difficult to assess with
certainty. While the Company and its patent counsel believe that the Company has
a number of defenses available which, if properly considered, would eliminate or
minimize any liability for the Company, an unexpected unfavorable resolution,
depending on the amount and timing, could adversely affect the Company. Although
the outcome of any litigation cannot be predicted with certainty, the Company
believes that the ultimate disposition of this matter will not have a material
adverse effect on the Company's financial position or results of operations.
The Company is subject to other litigation arising in the ordinary course of
its businesses. As of the date hereof, in the opinion of management, the
resolution of such other litigation will not have a material adverse effect on
the Company's financial position or results of operations.
CONSTRUCTION COMMITMENTS--In June 1996, the Company acquired approximately
22.6 acres of land in Sioux Falls, South Dakota for approximately $339,000; and
in September 1996, entered into a contract for construction of a National
Headquarters and Distribution Center. Approximately $2.5 million had been
expended under the construction contract as of December 31, 1996. The completed
cost of the new facility is estimated to be approximately $15.0 million, and the
new facility is expected to be ready for occupancy during the third quarter of
1997.
NOTE 7--STOCKHOLDERS' EQUITY
PREFERRED STOCK--There are 5,000,000 shares of preferred stock, $.01 par
value, authorized by the Company's certificate of incorporation, of which none
were outstanding at December 31, 1995 and 1996. The Board of Directors may
authorize the issuance of preferred stock, $.01 par value, in one or more series
and with rights and privileges for each issue as determined by the Board of
Directors.
F-13
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK--On May 23, 1996, the Company sold 3,200,000 shares of common
stock at $13.00 per share in a public offering. On June 10, 1996 the Company
sold an additional 480,000 shares of common stock, representing the
underwriters' exercise of their over-allotment option in accordance with the
underwriting agreement. Net proceeds from these issuances, after underwriters'
commissions and other offering-related expenses, were approximately $44.6
million. Such proceeds were used to repay borrowings under the Company's
revolving credit facility, approximately $25.9 million, and to provide capital
for the expansion of the Company's lodging and residential businesses.
NOTE 8--STOCK OPTION PLANS
The Company has stock options plans which provide for the granting of up to
1,926,792 non-qualified or incentive stock options on the Company's common
stock. Certain officers, directors and key employees have been granted options
to purchase common stock of the company under these plans. Options become
exercisable in accordance with vesting schedules determined by a committee of
the Board of Directors, and generally expire ten years after date of grant. No
options had expired as of December 31, 1996 and outstanding options expire
through 2006. The following is a summary of the stock option activity for the
years ending December 31:
<TABLE>
<CAPTION>
1995 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Beginning of year.................................................. 1,058,291 $ 2.30 1,318,426 $ 4.21
Granted............................................................ 336,000 $ 9.40 239,000 $ 12.66
Exercised.......................................................... (73,365) $ 0.35 (93,256) $ 0.62
Forfeited or canceled.............................................. (2,500) $ 8.85 (12,500) $ 8.51
---------- ----------
End of year........................................................ 1,318,426 $ 4.21 1,451,670 $ 5.79
---------- ----------
---------- ----------
Exercisable at end of year......................................... 894,010 $ 1.64 907,671 $ 2.66
---------- ----------
---------- ----------
</TABLE>
The following is a summary of stock options outstanding as of December 31,
1996:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING TERM EXERCISE EXERCISE
PRICE RANGE NUMBER IN YEARS PRICE NUMBER PRICE
- ------------------ ---------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$0.23 to $0.46 513,649 6.8 $ 0.38 513,649 $ 0.38
$2.77 to $3.23 244,522 6.6 $ 2.90 244,522 $ 2.90
$7.00 to $9.55 220,999 8.0 $ 8.29 80,250 $ 8.68
$10.78 to $14.75 472,500 9.0 $ 12.00 69,250 $ 11.75
---------- ---------
1,451,670 7.6 $ 5.79 907,671 $ 2.66
---------- ---------
---------- ---------
</TABLE>
F-14
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK OPTION PLANS (CONTINUED)
The weighted average "fair value" of options granted during the year ended
December 31 was as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Weighted average fair value per option granted............................... $ 4.47 $ 6.01
--------- ---------
--------- ---------
</TABLE>
The "fair value" of each option granted was estimated as of the grant date
using the Black-Scholes option valuation model. The following assumptions were
made in estimating fair value: (i) dividend yield-- none, (ii) weighted average
risk-free interest rate--6.4%, (iii) weighted average expected life--5.0 years,
and (iv) weighted average expected volatility--44.0%.
The Company accounts for its stock option compensation plans in accordance
with Accounting Principles Board Opinion No. 25. Accordingly, because the
Company's stock option plans are fixed plans, no compensation cost has been
charged to operations for any period presented. Had compensation cost been
determined in accordance with Statement of Financial Accounting Standards No.
123, net loss before extraordinary loss and net loss would have been increased,
and the effect of such increases, reflected on those items on a pro forma basis,
would have been as follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Pro Forma:
Loss before extraordinary loss............................................................ $ (8,526) $ (14,794)
Net loss.................................................................................. (8,526) (18,047)
Per common share:
Loss before extraordinary loss............................................................ $ (1.15) $ (1.54)
Net loss.................................................................................. (1.15) (1.88)
</TABLE>
NOTE 9--WARRANTS
In connection with the Company's initial public offering in 1993, the
Company issued warrants to purchase 75,000 shares of common stock of the Company
to the underwriters. The exercise price of such warrants is $16.20 and the
warrants expire on October 14, 1998.
In connection with the 1995 issuance of the 11.5% Senior Notes (see Note 4),
the Company issued a total of 480,000 warrants to purchase common stock of the
Company. Each warrant entitles the holder to purchase one share of common stock
at an exercise price of $7.00 per share. The warrants include demand
registration rights and anti-dilution provisions, and such warrants expire on
July 15, 2005. The portion of the proceeds from the 1995 debt issuance deemed
attributable to the warrants was recorded as additional paid-in capital.
F-15
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--EXTRAORDINARY LOSS
In connection with the issuance of its unsecured, 9.95% Senior Notes during
1994, the Company terminated its then bank credit facility, which had been
secured by all of the Company's assets. As a consequence of the early
termination of this facility, the Company wrote off related, unamortized debt
issuance costs of $1,324,000.
Concurrently with the issuance of its 10.25% Senior Notes in 1996, the
Company redeemed its 9.95% and 10.35% Senior Notes due August 15, 2003. As a
consequence of the early redemption of the 9.95% and 10.35% Senior Notes, the
Company incurred a make-whole premium of $2,819,000 and wrote off related,
unamortized debt issuance costs of $434,000.
NOTE 11--SALE OF EQUITY INTEREST IN SUBSIDIARY
On October 21, 1996, the Company and its subsidiary, ResNet, entered into
agreements with TCI Satellite Entertainment, Inc. ("TCI Satellite") under which
ResNet sold a 4.99% equity interest in ResNet to TCI Satellite in exchange for
$5.4 million in cash. The proceeds related to the change in equity interest were
in excess of the Company's carrying value for its investment, and such excess,
approximately $4.7 million after transaction expenses, was reflected as a credit
to paid-in capital. Pursuant to a signal carriage agreement, TCI Satellite has
agreed to provide ResNet with nationwide access to certain satellite programming
signals.
In addition to the aforementioned cash investment, TCI Satellite agreed to
advance up to $34.6 million to ResNet during the five year period ending October
21, 2001, under a convertible note agreement (the "Convertible Note"). The
Convertible Note matures on October 21, 2001, subject to a one-year extension at
the election of ResNet, and on that date is subject to mandatory conversion into
a maximum 32.0% equity interest in ResNet. The Convertible Note is unsecured, is
not subject to prepayment, has no recourse to the Company, and is subordinated
to all present and future borrowings by the Company to the extent that the
proceeds thereof are advanced to ResNet. Further, the Convertible Note is
subordinated to inter-company loans or advances to ResNet by the Company.
Interest accrues (generally at TCI Satellite's average borrowing rate) on
amounts outstanding under the Convertible Note, but such interest is not paid in
cash and does not increase the equity interest into which the Convertible Note
will be mandatorily converted. Such interest accrues only until maturity or such
time as the balance of outstanding principal and accrued interest is $34.6
million, whichever is sooner. The proceeds of the Convertible Note will be
distributed in satellite receiving equipment from TCI Satellite. The Company,
ResNet and TCI Satellite have agreed that all amounts advanced by the Company to
ResNet shall be in accordance with an inter-company promissory note, which shall
bear interest
In connection with the aforementioned agreements, the Company has granted
TCI Satellite an option to acquire an additional 13.01% equity interest in
ResNet, first exercisable 60 days following October 21, 1999. Such option is to
be exercised in exchange for an additional cash investment in ResNet based on
ResNet's then fair market value. Such option will expire, subject to certain
limitations, coincident with the maturity of the Convertible Note.
LIQUIDATION PREFERENCE--The Company, ResNet and TCI Satellite have agreed
that in the event of a sale of ResNet, or a sale of substantially all of the
assets of ResNet, that (i) repayment of any inter-company loans or advances by
the Company to ResNet shall have preference to any other distribution, (ii) that
after repayment of such advances, that TCI Satellite shall be entitled to a
preferential return of its
F-16
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--SALE OF EQUITY INTEREST IN SUBSIDIARY (CONTINUED)
aggregate investment in ResNet and (iii) that after the repayment of amounts in
accordance with items (i) and (ii), that any further distribution shall be
determined on a per-share basis.
NOTE 12--INCOME TAXES
The provisions for income taxes consisted of State income taxes. The Company
and its subsidiaries file separate federal income tax returns. At December 31,
1996, the Company had net operating loss carry-forwards in excess of $54 million
for Federal income tax purposes. Such carry-forwards expire through 2011, and
Federal tax regulations limit the availability and timing of usage of
carry-forwards. Significant components of the Company's deferred tax liabilities
and assets were as follows at (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................................... $ 3,777 $ 9,899
Deferred tax assets:
Net operating loss carry-forwards.................................... 9,939 18,502
Deferred programming................................................. 540 624
Other................................................................ 345 1,135
--------- ----------
10,824 20,261
Valuation allowance.................................................. (7,047) (10,362)
--------- ----------
3,777 9,899
--------- ----------
Net deferred taxes..................................................... $ -- $ --
--------- ----------
--------- ----------
</TABLE>
The Company established the valuation allowance for deferred tax assets
after considering its historical financial performance, existing deferred tax
liabilities, and certain information about future years.
NOTE 13--ACCRUED EXPENSES
Accrued expenses were comprised as follows at (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accrued taxes.............................................................. $ 702 $ 523
Accrued compensation....................................................... 1,277 1,953
Accrued interest........................................................... 1,748 2,120
Other...................................................................... 18 --
--------- ---------
$ 3,745 $ 4,596
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected quarterly financial data are in thousands of dollars,
except per share data:
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDING ENDING ENDING ENDING
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
For 1995:
Total revenue.............................................. $ 13,392 $ 14,581 $ 17,414 $ 17,826
Gross profit............................................... 7,222 8,023 9,484 9,574
Loss before extraordinary loss............................. (1,480) (1,443) (1,292) (2,811)
Net loss................................................... (1,480) (1,443) (1,292) (2,811)
Per common share (1):
Loss before extraordinary loss........................... $ (0.20) $ (0.19) $ (0.17) $ (0.38)
Net loss................................................. (0.20) (0.19) (0.17) (0.38)
For 1996:
Total revenue.............................................. $ 20,368 $ 23,202 $ 27,116 $ 27,035
Gross profit............................................... 11,254 12,780 14,425 14,883
Loss before extraordinary loss............................. (2,873) (3,395) (1,857) (5,232)
Net loss................................................... (2,873) (3,395) (1,857) (8,485)
Per common share (1):
Loss before extraordinary loss........................... $ (0.39) $ (0.38) $ (0.17) $ (.47)
Net loss (2)............................................. (0.39) (0.38) (0.17) (.76)
</TABLE>
- ------------------------
(1) Per share amounts are computed independently for each of the quarters
presented. Therefore, the sum of such amounts will not equal the total for
the year.
(2) The results of the quarter ended December 31, 1996 included an extraordinary
loss of approximately $3.3 million relating to the early retirement of debt
(see Note 10).
NOTE 15--EVENT SUBSEQUENT TO DECEMBER 31, 1996
On February 28, 1997, the Board of Directors of the Company authorized and
adopted a Stockholder Rights Plan. Pursuant to the Rights Plan, the Board of
Directors declared a dividend distribution of one "Right" for each outstanding
share of common stock, par value $.01, of the Company to stockholders of record
at the close of business on March 10, 1997.
Initially, the Rights will be attached to all common stock certificates and
no separate Rights certificates will be distributed. The Rights will separate
from the common stock and be distributed upon the occasion of (i) a public
announcement that a person, group or entity has acquired or obtained the right
to acquire 15% or more of the common stock of the Company or (ii) ten days
following the commencement of, or an announcement of the intention to make, a
tender or exchange offer which would result in a person, group or entity
becoming the holder of 15% or more of the Company's common stock. The Rights are
not exercisable until distributed.
In general, each Right, when exercisable, initially entitles the registered
holder to purchase from the Company one one-thousandth of a share of a new
series of preferred stock, designated as Series A Participating Preferred Stock,
par value $.01, at a price of $60.00 per share. In certain other events, after
the Rights have become exercisable, each Right entitles the holder to purchase
for $60.00 an amount of
F-18
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--EVENT SUBSEQUENT TO DECEMBER 31, 1996 (CONTINUED)
common stock of the Company, or in certain circumstances securities of the
acquirer, having a then-current market value of two times the exercise price of
the Right. The Rights include anti-dilution provisions in the event of a stock
dividend, split-up or reclassification of the common stock. The preferred stock
purchasable upon exercise of the Rights will be non-redeemable and junior to any
other issue of preferred stock the Company might issue, and will include
dividend and liquidation preferences. No stockholder privileges attach to the
Rights until exercised.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To LodgeNet Entertainment Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in this annual report on Form
10-K, and have issued our report thereon dated February 28, 1997. Our audit was
made for the purpose of forming an opinion on those financial statements taken
as a whole. The following schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 28, 1997
F-20
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
--------------------------
COLUMN B ADDITIONS
----------- -------------------------- COLUMN D COLUMN E
COLUMN A BALANCE CHARGED TO CHARGED TO ------------- -----------
- ---------------------------------------------------- BEGINNING COSTS AND OTHER DEDUCTIONS BALANCE END
CLASSIFICATION OF PERIOD EXPENSES EXPENSES (NOTE 1) OF PERIOD
- ---------------------------------------------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Allowance for Doubtful Accounts................... $ 179 $ 226 $ -- $ 177 $ 228
----- ----- ----------- ----- -----
----- ----- ----------- ----- -----
Year Ended December 31, 1995:
Allowance for Doubtful Accounts................... $ 228 $ 343 $ -- $ 161 $ 410
----- ----- ----------- ----- -----
----- ----- ----------- ----- -----
Year Ended December 31, 1996:
Allowance for Doubtful Accounts................... $ 410 $ 922 $ -- $ 547 $ 785
----- ----- ----------- ----- -----
----- ----- ----------- ----- -----
</TABLE>
- ------------------------
(1) All deductions from reserves were for the purposes for which such reserves
were created.
F-21
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES A PARTICIPATING PREFERRED STOCK
OF
LODGENET ENTERTAINMENT CORPORATION
We, Tim C. Flynn, the Chief Executive Officer, and Eric R. Jacobsen, the
Secretary, of LodgeNet Entertainment Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation, the said Board of Directors on
February 28, 1997, adopted the following resolution creating a series of 200,000
shares of Preferred Stock designated as Series A Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation be and it hereby
is created, and that the designation and amount thereof and the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
as "Series A Participating Preferred Stock," par value $.01 per share, and the
number of shares constituting such series shall be 200,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Participating Preferred Stock to a number less than that of the shares then
outstanding plus the number of shares issuable upon exercise of outstanding
rights, options or warrants or upon conversion of outstanding securities issued
by the Corporation.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Participating Preferred Stock in preference to the holders of
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Corporation and any other junior stock, shall be
<PAGE>
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Participating
Preferred Stock in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $25.00, or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise), declared on the Common
Stock, since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating
Preferred Stock. In the event the Corporation shall at any time after the
close of business on March 10, 1997 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, by reclassification or
otherwise, then in each such case the amount to which holders of shares of
Series A Participating Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per share on
the Series A Participating Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Participating Preferred Stock unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly
-2-
<PAGE>
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Participating
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to
a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock into a greater
number of shares, or (iii) combine the outstanding Common Stock into a
smaller number of shares, by reclassification or otherwise, then in
each such case the number of votes per share to which holders of
shares of Series A Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A
Participating Preferred Stock and the holders of shares of Common
Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Participating
Preferred Stock shall be in arrears in an amount equal to six
quarterly dividends thereon, the holders of the Series A Participating
Preferred Stock,
-3-
<PAGE>
voting as a separate series from all other series of Preferred Stock and
classes of capital stock, shall be entitled to elect two members of the
Board of Directors in addition to any Directors elected by any other
series, class or classes of securities and the authorized number of
Directors will automatically be increased by two. Promptly thereafter,
the Board of Directors of this Corporation shall, as soon as may be
practicable, call a special meeting of holders of Series A Participating
Preferred Stock for the purpose of electing such members of the Board of
Directors. Said special meeting shall in any event be held within 45
days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A
Participating Preferred Stock, voting as a separate series, shall be
entitled and shall have exercised their right to elect two Directors,
then and during such time as such right continues (a) the then
authorized number of Directors shall be increased by two, and the
holders of Series A Participating Preferred Stock, voting as a
separate series, shall be entitled to elect the additional Directors
so provided for, and (b) each such additional Director shall not be a
member of any existing class of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election
of Directors, or until his or her successor shall be elected and shall
qualify, or until his or her right to hold such office terminates
pursuant to the provisions of this Section 3(C).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Participating
Preferred Stock entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of
Series A Participating Preferred Stock shall be entitled to elect two
Directors, there are fewer than two such Directors in office by reason
of resignation, death or removal, then, promptly thereafter, the Board
of Directors shall call a special meeting of the holders of Series A
Participating Preferred Stock for the purpose of filling such
vacancy(ies) and such vacancy(ies) shall be filled at such special
meeting. Such special meeting shall in any event be held within 45
days of the occurrence of any such vacancy(ies).
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A
Participating Preferred Stock outstanding are paid, and, in addition
thereto, at least one regular
-4-
<PAGE>
dividend has been paid subsequent to curing such arrearage, the term of
office of any Director elected pursuant to this Section 3(C), or his or
her successor, shall automatically terminate, and the authorized number
of Directors shall automatically decrease by two, and the rights of the
holders of the shares of the Series A Participating Preferred Stock to
vote as provided in this Section 3(C) shall cease, subject to renewal
from time to time upon the same terms and conditions.
(D) Except as set forth herein or as otherwise provided by law,
holders of Series A Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except
to the extent they are entitled to vote with holders of Common Stock
and any other capital stock of the Corporation having general voting
rights as set forth herein) for taking any corporate action.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Participating Preferred Stock except dividends paid ratably on the
Series A Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Participating Preferred Stock provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or
-5-
<PAGE>
upon dissolution, liquidation or winding up) to the Series A Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Participating Preferred Stock or any shares of stock
ranking on a parity with the Series A Participating Preferred Stock
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders
of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. REACQUIRED SHARES. Any shares of Series A Participating Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock unless, prior thereto,
the holders of shares of Series A Participating Preferred Stock shall have
received per share, the greater of $1,000.00 or 1,000 times the payment made per
share of Common Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing
(i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted
as set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and
-6-
<PAGE>
recapitalization with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of
the Series A Liquidation Preference and the Common Adjustment in respect of
all outstanding shares of Series A Participating Preferred Stock and Common
Stock, respectively, holders of Series A Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Participating Preferred Stock then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event there are
not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, by reclassification or
otherwise, then in each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator
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<PAGE>
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that are outstanding immediately prior to such event.
8. REDEMPTION. The shares of Series A Participating Preferred Stock
shall not be redeemable.
9. RANKING. The Series A Participating Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
10. AMENDMENT. The Certificate of Incorporation and the By-Laws of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares of
Series A Participating Preferred Stock voting separately as a class.
11. FRACTIONAL SHARES. Series A Participating Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury as of the 5th day of
March 1997.
/s/ Tim C. Flynn
-------------------------------------
Tim C. Flynn, Chief Executive Officer
Attest:
/s/ Eric R. Jacobsen
-------------------------------------
Eric R. Jacobsen, Secretary
-8-
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 10/08/1993
932815155 - 2346943
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement"), dated October 7,
1993, entered into by and between LodgeNet Entertainment Corporation, a South
Dakota corporation ("LEC"), and LNet, Inc., a Delaware corporation ("LNET"),
said corporations being hereinafter sometimes referred to collectively as the
"Constituent Corporations,"
WITNESSETH:
WHEREAS, LEC is a corporation duly organized and existing under the laws
of the State of South Dakota;
WHEREAS, LNET is a corporation duly organized and existing under the
laws of the State of Delaware;
WHEREAS, on the date of this Agreement, Lec has the authority to issue
250,000 shares of common stock, par value $0.01 per share ("LEC Common
Stock"), and 20,000 shares of preferred stock, par value $100 per share ("LEC
Preferred Stock"), issuable in one or more series, consisting of 15,000
shares authorized to be issued as Series A Preferred Stock ("LEC Series A")
and 3,800 shares authorized to be issued as Series B Convertible Preferred
Stock ("LEC Series B") and 1,200 for which no series as yet has been
designated, of which 40,972 shares of the LEC Common Stock, and 16,725 shares
of LEC Preferred Stock, consisting of 12,925 shares of LEC Series A and 3,800
shares of LEC Series B, are issued and outstanding;
WHEREAS, on the date of this Agreement, LNET has the authority to issue
100 shares of common stock, par value $0.01 per share (the "LNET Common
Stock"), and 100 shares of preferred stock, par value $0.01 per share, of
which 100 shares of LNET Common Stock are issued and outstanding and owned by
LEC;
<PAGE>
WHEREAS, the respective Boards of Directors of the Constituent
Corporations have determined that it is advisable and in the best interests
of each such corporation and its stockholders to effect the reincorporation
of LEC in the State of Delaware by merging LEC into LNET upon the terms and
conditions herein provided; and
WHEREAS, the respective Boards of Directors of the Constituent
Corporations have approved this Agreement and have directed that this
Agreement be submitted to a vote of their respective stockholders;
NOW THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, the Constituent Corporations hereby agree as follows:
1. Merger. LEC and LNET shall be merged into a single corporation in
accordance with the laws of the States of South Dakota and Delaware by
merging LEC with and into LNET, with LNET being the corporation surviving the
merger (the "Merger"). LNET, as such surviving corporation, is hereinafter
sometimes referred to as the "Surviving Corporation." This Agreement shall
be submitted to the stockholders of each of the Constituent Corporations as
provided by law, and upon the approval or adoption thereof by the
stockholders of each of the Constituent Corporations in accordance with the
laws of the States of South Dakota and Delaware, respectively, the Merger
provided for herein shall become effective (the "Effective Time") upon the
execution and filing of such documents and the doing of such acts and things
as shall be required for accomplishing the Merger under the laws of the
States of South Dakota and Delaware.
2. Amendment and Restatement of Certificate of Incorporation of LNET.
To change the name of the Surviving Corporation to "LodgeNet Entertainment
Corporation," to increase the authorized shares of stock of the Surviving
Corporation and to make the other changes set forth therein, the certificate
of incorporation of LNET is hereby amended and restated to read
-2-
<PAGE>
as set forth in Exhibit A attached hereto, which is incorporated into this
Agreement by this reference thereto. The certificate of incorporation of LNET,
as so amended and restated, shall constitute the restated certificate of
incorporation of the Surviving Corporation until further amended in the manner
provided by law. The restated certificate of incorporation set forth in said
Exhibit A attached hereto may be certified separate and apart from this
Agreement as the restated certificate of incorporation of the Surviving
Corporation.
3. Succession. At the Effective Time, by virtue of the Merger, LNET
shall succeed to LEC in the manner of, and as more fully set forth in, Section
259 of the General Corporation Law of the State of Delaware.
4. Stock and Stock Certificates.
4.1 Stock. At the Effective Time, by virtue of the Merger:
(a) Each share of LEC common stock outstanding immediately
prior thereto shall be changed and converted into 21.654 fully paid and
nonassessable shares of common stock of the Surviving Corporation, except
that no fractional shares of common stock of the Surviving Corporation
shall be issued and in lieu thereof the Surviving Corporation shall pay
to any holder of LEC common stock who otherwise would be entitled to a
fractional share of common stock of the Surviving Corporation as a
result of the Merger the cash equivalent of such fractional share, based
on an assumed cash value of $11.00 per whole share;
(b) Each share of the LEC Series A outstanding immediately
prior thereto shall be changed and converted into an entitlement to a
cash payment of $1,000 per share, plus all dividends
-3-
<PAGE>
accrued to the Effective Time but previously unpaid, with such payment
to be made by the Surviving Corporation upon delivery to it for
cancellation of the certificates for the shares of LEC Series A to be
paid for in each case, duly endorsed to the Surviving Corporation;
(c) Each share of the LEC Series B outstanding immediately
prior thereto shall be changed and converted into 598.33467 fully paid
and nonassessable shares of common stock of the Surviving Corporation,
except that no fractional shares of common stock of the Surviving
Corporation shall be issued and in lieu thereof the Surviving
Corporation shall pay to each holder of shares of LEC Series B who
otherwise would be entitled to a fractional share of common stock of the
Surviving Corporation as a result of the Merger the cash equivalent of
such fractional share, based on an assumed cash value of $11.00 per
whole share; and
(d) Each share of LNET Common Stock outstanding immediately
prior thereto shall be canceled and retired and resume the action of
subordinated but unissued shares of common stock of the Surviving
Corporation, and no shares of common stock of the Surviving Corporation
or other securities of, or payment by, the Surviving Corporation shall
be issued or made in respect thereof.
4.2 Stock Certificates. After the Effective Time, all of the
outstanding certificates which immediately prior to that time represented
shares of stock of LEC shall be deemed for all purposes to evidence ownership
of the class and number of shares of stock of the
-4-
<PAGE>
Surviving Corporation and/or an entitlement to payment into which such shares
of stock of LEC were changed and converted under the provisions of Section 4.1
above and the registered owner of any such outstanding stock certificate
shall, until such certificate shall have been surrendered for transfer or
cancellation or otherwise accounted for to the Surviving Corporation or its
transfer agent, have and be entitled to exercise precisely the same rights
with respect to, and to receive any dividends and other distributions upon,
the shares of stock of the Surviving Corporation evidenced thereby as such
owner would if it held certificates issued by the Surviving Corporation to
represent such shares of stock of the Surviving Corporation.
5. Stock Options and Employee Benefit Plans.
5.1. Stock Options. At the Effective Time and by virtue of the
Merger, the Surviving Corporation will assume and continue all of the
outstanding options to purchase LEC Common Stock granted by LEC prior to the
date of this Agreement, consisting of the options set forth in Exhibit B
attached hereto, except that the shares subject to such option shall be
converted into shares of common stock of the Surviving Corporation as set
forth in such Exhibit B with the price per share of common stock of the
Surviving Corporation under such stock options changed to be as set forth in
such Exhibit B.
5.2. Employee Benefit Plans. At the Effective Time and by
virtue of the Merger, the Surviving Corporation will assume all obligations
of LEC under any and all employee benefit plans of LEC in effect immediately
prior to the Effective Time with respect to which employee rights or accrued
benefits existed immediately prior to the Effective Time. As of the Effective
Time, reference to LEC in any and all such plans shall be deemed changed to
refer to the Surviving Corporation.
-5-
<PAGE>
6. Bylaws; Corporate Offices.
6.1. Bylaws. The bylaws of LNET in effect immediately prior to
the Effective Time shall continue in full force and effect as the bylaws of
the Surviving Corporation, without change until such bylaws are duly amended
in accordance with the provisions thereof and applicable law.
6.2 Directors. The directors of LNET immediately prior to the
Effective Time shall continue as the directors of the Surviving Corporation
for terms of office that expire according to the terms of the restated
certificate of incorporation of the Surviving Corporation and its bylaws.
6.3. Officers. The officers of LNET immediately prior to the
Effective Time shall continue as the officers of the Surviving Corporation in
accordance with the provisions of the bylaws of the Corporation.
7. General.
7.1. Further Assurances. From time to time, as and when
required by the Surviving Corporation or by its successors or assigns, there
shall be executed and delivered on behalf of LEC such deeds and other
instruments, and there shall be taken or caused to be taken by it such further
and other action, as shall be appropriate or necessary in order to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises, and authority of LEC and otherwise
to carry out the purposes of this Agreement, and the officers and directors of
the Surviving Corporation are fully authorized in the name and on behalf of
LEC or otherwise to take any and all such action and to execute and deliver
any and all such deeds and other instruments.
7.2. Amendment. At any time before approval hereof by the
stockholders of either of the Constituent Corporations, this Agreement may be
amended, modified or
-6-
<PAGE>
supplemented by written agreement of the parties thereto in any manner as may
be determined in the judgment of the respective Boards of Directors of LNET
and LEC to be necessary, desirable or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purpose and
intent of this Agreement; provided, however, that this Agreement may be
amended, modified or supplemented after it has been approved by the
stockholders of the Constituent Corporations only to the extent permitted by
South Dakota law and by Delaware law.
7.3. Abandonment. At any time before the Effective Time, this
Agreement may be terminated and the Merger may be abandoned by the majority
vote of the entire Board of Directors of either LEC or LNET, or both,
notwithstanding the approval of this Agreement by the stockholders of each
such corporation, if circumstances arise which, in the judgment of the Board
of Directors of either corporation, make such abandonment in the best
interest of either corporation and its stockholders.
7.4. Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
South Dakota Business Corporation Act.
7.5. Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement, having first been duly approved by
resolution duly adopted by the Boards of Directors of LEC and LNET, is hereby
executed on behalf of each such corporation by their respective officers
thereunto duly authorized.
LODGENET ENTERTAINMENT CORPORATION
By /s/ STEPHEN D. TRUCKENMILLER
--------------------------------
Its Vice President
-------------------------------
(Corporate Seal)
ATTEST:
/s/ JAMES T. NICHOLS
- -------------------------------------
James T. Nichols, Assistant Secretary
LNET, INC.
By /s/ STEVEN D. TRUCKENMILLER
--------------------------------
Its Vice President
-------------------------------
(Corporate Seal)
ATTEST:
/s/ JAMES T. NICHOLS
- -------------------------------------
James T. Nichols, Assistant Secretary
-8-
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY OF
LODGENET ENTERTAINMENT CORPORATION
The undersigned, being the Assistant Secretary of LodgeNet Entertainment
Corporation, does hereby certify that the holders of all of the outstanding
stock of said corporation dispensed with a meeting and vote of stockholders,
and all of the stockholders entitled to vote consented in writing, pursuant
to the provisions of Section 228 of the General Corporation Law of the State
of Delaware, to the adoption of the foregoing Plan and Agreement of Merger.
Dated October 7, 1993.
/s/ JAMES T. NICHOLS
-------------------------------------
James T. Nichols, Assistant Secretary
of LodgeNet Entertainment Corporation
-9-
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY OF
LNET, INC.
The undersigned, being the Assistant Secretary of LNet, Inc., does hereby
certify that the sole stockholder of said corporation dispensed with a meeting
and vote of the sole stockholder, and the sole stockholder consented in writing,
pursuant to the provisions of Section 228 of the General Corporation Law of the
State of Delaware, to the adoption of the foregoing Plan and Agreement of
Merger.
Dated October 7, 1993.
/s/ JAMES T. NICHOLS
-------------------------------------
James T. Nichols, Assistant Secretary
of LNet, Inc.
-10-
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
LNET, INC.
LNet, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the Corporation is LNet, Inc.
2. The date of filing the Corporation's original Certificate of
Incorporation with the Secretary of State of the State of Delaware is August
10, 1993.
3. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read as follows:
FIRST. The name of the corporation is LodgeNet Entertainment
Corporation (the "Corporation").
SECOND. The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address
is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware ("DGCL").
FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is 25,000,000 of which 20,000,000 shall be
common stock, par value $0.01 per share (the "Common Stock"), and
5,000,000 shall be preferred stock, par value $0.01 per share (the
"Preferred Stock"). The Preferred Stock may be issued from time to time
in one or more series, each of which (a) shall consist of such number of
shares and shall have such distinctive serial designation; (b) may have
such voting powers, full or limited, or may be without voting powers;
(c) may be subject to redemption at such time or times and at such
prices; (d) may be entitled to receive dividends (which may be cumulative
or noncumulative) at such rate or rates, on such conditions, and at such
times, and payable in preference or in such relation to the dividends
payable on any other class or classes or series of stock; (e) may have
such rights upon the dissolution, or upon any distribution of the assets,
of the Corporation; (f) may be made convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the
same or any other class or classes of stock of the Corporation, at such
price or prices or at such rates of exchange and with such adjustments;
and (g) shall have such other relative, participating, optional or other
special rights, qualifications, limitations and/or restrictions thereof,
all as shall be stated and expressed in the resolution or
<PAGE>
resolutions providing for the issue of the particular series of such
Preferred Stock from time to time adopted by the Board of Directors of
the Corporation pursuant to authority so to do which is hereby vested in
such Board.
The Common Stock shall entitle the holders thereof to one vote per
share on each proposition submitted to such holders for their vote
thereon.
The number of authorized shares of any class of stock of the
Corporation, including without limitation the Preferred Stock and the
Common Stock, may be increased or decreased by the affirmative vote of
the holders of a majority of all of the stock of the Corporation
entitled to vote, without regard to class.
FIFTH. A. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors (the
"Board").
B. The Board shall consist of not less than three nor more
than nine directors, with the exact number of directors to be fixed from
time to time by or in the manner provided in the Corporation's bylaws.
C. The Board shall be divided into three classes of
directors, as nearly equal in number as possible, with the term of
office of directors in the first class to expire at the annual election
of directors of the Corporation in 1994, the term of office of directors
of the second class to expire at the annual election of directors of the
Corporation in 1995 and the term of office of directors of the third
class to expire at the annual election of directors of the Corporation
in 1996. At each annual election of directors of the Corporation,
directors chosen to succeed those whose terms then expire shall be
elected for a term of office expiring at the third succeeding annual
election of directors of the Corporation occurring after their election.
Notwithstanding the foregoing provisions of this Paragraph C, each
director of the Corporation shall serve until his or her successor is
duly elected and qualified or until his or her earlier death,
resignation or removal.
D. In the event of any increase or decrease in the
authorized number of directors, the newly created or eliminated
directorships resulting from such increase or decrease shall be
apportioned by the Board among the three classes of directors so as to
maintain such classes as nearly equal in number as possible. No
decrease in the number of directors constituting the Board shall shorten
the term of any incumbent director.
E. Stockholders of the Corporation may effect the removal
of a director from the Board only for cause.
F. Notwithstanding the foregoing, whenever the holders of
any one or more series of capital stock issued by the Corporation having
a preference over the Common Stock as to dividends or upon liquidation
shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies, terms of removal and other
features of such directorships shall be governed by the resolution or
2
<PAGE>
resolutions establishing such series adopted pursuant to Article
FOURTH and such directors so elected shall not be divided into
classes pursuant to this Article FIFTH or counted in the limits on
the number of directors of the Corporation set forth in this Article
FIFTH, unless expressly so provided by such resolution or
resolutions.
G. Advance notice of nominations for the election of
directors and advance notice of other proposals for stockholder
action shall be given in the manner set forth in the bylaws of the
Corporation.
SIXTH. In furtherance and not in limitation of the powers
conferred by statute, the Board is expressly authorized:
A. To adopt, alter, amend and repeal the bylaws of the
Corporation (except insofar as the bylaws of the Corporation adopted
by the stockholders of the Corporation shall otherwise provide); and
B. To provide for the indemnification of directors,
officers, employees and agents of the Corporation, and of persons
who serve other enterprises in such or similar capacities at the
request of the Corporation, in a manner and to the extent permitted
by the DGCL or any other applicable law, as may from time to time be
in effect.
SEVENTH. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except that this
provision does not eliminate or limit the liability of a director
(a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or conclusions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived any improper personal
benefit. If the DGCL is amended at any time to further eliminate or
limit, or to authorize further elimination or limitation of, the
personal liability of directors, then the personal liability of a
director to the Corporation or its stockholders shall be eliminated
or limited to the full extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article SEVENTH shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
EIGHTH. Elections of directors of the Corporation need not be by
written ballot unless the bylaws of the Corporation shall so provide.
NINTH. Any action required or permitted to be taken by the
holders of Common Stock of the Corporation must be taken at a duly
called annual or special meeting of such holders and may not be
taken by written consent of such holders.
TENTH. The Corporation expressly elects to be governed by
Section 203 of the DGCL.
3
<PAGE>
ELEVENTH. Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them
and/or between the Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of the Corporation
or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the
provisions of Section 219 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors and/or of the stockholders or class
of stockholders of the Corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the Corporation.
TWELFTH. The Corporation reserves the right to amend its
Certificate of Incorporation, and to thereby change or repeal any
provision therein contained from time to time, in the manner
prescribed at the time by statute, and all rights conferred upon
stockholders by such Certificate of Incorporation are granted
subject to this reservation, except that any amendment or repeal of
Article NINTH of this Certificate of Incorporation, or of this
Article, shall require the affirmative vote of the holders of at
least 80% of the then outstanding voting stock of the Corporation.
- - - -
4. This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of sections 242 & 245 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, said LNET, INC. has
caused this Restated Certificate of Incorporation to be signed by Steven
Truckenmiller, its Vice President, and its corporate seal to be hereunto
affixed and attested by James T. Nichols, its Assistant Secretary, this
7th day of October, 1993.
LNET, INC.
[Corporate Seal]
By /s/ Steven D. Truckenmiller
-----------------------------------
Vice President
By /s/ James T. Nichols
-------------------------------
Assistant Secretary
4
<PAGE>
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated December 16, 1996
between
LODGENET ENTERTAINMENT CORPORATION
and
MORGAN STANLEY & CO. INCORPORATED
NATWEST CAPITAL MARKETS LIMITED
MONTGOMERY SECURITIES
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into December 16, 1996, between LODGENET ENTERTAINMENT CORPORATION, a
Delaware corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED,
NATWEST CAPITAL MARKETS LIMITED and MONTGOMERY SECURITIES (collectively, the
"Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated the
date hereof, between the Company and the Placement Agents (the "Placement
Agreement"), which provides for the sale by the Company to the Placement
Agents of an aggregate of $150,000,000 principal amount of the Company's 10
1/4% Senior Notes due 2006 (the "Securities"). In order to induce the
Placement Agents to enter into the Placement Agreement, the Company has
agreed to provide to the Placement Agents and their direct and indirect
transferees the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Placement
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"CLOSING DATE" shall mean the Closing Date as defined in the Placement
Agreement.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
<PAGE>
2
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"EXCHANGE SECURITIES" shall mean securities issued by the Company
under the Indenture containing terms identical to the Securities (except
that (i) interest thereon shall accrue from the last date on which interest
was paid on the Securities or, if no such interest has been paid, from
December 19, 1996 and (ii) the Exchange Securities will not contain
restrictions on transfer) and to be offered to Holders of Securities in
exchange for Securities pursuant to the Exchange Offer.
"HOLDER" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Indenture; PROVIDED that for purposes of Sections 4
and 5 of this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"INDENTURE" shall mean the Indenture relating to the Securities to be
dated as of December 19, 1996 between the Company and Marine Midland Bank,
as trustee, and as the same may be amended from time to time in accordance
with the terms thereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; PROVIDED
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Placement Agents or subsequent
holders of Registrable Securities if such subsequent holders are deemed to
be such affiliates solely by reason of their holding of such Registrable
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"PERSON" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"PLACEMENT AGENTS" shall have the meaning set forth in the preamble to
this Agreement.
"PLACEMENT AGREEMENT" shall have the meaning set forth in the preamble
to this Agreement.
<PAGE>
3
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER,
that the Securities shall cease to be Registrable Securities (i) when a
Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
exchanged or sold, as the case may be, pursuant to such Registration
Statement, (ii) when such Securities have been sold to the public pursuant
to Rule 144(k) (or any similar provision then in force, but not Rule 144A)
under the 1933 Act or (iii) when such Securities shall have ceased to be
outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) all fees and disbursements relating to the qualification of the
Indenture under applicable securities laws, (vi) the fees and disbursements
of the Trustee and its counsel, (vii) the fees and disbursements of counsel
for the Company and, in the case of a Shelf Registration Statement, the
fees and disbursements of one counsel for the Holders (which counsel shall
be selected by the Majority Holders and which counsel may also be counsel
for the Placement Agents) and (viii) the fees and disbursements of the
independent public accountants of the Company, including the expenses of
any special audits or "cold comfort" letters required by or incident to
such performance and compliance, but excluding fees and expenses of counsel
to the underwriters (other than fees and expenses set forth in clause (ii)
above) or the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by a Holder.
<PAGE>
4
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Securities (but no other
securities unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which Registrable Securities are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. REGISTRATION UNDER THE 1933 ACT.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed, no later than 90 days after the Closing Date an Exchange
Offer Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the
Exchange Offer Registration Statement has been declared effective by the SEC and
use its best efforts to have the Exchange Offer consummated not later than 60
days after such effective date. The Company shall commence the Exchange Offer
by mailing the related exchange offer Prospectus and accompanying documents to
each Holder stating, in addition to such other disclosures as are required by
applicable law:
<PAGE>
5
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any rights
under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal, to
the institution and at the address specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing his election to
have such Securities exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agents shall have the right, subject to
applicable
<PAGE>
6
law, to contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
September 19, 1997 or (iii) the Exchange Offer has been completed and in the
opinion of counsel for the Placement Agents, with respect to any unsold
allotments held by the Placement Agents, a Registration Statement must be filed
and a Prospectus must be delivered by the Placement Agents in connection with
any offering or sale of Registrable Securities, the Company shall use its best
efforts to cause to be filed as soon as practicable after such determination,
date or notice of such opinion of counsel is given to the Company, as the case
may be, a Shelf Registration Statement providing for the sale by the Holders of
all of the Registrable Securities and to have such Shelf Registration Statement
declared effective by the SEC. In the event the Company is required to file a
Shelf Registration Statement solely as a result of the matters referred to in
clause (iii) of the preceding sentence, the Company shall file and use its best
efforts have declared effective by the SEC both an Exchange Offer Registration
Statement pursuant to Section 2(a) with respect to all Registrable Securities
and a Shelf Registration Statement (which may be a combined Registration
Statement with the Exchange Offer Registration Statement) with respect to offers
and sales of Registrable Securities held by the Placement Agents after
completion of the Exchange Offer. The Company agrees to use its best efforts to
keep the Shelf Registration Statement continuously effective until the
expiration of the period referred to in Rule 144(k) with respect to all
Registrable Securities covered by the Shelf Registration Statement or such
shorter period that will terminate when all of the Registrable Securities
covered by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company further agrees to supplement or amend the
Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its best
efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable. The
Company agrees to furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
<PAGE>
7
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; PROVIDED, HOWEVER, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, in
the event that the Exchange Offer is not consummated, and if a Shelf
Registration Statement is required hereby, the Shelf Registration Statement is
not declared effective (i) on or prior to June 19, 1997, the interest rate on
the Securities (and the Exchange Securities) will increase by 0.5% per annum and
(ii) on or prior to September 19, 1997, the interest rate on the Securities (and
the Exchange Securities) will increase by an additional 0.5% per annum. Once
the Exchange Offer is consummated and a Shelf Registration Statement is declared
effective, if required hereby, the annual interest rate on the Securities shall
be changed again to the original interest rate shown in the second paragraph of
this Agreement.
(e) Without limiting the remedies available to the Placement Agents
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (z) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain effective
in accordance with Section 2 hereof;
<PAGE>
8
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as
so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section 4(3)
and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel for
the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company consents to the
use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder; PROVIDED,
HOWEVER, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(d), (ii) file
any general consent to service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (ii) of any request by the
<PAGE>
9
SEC or any state securities authority for amendments and supplements to a
Registration Statement and Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales agreement
or other similar agreement, if any, relating to the offering cease to be
true and correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of
any proceeding for such purpose, (v) of the happening of any event during
the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus
untrue in any material respect or which requires the making of any changes
in such Registration Statement or Prospectus in order to make the
statements therein not misleading and (vi) of any determination by the
Company that a post-effective amendment to a Registration Statement would
be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may
reasonably request at least one business day prior to the closing of any
sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) or (vi) hereof, use its best efforts
to prepare and file with the SEC a supplement or post-effective amendment
to a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the
<PAGE>
10
Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The Company agrees to notify the Holders to
suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use of
the Prospectus upon receipt of such notice until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus or any amendment to a Registration Statement or
amendment or supplement to a Prospectus, provide copies of such document to
the Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such of the
representatives of the Company as shall be reasonably requested by the
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) available for discussion of such
document, and shall not at any time file or make any amendment to the
Registration Statement, any Prospectus or any amendment of or supplement to
a Registration Statement or a Prospectus, of which the Placement Agents and
their counsel (and, in the case of a Shelf Registration Statement, the
Holders and their counsel) shall not have previously been advised and
furnished a copy or to which the Placement Agents or their counsel (and, in
the case of a Shelf Registration Statement, the Holders or their counsel)
shall object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to effect
such changes and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants designated
by the Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and properties of the
Company, and cause the respective officers, directors and employees of the
<PAGE>
11
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement;
(n) if reasonably requested by any Holder of Registrable Securities
covered by a Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such filing; and
(o) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and any
Underwriters of such Registrable Securities with respect to the business of
the Company and its subsidiaries, the Registration Statement, Prospectus
and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested, (ii) obtain opinions of counsel to
the Company (which counsel and opinions, in form, scope and substance,
shall be reasonably satisfactory to the Holders and such Underwriters and
their respective counsel) addressed to each selling Holder and Underwriter
of Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold comfort"
letters from the independent certified public accountants of the Company
(and, if necessary, any other certified public accountant of any subsidiary
of the Company, or of any business acquired by the Company for which
financial statements and financial data are or are required to be included
in the Registration Statement) addressed to each selling Holder and
Underwriter of Registrable Securities, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings, and (iv) deliver such
documents and certificates as may be reasonably requested by the Holders of
a majority in principal amount of the Registrable Securities being sold or
the Underwriters, and which are customarily delivered in underwritten
offerings, to evidence the continued validity of the representations and
warranties of the Company made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in an underwriting
agreement.
<PAGE>
12
In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing. No holder shall be entitled to use the Prospectus unless and until
such Holder shall have furnished the information required by this Section 3(o)
and all such other information required to be disclosed in order to make such
information previously furnished to the Company by such Holder not materially
misleading. The Company may exclude from any Shelf Registration Statement the
Registrable Securities of any Holder who does not furnish such information.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e)(v) or (vi) hereof, such Holder will
forthwith keep such notice confidential and discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(i) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at its expense) all copies in its possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition of
Registrable Securities pursuant to a Registration Statement, the Company shall
extend the period during which the Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the Holders shall have received copies of the supplemented or amended
Prospectus necessary to resume such dispositions. The Company may give any such
notice only twice during any 365 day period and any such suspensions may not
exceed 45 days for each suspension and there may not be more than two
suspensions in effect during any 365 day period.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the 1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange Securities.
<PAGE>
13
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Securities as long as
required by law to do so. By so acknowledging and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the 1933 Act. The Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
Exchange Securities received in exchange for Notes where such Exchange
Securities were acquired for its own account by such broker-dealer as a result
of market-making activities or other trading activities.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; PROVIDED that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 3(i), for a period exceeding 90 days
after the last Exchange Date (as such period may be extended pursuant to
the penultimate paragraph of Section 3 of this Agreement) and Participating
Broker-Dealers shall not be authorized by the Company to deliver and shall
not deliver such Prospectus after such period in connection with the
resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company by the Placement Agents or with the
reasonable request in writing to the Company by one or more broker-dealers
who certify to the Placement Agents and the Company in writing
<PAGE>
14
that they anticipate that they will be Participating Broker-Dealers; and
PROVIDED FURTHER that, in connection with such application of the Shelf
Registration procedures set forth in Section 3 to an Exchange Offer
Registration, the Company shall be obligated (x) to deal only with one
entity representing the Participating Broker-Dealers, which shall be Morgan
Stanley & Co. Incorporated unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers, which shall be counsel to
the Placement Agents unless such counsel elects not to so act and (z) to
cause to be delivered only one, if any, "cold comfort" letter with respect
to the Prospectus in the form existing on the last Exchange Date and with
respect to each subsequent amendment or supplement, if any, effected during
the period specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section 4(b)
above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Placement
Agents, each Holder and each person, if any, who controls any Placement Agent or
any Holder within the meaning of either Section 15 of the 1933 Act or Section 20
of the 1934 Act, or is under common control with, or is controlled by, any
Placement Agent or any Holder, from and against all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by the Placement Agent, any Holder or any such controlling
or affiliated person in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment thereto)
pursuant to which Exchange Securities or Registrable Securities were registered
under the 1933 Act, including all documents incorporated therein by reference,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Placement
Agents or any Holder furnished to the Company in writing by the Placement Agents
or any selling Holder expressly for use therein; PROVIDED, HOWEVER, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Placement Agent or any selling Holder from whom
the person asserting any such losses, claims, damages or liabilities purchased
securities, or any person controlling such Placement Agent or such selling
Holder,
<PAGE>
15
if a copy of the final prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Placement Agent or such selling Holder to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of such securities to such person, and if the final
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities, unless such failure is the
result of the failure of the Company to furnish copies of the final prospectus,
any documents incorporated by reference therein and any supplements and
amendments thereto as such Placement Agent or such selling Holder had reasonably
requested. In connection with any Underwritten Offering permitted by Section 3,
the Company will also indemnify the Underwriters, if any, selling brokers,
dealers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Placement Agents and the other selling Holders,
and each of their respective directors, officers who sign the Registration
Statement and each person, if any, who controls the Company, any Placement Agent
and any other selling Holder within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity
from the Company to the Placement Agents and the Holders, but only with
reference to information relating to such Holder furnished to the Company in
writing by such Holder expressly for use in any Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
The failure so to notify the indemnifying party: (i) will not relieve it from
liability under paragraph (a) or (b) of this Section 5 unless and to the extent
it did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses; and
(ii) will not, in any event, relieve the indemnifying party from any obligations
to any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) of this Section 5. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have
<PAGE>
16
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. Unless clause (ii) of the foregoing sentence is
applicable, if any such action or proceeding is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action or proceeding from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action or proceeding. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (a) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Placement
Agents and all persons, if any, who control any Placement Agent within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
(b) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section and (c) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Holders and all
persons, if any, who control any Holders within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In such case involving the Placement Agents and persons who control
the Placement Agent, such firm shall be designated in writing by Morgan Stanley
& Co. Incorporated. In such case involving the Holders and such persons who
control Holders, such firm shall be designated in writing by the Majority
Holders. In all other cases, such firm shall be designated by the Company. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but, if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 60
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party for such
fees and expenses of counsel in accordance with such request prior to the date
of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which such indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
<PAGE>
17
(d) If the indemnification provided for in paragraph (a) or paragraph
(b) of this Section 4 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective number of Registrable Securities of such Holder
that were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Securities
were sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, its officers or directors or
any person controlling the Company, (iii) acceptance of any of the Exchange
Securities and (iv) any sale of Registrable Securities pursuant to a Shelf
Registration Statement.
<PAGE>
18
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; PROVIDED, HOWEVER, that no amendment, modification,
supplement, waiver or consents to any departure from the provisions of Section 5
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Placement Agents,
the address set forth in the Placement Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Placement Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after received, if mailed; when answered back, if telexed; when receipt is
acknowledged, if telecopied; and on the next business day if timely delivered to
an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
<PAGE>
19
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; PROVIDED that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such person shall be entitled to receive the benefits hereof. The
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
(e) PURCHASES AND SALES OF NOTES. The Company shall not, and shall
use its best efforts to cause its affiliates (as defined in Rule 405 under the
1933 Act) not to, purchase and then resell or otherwise transfer any Notes.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LODGENET ENTERTAINMENT
CORPORATION
By /s/ Jeffrey T. Weisner
--------------------------
Name: Jeffrey T. Weisner
Title: Vice President - Finance, Treasurer
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
NATWEST CAPITAL MARKETS LIMITED
MONTGOMERY SECURITIES
By Morgan Stanley & Co.
Incorporated
By /s/ John F. Abbot
----------------------------------
Name: John F. Abbot
Title: Vice President
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LODGENET ENTERTAINMENT CORPORATION,
as Issuer
and
MARINE MIDLAND BANK,
as Trustee
____________________
Indenture
Dated as of December 19, 1996
____________________
10 1/4% Senior Notes due 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA Sections Indenture Sections
- ------------ ------------------
Section 310(a)(1) . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . 7.08
Section 313(c). . . . . . . . . . . . . . . . . . . . 7.06; 10.02
Section 314(a). . . . . . . . . . . . . . . . . . . . 4.18; 10.02
(a)(4). . . . . . . . . . . . . . . . . . . 4.17; 10.02
(c)(1). . . . . . . . . . . . . . . . . . . 10.03
(c)(2). . . . . . . . . . . . . . . . . . . 10.03
(e) . . . . . . . . . . . . . . . . . . . . 10.04
Section 315(b). . . . . . . . . . . . . . . . . . . . 7.05; 10.02
Section 316(a)(1)(A). . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . 6.04
(b) . . . . . . . . . . . . . . . . . . . . 6.07
Section 317(a)(1) . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . 6.09
Section 318(a). . . . . . . . . . . . . . . . . . . . 10.01
(c) . . . . . . . . . . . . . . . . . . . . 10.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.............................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act........ 21
SECTION 1.03. Rules of Construction.................................... 21
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.......................................... 22
SECTION 2.02. Restrictive Legends...................................... 23
SECTION 2.03. Execution, Authentication and Denominations.............. 25
SECTION 2.04. Registrar and Paying Agent............................... 26
SECTION 2.05. Paying Agent to Hold Money in Trust...................... 27
SECTION 2.06. Transfer and Exchange.................................... 27
SECTION 2.07. Book-Entry Provisions for Global Notes................... 28
SECTION 2.08. Special Transfer Provisions.............................. 30
SECTION 2.09. Replacement Notes........................................ 33
SECTION 2.10. Outstanding Notes........................................ 33
SECTION 2.11. Temporary Notes.......................................... 34
SECTION 2.12. Cancellation............................................. 34
SECTION 2.13. CUSIP Numbers............................................ 35
SECTION 2.14. Defaulted Interest....................................... 35
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption...................................... 35
SECTION 3.02. Notices to Trustee....................................... 36
SECTION 3.03. Selection of Notes to Be Redeemed........................ 36
SECTION 3.04. Notice of Redemption..................................... 36
SECTION 3.05. Effect of Notice of Redemption........................... 37
SECTION 3.06. Deposit of Redemption Price.............................. 37
SECTION 3.07. Payment of Notes Called for Redemption................... 38
SECTION 3.08. Notes Redeemed in Part................................... 38
_________________________
Note: The Table of Contents shall not for any purposes be deemed to be a
part of the Indenture.
<PAGE>
ii
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes......................................... 38
SECTION 4.02. Maintenance of Office or Agency.......................... 39
SECTION 4.03. Limitation on Indebtedness............................... 39
SECTION 4.04. Limitation on Restricted Payments........................ 41
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................ 43
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries.................................. 44
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries............................................. 44
SECTION 4.08. Limitation on Transactions with Stockholders
and Affiliates........................................... 45
SECTION 4.09. Limitation on Liens...................................... 46
SECTION 4.10. Limitation on Sale-Leaseback Transactions................ 46
SECTION 4.11. Limitation on Asset Sales................................ 47
SECTION 4.12. Repurchase of Notes upon a Change of Control............. 48
SECTION 4.13. Existence................................................ 48
SECTION 4.14. Payment of Taxes and Other Claims........................ 48
SECTION 4.15. Maintenance of Properties and Insurance.................. 48
SECTION 4.16. Notice of Defaults....................................... 49
SECTION 4.17. Compliance Certificates.................................. 49
SECTION 4.18. Commission Reports and Reports to Holders................ 50
SECTION 4.19. Waiver of Stay, Extension or Usury Laws.................. 50
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc.............................. 50
SECTION 5.02. Successor Substituted.................................... 51
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default........................................ 51
SECTION 6.02. Acceleration............................................. 53
SECTION 6.03. Other Remedies........................................... 54
SECTION 6.04. Waiver of Past Defaults.................................. 54
SECTION 6.05. Control by Majority...................................... 54
SECTION 6.06. Limitation on Suits...................................... 54
SECTION 6.07. Rights of Holders to Receive Payment..................... 55
SECTION 6.08. Collection Suit by Trustee............................... 55
<PAGE>
iii
SECTION 6.09. Trustee May File Proofs of Claim......................... 56
SECTION 6.10. Priorities............................................... 56
SECTION 6.11. Undertaking for Costs.................................... 56
SECTION 6.12. Restoration of Rights and Remedies....................... 57
SECTION 6.13. Rights and Remedies Cumulative........................... 57
SECTION 6.14. Delay or Omission Not Waiver............................. 57
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General.................................................. 58
SECTION 7.02. Certain Rights of Trustee................................ 59
SECTION 7.03. Individual Rights of Trustee............................. 60
SECTION 7.04. Trustee's Disclaimer..................................... 60
SECTION 7.05. Notice of Default........................................ 60
SECTION 7.06. Reports by Trustee to Holders............................ 60
SECTION 7.07. Compensation and Indemnity............................... 60
SECTION 7.08. Replacement of Trustee................................... 61
SECTION 7.09. Successor Trustee by Merger, Etc......................... 62
SECTION 7.10. Eligibility.............................................. 62
SECTION 7.11. Money Held in Trust...................................... 62
SECTION 7.12. Withholding Taxes........................................ 63
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations..................... 63
SECTION 8.02. Defeasance and Discharge of Indenture.................... 64
SECTION 8.03. Defeasance of Certain Obligations........................ 66
SECTION 8.04. Application of Trust Money............................... 68
SECTION 8.05. Repayment to Company..................................... 68
SECTION 8.06. Reinstatement............................................ 68
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders............................... 69
SECTION 9.02. With Consent of Holders.................................. 69
SECTION 9.03. Revocation and Effect of Consent......................... 70
SECTION 9.04. Notation on or Exchange of Notes......................... 71
SECTION 9.05. Trustee to Sign Amendments, Etc.......................... 71
SECTION 9.06. Conformity with Trust Indenture Act...................... 71
<PAGE>
iv
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939............................. 72
SECTION 10.02. Notices................................................. 72
SECTION 10.03. Certificate and Opinion as to Conditions Precedent...... 73
SECTION 10.04. Statements Required in Certificate or Opinion........... 73
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar............. 73
SECTION 10.06. Payment Date Other Than a Business Day.................. 74
SECTION 10.07. Governing Law........................................... 74
SECTION 10.08. No Adverse Interpretation of Other Agreements........... 74
SECTION 10.09. No Recourse Against Others.............................. 74
SECTION 10.10. Successors.............................................. 74
SECTION 10.11. Duplicate Originals..................................... 74
SECTION 10.12. Separability............................................ 75
SECTION 10.13. Table of Contents, Headings, Etc........................ 75
<PAGE>
EXHIBIT A Form of Note....................................................A-1
EXHIBIT B Form of Certificate.............................................B-1
EXHIBIT C Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Non-QIB Accredited Investors.......C-1
EXHIBIT D Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S.......................D-1
<PAGE>
INDENTURE, dated as of December 19, 1996, between LODGENET
ENTERTAINMENT CORPORATION, a Delaware corporation (the "COMPANY"), and MARINE
MIDLAND BANK, a New York banking corporation and trust company, as Trustee (the
"TRUSTEE").
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of up to $150,000,000 aggregate principal
amount of the Company's 10 1/4% Senior Notes due 2006 (the "NOTES") issuable as
provided in this Indenture. All things necessary to make this Indenture a valid
agreement of the Company, in accordance with its terms, have been done, and the
Company has done all things necessary to make the Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder and duly issued
by the Company, the valid obligations of the Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, that are required to be a part of and to
govern indentures qualified under the Trust Indenture Act of 1939.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, the Company and the Trustee, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; PROVIDED that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined
<PAGE>
2
in conformity with GAAP; PROVIDED that the following items shall be excluded
in computing Adjusted Consolidated Net Income (without duplication): (i) the
net income of any Person (other than net income attributable to a Restricted
Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
Section 4.04 (and in such case, except to the extent includable pursuant to
clause (i) above), the net income (or loss) of any Person accrued prior to
the date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by
the Company or any of its Restricted Subsidiaries; (iii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.04, the net income
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at the time permitted by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v)
except for purposes of calculating the amount of Restricted Payments that may
be made pursuant to clause (C) of the first paragraph of Section 4.04, any
amount paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission pursuant to
Section 4.18.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
<PAGE>
3
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; PROVIDED that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; PROVIDED that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company
or any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Company or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries (other than the Capital Stock or assets of an Unrestricted
Subsidiary) outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by Article Five;
PROVIDED that "Asset Sale" shall not include (a) sales or other dispositions of
inventory, receivables and other current, obsolete or worn out assets, (b) sales
or other dispositions of assets for consideration at least equal to the fair
market value of the assets sold or disposed of, provided that the consideration
received would satisfy clause (B) of Section 4.11 or (c) issuances or sales of
Common Stock of ResNet pursuant to the ResNet Transaction Documents.
<PAGE>
4
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, memberships, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now outstanding
or issued after the Closing Date, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) (a) a "person" or "group"
(within the meaning of Sections 13(d) or 14(d)(2) of the Exchange Act) other
than the Permitted Holders becomes the ultimate "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act) of Voting Stock representing more than 40% of
the total voting power of the total Voting Stock of the Company on a fully
diluted basis and (b) such person or group beneficially owns more Voting Stock
than the Permitted Holders; or (ii) individuals who at the beginning of any 24
month period constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason during such 24 month
period to constitute a majority of the members of the Board of Directors then in
office.
<PAGE>
5
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, memberships, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, including, without
limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
"Company Order" means a written request or order signed in the name of
the Company (i) by its Chairman, a Vice Chairman, its President or a Vice
President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary and delivered to the Trustee; PROVIDED, HOWEVER, that such
written request or order may be signed by any two of the officers or directors
listed in clause (i) above in lieu of being signed by one of such officers or
directors listed in such clause (i) and one of the officers listed in clause
(ii) above.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated
Interest Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; PROVIDED that, Consolidated EBITDA will
not be reduced as a result of a minority interest in the net income of a
Restricted Subsidiary except to the extent that dividends in cash or other
distributions of cash, property, or other assets (other than dividends or
distributions payable solely in shares of Capital Stock) are actually paid to
the holders of such minority interest.
<PAGE>
6
"Consolidated Fixed Charges" means, for any period, the aggregate
amount of (i) interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries), (ii) all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period and (iii) one-third of rental expense attributable to all leases other
than Capitalized Leases; EXCLUDING, HOWEVER, (i) any amount of such interest of
any Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof) and (ii) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of (i) interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and (ii) all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; EXCLUDING, HOWEVER, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis as at such Transaction Date to
(ii) the aggregate amount of Consolidated
<PAGE>
7
EBITDA for the two most recent fiscal quarters prior to such Transaction Date
for which financial statements of the Company have been filed with the
Commission pursuant to Section 4.18 (such two fiscal quarter periods being the
"Two Quarter Period"), multiplied by two; PROVIDED that (A) PRO FORMA effect
shall be given to (x) any Indebtedness Incurred from the beginning of the Two
Quarter Period through the Transaction Date (the "Reference Period"), to the
extent such Indebtedness is outstanding on the Transaction Date and (y) any
Indebtedness that was outstanding during such Reference Period but that is not
outstanding or is to be repaid on the Transaction Date; (B) PRO FORMA effect
shall be given to Asset Dispositions and Asset Acquisitions (including PRO FORMA
effect to the application of proceeds of any Asset Disposition) that occur
during such Reference Period; and (C) PRO FORMA effect shall be given to asset
dispositions and asset acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition) that have been made by any
Person that has become a Restricted Subsidiary or has been merged with or into
the Company or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that PRO
FORMA effect be given to an Asset Acquisition or Asset Disposition, such PRO
FORMA calculation shall be based upon the two full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed of for which financial information is
available, multiplied by two as provided in clause (i) above.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 140 Broadway, New York, New York 10005, Attention: Corporate Trust
Administration Department.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Restricted Subsidiaries is a
party or a beneficiary on the date of this Indenture or becomes a party or a
beneficiary thereafter.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" shall mean The Depository Trust Company, its nominees,
and their respective successors.
"Event of Default" has the meaning provided in Section 6.01.
<PAGE>
8
"Excess Proceeds" has the meaning provided in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes (i) shall be registered
under the Securities Act and (ii) shall have an interest rate equal to 10 1/4%
per annum, without provision for adjustment as provided in the fourth paragraph
of Section 1 of the Notes) that are issued and exchanged for the Notes pursuant
to the Registration Rights Agreement and this Indenture.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in this Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of this
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the
<PAGE>
9
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
"Holder" or "Securityholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary of the Company; PROVIDED that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; PROVIDED that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
PROVIDED (A) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) that
Indebtedness shall not include any liability for federal, state, local or
<PAGE>
10
other taxes and (C) that Indebtedness shall not include any obligations owed to
TCI Satellite that do not provide for or permit payments in cash and that may
only be repaid or satisfied through the issuance of Common Stock of ResNet.
"Indenture" means this Indenture as originally executed or as it may
be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
June 15 and December 15 of each year, commencing June 15, 1997.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect the Company or any of its Restricted
Subsidiaries against fluctuations in interest rates to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
date of this Indenture or becomes a party or a beneficiary hereafter.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall include
(i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the fair market value of the Capital Stock (or any other Investment), held
by the Company or any of its Restricted Subsidiaries, of (or in) any Person that
has ceased to be a Restricted Subsidiary, including without limitation, by
reason of any transaction permitted by clause (iii) or clause (iv) of Section
4.06. For purposes of the definition of "Unrestricted Subsidiary" set forth
herein and Section 4.04, (i) "Investment" shall include the fair market value of
the assets (net of liabilities (other than liabilities to the Company or any of
its Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction
<PAGE>
11
in outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"New Credit Facility" means the credit agreement dated as of December
19, 1996 among the Company, its Subsidiaries named therein, the lenders named
therein and National Westminster Bank Plc, as agent, together with all other
agreements, instruments and documents executed or delivered pursuant thereto or
in connection therewith, in each case as
<PAGE>
12
such agreements, instruments or documents may be amended, supplemented,
extended, renewed, replaced or otherwise modified from time to time (including
increases in the principal amount thereof); PROVIDED that, with respect to any
agreement providing for the refinancing of Indebtedness under the New Credit
Facility, such agreement shall be the New Credit Facility under the Indenture
only if a notice to that effect is delivered by the Company to the Trustee and
there shall be at any time only one instrument that is (together with the
aforementioned related agreements, instruments and documents) the New Credit
Facility under the Indenture.
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
any Exchange Notes to be issued and exchanged for any Notes pursuant to the
Registration Rights Agreement and this Indenture and, for purposes of this
Indenture, all Notes and Exchange Notes shall vote together as one series of
Notes under this Indenture.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Offer to Purchase" means an offer to purchase Notes by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant of this Indenture pursuant to which the offer is
being made and that all Notes validly tendered will be accepted for payment on a
pro rata basis; (ii) the purchase price and the date of purchase (which shall be
a Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase;
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13
(ii) deposit with the Paying Agent money sufficient to pay the purchase price of
all Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Notes or portions thereof so accepted together
with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail to the Holders
of Notes so accepted payment in an amount equal to the purchase price, and the
Company shall issue, and the Trustee shall promptly authenticate and mail to
such Holders, a new Note equal in principal amount to any unpurchased portion of
the Note surrendered; PROVIDED that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the President, the Chief Operating Officer, any Vice President, the Chief
Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or the
Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof, which certificate shall comply with the
provisions of Section 10.04 hereof. Any Officers' Certificate delivered
pursuant to the first paragraph of Section 4.17 hereof shall be signed by the
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer or the Chief Accounting Officer of the Company. Each Officers'
Certificate (other than certificates provided pursuant to TIA Section 314(a)(4))
shall include the statements provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel
who may be an employee of or counsel to the Company, which opinion shall comply
with Section 10.04 hereof. Each such Opinion of Counsel shall include the
statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company or
a Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
<PAGE>
14
"Permitted Holders" means, collectively, the executive officers of the
Company and ResNet as of the Closing Date, any Restricted Subsidiary and trusts
established under any employee stock ownership plan that is solely for the
benefit of the employees of the Company and its Subsidiaries.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; PROVIDED that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; and (iv) stock, obligations or securities received in
satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real or personal
(whether tangible or intangible) property acquired after the Closing Date or
associated with the Company's headquarter offices; PROVIDED that (a) such Lien
is created solely for the purpose of securing Indebtedness Incurred, in
accordance with Section 4.03, (1) to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property or (2) to refinance any Indebtedness previously
so secured, (b) the principal amount of the Indebtedness secured by such Lien
<PAGE>
15
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at
the time such Person becomes, or becomes a part of, any Restricted Subsidiary;
PROVIDED that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xvii) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Restricted Subsidiaries prior to the Closing
Date; (xviii) Liens on or sales of receivables; and (xix) Liens securing
Indebtedness in an amount not to exceed $5 million.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued
<PAGE>
16
after the date of this Indenture, including, without limitation, all series and
classes of such preferred or preference stock.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; PROVIDED that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Sections 4.11 and 4.12 and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to Sections
4.11 and 4.12.
"Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 16, 1996, between the Company and Morgan Stanley
& Co.
<PAGE>
17
Incorporated, NatWest Capital Markets Limited and Montgomery Securities, and
certain permitted assigns specified therein.
"Registration Statement" means the Registration Statement as defined
and described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the June 1 or December 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation D" means Regulation D under the Securities Act.
"Regulation S" means Regulation S under the Securities Act.
"ResNet" means ResNet Communications, Inc., a subsidiary of the
Company, and its successors, including, without limitation, its successor to be
formed upon reconstitution of ResNet as a Delaware limited liability company in
connection with the recapitalization of ResNet contemplated by the ResNet
Transaction Documents.
"ResNet Transaction Documents" means the agreements among the Company,
ResNet and TCI Satellite setting forth, among other things, the terms and
conditions of TCI Satellite's investment in ResNet, as in effect on the Closing
Date, and the agreements to be entered into by such parties on substantially
equivalent terms to effect the reconstitution of ResNet as a Delaware limited
liability company.
"Responsible Officer", means any officer of the Trustee assigned by
the Trustee to administer this Indenture and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning provided in Section 2.04.
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18
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Subsidiary Guarantee" has the meaning provided in Section 4.07.
"TCI Satellite" means TCI Satellite MDU Entertainment, Inc., an
affiliate of Tele-Communications, Inc., and its successors and assigns.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of
<PAGE>
19
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, and (v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
Moody's.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939,
(15 U.S. Code Sections 77aaa-77bbb), as in effect on the date this Indenture
was executed, except as provided in Section 9.06, provided that in the event the
Trust Indenture Act of 1939 is amended after such date, "TIA" or "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939, as so amended.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transaction Date" means with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government
<PAGE>
20
Obligation or a specific payment of interest on or principal of any such U.S.
Government Obligation held by such custodian for the account of the holder of a
depository receipt; PROVIDED that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of interest on or
principal of the U.S. Government Obligation evidenced by such depository
receipt.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; PROVIDED that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 4.04 and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Sections 4.03 and 4.04. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that immediately after giving effect to such designation
(x) the Company could Incur $1.00 of additional Indebtedness under the first
paragraph of Section 4.03 and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
<PAGE>
21
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01; and
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22
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A. The Notes may have notations, legends or endorsements required by
law, stock exchange agreements to which the Company is subject or usage. The
Company shall approve the form of the Notes and any notation, legend or
endorsement on the Notes. Each Note shall be dated the date of its
authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of a single permanent global Note in registered form,
substantially in the form set forth in Exhibit A (the "U.S. GLOBAL NOTE"),
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the U.S. Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of a single permanent global
Note in registered form substantially in the form set forth in Exhibit A (the
"OFFSHORE GLOBAL NOTE") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Offshore Global Note
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
PHYSICAL NOTES"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Note shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "OFFSHORE PHYSICAL NOTES").
<PAGE>
23
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "PHYSICAL NOTES". The U.S. Global Note
and the Offshore Global Note are sometimes referred to herein as the "GLOBAL
NOTES".
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02. RESTRICTIVE LEGENDS. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, (i) the U.S. Global
Note and each U.S. Physical Note shall bear the legend, set forth below on the
face thereof and (ii) the Offshore Physical Notes and the Offshore Global Note
shall bear the legend set forth below on the face thereof until (a) at least 41
days after the Closing Date, (b) receipt by the Company and the Trustee of a
certificate substantially in the form of Exhibit B hereto and (c) the Company
shall have obtained a CUSIP or CINS number (if then generally in use) with
respect to the unlegended Offshore Global Note or Offshore Physical Note, as the
case may be.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE
TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
<PAGE>
24
ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN
THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER
AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS
AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED
<PAGE>
25
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
SECTION 2.03. EXECUTION, AUTHENTICATION AND DENOMINATIONS. The Notes
shall be executed by an Officer of the Company listed in clause (i) of the
definition of Officer herein and attested by its Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer. The signature of any of
these Officers on the Notes may be by facsimile or manual signature in the name
and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee or an authenticating agent shall upon receipt of a Company
Order authenticate for original issue Notes in the aggregate principal amount of
up to $150,000,000 plus any Exchange Notes that may be issued pursuant to the
Registration Rights Agreement; PROVIDED that the Trustee shall be entitled to
receive, in addition to the documents required by Section 10.03 hereof, an
Officers' Certificate and an Opinion of Counsel of the Company in connection
with such authentication of Notes. The Opinion of Counsel shall state:
(a) that the form and terms of such Notes have been established by or
pursuant to a Board Resolution or an indenture supplemental hereto in
conformity with the provisions of this Indenture;
(b) that such supplemental indenture, if any, when executed and
delivered by the Company and the Trustee, will constitute a valid and
binding obligation of the Company;
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26
(c) that such Notes, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and binding
obligations of the Company in accordance with their terms and will be
entitled to the benefits of this Indenture, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles; and
(d) that the Company has been duly incorporated in, and is a validly
existing corporation in good standing under the laws of, the State of
Delaware.
Such Company Order shall specify the amount of Notes to be authenticated and the
date on which the original issue of Notes is to be authenticated. The aggregate
principal amount of Notes outstanding at any time may not exceed the amount set
forth above except for Notes authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section
2.06, 2.09, 2.10 or 2.11.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount and any integral
multiple of $1,000 in excess thereof.
SECTION 2.04. REGISTRAR AND PAYING AGENT. The Company shall maintain
an office or agency where Notes may be presented for registration of transfer or
for exchange (the "REGISTRAR"), an office or agency where Notes may be presented
for payment (the "PAYING AGENT") and an office or agency where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "SECURITY REGISTER"). The Company may have one or
more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such agent
and any change in the address of such agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and
<PAGE>
27
demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for
service of notices and demands. The Company may remove any agent upon written
notice to such agent and the Trustee; PROVIDED that no such removal shall become
effective until (i) the acceptance of an appointment by a successor agent to
such agent as evidenced by an appropriate agency agreement entered into by the
Company and such successor agent and delivered to the Trustee or (ii)
notification to the Trustee that the Trustee shall serve as such agent until the
appointment of a successor agent in accordance with clause (i) of this proviso.
The Company, any Subsidiary of the Company, or any Affiliate of any of them may
act as Paying Agent, Registrar or co-Registrar, and/or agent for service of
notice and demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. If, at any
time, the Trustee is not the Registrar, the Registrar shall make available to
the Trustee on or before each Interest Payment Date and at such other times as
the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Security Register.
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. Not later than
each due date of the principal, premium, if any, and interest on any Notes, the
Company shall deposit with the Paying Agent money in immediately available funds
sufficient to pay such principal, premium, if any, and interest so becoming due.
The Company shall require each Paying Agent other than the Trustee to agree in
writing that such Paying Agent shall hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Notes (whether such money has
been paid to it by the Company or any other obligor on the Notes), and such
Paying Agent shall promptly notify the Trustee of any default by the Company (or
any other obligor on the Notes) in making any such payment. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed, and the Trustee may at any time during the
continuance of any payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed. Upon doing so, the Paying Agent shall have no
further liability for the money so paid over to the Trustee. If the Company or
any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, it will, on or before each due date of any principal of, premium, if any,
or interest on the Notes, segregate and hold in a separate trust fund for the
benefit of the Holders a sum of money sufficient to pay such principal, premium,
if any, or interest so becoming due until such sum of money shall be paid to
such Holders or otherwise disposed of as provided in this Indenture, and will
promptly notify the Trustee of its action or failure to act.
SECTION 2.06. TRANSFER AND EXCHANGE. The Notes are issuable only in
registered form. A Holder may surrender a Note for registration of transfer by
written application to the Registrar stating the name of the proposed transferee
and otherwise complying with the terms of this Indenture. No such transfer
shall be effected until, and
<PAGE>
28
such transferee shall succeed to the rights of a Holder only upon, final
acceptance and registration of the transfer by the Registrar in the Security
Register. Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any agent of the Company shall treat the
person in whose name the Note is registered as the owner thereof for all
purposes whether or not the Note shall be overdue, and neither the Company, the
Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a U.S. Global Note shall, by acceptance of such U.S.
Global Note, agree that registration of transfers of beneficial interests in
such U.S. Global Note may be effected only through a book entry system
maintained by the Holder of such U.S. Global Note (or its agent) and that
ownership of a beneficial interest in the Note shall be required to be reflected
in a book entry. When Notes are presented to the Registrar or a co-Registrar
with a request to register the transfer or to exchange them for an equal
principal amount of Notes of other authorized denominations (including an
exchange of Notes for Exchange Notes), the Registrar shall register the transfer
or make the exchange as requested if its requirements for such transactions are
met; PROVIDED that no exchanges of Notes for Exchange Notes shall occur until a
Registration Statement shall have been declared effective by the Commission and
that any Notes that are exchanged for Exchange Notes shall be cancelled by the
Trustee. To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's request. No
service charge shall be made for any registration of transfer or exchange or
redemption of the Notes, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other similar governmental
charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (a) The U.S.
Global Note and Offshore Global Note initially shall (i) be registered in the
name of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("AGENT MEMBERS") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the
<PAGE>
29
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Note or the Offshore Global Note,
respectively, if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the U.S. Global Note or the Offshore Global
Note, as the case may be, and a successor depositary is not appointed by the
Company within 90 days of such notice or (ii) an Event of Default has occurred
and is continuing and the Registrar has received a request to the foregoing
effect from the Depositary.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any registration of transfer of a portion of
the beneficial interests in a Global Note to beneficial owners pursuant to
paragraph (b) of this Section, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of such Global Note in
an amount equal to the principal amount of the beneficial interest in such
Global Note to be transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Physical Notes of like tenor and
amount.
(e) In connection with the transfer of the entire U.S. Global Note or
Offshore Global Note to beneficial owners pursuant to paragraph (b) of this
Section, the U.S. Global Note or Offshore Global Note, as the case may be, shall
be deemed to be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note or Offshore Global Note, as the case may be, an
equal aggregate principal amount of U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of authorized denominations.
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30
(f) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b) or (d) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.08, bear the legend
regarding transfer restrictions applicable to the U.S. Physical Note set forth
in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest
in the Offshore Global Note pursuant to paragraph (b) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.08, bear the legend
regarding transfer restrictions applicable to the Offshore Physical Note set
forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(i) QIBs that are beneficial owners of interests in a U.S. Global
Note may receive Physical Notes (which shall bear the Private Placement Legend
if required by Section 2.02) in accordance with the procedures of the
Depositary. In connection with the execution, authentication and delivery of
such Physical Notes, the Registrar shall reflect on its books and records a
decrease in the principal amount of the relevant U.S. Global Note equal to the
principal amount of such Physical Notes and the Company shall execute and the
Trustee shall authenticate and deliver one or more Physical Notes having an
equal aggregate principal amount.
SECTION 2.08. SPECIAL TRANSFER PROVISIONS. Unless and until a Note
is exchanged for an Exchange Note in connection with an effective Registration
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether or
not such Note bears the Private Placement Legend, if (x) the proposed
transferor has delivered a certificate to the Registrar certifying that the
requested transfer is after the time period referred to in Rule 144(k)
under the Securities Act as in effect with respect to such transfer or
(y) the proposed transferee has delivered to the Registrar (A) a
certificate substantially in the form of Exhibit C hereto and (B) if the
aggregate principal amount of the Notes being transferred is less than
$100,000 at the time of such transfer, an opinion of counsel acceptable to
the Company and the Trustee that such transfer is in compliance with the
Securities Act.
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31
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Note in an amount
equal to the principal amount of the beneficial interest in the U.S. Global
Note to be transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more U.S. Physical Notes of like
tenor and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of a U.S. Physical Note or
an interest in the U.S. Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S. Physical
Notes, the Registrar shall register the transfer if such transfer is being
made by a proposed transferor who has checked the box provided for on the
form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A or (y) an
interest in the U.S. Global Note, the transfer of such interest may be
effected only through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to be
transferred consists of U.S. Physical Notes, upon receipt by the Registrar
of the documents referred to in clause (i) and instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the U.S. Global Note in an amount equal to the
principal amount of the U.S. Physical Notes, to be transferred, and the
Trustee shall cancel the U.S. Physical Note so transferred.
(c) TRANSFERS OF INTERESTS IN THE OFFSHORE GLOBAL NOTE OR OFFSHORE
PHYSICAL NOTES. The following provisions shall apply with respect to any
transfer of interests in the Offshore Global Note or Offshore Physical Notes:
<PAGE>
32
(i) prior to the removal of the Private Placement Legend from the
Offshore Global Note or Offshore Physical Notes pursuant to Section 2.02,
the Registrar shall refuse to register such transfer; and
(ii) after such removal, the Registrar shall register the transfer of
any such Note without requiring any additional certification.
(d) Intentionally Omitted.
(e) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) The Registrar shall register any proposed transfer to any Non-
U.S. Person if the Note to be transferred is a U.S. Physical Note or an
interest in the U.S. Global Note only upon receipt of a certificate
substantially in the form of Exhibit D from the proposed transferor.
(ii) (a) If the proposed Transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar
of (x) the documents required by paragraph (i) and (y) instructions in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and a decrease in
the principal amount at maturity of the U.S. Global Note in an amount equal
to the principal amount at maturity of the beneficial interest in the U.S.
Global Note to be transferred, and (b) if the proposed transferee is an
Agent Member, upon receipt by the Registrar of instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount at maturity of the Offshore Global Note in an
amount equal to the principal amount at maturity of the U.S. Physical Notes
or the U.S. Global Note, as the case may be, to be transferred, and the
Trustee shall cancel the Physical Note, if any, so transferred or decrease
the amount of the U.S. Global Note.
(f) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by paragraphs (a)(i)(x) or
(e)(ii) of this Section 2.08 exist or (ii) there is delivered to the Registrar
an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act.
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33
(g) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees by
its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; PROVIDED that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08
for at least three years after receipt thereof. The Company shall have the right
to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
SECTION 2.09. REPLACEMENT NOTES. If a mutilated Note is surrendered
to the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding; PROVIDED that the requirements of the second
paragraph of Section 2.10 are met. If required by the Trustee or the Company,
an indemnity bond must be furnished that is sufficient in the judgment of both
the Trustee and the Company to protect the Company, the Trustee or any Agent
from any loss that any of them may suffer if a Note is replaced. The Company
may charge such Holder for its expenses and the expenses of the Trustee in
replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Company in its
discretion may pay such Note instead of issuing a new Note in replacement
thereof.
Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.
SECTION 2.10. OUTSTANDING NOTES. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those cancelled
by it, those delivered to it for cancellation and those described in this
Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a BONA FIDE purchaser.
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34
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of
its Affiliates holds such Note, PROVIDED, HOWEVER, that, in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which a Responsible Officer of
the Trustee knows to be so owned shall be so disregarded. Notes so owned which
have been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or of such other obligor.
SECTION 2.11. TEMPORARY NOTES. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 2.12. CANCELLATION. The Company at any time may deliver to
the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure. The Company may not issue new Notes to
replace Notes it has paid in full or delivered to the Trustee for cancellation.
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35
SECTION 2.13. CUSIP NUMBERS. The Company in issuing the Notes may
use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall
use CUSIP numbers or CINS numbers, as the case may be, in notices of redemption
or exchange as a convenience to Holders; PROVIDED that any such notice shall
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Notes.
SECTION 2.14. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.14 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
ARTICLE THREE
REDEMPTION
SECTION 3.01. RIGHT OF REDEMPTION. The Notes may be redeemed at the
election of the Company, in whole or in part, at any time and from time to time
on or after December 15, 2001 and prior to maturity, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's last
address as it appears in the Security Register, at the following Redemption
Prices (expressed in percentages of their principal amount), plus accrued and
unpaid interest, if any, to the Redemption Date (subject to the right of Holders
of record on the relevant Regular Record Date that is on or prior to the
Redemption Date to receive interest due on an Interest Payment Date) if redeemed
during the 12-month period commencing on December 15 of the applicable year set
forth below:
Redemption
Year Price
---- ----------
2001 105.125%
2002 102.563
2003 and thereafter 100.000
In addition, at any time prior to December 15, 1999, the Company may
redeem up to 35% of the aggregate principal amount of the Notes with the
proceeds of one or more Public Equity Offerings, at any time as a whole or from
time to time in part, at a
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36
Redemption Price (expressed as a percentage of principal amount on the
Redemption Date) of 110.250 %, plus accrued and unpaid interest, if any, to the
redemption date; provided that, immediately after any such redemption at least
$97.5 million aggregate principal amount of the Notes remains outstanding.
SECTION 3.02. NOTICES TO TRUSTEE. If the Company elects to redeem
Notes pursuant to Section 3.01, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 45 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. SELECTION OF NOTES TO BE REDEEMED. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements, as certified to it by the
Company, of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem fair and appropriate; PROVIDED that no Notes of
$1,000 in principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of $1,000 in
principal amount may only be redeemed in whole. The Trustee may select for
redemption portions (equal to $1,000 in principal amount or any integral
multiple thereof) of Notes that have denominations larger than $1,000 in
principal amount. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption. The Trustee
shall notify the Company and the Registrar promptly in writing of the Notes or
portions of Notes to be called for redemption.
SECTION 3.04. NOTICE OF REDEMPTION. With respect to any redemption
of Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by first
class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
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37
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the Redemption Price plus accrued interest to the
Redemption Date upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Note to be redeemed and that, on and after the
Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be reissued;
and
(vii) that, if any Note contains a CUSIP number as provided in
Section 2.13, no representation is being made as to the correctness of the
CUSIP number either as printed on the Notes or as contained in the notice
of redemption and that reliance may be placed only on the other
identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the Company
at any time prior to the time at which the Trustee shall have given such notice
to the Holders), made in writing to the Trustee at least 45 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption in the name and at the
expense of the Company. If, however, the Company gives such notice to the
Holders, the Company shall concurrently deliver to the Trustee an Officers'
Certificate stating that such notice has been given.
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Notes held by Holders to whom such notice was properly
given.
SECTION 3.06. DEPOSIT OF REDEMPTION PRICE. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be
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38
redeemed on that date other than Notes or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation; provided that if the Company shall deposit money on the Redemption
Date, the amount shall be deposited before 11:00 A.M. New York City time.
SECTION 3.07. PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; PROVIDED that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. NOTES REDEEMED IN PART. Upon surrender of any Note
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES. The Company shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them, acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent, if any,
for the Notes.
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39
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan, The City of New York an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 10.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates The Corporate Trust Office of
the Trustee, located in the Borough of Manhattan, The City of New York, as such
office of the Company in accordance with Section 2.04.
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness; PROVIDED that the Company may Incur Indebtedness, and any
Restricted Subsidiary may Incur Acquired Indebtedness, if, after giving effect
to the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Consolidated Leverage Ratio would be less than or equal
to 5.75 to 1 for Indebtedness Incurred prior to December 15, 1999, and 5.25 to 1
for Indebtedness Incurred on or after December 15, 1999.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate principal amount not to
exceed the amount of the commitments under the New Credit Facility on the
Closing Date, less any amount of Indebtedness permanently repaid as provided
under Section 4.11 (ii) Indebtedness (A) to the Company evidenced by an
unsubordinated promissory note or (B) to any of its Restricted Subsidiaries;
PROVIDED that any event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to
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40
the Company or another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which are used
to refinance or refund, then outstanding Indebtedness, other than Indebtedness
Incurred under clause (i), (ii), (iv), or (vi) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, fees and expenses); PROVIDED that
Indebtedness the proceeds of which are used to refinance or refund the Notes or
Indebtedness that is PARI PASSU with, or subordinated in right of payment to,
the Notes shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced is PARI PASSU
with the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is outstanding,
is expressly made PARI PASSU with, or subordinate in right of payment to, the
remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and PROVIDED FURTHER that in no event
may Indebtedness of the Company be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness
(A) in respect of performance, surety or appeal bonds provided in the ordinary
course of business, (B) under Currency Agreements and Interest Rate Agreements;
PROVIDED that such agreements (a) are designed solely to protect the Company or
its Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of the Company (other than Guarantees
of Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; and (v) Indebtedness of the Company, to the
extent the net proceeds thereof are promptly (A) used to purchase Notes tendered
in an Offer to Purchase made as a result of a Change in Control or (B) deposited
to defease the Notes as set forth in Section 8.03 and (vi) Indebtedness Incurred
by any Restricted Subsidiary in an amount not to exceed $10 million at any one
time outstanding.
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(b) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.03 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness due solely to the result of fluctuations
in the exchange rates of currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.03, (1) Indebtedness Incurred under the New
Credit Facility on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (i) of the second paragraph of Section 4.03(a), (2)
Guarantees, Liens or obligations with respect to letters of credit supporting
Indebtedness otherwise included in the determination of such particular amount
shall not be included and (3) any Liens granted pursuant to the equal and
ratable provisions referred to in Section 4.09 shall not be treated as
Indebtedness. For purposes of determining compliance with this Section 4.03, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses (other than
Indebtedness referred to in clause (1) of the preceding sentence), the Company,
in its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on or with respect to
its Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of 10% or more of
the Capital Stock of the Company, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes (other than the purchase,
repurchase or the acquisition of Indebtedness in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in any case
due within one year of the date of acquisition) or (iv) make any Investment,
other than a Permitted Investment, in any Person (such payments or any other
actions described in clauses (i) through (iv) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and
be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness
under the first paragraph of Section 4.03 or (C) the aggregate amount of all
Restricted
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42
Payments (the amount, if other than in cash, to be determined in good faith by
the Board of Directors, whose determination shall be conclusive and evidenced by
a Board Resolution) made after the Closing Date shall exceed the sum of (1) the
remainder of (x) the aggregate amount of the Consolidated EBITDA (or, if the
Consolidated EBITDA is a loss, minus 100% of the amount of such loss)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter during which the Closing Date occurs and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to Section 4.18 minus (y) the product
of two multiplied by the aggregate amount of Consolidated Fixed Charges for the
period referred to in clause (x) PLUS (2) the aggregate Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale
permitted by this Indenture of its Capital Stock (other than Redeemable Stock)
to a Person who is not a Subsidiary of the Company, or from the issuance to a
Person who is not a Subsidiary of the Company of any options, warrants or other
rights to acquire Capital Stock of the Company (in each case, exclusive of any
Redeemable Stock or any options, warrants or other rights that are redeemable at
the option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the Notes) PLUS (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Notes including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of Section 4.03(a); (iii)(A) the repurchase, redemption or
other acquisition of Capital Stock of the Company (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the proceeds of
a substantially concurrent offering of, shares of Capital Stock (other than
Redeemable Stock) of the Company or (B) the repurchase, redemption or other
acquisition of Capital Stock of a Restricted Subsidiary (or options, warrants or
other rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock
(other than Redeemable Stock) of such Restricted Subsidiary; (iv) the making
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43
of any principal payment or the repurchase, redemption, retirement, defeasance
or other acquisition for value of Indebtedness of the Company which is
subordinated in right of payment to the Notes in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of the Capital Stock
of the Company (other than Redeemable Stock); (v) payments or distributions, to
dissenting stockholders pursuant to applicable law, pursuant to or in connection
with a consolidation, merger or transfer of assets that complies with Article
Five; (vi) Investments in Unrestricted Subsidiaries not to exceed $20 million at
any one time outstanding; and (vii) Restricted Payments not to exceed $5 million
in the aggregate; PROVIDED that, except in the case of clauses (i) and (iii), no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof), and the Net Cash Proceeds from any issuance of
Capital Stock referred to in clauses (iii) and (iv), shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
Section 4.04 have been met with respect to any subsequent Restricted Payments.
In the event the proceeds of an issuance of Capital Stock of the Company are
used for the redemption, repurchase or other acquisition of the Notes, or
Indebtedness that is PARI PASSU with the Notes, then the Net Cash Proceeds of
such issuance shall be included in clause (C) of the first paragraph of this
Section 4.04 only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
SECTION 4.05. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. The Company will not, and will not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the New Credit Facility, this
Indenture, the ResNet Transaction Documents or any other agreements in effect on
the Closing Date, and any extensions, refinancings, renewals or replacements of
such agreements; PROVIDED that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law; (iii) existing with respect
to any
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44
Person or the property or assets of such Person acquired by the Company or any
Restricted Subsidiary, existing at the time of such acquisition and not incurred
in contemplation thereof, which encumbrances or restrictions are not applicable
to any Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired; (iv) in the case of clause
(iv) of the first paragraph of this Section 4.05, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; or (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary.
Nothing contained in this Section 4.05 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted by the Section 4.09 or (2) restricting the
sale or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
SECTION 4.06. LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary, provided any
Investment in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under Section 4.04, if made on the date of
such issuance or sale; and (iv) issuances of Common Stock of ResNet (x) to TCI
Satellite pursuant to the terms of the ResNet Transaction Documents as in effect
on the Closing Date and (y) in exchange for, or the net proceeds of which are
used solely for, redemptions of Common Stock of ResNet.
SECTION 4.07. LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED
SUBSIDIARIES. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to Guarantee any Indebtedness of the Company which is PARI PASSU
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Notes by such
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45
Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; PROVIDED that this paragraph shall
not be applicable to (x) any Guarantee of any Restricted Subsidiary that existed
at the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or (y) any Guarantee of any Subsidiary of Indebtedness Incurred under
a revolving credit or working capital facility. If the Guaranteed Indebtedness
is (A) PARI PASSU with the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be PARI PASSU with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND
AFFILIATES. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 10% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to
(i) transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company;
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46
(iv) any payments or other transactions pursuant to any tax-sharing agreement
between the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; (v) any Restricted Payments not prohibited by Section
4.04 or (vi) transactions pursuant to the ResNet Transaction Documents.
Notwithstanding the foregoing, any transaction covered by the first paragraph of
this Section 4.08 and not covered by clauses (ii) through (vi) of this
paragraph, the aggregate amount of which exceeds $1 million in value, must be
approved or determined to be fair in the manner provided for in clause (i)(A) or
(B) above.
SECTION 4.09. LIMITATION ON LIENS. The Company will not, and will
not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
this Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under
clause (iii) of the second paragraph of Section 4.03; PROVIDED that such Liens
do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens securing obligations under the New
Credit Facility; or (vi) Permitted Liens.
SECTION 4.10. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The Company
will not, and will not permit any Restricted Subsidiary to, enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between
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47
Wholly Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within twelve months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of Section 4.12.
SECTION 4.11. LIMITATION ON ASSET SALES. The Company will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale in an
amount in greater than 10% of the Company's Adjusted Consolidated Net Tangible
Assets, unless (i) the consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (ii) at least 75% of the consideration received consists of cash
(which shall include any Indebtedness of the Company or its Restricted
Subsidiaries that is assumed by the buyer) or Temporary Cash Investments. In
the event and to the extent that the Net Cash Proceeds received by the Company
or any of its Restricted Subsidiaries from one or more Asset Sales occurring on
or after the Closing Date in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date closest to
the commencement of such 12-month period for which a consolidated balance sheet
of the Company and its subsidiaries have been filed pursuant to Section 4.18),
then the Company shall or shall cause the relevant Restricted Subsidiary to
(i) within twelve months after the date Net Cash Proceeds so received exceed 10%
of Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to such
excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the
Company, or any Restricted Subsidiary providing a Subsidiary Guarantee pursuant
to Section 4.07 or Indebtedness of any other Restricted Subsidiary, in each case
owing to a Person other than the Company or any of its Restricted Subsidiaries
or (B) invest an equal amount, or the amount not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so invest within
twelve months after the date of such agreement), in property or assets (other
than current assets) of a nature or type or that are used in a business (or in a
company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Company and its Restricted Subsidiaries existing on
the date of such investment and (ii) apply (no later than the end of the
twelve-month period referred to in clause (i)) such excess Net Cash Proceeds (to
the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this Section 4.11. The amount of such excess Net Cash Proceeds
required to be applied (or to be committed to be applied) during such
twelve-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.11 totals at least $10 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes on the relevant Payment Date equal to the Excess
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48
Proceeds on such date, at a purchase price equal to 101% of the principal amount
of the Notes on the relevant Payment Date, plus, in each case, accrued interest
(if any) to the Payment Date.
SECTION 4.12. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL. The
Company must commence, within 30 days after the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof on the relevant
Payment Date, plus accrued interest (if any) to the Payment Date.
SECTION 4.13. EXISTENCE. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each such
Subsidiary; PROVIDED that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.14. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will
pay or discharge and shall cause each of its Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges
levied or imposed upon (a) the Company or any such Subsidiary, (b) the income
or profits of any such Subsidiary which is a corporation or (c) the property
of the Company or any such Subsidiary and (ii) all material lawful claims for
labor, materials and supplies that, if unpaid, might by law become a lien
upon the property of the Company or any such Subsidiary; PROVIDED that the
Company shall not be required to pay or discharge, or cause to be paid or
discharged, any such tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established.
SECTION 4.15. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
will cause all properties used or useful in the conduct of its business or
the business of any of its Restricted Subsidiaries, to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED
that nothing in this Section 4.15 shall prevent the Company or any such
Subsidiary from discontinuing the use, operation or maintenance of any of
such properties or disposing of any of them, if such
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49
discontinuance or disposal is, in the judgment of the Company, desirable in the
conduct of the business of the Company or such Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or such Restricted Subsidiary, as the case may be,
is then conducting business.
SECTION 4.16. NOTICE OF DEFAULTS. In the event that the Company
becomes aware of any Default or Event of Default the Company, promptly after it
becomes aware thereof, will give written notice thereof to the Trustee.
SECTION 4.17. COMPLIANCE CERTIFICATES. (a) The Company shall
deliver to the Trustee, within 45 days after the end of each fiscal quarter (90
days after the end of the last fiscal quarter of each year), an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that occurred during such fiscal quarter. In the case of the Officers'
Certificate delivered within 90 days of the end of the Company's fiscal year,
such certificate shall contain a certification from the principal executive
officer, principal financial officer or principal accounting officer that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under this Indenture and that the Company has complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.17, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If they do know of such a
Default or Event of Default, the certificate shall describe any such Default or
Event of Default and its status. The first certificate to be delivered pursuant
to this Section 4.17(a) shall be for the first fiscal quarter beginning after
the execution of this Indenture.
(b) The Company shall deliver to the Trustee, within 90 days after
the end of the Company's fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this
Section 4.17 and (iii) whether, in connection with their audit examination,
anything came to their attention that caused them to believe that the Company
was not in compliance with any of the terms, covenants, provisions or conditions
of Article Four and Section 5.01 of this Indenture as they pertain to accounting
matters and, if any Default or Event of Default has come to their attention,
specifying the nature and period of existence thereof; PROVIDED that such
independent certified public accountants shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such Default or
Event of Default that
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50
would not be disclosed in the course of an audit examination conducted in
accordance with generally accepted auditing standards in effect at the date of
such examination.
SECTION 4.18. COMMISSION REPORTS AND REPORTS TO HOLDERS. Whether or
not the Company is required to file reports with the Commission, for so long as
any Notes are outstanding, the Company shall file with the Commission all such
reports and other information as it would be required to file with the
Commission by Sections 13(a) or 15(d) under the Exchange Act if it were subject
thereto. The Company shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information. The Company also shall comply
with the other provisions of TIA Section 314(a).
SECTION 4.19. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC. The Company will not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of
the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, all of the obligations of the Company on all of the Notes and
under this Indenture;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
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(iii) immediately after giving effect to such transaction on a
pro forma basis the Company, or any Person becoming the successor obligor
of the Notes, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of Section 4.03(a); PROVIDED that
this clause (iii) shall not apply to a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth; PROVIDED
that, in connection with any such merger or consolidation, no consideration
(other than Common Stock in the surviving Person or the Company) shall be
issued or distributed to the stockholders of the Company; and
(iv) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clause (iii)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with;
PROVIDED, HOWEVER, that clause (iii) above does not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company; and PROVIDED
FURTHER that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
SECTION 5.02. SUCCESSOR SUBSTITUTED. Upon any consolidation or
merger, or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; PROVIDED that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the Notes in
the case of a lease of all or substantially all of its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall occur
with respect to the Notes if:
(a) the Company defaults in the payment of the principal of (or
premium, if any, on) any Note when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise;
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52
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable, and such default continues for a
period of 30 days;
(c) the Company defaults in the performance of, or breaches the
provisions of, Article Five or fails to make or consummate an Offer to
Purchase in accordance with Section 4.11 or 4.12;
(d) the Company defaults in the performance of or breaches any
other covenant or agreement of the Company in this Indenture or under the
Notes (other than a default specified in clause (a), (b) or (c) above) and
such default or breach continues for a period of 30 consecutive days after
written notice to the Company by the Trustee or the Holders of 25% or more
in aggregate principal amount of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full
or such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (II) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended within 30 days of such payment
default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $10 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs
of the
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53
Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any
general assignment for the benefit of creditors.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company (and to the Trustee if
such notice is given by the Holders), may, and the Trustee at the request of
such Holders shall, declare the principal of, premium, if any, and accrued
interest on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal of, premium, if any, and accrued interest shall be
immediately due and payable PROVIDED that for so long as the New Credit Facility
is in effect, such declaration shall not become effective until the earlier of
(i) five Business Days after receipt of the acceleration notice by the Agent and
the Company and (ii) acceleration of the Indebtedness under the New Credit
Facility. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) of Section 6.01 has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded and annulled
if the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied or cured by the Company or the relevant Significant Subsidiary
or waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) of Section 6.01 occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall IPSO FACTO become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in principal amount of the
outstanding Notes by written notice to the Company and to the Trustee, may waive
all past Defaults and rescind and annul such declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the non-payment
of the principal of, premium, if any, and accrued interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived, (ii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction and (iii) all moneys paid or advanced by the
Trustee hereunder and the
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54
reasonable compensation, expenses, disbursement and advances of the Trustee, its
agents and counsel and all other amounts due to the Trustee pursuant to Section
7.07 have been paid.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. WAIVER OF PAST DEFAULTS. Subject to Sections 6.02,
6.07 and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of at least a
majority in aggregate principal amount of the outstanding Notes may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee; PROVIDED,
that the Trustee may refuse to follow any direction that conflicts with law or
this Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction; and PROVIDED
FURTHER, that the Trustee may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes pursuant to
this Section 6.05.
SECTION 6.06. LIMITATION ON SUITS. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) the Holder has previously given to the Trustee written notice
of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes shall have made written request to the Trustee to pursue
the remedy;
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55
(iii) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any costs, liabilities or expenses to
be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to comply with such request; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes have not given the
Trustee a direction that is inconsistent with such written request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
The limitations set forth in this Section 6.06 shall not apply to the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on, such Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of principal of, premium, if any, or interest on such Holder's
Note on or after the respective due dates expressed on such Note, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) (c) or
(d) of Section 6.01 occurs and is continuing, the Trustee may recover judgment
in its own name and as trustee of an express trust against the Company or any
other obligor of the Notes for the whole amount of principal, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal, premium, if any, and, to the extent that payment of such interest is
lawful, interest on overdue installments of interest, in each case at the rate
specified in the Notes, and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
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56
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for principal of,
premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Notes for principal, premium, if any, and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07 of this
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Indenture, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article Six or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 6.15. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim to take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. GENERAL. (a) If an Event of Default has occurred and
is continuing, the Trustee shall exercise the rights and powers vested in it by
this Indenture and shall use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
(b) Except during the continuance of an Event of Default: (i) the Trustee
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and (ii) in the absence of bad faith on
its part, the Trustee may conclusively rely, as to the truth of statements and
the correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture,
PROVIDED, HOWEVER, that in the case of any such certificates or opinions which
by any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine the certficates and opinions to determine
whether or not they conform to the requirement of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, PROVIDED
that: (i) this paragraph (c) shall not limit the effect of paragraph (b) of
this Section 7.01; (ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and (iii) the
Trustee shall not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to
Section 6.05 hereof.
(d) Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company.
(e) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(g) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Article
Seven and to the provisions of the TIA.
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SECTION 7.02. CERTAIN RIGHTS OF TRUSTEE. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter
stated in the document;
(ii) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 10.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care;
(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction;
(v) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance
with the direction of the Holders of a majority in principal amount of the
outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; PROVIDED that
the Trustee's conduct does not constitute negligence or bad faith;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a making be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be
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entitled to examine the books, records and premises of the Company
personally or by agent or attorney; and
(viii) The Trustee shall not be charged with knowledge of any Default
or Event of Default under Section 6.01 hereof unless either (i) a
Responsible Officer shall have actual knowledge thereof, or (ii) the
Trustee shall have received notice thereof in accordance with Section 10.02
hereof from the Company or any Holder of Notes.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULT. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to the Trustee, the Trustee shall mail to each Holder in the manner and to
the extent provided in TIA Section 313(c) notice of the Default or Event of
Default within 45 days after it occurs, unless such Default or Event of Default
has been cured; PROVIDED, HOWEVER, that, except in the case of a default in the
payment of the principal of, premium, if any, or interest on any Note, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after
each May 15, beginning with May 15, 1997, the Trustee shall mail to each Holder
as provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA
Section 313(a).
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee such compensation as shall be agreed upon in writing for its
services. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses and advances
incurred or made by the Trustee. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
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61
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense incurred (including, without
limitation, reasonable attorneys' fees) by it without negligence or bad faith on
its part in connection with the acceptance or administration of this Indenture
and its duties under this Indenture and the Notes, including the costs and
expenses of defending itself against any claim or liability and of complying
with any process served upon it or any of its officers in connection with the
exercise or performance of any of its powers or duties under this Indenture and
the Notes.
The obligation of the Company under this Section 7.07 shall survive
the resignation or removal of the Trustee, the satisfaction and discharge of
this Indenture or the termination of this Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held in trust to pay principal of, premium, if any, and interest on particular
Notes. Such lien shall survive the resignation or removal of the Trustee, the
satisfaction and discharge of this Indenture or the termination of this
Indenture.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (f) or (g) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under the United States Bankruptcy Code or
any applicable federal or state law for the relief of debtors.
SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may remove the Trustee if:
(i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is
adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer
takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days
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62
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, provided all sums owing to the Trustee
hereunder shall have been paid and subject to the lien provided in Section 7.07,
(i) the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, (ii) the resignation or removal of the retiring Trustee
shall become effective and (iii) the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. ELIGIBILITY. This Indenture shall always have a
Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee
shall have a combined capital and surplus of at least $25 million as set forth
in its most recent published annual report of condition.
SECTION 7.11. MONEY HELD IN TRUST. The Trustee shall not be liable
for interest on any money received by it except as the Trustee may agree with
the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law and except for money held in
trust under Article Eight of this Indenture.
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63
SECTION 7.12. WITHHOLDING TAXES. The Trustee, as agent for the
Company, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due, and that, as promptly as possible after the payment thereof, it will
deliver to each Holder of a Note appropriate documentation showing the payment
thereof, together with such additional documentary evidence as such Holders may
reasonably request from time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or Notes for whose payment money or
securities have theretofore been held in trust and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee
for cancellation and the Company has paid all sums payable by it hereunder;
or
(ii) (A) the Notes mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year period,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the benefit of the
Holders for that purpose, money or U.S. Government Obligations sufficient
(in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee), without consideration of any reinvestment of any interest
thereon, to pay principal, premium, if, any, and interest on the Notes to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, (C) no Default or Event of Default with respect to
the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and (E)
the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each
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64
case stating that all conditions precedent provided for herein relating to
the satisfaction and discharge of this Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii),
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05, and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02. DEFEASANCE AND DISCHARGE OF INDENTURE. The Company
will be deemed to have paid and will be discharged from any and all obligations
in respect of the Notes on the 123rd day after the date of the deposit referred
to in clause (A) of this Section 8.02, and the provisions of this Indenture will
no longer be in effect with respect to the Notes, and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the same,
except as to (i) rights of registration of transfer and exchange, (ii)
substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes,
(iii) rights of Holders to receive payments of principal thereof and interest
thereon, (iv) the Company's obligations under Section 4.02, (v) the rights,
obligations and immunities of the Trustee hereunder and (vi) the rights of the
Holders as beneficiaries of this Indenture with respect to the property so
deposited with the Trustee payable to all or any of them; PROVIDED that the
following conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 7.10 of
this Indenture) and conveyed all right, title and interest for the benefit
of the Holders, under the terms of an irrevocable trust agreement in form
and substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and interest, if
any, on the Notes, and dedicated solely to, the benefit of the Holders, in
and to (1) money in an amount, (2) U.S. Government Obligations that,
through the payment of interest, premium, if any, and principal in respect
thereof in accordance with their terms, will provide, not later than one
day before the due date of any payment referred to in this clause (A),
money in an amount or (3) a combination thereof in an amount sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, without consideration of the reinvestment of
such interest and after payment of all federal, state and local taxes or
other charges and assessments in respect thereof payable by the Trustee,
the principal of, premium, if any, and accrued interest on the outstanding
Notes at the Stated Maturity of such principal or interest; PROVIDED that
the Trustee
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shall have been irrevocably instructed to apply such money or the proceeds
of such U.S. Government Obligations to the payment of such principal,
premium, if any, and interest with respect to the Notes;
(B) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day
after such date of deposit;
(D) the Company shall have delivered to the Trustee (1) either (x)
a ruling directed to the Trustee received from the Internal Revenue Service
to the effect that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of the Company's exercise of its
option under this Section 8.02 and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have
been the case if such option had not been exercised or (y) an Opinion of
Counsel to the same effect as the ruling described in clause (x) above
accompanied by a ruling to that effect published by the Internal Revenue
Service, unless there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (2) an Opinion of
Counsel to the effect that (x) the creation of the defeasance trust does
not violate the Investment Company Act of 1940 and (y) after the passage of
123 days following the deposit (except, with respect to any trust funds for
the account of any Holder who may be deemed to be an "insider" for purposes
of the United States Bankruptcy Code, after one year following the
deposit), the trust funds will not be subject to the effect of Section 547
of the United States Bankruptcy Code or Section 15 of the New York Debtor
and Creditor Law in a case commenced by or against the Company under either
such statute, and either (I) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (II) if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, (a) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent not paid
to the Holders, the Trustee will hold, for the benefit of the Holders, a
valid and perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise except for the effect of Section
552(b) of the United States Bankruptcy Code on interest on the trust funds
accruing after the commencement of a case under such statute and (b) the
Holders will be entitled to receive adequate protection of their interests
in such trust funds if such trust funds are used in such case or
proceeding;
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(E) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
(F) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (D)(2)(y) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1)
of this Section 8.02 is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
4.01, then the Company's obligations under such Section 4.01 shall cease upon
delivery to the Trustee of such ruling or Opinion of Counsel and compliance with
the other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. DEFEASANCE OF CERTAIN OBLIGATIONS. The Company may
omit to comply with any term, provision or condition set forth in clauses (iii)
and (iv) of Section 5.01 and Sections 4.03 through 4.18, and clauses (c) and (d)
of Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01 and
Sections 4.03 through 4.18, and clauses (e) and (f) of Section 6.01 shall be
deemed not to be Events of Default, in each case with respect to the outstanding
Notes if:
(i) with reference to this Section 8.03, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 7.10)
and conveyed all right, title and interest to the Trustee for the benefit
of the Holders, under the terms of an irrevocable trust agreement in form
and substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and interest, if
any, on the Notes, and dedicated solely to, the benefit of the Holders, in
and to (A) money in an amount, (B) U.S. Government Obligations that,
through the payment of interest and principal in respect thereof in
accordance with their terms, will provide, not later than one day
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before the due date of any payment referred to in this clause (i), money in
an amount or (C) a combination thereof in an amount sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and interest on the outstanding Notes on the
Stated Maturity of such principal or interest; PROVIDED that the Trustee
shall have been irrevocably instructed to apply such money or the proceeds
of such U.S. Government Obligations to the payment of such principal,
premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(iv) the Company has delivered to the Trustee an Opinion of Counsel
to the effect that (A) the creation of the defeasance trust does not
violate the Investment Company Act of 1940, (B) the Holders have a valid
first-priority security interest in the trust funds, (C) the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and
defeasance had not occurred and (D) after the passage of 123 days following
the deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of the United
States Bankruptcy Code, after one year following the deposit), the trust
funds will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a
case commenced by or against the Company under either such statute, and
either (1) the trust funds will no longer remain the property of the
Company (and therefore will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally) or (2) if a court were to rule under any such law in any
case or proceeding that the trust funds remained property of the Company,
(x) assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and perfected
security interest in such trust funds that is not avoidable in bankruptcy
or otherwise (except for the effect of Section 552(b) of the United States
Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute), (y) the Holders will be
entitled to receive adequate protection of their interests in such trust
funds if such trust funds are used in such case or proceeding
<PAGE>
68
and (z) no property, rights in property or other interests granted to the
Trustee or the Holders in exchange for, or with respect to, such trust
funds will be subject to any prior rights of holders of other Indebtedness
of the Company or any of its Subsidiaries;
(v) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. APPLICATION OF TRUST MONEY. Subject to Section 8.06,
the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.05. REPAYMENT TO COMPANY. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the
Company upon request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years; PROVIDED that
the Trustee or such Paying Agent before being required to make any payment may
cause to be published at the expense of the Company once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money at such Holder's address (as set forth in the Security Register)
notice that such money remains unclaimed and that after a date specified therein
(which shall be at least 30 days from the date of such publication or mailing)
any unclaimed balance of such money then remaining will be repaid to the
Company. After payment to the Company, Holders entitled to such money must look
to the Company for payment as general creditors unless an applicable law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes
<PAGE>
69
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01, 8.02 or 8.03, as the case may be, until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be;
PROVIDED that, if the Company has made any payment of principal of, premium, if
any, or interest on any Notes because of the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company, when
authorized by a Board Resolution, and the Trustee may amend or supplement this
Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; PROVIDED that such amendments or supplements shall not adversely
affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with Section 4.07, provided that Section 4.07 may not
be amended under this Section 9.01;
(4) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA;
(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(6) to make any change that does not materially and adversely
affect the rights of any Holder.
SECTION 9.02. WITH CONSENT OF HOLDERS. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution), and the Trustee may
amend this Indenture and the Notes with the written consent of the Holders of a
majority in principal amount of the Notes then outstanding, and the Holders of a
majority in principal amount of the Notes then outstanding by written notice to
the Trustee may waive future compliance by the Company with any provision of
this Indenture or the Notes.
<PAGE>
70
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or adversely affect any right of repayment at the
option of any Holder of any Note, or change any place of payment where, or
the currency in which, any Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date);
(ii) reduce the percentage in principal amount of outstanding Notes
the consent of whose Holders is required for any such supplemental
indenture, for any waiver of compliance with certain provisions of this
Indenture or certain Defaults and their consequences provided for in this
Indenture;
(iii) waive a Default in the payment of principal of, premium, if
any, or interest on, any Note; or
(iv) modify any of the provisions of this Section 9.02, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. REVOCATION AND EFFECT OF CONSENT. Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing consent
by the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An
<PAGE>
71
amendment, supplement or waiver shall become effective on receipt by the Trustee
of written consents from the Holders of the requisite percentage in principal
amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies) and only those
Persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such Persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (iv) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (iv) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. NOTATION ON OR EXCHANGE OF NOTES. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter authenticated.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms.
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, in addition
to the other documents required by Section 10.03, an Opinion of Counsel stating
that the execution of any amendment, supplement or waiver authorized pursuant to
this Article Nine is authorized or permitted by this Indenture. Subject to the
preceding sentence, the Trustee shall sign such amendment, supplement or waiver
if the same does not adversely affect the rights of the Trustee. The Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver that affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.06. CONFORMITY WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
<PAGE>
72
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT OF 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of and
to govern indentures qualified under the TIA. After the effectiveness of the
Registration Statement, this Indenture shall be subject to the provisions of the
TIA that are required to be a part of this Indenture and shall, to the extent
applicable, be governed by such provisions.
SECTION 10.02. NOTICES. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
if to the Company:
-----------------
LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
Attention: General Counsel
if to the Trustee:
-----------------
Marine Midland Bank
140 Broadway
12th Floor
New York, New York 10005-1180
Attention: Corporate Trust Administration Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to him
at his address as it appears on the Security Register by first class mail and
shall be sufficiently given to him if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for a
notice to the Trustee, which is deemed given only when received, and except as
otherwise provided in this Indenture, if a notice or communication is mailed in
the manner provided in this Section 10.02, it is duly given, whether or not the
addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the
<PAGE>
73
event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 10.03. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 10.04. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; PROVIDED,
HOWEVER, that, with respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 10.05. RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
<PAGE>
74
SECTION 10.06. PAYMENT DATE OTHER THAN A BUSINESS DAY. If an
Interest Payment Date, Redemption Date, Change of Control Payment Date, Excess
Proceeds Payment Date, Stated Maturity or date of maturity of any Note shall not
be a Business Day, then payment of principal of, premium, if any, or interest on
such Note, as the case may be, need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, Change of Control Payment Date, Excess Proceeds
Payment Date, or Redemption Date, or at the Stated Maturity or date of maturity
of such Note; PROVIDED that no interest shall accrue for the period from and
after such Interest Payment Date, Change of Control Payment Date, Excess
Proceeds Payment Date, Redemption Date, Stated Maturity or date of maturity, as
the case may be.
SECTION 10.07. GOVERNING LAW. The laws of the State of New York
shall govern this Indenture and the Notes. The Trustee, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture or
the Notes.
SECTION 10.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 10.09. NO RECOURSE AGAINST OTHERS. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company contained in
this Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 10.10. SUCCESSORS. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 10.11. DUPLICATE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
<PAGE>
75
SECTION 10.12. SEPARABILITY. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
LODGENET ENTERTAINMENT CORPORATION
By: /s/ Jeffrey T. Welsner
--------------------------------
Name: Jeffrey T. Welsner
Title: Vice President - Finance, Treasurer
MARINE MIDLAND BANK,
as Trustee
By: /s/ Frank Godino
---------------------------------
Name: FRANK GODINO
Title: ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT A
[FACE OF NOTE]
LODGENET ENTERTAINMENT CORPORATION
10 1/4% Senior Note due 2006
[CUSIP] [CINS][__________]
No. $_________
LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to [_____________], or its
registered assigns, the principal sum of [____________] ($[____]) on December
15, 2006.
Interest Payment Dates: June 15, and December 15, commencing June 15,
1997.
Regular Record Dates: June 1 and December 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: December 19, 1996 LODGENET ENTERTAINMENT CORPORATION
By:_____________________________
Name:
Title:
Attest:____________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 10 1/4% Senior Notes due 2006 described in the
within-mentioned Indenture.
MARINE MIDLAND BANK,
as Trustee
By:_____________________________
Authorized Signatory
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
LODGENET ENTERTAINMENT CORPORATION
10 1/4% Senior Note due 2006
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on December 15, 2006.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the June 1 or December 1 immediately preceding
the Interest Payment Date) on each Interest Payment Date, commencing June 15,
1997.
If an exchange offer ("Exchange Offer") registered under the
Securities Act is not consummated, or a shelf registration statement under the
Securities Act with respect to resales of the Notes is not declared effective by
the Commission, on or before June 19, 1997 in accordance with the terms of the
Registration Rights Agreement ("Registration Rights Agreement") dated December
16, 1996 between the Company and Morgan Stanley & Co. Incorporated, NatWest
Capital Markets Limited and Montgomery Securities, the annual interest rate
borne by the Notes shall be increased by 0.5% from the rate shown above accruing
from December 19, 1996, payable in cash semiannually, in arrears, on each June
15 and December 15, commencing December 15, 1997 and if the Exchange Offer is
not consummated, or a shelf registration statement under the Securities Act with
respect to the resale of the Notes is not declared effective by the Commission,
on or before September 19, 1997 in accordance with the terms of the Registration
Rights Agreement, the annual interest rate borne by the Notes shall be increased
by an additional 0.5% per annum. Once the Exchange Offer is consummated or a
shelf registration statement is declared effective, the annual interest rate
borne by the Notes shall be changed to again be the rate shown above. The
Holder of this Note is entitled to the benefits of such Registration Rights
Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 19, 1996;
PROVIDED that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
<PAGE>
A-4
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each June 15 and December 15
to the persons who are Holders (as reflected in the Security Register at the
close of business on such June 1 and December 1 immediately preceding the
Interest Payment Date), in each case, even if the Note is cancelled on
registration of transfer or registration of exchange after such record date;
PROVIDED that, with respect to the payment of principal, the Company will make
payment to the Holder that surrenders this Note to a Paying Agent on or after
December 15, 2006.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's registered address (as reflected in
the Security Register). If a payment date is a date other than a Business Day
at a place of payment, payment may be made at that place on the next succeeding
day that is a Business Day and no interest shall accrue for the intervening
period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any
of them may act as Paying Agent, Registrar or co-Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of December
19, 1996 (the "Indenture"), between the Company and Marine Midland Bank, as
trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are unsecured, general obligations of the Company. The
Indenture limits the original aggregate principal amount of the Notes to
$150,000,000.
<PAGE>
A-5
5. REDEMPTION.
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time on or after December 15, 2001 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of their principal
amount), plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing on
December 15 of the applicable year set forth below:
Redemption
Year Price
---- -----------
2001 105.125%
2002 102.563
2003 and thereafter 100.000
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
In addition, at any time prior to December 15, 1999, the Company may
redeem up to 35% of the aggregate principal amount of the Notes with the
proceeds of one or more Public Equity Offerings, at any time as a whole or from
time to time in part, at a Redemption Price (expressed as a percentage of
principal amount on the Redemption Date) of 110.250%, plus accrued and unpaid
interest, if any, to the redemption date; provided that, immediately after any
such redemption at least $97.5 million aggregate principal amount of the Notes
remains outstanding.
6. REPURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof on the relevant Payment Date, plus accrued and unpaid
interest, if any, to the Payment Date.
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at his last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may
be sold to the Company in part. On and after the Payment Date, interest ceases
to accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the purchase price.
<PAGE>
A-6
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register
the transfer or exchange of any Notes for a period of 15 days before a selection
of Notes to be redeemed is made.
8. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
<PAGE>
A-7
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. DEFAULTS AND REMEDIES.
The following events constitute "Events of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of
30 days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with Section 4.11 or 4.12 of the
Indenture; (d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture or under the Notes (other
than a default specified in clause (a), (b) or (c) above) and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal amount
of $10 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid
<PAGE>
A-8
or discharged against all such Persons to exceed $10 million during which a stay
of enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (g) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of the Company or
any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (h) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any of
its Significant Subsidiaries or (C) effects any general assignment for the
benefit of creditors.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Notes may declare all the Notes to be due and payable. If a bankruptcy or
insolvency default with respect to the Company or any Restricted Subsidiary
occurs and is continuing, the Notes automatically become due and payable.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
at least a majority in principal amount of the Notes then outstanding may direct
the Trustee in its exercise of any trust or power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
<PAGE>
A-9
17. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to LodgeNet
Entertainment Corporation, 808 West Avenue North, Sioux Falls, South Dakota
57104, Attention: Vice President -- General Counsel.
<PAGE>
A-10
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
__________________________________
________________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ___________________________________________________________ attorney
to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
UNLEGENDED OFFSHORE GLOBAL NOTES AND
UNLEGENDED OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the shelf registration statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144A
thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
<PAGE>
A-11
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:__________________ _______________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the within-mentioned instrument in every
particular, without alteration or any change
whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:_________________ _______________________________________________
NOTICE: To be executed by an executive officer
<PAGE>
A-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.11 or Section 4.12 of the Indenture, check the Box: / /
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount:
$___________________.
Date: ______________
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE
[________________, ____]
Marine Midland Bank
140 Broadway
New York, New York 10005
Attention: Corporate Trust Administration Department
Re: LodgeNet Entertainment Corporation (the "Company")
10 1/4% Senior Notes due 2006 (the "Notes")
--------------------------------------------------
Dear Sirs:
This letter relates to U.S. $[_________] principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.02 of
the Indenture dated as of December 19, 1996 (the "Indenture") relating to the
Notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By: _______________________________
Authorized Signature
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
[____________ , ____]
Marine Midland Bank
140 Broadway
New York, New York 10005
Attention: Corporate Trust Administration Department
Re: LodgeNet Entertainment Corporation (the "Company")
10 1/4% Senior Notes due 2006 (the "Notes")
--------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $[_____________] aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as of
December 19, 1996 (the "Indenture"), relating to the Notes, and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with, such restrictions and conditions and the Securities
Act of 1933 (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Notes, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter, (D) outside
the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the exemption from registration provided by Rule
144 under the Securities Act, or (F) pursuant to an effective
<PAGE>
C-2
registration statement under the Securities Act, and we further agree to provide
to any person purchasing any of the Notes from us a notice advising such
purchaser that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:_________________________
Authorized Signature
<PAGE>
EXHIBIT D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
--------------------------------
[____________, ____]
Marine Midland Bank
140 Broadway
New York, New York 10005
Attention: Corporate Trust Administration Department
Re: LodgeNet Entertainment Corporation (the "Company")
10 1/4% Senior Notes due 2006 (the "Notes")
--------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$[___________] aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of 1933
and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
<PAGE>
D-2
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________
Authorized Signature
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
STOCK OPTION PLAN
(As Amended and Restated
Effective August 15, 1996)
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Grants to Non-Employee Directors. . . . . . . . . . . . . . . . . . . . . 3
(a) Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) NSOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Termination of Service . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Payment of Director's Fees in Securities . . . . . . . . . . . . . . 3
6. Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Required Terms and Conditions of ISOs . . . . . . . . . . . . . . . . . . 4
(a) Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Maximum Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Time of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Value of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
8. Required Terms and Conditions of NSOs . . . . . . . . . . . . . . . . . . 6
9. Expiration of Options Granted to Key Employees; Termination of
Employment, Disability, Death, Retirement, or Occurrence of Specified
Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Expiration Upon Termination of Employment. . . . . . . . . . . . . . 6
(c) Expiration Upon Disability or Death. . . . . . . . . . . . . . . . . 7
(d) Expiration Upon Retirement . . . . . . . . . . . . . . . . . . . . . 7
(e) Expiration Upon Occurrence of Specified Events . . . . . . . . . . . 8
10. Method of Exercise of Options . . . . . . . . . . . . . . . . . . . . . . 9
11. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . . 12
13. Non-Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Indemnification of the Committee. . . . . . . . . . . . . . . . . . . . 13
15. No Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . 14
16. Termination and Amendment of the Plan . . . . . . . . . . . . . . . . . 14
17. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-i-
<PAGE>
18. Leaves of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
20. Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
21. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
22. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-ii-
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
STOCK OPTION PLAN
(As Amended and Restated
Effective August 15, 1996)
1. Purpose
LodgeNet Entertainment Corporation, a Delaware corporation (the
"Corporation"), adopted the LodgeNet Entertainment Corporation Stock Option
Plan, effective as of August 16, 1993.
The purpose of the LodgeNet Entertainment Corporation Stock Option Plan
(the "Plan") is to enable the Corporation and its subsidiaries to attract,
retain, and reward key managerial employees ("Key Employees") and certain
non-employee members of the board of directors ("Board") of the Corporation
("Non-Employee Director") by offering them an opportunity to have a greater
proprietary interest in and closer identity with the Corporation and with
its financial success. An option granted under the Plan to a Key Employee
to purchase shares of the Corporation's common stock, $0.01 par value
("Common Stock"), may be an incentive stock option ("ISO") as defined in
Section 422 of the Internal Revenue Code of 1986 as heretofore or hereafter
amended ("Code") or a nonqualified stock option ("NSO") (collectively
referred to as "Options"). An Option that is not an ISO shall be an NSO.
Proceeds received by the Corporation from the sale of shares of Common
Stock pursuant to Options granted under the Plan shall be used for general
corporate purposes. This amendment and restatement of the Plan
incorporates amendments adopted in 1995 and 1996 as well as amendments that
bring the Plan into compliance with Rule 16b-3 and permit Non-Employee
Directors to elect to receive their fees in NSOs and/or shares of Common
Stock.
2. Administration
The Plan shall be administered by the Compensation Committee of the Board
("Committee") that shall satisfy the requirements of Rule 16b-3 with
respect to grants to executive officers and members of the Board. Subject
to the express provisions of the Plan, the Committee may interpret the
Plan, prescribe, amend and rescind rules and regulations relating to it,
determine the terms and provisions of the respective Option Agreements
(which need not be identical) and make such other determinations as it
deems necessary or advisable for the administration of the Plan. The
Committee may delegate decisions with respect to Options to Key Employees
who are not executive officers or members of the Board to such executive
officer or officers of the Corporation as the Committee determines. The
decisions of the Committee and its delegatee(s) under the
-1-
<PAGE>
Plan shall be conclusive and binding. No member of the Board or the
Committee or any of its delegatee(s) shall be liable for any action taken
or determination made in good faith.
3. Eligibility
Key Employees who have been selected by the Committee to receive an Option
shall participate in the Plan. Certain Non-Employee Directors shall
participate in the Plan through grants of NSOs and shares of Common Stock
pursuant to Section 5 hereof and discretionary grants of NSOs pursuant to
Section 8 hereof. (Key Employees and Non-Employee Directors who
participate in the Plan shall be collectively referred to as
"Participants"). The Committee shall determine, within the limits of the
express provisions of the Plan, those Participants to whom, and the time or
times at which, Options shall be granted. The Committee shall also
determine, with respect to Options to Participants, the number of shares of
Common Stock to be subject to each such Option: the type of Options (ISO or
NSO); the duration of each Option; the exercise price under each Option;
the time or times within which (during the term of the Option) all or
portions of each Option may be exercised; whether cash. Common Stock
Options or other property may be accepted in full or partial payment upon
exercise of an Option; and any other terms and conditions of such Options.
In making such determinations, the Committee may take into account the
nature of the services rendered by the Participant, his present and
potential contributions to the Corporation's success and such other factors
as the Committee in its discretion shall deem relevant.
4. Common Stock
The total number of shares of Common Stock that may be subject to Options
(including ISOs) under the Plan shall be 1,000,000 shares. Such total
number of shares shall be adjusted in accordance with the provisions of
Section 11 hereof, and a share of Common Stock subject to an Option shall
only be counted once. Such shares may be either authorized but unissued
shares or reacquired shares. In the event that any Option granted under
the Plan expires unexercised or is terminated, surrendered or cancelled
without being exercised in whole or in part, for any reason, then the
number of shares of Common Stock theretofore subject to such Option, or the
unexercised, terminated, surrendered, or canceled portion thereof, shall be
added to the remaining number of shares of Common Stock that may be made
subject to Options under the Plan.
-2-
<PAGE>
5. Grants to Non-Employee Directors
(a) Grants
Each individual who becomes a Non-Employee Director of the Company
shall automatically be granted an Option on the date of his or her
initial election or appointment to the Board of Directors consisting
of an NSO to purchase 6,000 shares of Common Stock, and an automatic
grant of an NSO to purchase an additional 6,000 shares of Common Stock
on each anniversary of such election or appointment during the term of
service.
(b) NSOs
The per share exercise price of each NSO granted to a Non-Employee
Director shall be 100 percent of the Fair Market Value (hereinafter
defined) of a share of Common Stock on the date of grant. Subject to
the provisions of subsection (c) of this Section, if applicable, each
such NSO may be exercised in whole or in part not earlier than six
months after the date of grant and shall expire on the date ten years
after the date of grant. Payment of the exercise price of each such
NSO shall be made (i) in cash or (ii) in Common Stock valued at its
Fair Market Value on the date of exercise or by a combination of (i)
and (ii), as determined by the Non-Employee Director to whom the NSO
is granted at the time of exercise.
(c) Termination of Service
If the service of a Non-Employee Director as a member of the Board
terminates for any reason other than (i) due to disability (as
determined by the Committee), retirement on or after age sixty-five,
or death, or (ii) following an event described in subsection 11(b),
all unexercised NSOs granted to him at any time prior to such
termination shall expire ninety days after the date of such
termination.
(d) Payment of Director's Fees in Securities
Effective May 8, 1996, a Non-Employee Director may elect to receive
his or her annual retainer payments and meeting fees from the
Corporation in the form of cash, NSOs, shares of Common Stock, or a
combination thereof. Such NSOs and shares of Common Stock shall be
issued under the Plan. An election under this Section 5(d) shall be
filed with the Corporation in the prescribed manner and by the
deadline established by the Committee. The election shall apply only
to
-3-
<PAGE>
annual retainers and meeting fees payable after such form has been
received by the Corporation.
The number of NSOs and/or shares of Common Stock to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise
be paid in cash shall be calculated in a manner determined by the Board.
The terms of such NSOs shall also be determined by the Board.
6. Options
The following provisions shall apply to each Option granted to a Key
Employee:
(a) Options may be granted to Key Employees at any time and from time to
time as shall be determined by the Committee. The Committee shall
have complete discretion in determining the number of shares of Common
Stock subject to Options granted to each Key Employee. The Committee
may grant any type of Option to purchase Common Stock that is
permitted by law at the time of the grant, including ISOs.
(b) Each Option shall be evidenced by a written agreement specifying the
type of Option granted, the Option exercise price, the terms for
payment of the exercise price, the duration of the Option and the
number of shares of Common Stock to which the Option pertains (the
"Option Agreement"). An Option Agreement may also contain a vesting
schedule, a non-competition agreement, a confidentiality provision,
provisions for forfeiture in the event of termination of the Key
Employee's employment by the Corporation for Cause (hereinafter
defined) or termination of the Key Employee's employment by the Key
Employee without Good Reason (hereinafter defined), and such
restrictions and conditions and other terms as the Committee shall
determine. Option Agreements need not be identical.
(c) The Committee, in its discretion, shall have the power to accelerate
the dates for exercise of any or all Options, or any part thereof,
granted to a Key Employee under the Plan.
7. Required Terms and Conditions of ISOs
The provisions of each ISO granted to a Key Employee under this Section 7
shall be interpreted in a manner consistent with Section 422 of the Code
and with all regulations issued thereunder. Each ISO granted to a Key
Employee shall be in such form and subject to such restrictions and
conditions and other terms as the Committee may determine at the time of
grant, subject to the general provisions of
-4-
<PAGE>
the Plan, Section 422 of the Code, the applicable Option Agreement and the
following specific rules:
(a) Exercise Price
Except as otherwise provided, the per share exercise price of each ISO
shall be at least 100 percent of the Fair Market Value of the Common
Stock at the time such ISO is granted, provided that in the case of an
ISO granted to a Key Employee who at the time of grant owns (as
defined in Section 424(d) of the Code) stock of the Corporation or its
parent or subsidiaries possessing more than 10 percent of the total
combined voting power of all classes of stock of any such corporation,
the exercise price shall be at least 110 percent of the Fair Market
Value of the Common Stock subject to the ISO at the time such ISO is
granted and the ISO by its terms shall not be exercisable after the
expiration of five years from the date the ISO is granted. In no
event may the exercise price be less than the par value of the Common
Stock subject to such ISO.
(b) Maximum Term
Subject to earlier termination as provided in Section 9, each ISO
shall expire on the date determined in the applicable Option Agreement
at the time the ISO is granted, provided that no ISO shall be
exercisable after the expiration of ten years from the date it is
granted, except as otherwise provided in subsection (a) next above.
(c) Time of Exercise
The Committee shall specify in the Option Agreement at the time each
ISO is granted, the duration of each ISO and the time or times within
which (during the term of the ISO) all or portions of each ISO may be
exercised, except to the extent that other terms of exercise are
specifically provided by other provisions of the Plan.
(d) Value of Shares
The aggregate Fair Market Value (determined at the time of grant) of
Common Stock with respect to which ISOs are exercisable for the first
time by a Key Employee during any calendar year (under all option
plans of the Corporation or of a corporation which, at the time such
ISO was granted, is a parent or subsidiary of the Corporation, or is a
predecessor corporation of any such corporation) shall not exceed
$100,000. If the aggregate Fair Market Value (determined at the time
of grant) of the stock subject
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to an Option, which first becomes exercisable in any calendar year
exceeds the limitation of this subsection, so much of the Option that
does not exceed the applicable dollar limit shall be an ISO and the
remainder shall be an NSO; but in all other respects, the original
Option Agreement shall remain in full force and effect.
(e) Conversion
The Committee may, in its sole discretion, cause the Corporation to
convert an ISO to an NSO upon such terms and conditions and in such
manner as the Committee deems equitable.
8. Required Terms and Conditions of NSOs
Notwithstanding anything to the contrary in the Plan, the terms and
conditions applicable to NSOs granted to Participant's (including Non-
Employee Directors, other than grants pursuant to Section 5(a)) pursuant to
the Plan (which need not be identical) and the Option Agreements relating
thereto shall be determined by the Committee and the Committee shall make
such other determinations as it deems necessary or advisable for the
administration of NSOs granted under the Plan, including prescribing,
amending and rescinding rules and regulations relating to NSOs and
converting NSOs granted outside the Plan into NSOs under the Plan with the
consent of the holder of any such Option.
9. Expiration of Options Granted to Key Employees; Termination of Employment,
Disability, Death, Retirement, or Occurrence of Specified Events
(a) General Rule
Except with respect to Options expiring pursuant to subsection 9(b),
(c) or (d) below, each Option granted to a Key Employee shall, unless
sooner expired pursuant to subsection 9(e) below, expire on the
expiration date or dates set forth in the applicable Option Agreement.
Each Option expiring pursuant to subsection 9(b), (c) or (d) below
shall expire on the date set forth in subsection 9(b), (c) or (d)
notwithstanding any restrictions and conditions that may be contained
in a Key Employee's Option Agreement.
(b) Expiration Upon Termination of Employment
An Option granted to a Key Employee shall expire on the first to occur
of (i) the applicable date or dates determined pursuant to subsection
9(a) or (ii) the date that the employment of the Key Employee with the
Corporation or its subsidiaries terminates for any
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reason other than death or disability pursuant to subsection 9(c),
retirement pursuant to subsection 9(d), or pursuant to subsection
9(e). Notwithstanding the preceding provisions of this subsection
9(b), the Committee, in its sole discretion, may permit a Key
Employee (i) to exercise an Option that is exercisable immediately
prior to the termination of employment, notwithstanding any
restrictions and conditions that may be contained in his Option
Agreement, during a period not to exceed ninety days following his
termination of employment, and/or (ii) to exercise an Option that
becomes exercisable after termination of employment and prior to the
termination of such ninety-day period, during such period. In no
event, however, may the Committee permit such Key Employee to exercise
all Option under this subsection 9(b) after the expiration date or
dates set forth in the applicable Option Agreement.
(c) Expiration Upon Disability or Death
If the employment of a Key Employee with the Corporation and its
subsidiaries terminates by reason of disability (as determined by the
Committee) or death, his unexpired Options or portions thereof, if
any, held on the date of disability or death that would expire
pursuant to the terms of his Option Agreement during the twelve month
period commencing on the date of disability or death, shall expire on
the last day of such twelve-month period. During such twelve-month
period, any such Option or portion thereof referred to in the
preceding sentence may be exercised by such Key Employee, or the
person specified in Section 10, with respect to the same number of
shares and in the same manner and to the same extent as if the Key
Employee had continued as a full-time employee of the Corporation or
its subsidiaries during such twelve-month period. Any unexpired
Option or portion thereof held by the Key Employee on the date of
disability or death, that would expire pursuant to the terms of his
Option Agreement on a date more than twelve months after the date of
disability or death, shall expire unexercised on the date of
disability on the date of disability or death.
(d) Expiration Upon Retirement
If the employment of a Key Employee with the Corporation and its
subsidiaries terminates due to retirement under any qualified
retirement plan maintained by the Corporation and/or any of its
subsidiaries, his Option shall expire on the earlier to occur of
(i) the applicable expiration date or
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dates set forth in the applicable Option Agreement(s) or (ii) the
third anniversary of the date of such termination of employment. It
a Key Employee who has so retired dies prior to exercising in full an
Option that has not expired pursuant to the preceding sentence, then
notwithstanding the preceding sentence, such Option shall expire on
the first anniversary of the date of the Key Employee's death. During
the period commencing on the date of retirement or death, as the case
may be, and ending on the applicable later expiration date, the
Options may be exercised by such Key Employee, or the person specified
in Section 10, with respect to the same number of shares and in the
same manner and to the same extent as if the Key Employee had
continued as a full-time employee of the Corporation or its
subsidiaries during such period.
(e) Expiration Upon Occurrence of Specified Events
If, within two years after the occurrence of any event described in
subsection 11(b), the employment of a Key Employee with the
Corporation and its subsidiaries terminates voluntarily for Good
Reason, or involuntarily for any reason other than for Cause, or due
to the death, disability (as determined by the Committee) or
retirement (as defined in subsection (d)) of a Key Employee, and if
such event described in subsection 11(b) does not have the prior
written approval of a majority of the Continuing Directors, the dates
upon which his outstanding Options may be exercised shall be advanced
to the date of termination. In such event, not later than ninety days
following the date of his termination, the Key Employee may elect to
exercise in whole or in part any or all of his Options in accordance
with the terms of Section 10, notwithstanding any restrictions and
conditions that may be contained in his Option Agreement. For
purposes of the preceding sentence an event described in subsection
11(b) shall not have the prior written approval of a majority of the
Continuing Directors unless, in the case of an event described in
subsection 11(b)(i) or (iii), such approval occurs before the time of
such event, and, in the case of an event described in subsection
11(b)(ii), such approval occurs before the time that any person
(including any Affiliate or Associate) directly or indirectly acquires
or becomes entitled to vote 20 percent or more of the Voting Power of
the Corporation. Notwithstanding any of the provisions of this
subsection 9(e), if the employment of a Key Employee with the
Corporation or its subsidiaries terminates under conditions which meet
the requirements of either subsection 9(c) (as to death or disability)
or (d) (as to retirement) and this subsection 9(e), then such Key
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Employee, or the person specified in Section 10, within thirty days
following the date of his termination, may elect, by giving written
notice to the Secretary of the Corporation, to have the provisions of
either subsection 9(c) (as to death or disability) or (d) (as to
retirement) or this subsection (e) apply to his Options. For purposes
of the Plan: (i) termination for "Cause" shall mean termination of
his employment by the Corporation or any subsidiary because of (A) the
Key Employee's dishonesty, fraud or breach of trust or substantial
nonperformance of, his duties, (B) any act or omission by the Key
Employee that is a substantial cause for a regulatory body with
jurisdiction over the Corporation or any of its subsidiaries to
request or recommend the suspension or removal of the Key Employee or
to impose sanctions upon the Corporation or the Key Employee, or (C) a
material breach by the Key Employee of any applicable employment
agreement between him and the Corporation or any of its subsidiaries,
(ii) termination with "Good Reason" shall mean termination of his
employment by a Key Employee because, without his express written
consent, (A) the Corporation or any subsidiary materially breaches any
of the terms of an employment agreement between the Corporation or any
of its subsidiaries and the Key Employee, (B) the Key Employee is
assigned duties materially inconsistent with his position, duties, and
status as of the date immediately preceding the date of termination,
or (C) the Corporation or any subsidiary substantially reduces the Key
Employee's fixed annual salary or his benefits under the Corporation's
or a subsidiary's qualified retirement or welfare plans so that, when
considered m the aggregate and with any substitute plan or plans, his
aggregate compensation is at a lower level than at the commencement of
the term of employment, and (iii) "Continuing Director" shall mean a
person who was a member of the Board elected by the stockholders prior
to the occurrence of any event described in subsection 11(b).
10. Method of Exercise of Options
Any Option granted under the Plan may be exercised by the Participant, by a
legatee or legatees of such Option under the Participant's last will, by
his executors, personal representatives or distributees, or by his assignee
or assignees as provided in Section 13 below, by delivering to the
Secretary of the Corporation written notice of the number of shares of
Common Stock with respect to which the Option is being exercised,
accompanied by full payment to the Corporation of the exercise price of the
shares being purchased under the Option, and by satisfying, all other
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conditions provided for in the Plan Except as otherwise provided in the
Plan or in any Option Agreement, the exercise price of Common Stock upon
exercise of any Option by a Key Employee shall be paid in full (i) in cash,
(ii) in Common Stock valued at its Fair Market Value on the date of
exercise, (iii) in cash by a broker-dealer to whom the holder of the Option
has submitted an exercise notice consisting of a fully endorsed Option,
(iv) by agreeing to surrender Options then exercisable by him valued at the
excess of the aggregate Fair Market Value of the Common Stock subject to
such Options on the date of exercise over the aggregate option price of
such Common Stock, (v) by directing the Corporation to withhold such number
of shares of Common Stock otherwise issuable upon exercise of such Option
having an aggregate Fair Market Value on the date of exercise equal to the
exercise price of the Option or (vi) by such other medium of payment as the
Committee, in its discretion, shall authorize or by any combination of (i),
(ii), (iii), (iv) and (v), at the discretion of the Committee or in any
manner provided in the Option Agreement. The Corporation shall issue, in
the name of the Participant (or, if applicable, the legatee(s),
executor(s), personal representative(s), or distributee(s) of a deceased
Participant, or the assignee(s) as provided in Section 13), stock
certificates representing the total number of shares of Common Stock
issuable pursuant to the exercise of any Option as soon as reasonably
practicable after such exercise, provided that any Common Stock purchased
by a Key Employee through a broker-dealer pursuant to clause (iii) above
shall be delivered to such broker-dealer in accordance with 12 C.F R. Sec.
220.3(e)(4).
11. Adjustments
(a) Appropriate adjustment in the maximum number of shares of Common Stock
issuable pursuant to the Plan, the number of shares subject to Options
under the Plan and the exercise price with respect to Options shall be
made to give effect to any increase or decrease in the number of
shares of issued Common Stock resulting from a subdivision or
consolidation of shares whether through reorganization,
recapitalization, stock split, reverse stock split, spin-off, split-
off, spin-out, or other distribution of assets to stockholders, stock
distributions or combination of shares, assumption and conversion of
outstanding Options due to an acquisition by the Corporation of the
stock or assets of any other corporation, payment of stock dividends,
other increase or decrease in the number of such shares outstanding
effected, without receipt of consideration by the Corporation, or any
other occurrence for which the Committee determines an adjustment is
appropriate; provided, however, that no
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<PAGE>
adjustment in the number of shares with respect to which Options
may be granted under the Plan, or in the number of shares subject to
outstanding Options shall be made except in the event, and then only
to the extent that such adjustment together with all respective prior
adjustments which were not made as a result of this provision, involve
a net change of more then ten percent (i) from the number of shares of
Common Stock with respect to which Options may be granted under the
Plan, or (ii) with respect to each outstanding Option, from the
respective number of shares of Common Stock subject thereto on the
date of grant thereof. The decision of the Committee as to the amount
and timing of any such adjustments shall be conclusive.
(b) In the event that:
(i) any person (as such term is used in Section 13 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder and
including any Affiliate or Associate of such person, as defined
in Rule 12b-2 under said Act, and any person acting in concert
with such person) directly or indirectly acquires or otherwise
becomes entitled to vote more than 50 percent of the voting power
entitled to be cast at elections for directors ("Voting Power")
of the Corporation; or
(ii) there occurs any merger or consolidation of the Corporation, or
any sale, lease or exchange of all or any substantial part of the
consolidated assets of the Corporation and its subsidiaries to
any other person and (A) in the case of a merger or
consolidation, the holders of outstanding stock of the
Corporation entitled to vote in elections of directors
immediately before such merger or consolidation (excluding for
this purpose any person (including any Affiliate or Associate)
that directly or indirectly owns or is entitled to vote 20
percent or more of the Voting Power of the Corporation) hold less
than 80 percent of the Voting Power of the survivor of such
merger or consolidation or its parent; or (B) in the case of any
such sale, lease or exchange, the Corporation does not own at
least 50 percent of the Voting Power of the other person; or
(iii) one or more new directors of the Corporation are elected and at
such time five or more directors (or, if less, a majority of the
directors) then holding office were not nominated as candidates
by a majority of the Continuing Directors;
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<PAGE>
the Committee may, in its discretion, revise, alter, amend or modify
any Option Agreement with a Key Employee and any then outstanding and
unexercised Option granted to a Key Employee in any manner that it
deems appropriate, including, but not limited to, any of the following
respects:
(A) the Option may be deemed to pertain to and apply to the
securities to which a holder of the number of shares of
Common Stock subject to the unexercised portion of the
Option would be entitled if he actually owned such shares
immediately prior to the record date or other time any such
event became effective; and
(B) subject to subsection 7(d), the dates upon which outstanding
and unexercised Options may be exercised may be advanced
(without regard to installment exercise limitations, if
any).
If the Committee believes that any such event is reasonably likely to
occur, the Committee may so revise, alter, amend or modify as set
forth above at any time before and contingent upon the consummation of
such an event.
(c) In the case of dissolution of the Corporation, every Option granted to
a Key Employee outstanding hereunder shall terminate notwithstanding
any restrictions and conditions that may be contained in his Option
Agreement Each such Option holder shall have thirty days prior written
notice of such event, during which time he shall have a right, subject
to subsection 7(d), to exercise his partly or wholly unexercised
Option (without regard to installment exercise limitations, if any).
(d) On the basis of information known to the Corporation, the Committee
shall make all determinations relating to the applicability and
interpretation of this Section 11, and all such determinations shall
be conclusive and binding.
12. Terms and Conditions of Options
(a) Each Key Employee shall agree to such restrictions and conditions and
other terms in connection with the exercise of an Option, including
restrictions and conditions on the disposition of the Common Stock
acquired upon the exercise thereof, as the Committee may deem
appropriate. The certificates delivered to a Participant evidencing
the shares of Common Stock
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acquired upon exercise of an Option may bear a legend referring to
the restrictions and conditions and other terms contained in the
respective Option Agreement and the Plan, and the Corporation may
place a stop transfer order with its transfer agent against the
transfer of such shares. If requested to do so by the Committee at
the time of exercise of an Option, each Participant shall execute a
written instrument stating that he is purchasing the Common Stock for
investment and not with any present intention to sell the same.
(b) The obligation of the Corporation to sell and deliver Common Stock
under the Plan shall be subject to all applicable laws, regulations,
rules and approvals, including, but not by way of limitation, the
effectiveness of a registration statement under the Securities Act of
1933, if deemed necessary or appropriate by the Committee, of the
Common Stock, Options, and other securities reserved for issuance or
that may be offered under the Plan. A Participant shall have no
rights as a stockholder with respect to any shares covered by an
Option granted to, or exercised by, him until the date of delivery of
a stock certificate to him for such shares. No adjustment other than
pursuant to Section 11(a) hereof shall be made for dividends or other
rights for which the record date is prior to the date such stock
certificate is delivered.
13. Non-Transferability
Except as provided in the applicable Option Agreement, Options granted
under the Plan and any rights and privileges pertaining thereto, may not be
transferred assigned, pledged or hypothecated in any manner, by operation
of law or otherwise, other than by will or by the laws of descent and
distribution and shall not be subject to execution, attachment or similar
process. The granting of an Option shall impose no obligation upon the
applicable Participant to exercise such Option.
14. Indemnification of the Committee
In addition to such other rights of indemnification as they may have as
members of the Board, or as members of the Committee, or as its delegatees,
the members of the Committee and its delegatees shall be indemnified by the
Corporation against (a) the reasonable expenses (as such expenses are
incurred), including attorney' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding (or in
connection with any appeal therein), to which they or any of them may be a
party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted
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<PAGE>
hereunder; and (b) against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel
selected by the Corporation) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member or delegatee is liable for gross negligence or misconduct
in the performance of his duties; provided that within sixty days after
institution of any such action suit or proceeding a Committee member or
delegatee shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
15. No Contract of Employment
Neither the adoption of the Plan nor the grant of any Option shall bc
deemed to obligate the Corporation or any subsidiary to continue the
employment of any Key Employee for any particular period, nor shall the
granting of an Option Constitute a request or consent to postpone the
retirement date of any Key Employee.
16. Termination and Amendment of the Plan
(a) No ISOs shall be granted under the Plan more than ten years after the
first to occur of (i) the date the Plan was adopted by the Board or
(ii) the date the Plan was approved by the stockholders of the
Corporation. The Board may at any time terminate, suspend or modify
the Plan without the authorization of stockholders to the extent
allowed by applicable law, regulation or rule.
(b) No termination, suspension or modification of the Plan shall adversely
affect any right acquired by any Participant under an Option granted
before the date of such termination, suspension or modification,
unless such Participant shall consent; but it shall be conclusively
presumed that any adjustment for changes in capitalization as provided
for herein does not adversely affect any such right. Any member of
the Board who is an officer or employee of the Corporation shall be
without vote on any proposed amendment to the Plan, or on any other
matter which might affect that member's individual interest under the
Plan.
17. Withholding Taxes
Whenever the Corporation proposes or is required to issue or transfer
shares of Common Stock to a Participant under the Plan, the Corporation
shall have the right to require the Participant to remit to the Corporation
an amount sufficient to satisfy all federal, state and local
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withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. If such certificates have been delivered
prior to the time a withholding obligation arises, the Corporation shall
have the right to require the Participant to remit to the Corporation an
amount sufficient to satisfy all federal, state or local withholding tax
requirements at the time such obligation arises and to withhold from other
amounts payable to the Participant, as compensation or otherwise, as
necessary. A Participant may elect to satisfy his tax withholding
obligation incurred with respect to the Taxable Date of an Option by (a)
directing the Corporation to withhold a portion of the shares of Common
Stock otherwise distributable to the Participant, or (b) by transferring
to the Corporation a certain number of shares of previously owned Common
Stock, such shares being valued at the Fair Market Value thereof on the
Taxable Date.
18. Leaves of Absence
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan regarding any leave
of absence taken by a Key Employee who is the recipient of any Option.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (a) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan, and
(b) the impact, if any, of any such leave of absence on Options under the
Plan theretofore made to any Key Employee who takes such leave of absence.
19. Governing Law
The Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of Delaware and, in the case of
ISOs, Section 422 of the Code and regulations issued thereunder.
20. Fair Market Value
"Fair Market Value" as of a given date for all purposes of the Plan and any
Option Agreement means (a) if the Common Stock is listed on a national
security exchange, the average of the closing prices of the Common Stock on
the Composite Tape for the ten consecutive trading days immediately
preceding such given date; (b) if the Common Stock is traded on an exchange
or market in which prices are reported on a bid and asked price, the
average of the mean between the bid and the asked price for the Common
Stock at the close of trading for the ten consecutive trading days
immediately preceding such given date; and (c) if the Common Stock is not
listed on a national securities exchange nor traded on the over-the-counter
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market, such value as the Committee, in good faith, shall determine.
Notwithstanding any provision of the Plan to the contrary, no determination
made with respect to the Fair Market Value of Common Stock subject to an
ISO shall be inconsistent with Section 422 of the Code or regulations
issued thereunder
21. Successors
In the event of a sale of substantially all of the assets of the
Corporation, or a merger, consolidation or share exchange involving the
Corporation, all obligations of the Corporation under the Plan with respect
to Options granted hereunder shall be binding on the successor to the
transaction. Employment of a Key Employee with such a successor shall be
considered employment of the Key Employee with the Corporation for purposes
of the Plan.
22. Notices
Notices given pursuant to the Plan shall be in writing and shall be deemed
received when personally delivered or five days after mailed by United
States registered or certified mail, return receipt requested, addressee
only, postage prepaid. Notice to the Corporation shall be directed to:
Corporate Secretary
LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
Notices to or with respect to a Participant shall be directed to the
Participant, or the executors, personal representatives or distributees of
a deceased Participant, at the Participant's home address on the records of
the Corporation.
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AGREEMENT TO EXTEND LEASE
This Agreement to Extend Lease ("Agreement") made this 6th day of November,
1996, between Modern Press Realty Company ("Landlord") and Lodgenet
Entertainment Corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into an "Office and Building Lease" on
or about December 9, 1991 ("Lease"); and
WHEREAS, the parties do hereby agree to extend the term of the Lease.
NOW, THEREFORE, in consideration of the promises, covenants, terms and
conditions hereinafter set forth, the parties do hereby agree as follows:
1. The term of the Lease is extended for the period of seven months, by
changing the date of the expiration of the term thereof from the 31st day of
December, 1996, to the 31st day of July, 1997. Furthermore, Tenant shall have
the option to extend the lease past July 31, 1997, for two (2) additional
periods of one month each, provided that:
a. Tenant shall give not less than ninety (90) days prior written
notice to Landlord of Tenant's exercise of either option;
b. Tenant shall only be entitled to exercise the second one month
option if Tenant has exercised the first one month option; and
c. Tenant's exercise of either option to extend shall be effective
only if Tenant is not in default under the Lease and only if the Lease does not
otherwise terminate prior to expiration of the applicable term.
2. All of the terms, conditions, covenants and agreements of said Lease
shall continue to bind the respective parties hereto for such extended term and
the option periods (if such option periods are exercised by Tenant), and in all
other respects, said Lease is to remain unchanged and in full force between the
parties, except as follows:
a. Section twenty of the Lease (Entitled "Purchase Options") shall
not apply during the extended term or the option periods;
b. The Lease shall terminate at such time, if any, as the parties
close the sale of the subject property by Landlord to Tenant;
c. The monthly Base Rental is $7,761.71 per month;
<PAGE>
d. Section 7.0 of the Lease is hereby amended to provide that if
such damage or destruction shall include in excess of 35% of the Leased Premises
or occur during the fifth year of the Lease or occur during the extended term or
either option period of the Lease, Landlord or Tenant may, at each one's option,
within thirty (30) days thereof, declare the Lease terminated;
e. Section 17.0 of the Lease is hereby amended to provide that
Tenant shall, during the extended term and the option periods permit the usual
notice of "To Let" or "For Sale" to be placed on the Leased Premises and to
remain thereon without molestation; and
f. The notice address for Landlord as set forth in Section 21.1 of
the Lease shall be in care of First Bank of South Dakota, N.A., P.O. Box 5308,
Sioux Falls, South Dakota 57117-5308.
3. This Agreement and the extension of the Lease term shall not be or
constitute a waiver of any rights by either party. Specifically and without
limitation, LodgeNet is not waiving any right it may have to rescind the
exercise of the option to purchase because of possible environmental
contamination of the Real Property.
MODERN PRESS REALTY COMPANY
BY: /s/ Thomas J. Flynn
------------------------------------
ITS: Agent
-----------------------------------
LODGENET ENTERTAINMENT CORPORATION
BY: /s/ Steven D. Truckenmiller
------------------------------------
ITS: VP
-----------------------------------
<PAGE>
AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT
THIS AMENDMENT NO. 1, dated as of December 19, 1996 (this "Amendment"),
is between LodgeNet Entertainment Corporation, a Delaware corporation (the
"Company") and John Hancock Mutual Life Insurance Company and Massachusetts
Mutual Life Insurance Company (the "Required Holders") as holders of 75% of
the outstanding principal amount of the Company's 11.50% Senior Subordinated
Notes due 2005 (the "Notes"). This Amendment is a first amendment to the
Securities Purchase Agreement dated as of August 9, 1995 between the Company,
John Hancock Mutual Life Insurance Company, Allstate Life Insurance Company,
CM Life Insurance Comapny and Connecticut Mutual Life Insurance Company,
pursuant to which the Notes were issued (the "Securities Agreement").
Capitalized terms used in this Amendment without definition have the meanings
given therefor in the Securities Agreement.
RECITAL
The Company has requested that Holders consent to certain amendments to
the Securities Agreement in connection with the issuance by the Company of
$150,000,000 in aggregate amount of its 10.25% Senior Notes due 2006 (the
"144A Notes") to be issued pursuant to an Indenture dated as of December 19,
1996 by the Company as Issuer and Marine Midland Bank as Trustee (the "144A
Indenture") and the amendment of its current Revolving Credit Facility. The
Required Holders have agreed to consent to such amendments subject to the
terms and conditions of this Amendment.
NOW THEREFORE, for good and valuable consideration, the sufficiency of
which is acknowledged by the parties, it is agreed:
1. REPRESENTATION AND WARRANTIES. The Company hereby represents and
warrants to each of the Holders:
1A. AUTHORITY. This Amendment has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by an authorized officer of the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms.
1B. NO CONFLICTS. Subject to the consents referenced in Section 1E of
this Amendment, the execution and delivery of the Amendment and fulfillment
of and compliance with the terms and provisions hereof, do not and will not
conflict with the provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien (other than Liens
securing the New Facility Agreement described in Paragraph 1G hereof) upon
any of the properties or assets of the Company or any Subsidiary pursuant to
its charter or by-laws or other organizational documents, any award of any
arbitrator or any agreement (including any agreement with stockholders or
other equity holders), instrument, order, judgment, decree, statute, law,
rule or regulation to which it is subject.
1C. DISCLOSURE. The Company has delivered to each Holder a copy of the
Offering Memorandum dated December 16, 1996 prepared by the Company in
connection with the offer and sale of the 144A Notes (the "144A Memorandum").
The 144A Memorandum fairly describes, in all material respects, the general
nature of the business and principal properties of the Company and the terms,
conditions and use of proceeds of the 144A Notes and the 144A Indenture. The
144A Memorandum does not contain any untrue statement of material fact or
omit to state a material fact necessary in order to make the statement
contained therein, in light of the circumstances under which they were made,
not misleading.
<PAGE>
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1D. NO DEFAULTS. As of the date hereof, no Default or Event of Default
exists, and immediately after the issuance of the 144A Notes and the
application of the proceeds thereof and the effectiveness of this Amendment,
no Default or Event of Default shall exist or be reasonably anticipated to
result therefrom.
1E. CONSENTS. As of the date hereof, the only Debt of the Company
entitled to the benefits of paragraph 12 of the Securities Agreement are the
Senior Notes, the Senior Note Agreement and the Revolving Credit Facility.
Except for the consents of the "Majority Banks" (as such term is defined in
the Revolving Credit Facility) and the Required Holders, no authorization,
consent, approval, exemption or other action by or notice to or filing with
any Governmental Authority or any other Person is required in connection with
the amendments to the Securities Agreement contemplated by this Amendment.
1F. 144A NOTES. Attached hereto as Exhibit A is a true, complete and
correct copy of the 144A Indenture. Except for the 144A Indenture, the 144A
Notes to be issued in the form of Exhibit A to the 144A Indenture and the
144A Memorandum, there are no other agreements or understandings (whether
written or oral) between the Company or any Subsidiary and any other Person
relating to the Debt evidenced by the 144A Notes. The Notes will rank not
less than pari passu with the 144A Notes, in priority of payment and in right
of security and credit support, if any.
1G. REVOLVING CAPITAL FACILITY. The Company has provided the Holders
with true, complete and correct copies of the Amended and Restated Revolving
Credit Agreement dated as of December 19, 1996 by and among the Company, the
Banks named therein and National Westminster Bank Plc, as Agent and National
Westminster Bank of Canada, as Issuing Bank, and providing for secured
advances by such Banks (the "New Facility Agreement") which will be in
effect upon the issuance of the 144A Notes. Except for the New Facility
Agreement and the Exhibits attached thereto and the agreements or instruments
referred to therein, there will be, upon the issuance of the 144A Notes, no
other agreements or understandings (whether written or oral) between the
Company or any Subsidiary and any other Person relating to the Revolving
Credit Facility.
2. AMENDMENTS. The Securities Agreement is hereby amended as follows:
2A. PARAGRAPH 1B, RANKING. Paragraph 1B of the Securities Agreement is
deleted and the following is substituted therefor:
"1B. RANKING. The Notes shall rank pari passu with each other, will
constitute direct senior obligations of the Company and shall rank
not less than pari passu in priority of payment with all other
outstanding Debt of the Company past, present or future, except for
Debt which is preferred as a result of being secured (but only to
the extent such security is not prohibited by this Agreement and
then only to the extent of such security)."
2B. PARAGRAPHS 6 AND 7, AFFIRMATIVE AND NEGATIVE COVENANTS. Paragraphs
6E, 6F, 6G, 6H, 7A, 7B, 7C, 7D, 7E, 7F, 7G and 7I of the Securities Agreement
are deleted in their entirety and Sections 4.03, 4.04, 4.05, 4.06, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.18, 4.19, 5.01 and 5.02 of the 144A
Indenture are substituted therfor as if such Sections were set forth
in this Amendment in their entirety and all defined terms used in such
Sections shall have the meanings given therefor in the 144A Indenture as if
such definitions were set forth in this Amendment in their entirety, PROVIDED:
(i) the terms "Notes" in such Sections, shall, for the
purposes of the Securities Agreement, mean the Notes as defined in the
Securities Agreement;
<PAGE>
-3-
(ii) the term "Closing Date" as used in such Sections, shall,
for the purposes of the Securities Agreement, mean the date on which
the 144A Notes are originally issued under the 144A Indenture;
(iii) the term "Indenture" in such Sections shall, for the
purposes of the Securities Agreement, mean the Securities Agreement;
and
(iv) such Sections shall retain their section number
designations for the purpose of cross-references within, and to,
such Sections in the Securities Agreement and Sections 4.03 through
4.15 together with Sections 4.18 and 4.19 shall collectively
constitute "Article Four" of the Securities Agreement and Sections
5.01 and 5.02 shall constitute "Article Five" of the Securities
Agreement for such purpose.
2C. PARAGRAPH 8, EVENTS OF DEFAULT.
(i) Subparagraph (d) of paragraph 8A of the Securities
Agreement is deleted and the following is substituted therefor:
"(d) the Company fails to perform or observe any
covenant contained in any of Sections 4.03, 4.04, 4.05, 4.07,
4.08, 4.11 or 5.01, as such Sections have been incorporated by
reference into this Agreement from that certain Indenture
dated as of December 19, 1996 between the Company, as Issuer
and Marine Midland Bank, as Trustee and relating to the
issuance of the Company's 10.25% Senior Notes due 2006."
(ii) Subparagraph (f) of paragraph 8A of the Securities
Agreement is amended to insert the phrase "or to permit the holder
or holders of such Debt (or a trustee on behalf of such holder or
holders) to cause," after the word "cause" in clause (ii) of such
subparagraph (f).
2D. PARAGRAPH 11B, OTHER TERMS.
(i) The definition set forth in paragraph 11B of the
Securities Agreement for the term "Revolving Credit Agreement" is
deleted and the following is substituted therefor:
"Revolving Credit Agreement" shall mean the Amended and
Restated Loan Agreement dated as of December 19, 1996 by and among
the Company, the Banks named therein and the National Westminster
Bank, Plc, as Agent, and National Westminster Bank of Canada, as
Issuing Bank, as amended, amended and restated, modified or
supplemented from time to time.
(ii) The proviso in clause (ii) of the definition of
Revolving Credit Facility set forth in paragraph 11B of the
Securities Agreement is deleted and the following is substituted
therefor:
"PROVIDED that the provisions of any credit agreement
referred to in this clause (ii) do not restrict the Company's
ability to amend this Agreement or the Notes".
(iii) The defined terms "Default Notice", "Senior Covenant
Default", "Senior Obligations", "Senior Payment Default" and
"Permitted Post Petition Interest" set forth in paragraph 11B of
the Securities Agreement are deleted.
<PAGE>
-4-
2E. PARAGRAPH 12. SUBORDINATION OF THE NOTES. Paragraphs 12A
through 12N, inclusive, of the Securities Agreement are deleted.
2F. PARAGRAPH 13C. CONSENT TO AMENDMENTS. The last sentence of
paragraph 13C of the Securities Agreement is deleted.
3. EFFECTIVENESS. This Amendment shall become effective upon
satisfaction of the following conditions precedent:
(i) Each of the Holders shall have received an opinion from
Eric R. Jacobsen, Vice President and General Counsel, of the
Company to the effect that (A) the Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware and has all requisite corporate and other
power and authority to execute, deliver and perform this Amendment;
(B) this Amendment has been duly authorized by all necessary
corporate action on the part of the Company and has been duly
executed and delivered by an authorized officer of the Company and
constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally, or by equitable
principals; (C) other than the consents which have been obtained,
no consent, approval, exemption or any action by or notice to or
filing with any Governmental Authority or any other Person is
required in connection with the execution and delivery of this
Amendment; (D) the execution, delivery and performance of this
Amendment do not, and will not, conflict with the provisions of or
constitute a default under or result in any violation of or result
in the creation of any Lien (other than Liens securing the New
Facility Agreement) upon any of the properties or assets of the
Company or any Subsidiary pursuant to its charter or by-laws or
other organizational document, any award of any arbitrator or
order, judgment, decree, statute, law, rule or regulation to which
it is subject or the Securities Agreement, the Revolving Credit
Agreement, the Senior Note Agreement, 144A Indenture or any other
material agreement to which the Company or any Subsidiary is a
party or to which it or its assets are subject and otherwise in
form and substance satisfactory to the Required Holders;
(ii) The 144A Notes shall have been duly issued and the 144A
Indenture shall be in full force and effect and the Required
Holders shall have received such evidence thereof as they shall
have reasonably requested, including, without limitation, delivery
to the Holders of counterparts, addressed to the Holders, of each
certificate or opinion delivered to the original purchasers of the
144A Notes;
(iii) The Loan Agreement dated as of March 17, 1995 by and
between the Company and NatWest Bank, N.A., as agent and as bank
shall have been terminated, and all amounts due thereunder shall
have been paid in full and the New Facility Agreement shall be in
full force and effect and the Required Holders shall have received
such evidence thereof as they shall have reasonably requested,
including, without limitation, delivery to each Holder of copies of
each opinion and certificate delivered in connection with the New
Facility Agreement; and
(iv) All consents required from any Governmental Authority or
any other Person to this Amendment shall have been obtained and the
Required Holders shall have received such evidence thereof as they
shall have reasonably requested.
4. NO OTHER AMENDMENTS. Except as expressly set forth herein, the
Securities Agreement shall continue in full force and effect without alteration
or amendment.
<PAGE>
-5-
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which shall together constitute one in the same
instrument.
6. GOVERNING LAW. THIS AMENDMENT IS DELIVERED IN THE COMMONWEALTH
OF MASSACHUSETTS IS TO BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY LAWS OR RULES RELATING TO
CONFLICTS OF LAWS THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS).
EXECUTED under seal as of the date first written above.
LODGENET ENTERTAINMENT CORPORATION
By:/s/ Jeffrey T. Weisner
------------------------------
Name: Jeffrey T. Weisner
Title: Vice President, Finance
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:/s/ Marlene DeLeon
------------------------------
Name: Marlene DeLeon
Title:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:/s/ Lawrence D. St. Leman
------------------------------
Name: Lawrence D. St. Leman
Title:
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LODGENET ENTERTAINMENT CORPORATION
$100,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 19, 1996
WITH
NATIONAL WESTMINSTER BANK PLC,
AS AGENT AND ISSUING BANK,
NATIONAL WESTMINSTER BANK OF CANADA,
AS ISSUING BANK,
AND
THE BANKS PARTY HERETO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS.......................................................1
ARTICLE 2. COMMITMENTS; LOANS...............................................20
Section 2.1 Loans.....................................................20
Section 2.2 Notices Relating to Loans.................................20
Section 2.3 Disbursement of Loan Proceeds.............................21
Section 2.4 Notes.....................................................21
Section 2.5 Commitment Reduction; Repayment of Loans..................22
Section 2.6 Interest..................................................23
Section 2.7 Fees......................................................24
Section 2.8 Changes in Commitment; Prepayments........................25
Section 2.9 Use of Proceeds of Loans..................................26
Section 2.10 Computations..............................................26
Section 2.11 Minimum Amounts of Borrowings, Conversions, Prepayments
and Interest Periods......................................26
Section 2.12 Time and Method of Payments...............................27
Section 2.13 Lending Offices...........................................27
Section 2.14 Several Obligations.......................................27
Section 2.16 Letters of Credit.........................................27
Section 2.17 Financing Documents.......................................33
Section 2.18 Pro Rata Treatment Among Banks............................33
Section 2.19 Non-Receipt of Funds by the Agent.........................34
Section 2.20 Sharing of Payments and Set-Off Among Banks...............34
Section 2.21 Conversions of Loans......................................35
Section 2.22 Additional Costs; Capital Requirements....................35
Section 2.23 Limitation on Types of Loans..............................36
Section 2.24 Illegality................................................37
Section 2.25 Certain Conversions pursuant to Sections 2.22 and 2.24....37
Section 2.26 Alternate Lending Installation............................38
Section 2.27 Indemnification...........................................38
ARTICLE 3. REPRESENTATIONS AND WARRANTIES...................................39
Section 3.1 Organization..............................................39
Section 3.2 Power, Authority, Consents................................39
Section 3.3 No Violation of Law or Agreements.........................40
Section 3.4 Due Execution, Validity, Enforceability...................40
Section 3.5 Properties, Liens.........................................40
Section 3.6 Litigation................................................40
Section 3.7 No Defaults, Compliance With Laws.........................41
Section 3.8 Burdensome Documents......................................41
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<PAGE>
PAGE
Section 3.9 Financial Statements; Projections.........................41
Section 3.10 Tax Returns...............................................42
Section 3.11 Intellectual Property.....................................42
Section 3.12 Regulation U..............................................42
Section 3.13 Name Changes, Mergers, Acquisitions.......................42
Section 3.14 Full Disclosure...........................................42
Section 3.15 Licenses and Approvals....................................43
Section 3.16 Labor Disputes; Collective Bargaining Agreements;
Employee Grievances.......................................43
Section 3.17 Condition of Assets.......................................43
Section 3.18 ERISA.....................................................44
Section 3.19 Material Agreements.......................................44
Section 3.20 Collateral Documents......................................44
Section 3.21 Solvency..................................................45
ARTICLE 4. CONDITIONS TO THE LOANS..........................................45
Section 4.1 Conditions to Initial Loans...............................45
Section 4.2 Conditions to Subsequent Loans and L/Cs...................48
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS, DOCUMENTS
AND OTHER INFORMATION............................................48
Section 5.1 Annual Financial Statements...............................48
Section 5.2 Quarterly Financial Statements49
Section 5.3 Projections...............................................49
Section 5.4 Compliance Information....................................49
Section 5.5 No Default Certificate....................................49
Section 5.6 Accountants' Reports......................................50
Section 5.7 Copies of Documents.......................................50
Section 5.8 Notices of Defaults.......................................50
Section 5.9 ERISA Notices and Requests................................50
Section 5.10 Additional Information; Guest-Pay Rooms...................51
ARTICLE 6. AFFIRMATIVE COVENANTS............................................52
Section 6.1 Books and Records.........................................52
Section 6.2 Inspections and Audits....................................52
Section 6.3 Maintenance and Repairs...................................52
Section 6.4 Continuance of Business...................................52
Section 6.5 Copies of Corporate Documents.............................53
Section 6.6 Perform Obligations.......................................53
Section 6.7 Notice of Litigation......................................53
ii
<PAGE>
PAGE
Section 6.8 Insurance.................................................53
Section 6.9 Financial Covenants.......................................53
Section 6.10 Notice of Certain Events..................................55
Section 6.11 Comply with ERISA.........................................55
Section 6.12 Environmental Compliance..................................55
Section 6.13 Further Assurances........................................55
ARTICLE 7. NEGATIVE COVENANTS...............................................57
Section 7.1 Indebtedness..............................................57
Section 7.2 Liens.....................................................58
Section 7.3 Guaranties................................................59
Section 7.4 Mergers, Acquisitions.....................................60
Section 7.5 Redemptions; Distributions................................60
Section 7.6 Stock Issuances...........................................61
Section 7.7 Changes in Business; Asset Dispositions...................61
Section 7.8 Prepayments and Repayments of Indebtedness................61
Section 7.9 Investments...............................................62
Section 7.10 Fiscal Year...............................................64
Section 7.11 ERISA Obligations.........................................64
Section 7.12 Amendments of Documents...................................65
Section 7.13 Capital Expenditures......................................65
Section 7.14 Rental Obligations........................................66
Section 7.15 Use of Cash...............................................66
Section 7.16 Management Fees...........................................66
Section 7.17 Transactions with Affiliates..............................66
Section 7.18 Hazardous Material........................................67
ARTICLE 8. EVENTS OF DEFAULT................................................67
Section 8.1 Payments..................................................67
Section 8.2 Certain Covenants.........................................67
Section 8.3 Other Covenants...........................................68
Section 8.4 Other Defaults............................................68
Section 8.5 Representations and Warranties............................68
Section 8.6 Bankruptcy................................................69
Section 8.7 Judgments.................................................69
Section 8.8 ERISA.....................................................69
Section 8.9 Change of Control.........................................69
Section 8.10 Collateral................................................70
ARTICLE 9. THE AGENT........................................................70
Section 9.1 Appointment, Powers and Immunities........................70
Section 9.2 Reliance by Agent.........................................70
Section 9.3 Events of Default.........................................71
iii
<PAGE>
PAGE
Section 9.4 Rights as a Bank..........................................71
Section 9.5 Indemnification...........................................71
Section 9.6 Non-Reliance on Agent and other Banks.....................71
Section 9.7 Failure to Act............................................72
Section 9.8 Resignation or Removal of Agent...........................72
Section 9.9 Sharing of Payments.......................................72
Section 9.10 Collateral Matters........................................73
ARTICLE 10. MISCELLANEOUS PROVISIONS........................................74
Section 10.1 Fees and Expenses; Indemnity..............................74
Section 10.2 Taxes.....................................................75
Section 10.3 Payments..................................................75
Section 10.4 Survival of Agreements and Representations; Construction..76
Section 10.5 Lien on and Set-off of Deposits...........................76
Section 10.6 Amendments and Waivers; Entire Agreement..................76
Section 10.7 Remedies Cumulative; Counterclaims........................77
Section 10.8 Additional Actions........................................77
Section 10.9 Notices...................................................77
Section 10.10 Counterparts..............................................79
Section 10.11 Severability..............................................79
Section 10.12 Successors and Assigns....................................79
Section 10.13 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY...................................80
iv
<PAGE>
PAGE
EXHIBITS
A Commitments and Percentages
B Promissory Note
C Assignment and Assumption Agreement
D ResNet Guaranty
E LodgeNet Canada Guaranty
F Security Agreement
G Pledge Agreement
H Patent and Trademark Security Agreement
I Borrower U.S. Legal Opinion
SCHEDULES
3.1 Organization and Capitalization
3.5 Real Estate
3.6 Litigation
3.11 Intellectual Property
3.13 Name Changes, Mergers
3.19 Material Agreements
7.1 Outstanding Indebtedness
7.2 Permitted Liens
v
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 19, 1996 by
and among LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (the
"BORROWER"), the Banks that from time to time become a party to this Agreement
(individually, a "BANK" and collectively, the "BANKS"), NATIONAL WESTMINSTER
BANK PLC, a United Kingdom public limited company, as Agent for the Banks (in
such capacity, together with its successors in such capacity, the "AGENT"), and
NATIONAL WESTMINSTER BANK OF CANADA, as an "ISSUING BANK" (as hereinafter
defined).
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and certain of the Banks entered into that
certain Loan Agreement dated as of March 11, 1996 (the "Original Loan
Agreement") pursuant to which certain loans and letter of credit obligations are
currently outstanding; and
WHEREAS, the Borrower wishes to obtain an increased, secured revolving loan
and letter of credit facility from the Banks in the aggregate principal amount
of up to One Hundred Million Dollars ($100,000,000), subject to adjustment, in
order to finance capital expenditures and provide for the ongoing working
capital requirements of the Borrower, and the Banks are willing to make such
increased facility available to the Borrower on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL COSTS: as defined in subsection 2.22(b) hereof.
AFFECTED LOANS: as defined in Section 2.25 hereof.
AFFECTED TYPE: as defined in Section 2.25 hereof.
AFFILIATE: as to any Person, any other Person that directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), PROVIDED THAT, in any
event: (i) any Person that owns directly or indirectly 5% or more of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person; and
(ii) each director and officer of the Borrower shall be deemed to be an
Affiliate of the Borrower.
<PAGE>
AGENCY FEES: as defined in subsection 2.7(b) hereof.
ANNUAL OPERATING CASH FLOW: as at any date of determination thereof,
as to the Borrower and its Restricted Subsidiaries, the Operating Cash Flow for
the immediately preceding four consecutive full fiscal quarters (or, for
purposes of calculating Interest Coverage compliance in subsection 6.9(b) hereof
for fiscal 1997, such shorter fiscal period as may be appropriate) for which the
Agent has received financial statements in compliance with Section 5.1 or
Section 5.2 hereof (or, if as at any date of determination the Agent shall not
yet have received financial statements delivered in compliance with Section 5.1
or Section 5.2 hereof, then the Operating Cash Flow for such immediately
preceding four consecutive full fiscal quarters (or such shorter period) shall
be determined by the Agent in its sole judgment based, in the Agent's
discretion, on such financial information as it shall have requested and
received from the Borrower).
ANNUALIZED OPERATING CASH FLOW: as at any date of determination
thereof, as to the Borrower and its Restricted Subsidiaries, the product of (a)
Operating Cash Flow for the immediately preceding two consecutive full fiscal
quarters for which the Agent has received financial statements in compliance
with Section 5.1 or Section 5.2 hereof (or, if as at any date of determination
the Agent shall not yet have received financial statements delivered in
compliance with Section 5.1 or Section 5.2 hereof, then the Operating Cash Flow
for such immediately preceding two consecutive full fiscal quarters shall be
determined by the Agent in its sole judgment based, in the Agent's discretion,
on such financial information as it shall have requested and received from the
Borrower), multiplied by (b) two (2).
APPLICABLE BASE RATE MARGIN: with respect to Base Rate Loans, one
percent (1.00%), subject to adjustment in accordance with subsection 2.6(b)
hereof.
APPLICABLE EURODOLLAR RATE MARGIN: with respect to Eurodollar Rate
Loans, two percent (2.00%), subject to adjustment in accordance with subsection
2.6(b) hereof.
APPLICABLE LENDING OFFICE: with respect to each Bank, with respect to
each type of Loan, the Lending Office as designated for such type of Loan below
its name on the signature pages hereof or such other office of such Bank or of
an affiliate of such Bank as such Bank may from time to time specify to the
Agent and the Borrower as the office at which its Loans of such type are to be
made and maintained.
APPLICATION DOCUMENTS: as defined in subsection 2.16(b) hereof.
ASSET DISPOSITION: any conveyance, sale, lease, assignment, transfer
or other disposition of property, assets or business of the Borrower or any
Subsidiary of the Borrower in a single transaction or a series of related
transactions (other than in the ordinary course of business).
ASSIGNMENT AND ASSUMPTION AGREEMENT: an agreement in the form of
Exhibit C hereto.
2
<PAGE>
BANK DEFAULT: (i) the refusal (which has not been retracted) of a Bank
to make available its portion of any incurrence of Loans or to fund its portion
of any unreimbursed payment under Section 2.16 hereof or (ii) a Bank having
notified the Agent and/or the Borrower that it does not intend to comply with
its obligations under Section 2.1 or Section 2.16 hereof, in the case of either
(i) or (ii) as a result of the appointment of a receiver or conservator with
respect to such Bank at the direction or request of any regulatory agency or
authority.
BASE MAXIMUM CAPITAL EXPENDITURES AMOUNT: as defined in Section 7.13
hereof.
BASE RATE: as of any date of determination, the higher of (i) the
interest rate established from time to time by NatWest Plc as its "prime rate"
at the Principal U.S. Office and (ii) the Federal Funds Rate plus one-half
percent (0.50%). Notwithstanding the foregoing, the Borrower acknowledges that
NatWest Plc may regularly make domestic commercial loans at rates of interest
less than the rate of interest referred to in the preceding sentence. Each
change in any interest rate provided for herein based upon the "prime rate"
resulting from a change in the "prime rate" shall take effect at the time of
such change in the "prime rate."
BASE RATE LOANS: Loans that earn interest at a rate based upon the
Base Rate.
BENEFICIARY DOCUMENTS: as defined in subsection 2.16(d) hereof.
BORROWING NOTICE: as defined in Section 2.2 hereof.
BUSINESS DAY: any day other than Saturday, Sunday or any other day on
which commercial banks in New York City are authorized or required to close
under the laws of the State of New York.
CAPITAL EXPENDITURES: for any period, the aggregate amount of all
payments made during such period by any Person directly or indirectly for the
purpose of acquiring, constructing or maintaining fixed assets, real property or
equipment that, in accordance with generally accepted accounting principles,
would be added as a debit to the fixed asset account of such Person, including,
without limitation, all amounts paid or payable during such period with respect
to Capitalized Lease Obligations and interest that are required to be
capitalized in accordance with generally accepted accounting principles.
CAPITALIZED LEASE: any lease the obligations to pay rent or other
amounts under which constitute Capitalized Lease Obligations.
CAPITALIZED LEASE OBLIGATIONS: as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under generally accepted accounting principles and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles.
3
<PAGE>
CASH: as to any Person, such Person's cash and cash equivalents, as
defined in accordance with generally accepted accounting principles consistently
applied.
CERCLA: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq.
CLOSING DATE: the date on which all conditions precedent set forth in
Section 4.1 hereof are satisfied or waived, but in any event no later than
December 31, 1996.
CODE: the Internal Revenue Code of 1986, as it may be amended from
time to time.
COLLATERAL: the property covered by the Security Agreement, the Patent
and Trademark Security Agreement, the Pledge Agreement and the other Collateral
Documents, and any other property, real or personal, tangible or intangible, now
existing or hereafter acquired that may at any time be or become subject to a
security interest or Lien in favor of the Agent on behalf of itself, the Banks
and the Issuing Banks, to secure the Obligations.
COLLATERAL DOCUMENTS: the Pledge Agreement, the Security Agreement,
the Patent and Trademark Security Agreement and each of the security agreements,
mortgages and other instruments and documents executed and delivered pursuant to
any of the foregoing or pursuant to Section 6.13 hereof.
COMMITMENT: as to each Bank, the amount set forth opposite such
Bank's name on Annex A hereto under the caption "Commitment" as such amount may
be subject to increase or reduction in accordance with the terms hereof.
COMMITMENT FEE: as defined in subsection 2.7(a) hereof.
COMMITMENT FEE PERCENTAGE : one-half of one percent (0.50%); PROVIDED,
HOWEVER, that at any time that the Applicable Base Rate Margin and the
Applicable Eurodollar Rate Margin are determined by reference to the table
contained in subsection 2.6(b) hereof, the Commitment Fee Percentage shall equal
the applicable percentage set forth below the caption "Commitment Fee
Percentage" in such table at such time.
COMMITMENT TERMINATION DATE: the earliest of (i) December 31, 2002
and (ii) the date on which the Commitments are terminated in full or reduced to
zero pursuant to subsection 2.8(b) hereof.
COMPLIANCE CERTIFICATE: a certificate executed by the president,
chief financial officer or chief operating officer of the Borrower to the effect
that: (i) as of the effective date of the certificate, no Default or Event of
Default under this Agreement exists or would exist after giving effect to the
action intended to be taken by the Borrower as described in such certificate;
(ii) the representations and warranties contained in Article 3 hereof are true
and with the same effect as though such representations and warranties were made
on the date of such certificate, except to the extent such representations and
warranties expressly relate to an earlier date; and (iii) since
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September 30, 1996, there has not occurred any event or circumstance (including
litigation developments) that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
CONTROLLED GROUP: all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b), 414(c) or 414(m) of the Code and Section 4001(a)(2) of ERISA.
CREDIT PERIOD: the period commencing on the date of this Agreement
and ending on the Commitment Termination Date.
DEBT INSTRUMENT: as defined in subsection 8.4(a) hereof.
DEFAULTING BANK: any Bank with respect to which a Bank Default is in
effect.
DEFAULT: an event which with notice or lapse of time, or both, would
constitute an Event of Default.
DEFINED CONTRIBUTION PLAN: a plan which is not covered by Title IV of
ERISA or subject to the minimum funding standards of Section 412 of the Code and
which provides for an individual account for each participant and for benefits
based solely on the amount contributed to the participant's account, and any
income, expenses, gains and losses, and any forfeitures of accounts of other
participants which may be allocated to such participant's account.
DISPOSAL: the discharge, deposit, injection, dumping, spilling,
leaking or placing of any hazardous materials into or on any land or water so
that such hazardous materials or constituent thereof may enter the environment
or be emitted into the air or discharged into any waters, including ground
waters.
DOLLARS AND $: lawful money of the United States of America.
DOCUMENTARY L/C: any L/C which is issued for the benefit of a
supplier of system components and/or inventory for whose account such L/C is
issued in order to support payment of the purchase price of such inventory.
EMPLOYEE BENEFIT PLAN: any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of Borrower or
any of its ERISA Affiliates or (b) has at any time within the preceding six (6)
years been maintained for employees of any Loan Party or any current or former
ERISA Affiliate.
ENVIRONMENTAL LAWS AND REGULATIONS: all federal, state and local
environmental, health and safety laws, regulations, ordinances, orders,
judgments and decrees applicable to the Borrower or any other Loan Party, or any
of their respective assets or properties.
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ENVIRONMENTAL LIABILITY: any liability under any applicable
Environmental Laws and Regulations for any disposal, release or threatened
release of a Hazardous Substance pollutant or contaminant as those terms are
defined under CERCLA, and any liability which would require a removal, remedial
or response action, as those terms are defined under CERCLA, by any person or
any environmental regulatory body having jurisdiction over the Borrower or any
other Loan Party and/or any liability arising under any Environmental Laws and
Regulations for the Borrower's or any other Loan Party's failure to comply with
such laws and regulations, including without limitation, the failure to comply
with or obtain any applicable environmental permit.
ENVIRONMENTAL PROCEEDING: any judgment, action, proceeding or
investigation pending before any court or governmental authority, with respect
to the Borrower or any other Loan Party and arising under or relating to any
Environmental Laws and Regulations.
ERISA: the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time, and the regulations promulgated thereunder.
ERISA AFFILIATE: with respect to any Loan Party, any corporation,
person or trade or business which is a member of a group which is under common
control with any Loan Party, who together with any Loan Party, is treated as a
single employer within the meaning of Sections 414(b) - (o) of the Code and, if
applicable, Sections 4001(a)(14) and (b) of ERISA.
EURODOLLAR BUSINESS DAY: a Business Day on which dealings in Dollar
deposits are carried out in the Eurodollar interbank market.
EURODOLLAR LOANS: Loans the interest on which is determined on the
basis of the Eurodollar Rate.
EURODOLLAR RATE: for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the sum of: (a) the rate
per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by
the Reference Bank at approximately 10:00 a.m. New York time (or as soon
thereafter as practicable) two (2) Eurodollar Business Days prior to the first
day of such Interest Period for the offering by the Reference Bank to leading
banks in the Eurodollar interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount comparable to the principal
amount of the Eurodollar Loan to be made by the Banks to which such Interest
Period relates; divided by (b) 1 minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period. The Agent shall use its best efforts
to advise the Borrower of the Eurodollar Rate as soon as practicable after each
change in the Eurodollar Rate; PROVIDED, HOWEVER, that the failure of the Agent
to so advise the Borrower on any one or more occasions shall not affect the
rights of the Banks or the Agent or the obligations of the Borrower hereunder.
EVENT OF DEFAULT: as defined in Article 8 hereof.
EVENT OF LOSS: with respect to any property, (a) any loss, destruction
or damage of such property or (b) any condemnation, seizure or taking, by
exercise of the power of eminent
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domain or otherwise, of such property, or confiscation of such property or the
requisition of the use of such property.
EXCESS CASH FLOW: for any period, an amount equal to, for the
Borrower and its Restricted Subsidiaries: (i) the amount of the Operating Cash
Flow for such period PLUS cash or cash equivalents actually received by the
Borrower from or in respect of Investments or Subsidiaries which are not
Restricted Subsidiaries; (ii) MINUS, without duplication, the sum of: (a) all
Capital Expenditures incurred during such period, (b) all payments of principal
on Permitted Debt (other than payments of principal on the Loans pursuant to
subsection 2.8(c) hereof) and interest on Indebtedness for money borrowed
incurred in accordance with Section 7.1 hereof that were or are due and payable
during such period, (c) all reasonable and customary fees and costs actually
paid during such period in connection with the incurrence directly by the
Borrower or any Subsidiary of Indebtedness for money borrowed permitted pursuant
to Section 7.1 hereof or, to the extent permitted hereunder, the issuance of
equity securities of the Borrower pursuant to a public offering or private
placement of such securities, (d) cash used for Investments permitted pursuant
to and in accordance with subsection 7.9(e) hereof, and (e) $500,000.
FEDERAL FUNDS RATE: for any day, the weighted average of the rates on
overnight federal funds transactions with member banks of the Federal Reserve
System arranged by federal funds brokers as published by the Federal Reserve
Bank of New York for such day, or if such day is not a Business Day, for the
next preceding Business Day (or, if such rate is not so published for any such
day, the average rate charged to the Agent on such day on such transactions as
reasonably determined by the Agent).
FEE(S): as defined in subsection 2.7(d) hereof.
FINANCIAL STATEMENTS: with respect to the Borrower: (i) its unaudited
consolidated Balance Sheet as at September 30, 1996, together with the related
unaudited consolidated Statement of Operations and Statement of Cash Flows for
the fiscal period then ended, and (ii) its audited consolidated Balance Sheet as
at December 31, 1995, together with the related audited consolidated Statement
of Operations and Statement of Cash Flows for the fiscal year then ended.
GUARANTIES: the ResNet Guaranty, the LodgeNet Canada Guaranty and any
other guaranty of the Obligations delivered pursuant to subsection 7.9(e)(iv) or
6.13(g) hereof.
GUARANTOR(S): ResNet, LodgeNet Canada and any other Subsidiary of the
Borrower required, or designated by the Borrower, to deliver a guaranty of the
Obligations pursuant to subsection 7.9(e)(iv) or 6.13(g) hereof.
GUEST-PAY ROOMS: at any time of determination, the aggregate number
of guest rooms of all lodging, hospital, cruise line and related properties, (i)
which have a firm contract with the Borrower or any Subsidiary for the provision
of in-room television entertainment and/or information services which are
provided to the guests of such property for a charge and (ii) against which the
Borrower or such Subsidiary has not, in accordance with its ordinary business
practice, chosen to exercise any remedies for non-payment under such contract.
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HAZARDOUS MATERIALS: any toxic chemical, Hazardous Substances,
contaminants or pollutants, medical wastes, infectious wastes, or hazardous
wastes.
HAZARDOUS SUBSTANCE: as set forth in Section 101(14) of CERCLA or
state or local law.
HAZARDOUS WASTE: as set forth in the Resource Conservation and
Recovery Act, 42 U.S.C. Section 9603(5), and the Environmental Protection
Agency's implementing regulations, or state or local law.
INDEBTEDNESS: with respect to any Person, without duplication, all:
(i) liabilities or obligations, direct and contingent, with respect to money
borrowed, including, without limitation (a) contingent liabilities of any kind
for which the Borrower or any Subsidiary incurs or becomes responsible for in
connection with any Investment made pursuant to subsection 7.9(e) hereof, (b)
that portion of Capitalized Lease Obligations of such Person that, in accordance
with generally accepted accounting principles, should be classified as a
liability on the balance sheet of such Person, (c) the deferred purchase price
of assets or services which in accordance with generally accepted accounting
principles would be shown on the liability side of the balance sheet of such
Person, and (d) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted, i.e., take-or-pay
and similar obligations; (ii) liabilities or obligations of others for which
such Person is directly or indirectly liable, by way of guaranty (whether by
direct guaranty, suretyship, discount, endorsement, take-or-pay agreement,
agreement to purchase or advance or keep in funds or other agreement having the
effect of a guaranty) or otherwise; (iii) liabilities or obligations secured by
Liens on any assets of such Person, whether or not such liabilities or
obligations shall have been assumed by it; (iv) liabilities or obligations of
such Person, direct or contingent, with respect to letters of credit issued for
the account of such Person and bankers acceptances created for such Person and
(v) net obligations of such Person under any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
futures contract, interest rate option contract or any other agreement or
arrangement designed to protect such Person against fluctuations in interest
rates or exchange rates.
INTEREST COVERAGE: as at any date, for the immediately preceding
fiscal period, the ratio determined by dividing (a) Annual Operating Cash Flow
PLUS Rentals by (b) Interest Expense on all Indebtedness of the Borrower and its
Restricted Subsidiaries on a consolidated basis (excluding for this purpose the
TCI Convertible Debt) PLUS Rentals PLUS Preferred Stock Dividends.
INTEREST EXPENSE: as to any Person as at any date, with respect to any
Indebtedness of such Person, the sum of all (a) interest and all amortization of
debt discount and expense (including, without limitation, interest that is
imputed in accordance with generally accepted accounting principles on
Capitalized Lease Obligations that are included in Indebtedness) and (b)
commitment fees, commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs
under Interest Rate Contracts, in each case that were due and payable relating
to such Indebtedness during the immediately preceding four consecutive full
fiscal quarters (or, for purposes of calculating Interest Coverage compliance in
subsection 6.9(b) hereof for fiscal 1997, such shorter fiscal period as may be
appropriate) for which
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the Agent has received financial statements in compliance with Sections 5.1 and
5.2 hereof (or, if as at any date of determination the Agent shall not yet have
received financial statements delivered in compliance with Section 5.1 or
Section 5.2 hereof, then Interest Expense for such immediately preceding four
consecutive full fiscal quarters (or such shorter period) shall be determined by
the Agent in its sole judgment based, in the Agent's discretion, on such
financial information as it shall have requested and received from the
Borrower).
INTEREST PERIOD: with respect to any Eurodollar Loan, each period
commencing on the date such Loan is made or converted from a Loan or Loans of
another type, or the last day of the next preceding Interest Period with respect
to such Loan, and ending on the same day in the first, second, third or sixth
calendar month thereafter (or such longer period which each of the Banks shall
have notified the Agent is available at any time) as the Borrower may select as
provided in Section 2.2 hereof, except that each such Interest Period that
commences on the last Eurodollar Business Day of a calendar month (or on any day
for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Eurodollar Business Day of the
appropriate subsequent calendar month;
Notwithstanding the foregoing: (i) each Interest Period that would otherwise
end on a day that is not a Business Day shall end on the next succeeding
Business Day (or, in the case of an Interest Period for Eurodollar Loans, if
such next succeeding Eurodollar Business Day falls in the next succeeding
calendar month, on the next preceding Eurodollar Business Day); (ii) no more
than five (5) Interest Periods for Eurodollar Loans shall be in effect at the
same time; (iii) no Interest Period for any type of Loan shall end later than
the Commitment Termination Date; and (iv) notwithstanding clause (iii) above, no
Interest Period shall have a duration of less than one (1) month (in the case of
Eurodollar Loans). In the event that the Borrower fails to select the duration
of any Interest Period for any Loan within the time period and otherwise as
provided in Section 2.2 hereof, such Loans will be automatically converted into
a Base Rate Loan on the last day of the preceding Interest Period for such Loan.
INTEREST RATE CONTRACTS: interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements, interest rate insurance or any
other agreements or arrangements designed to provide protection against
fluctuation in interest rates or exchange rates, in each case, in form and
substance satisfactory to the Agent and, in each case, with counterparties
satisfactory to the Agent.
INVESTMENT: by any Person:
(a) the amount paid or committed to be paid, or the value of property
or services contributed or committed to be contributed, by such Person for or in
connection with the acquisition by such Person of any stock, bonds, notes,
debentures, partnership or other ownership interests or other securities of any
other Person; and
(b) the amount of any advance, loan or extension of credit by such
Person, to any other Person, or guaranty or other similar obligation of such
Person with respect to any Indebtedness of such other Person, and (without
duplication) any amount committed to be advanced, loaned, or
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extended by such Person to any other Person, or any amount the payment of which
is committed to be assured by a guaranty or similar obligation by such Person
for the benefit of, such other Person.
IRS: Internal Revenue Service.
ISSUING BANK: as defined in subsection 2.16(a) hereof.
LATEST BALANCE SHEET: as defined in subsection 3.9(a) hereof.
L/C(S): (i) any standby letter of credit or documentary letter of
credit issued by the Issuing Banks pursuant to Section 2.16 hereof and (ii) each
existing letter of credit issued pursuant to the Original Loan Agreement
outstanding on the date hereof, in each case, as amended, supplemented or
modified from time to time.
L/C DRAWING AVAILABILITY: as of any date of determination, the sum of
the aggregate maximum amount then available to be drawn under all L/Cs but
excluding the aggregate amount of any Unreimbursed Drawings then outstanding and
excluding that portion of L/Cs for which portion demands for drawings have been
made but not yet paid by the Issuing Bank.
L/C FEES: as defined in subsection 2.7(c) hereof.
L/C ISSUANCE REQUEST: as defined in subsection 2.16(b) hereof.
L/C OBLIGATIONS: as of any date of determination, all the existing
liabilities (including all fees) of the Borrower to the Issuing Banks and the
Banks and the Agent in respect of all L/Cs, whether such liability is contingent
or fixed and shall be computed to include the sum of the aggregate maximum
amount then available to be drawn under all L/Cs and the aggregate amount of any
Unreimbursed Drawings then outstanding.
LEASES: leases and subleases (other than Capitalized Leases),
licenses for the use of real property, easements, rights-of-entry, grants, and
other attachment rights and similar instruments under which the Borrower or its
Subsidiaries has the right to use real or personal property or rights of way.
LETTER AGREEMENT(S): as defined in subsection 2.7(b) hereof.
LICENSES: as defined in Section 3.15 hereof.
LIEN: any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing), any conditional sale or other title retention agreement, any
lease in the nature of any of the foregoing, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction (excluding precautionary filings by lessors).
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LOAN(S): as defined in Section 2.1 hereof. Loans of different types
made or converted from Loans of other types on the same day (or of the same type
but having different Interest Periods) shall be deemed to be separate Loans for
all purposes of this Agreement.
LOAN DOCUMENTS: this Agreement, the Notes, the Guaranties, the
Collateral Documents, the L/C(s), the Letter Agreements(s), Interest Rate
Contracts to which any Bank is a party and all other documents executed and
delivered in connection herewith or therewith, including all amendments,
modifications and supplements of or to all such documents.
LOAN PARTY: the Borrower, its Subsidiaries (including the Guarantors)
or any other Person (other than the Banks, the Issuing Banks and the Agent)
which now or hereafter executes and delivers to any Bank or the Agent any Loan
Document.
LODGENET CANADA: LodgeNet Entertainment (Canada) Corporation, a
Canadian corporation and a Wholly-Owned Subsidiary of the Borrower.
MAJORITY BANKS: (i) at any time while no Loans are outstanding
hereunder, Non-Defaulting Banks having at least 60% of the aggregate amount of
the Commitments, and (ii) at any time while Loans are outstanding hereunder,
Non-Defaulting Banks holding at least 60% of the outstanding aggregate principal
amount of the Loans and Net L/C Obligations hereunder.
MANAGEMENT: as defined in Section 8.9 hereof.
MANAGEMENT FEES: for any period, all fees, emoluments or similar
compensation paid or incurred by any Person (other than any such fees,
emoluments or similar compensation paid to or incurred and payable to the
Borrower or any of its Subsidiaries) in respect of services rendered in
connection with the management or supervision of the management of such Person,
or any construction, operation or maintenance associated with the business of
the Borrower or its Subsidiaries, other than salaries, bonuses and other
compensation paid to any full-time executive employee in respect of such
full-time employment.
MANDATORY L/C BORROWING: as defined in subsection 2.16(c) hereof.
MATERIAL ADVERSE EFFECT: (a) a materially adverse effect on the
business, properties, assets, operations, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole, (b) material
impairment of the ability of the Borrower or any Loan Party to perform any of
its obligations under any Loan Document to which it is a party, or (c) material
impairment of the rights or benefits available to the Banks, the Issuing Banks
or the Agent under any Loan Document.
MAXIMUM L/C AMOUNT: the sum of Five Million Dollars ($5,000,000) as
the same shall and/or may be reduced pursuant to Sections 2.2 and 2.8 hereof.
MULTIEMPLOYER PLAN: a "multiemployer plan" as defined in Section
4001(a)(3) or ERISA to which any Loan Party or any ERISA Affiliate is making, or
is accruing an obligation to
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make, contributions or has made, or been obligated to make, contributions within
the preceding six (6) years.
NATWEST CANADA: National Westminster Bank of Canada, in its capacity
as an Issuing Bank hereunder.
NATWEST PLC: National Westminster Bank Plc, New York branch, in its
capacity as a Bank hereunder.
NET L/C OBLIGATIONS: the L/C Obligations exclusive of Unreimbursed
Drawings which have been repaid with the proceeds of and simultaneously with the
incurrence of Loans.
NEW TYPE LOANS: as defined in Section 2.25 hereof.
NON-DEFAULTING BANK: each Bank other than a Defaulting Bank.
NOTE(S): as defined in Section 2.4 hereof.
OBLIGATIONS: collectively, all of the Loans, Indebtedness,
liabilities and obligations of the Borrower to the Banks, the Issuing Banks and
the Agent arising out of this Agreement or the Loan Documents, whether now
existing or hereafter arising, whether or not currently contemplated, including,
without limitation, the L/C Obligations and, to the extent provided by any Bank
or its Affiliate, obligations under any Interest Rate Contract or any currency
hedging agreement.
OPERATING CASH FLOW: for any period, the consolidated net income of
any Person during such period (a) PLUS, but only to the extent such items shall
have been deducted in determining such net income, the sum of (i) all interest,
fees and costs paid or accrued during such period on Indebtedness, including,
without limitation, interest that is imputed in accordance with generally
accepted accounting principles on Capitalized Lease Obligations that are
included in Indebtedness, (ii) depreciation and amortization of assets, (iii)
all income taxes, to the extent not paid or not currently payable and (iv)
extraordinary non-operating losses and (b) MINUS the sum of (i) extraordinary
gains, (ii) income derived from other than the consolidated operations of such
Person and (iii) to the extent not already deducted in determining such net
income, all corporate overhead expenses of such Person; all of the above items
exclusive of minority interests (except to the extent of cash or cash
equivalents in respect thereof actually received by the Borrower in such
period); as to all of the foregoing, as determined in accordance with generally
accepted accounting principles, consistently applied; PROVIDED, that,
notwithstanding any of the foregoing, except to the extent of cash or cash
equivalents actually received on an unconditional basis, any direct or indirect
Subsidiary the distribution of whose earnings and proceeds the Borrower does not
maintain the ability to direct in the ordinary course of business shall not be
considered for purposes of calculating Operating Cash Flow; and, PROVIDED,
FURTHER, that, notwithstanding any of the foregoing, regardless of the receipt
of any proceeds or any other distributions therefrom, there shall not be
considered in calculating Operating Cash Flow any Subsidiary which is not a
Guarantor hereunder. For the purpose hereof, the amount of Operating Cash Flow
(as defined above) of ResNet to be included in the calculation of the Operating
Cash Flow of the Borrower shall be determined as follows: (a) FIRST,
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by calculating the LESSER of (i) the total Operating Cash Flow of ResNet and
(ii) the quotient obtained by dividing (y) the amount of the then-current
obligation of ResNet for payment of Guaranteed Obligations under the ResNet
Guaranty by (z) the then-applicable multiple listed under the caption "Maximum
Total Leverage" in subsection 6.9(a) hereof; (b) THEREAFTER, if the amount
calculated under clause (a)(i) above shall be greater than the amount under
clause (a)(ii) above (such difference being the "Excess ResNet Operating Cash
Flow"), then there shall also be added to such clause (a)(ii) amount the product
obtained by multiplying the percentage representing the Borrower's equity
ownership in ResNet times the amount of Excess ResNet Operating Cash Flow.
ORIGINAL LOAN AGREEMENT: as defined in the first recital to this
Agreement.
PATENT AND TRADEMARK SECURITY AGREEMENT: the Patent and Trademark
Security Agreement of even date herewith, substantially in the form of Exhibit H
hereto, among the Borrower, the Subsidiaries party thereto and the Agent, on
behalf of itself, the Banks and the Issuing Banks, as the same may be, from time
to time, amended, modified or supplemented.
PAYOR: as defined in Section 2.19 hereof.
PBGC: Pension Benefit Guaranty Corporation.
PENSION PLAN: at any time an employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is maintained either: (i) by the Borrower or any
ERISA Affiliate for employees of the Borrower, or by the Borrower for any ERISA
Affiliate, or (ii) pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
the Borrower or any ERISA Affiliate is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
PERCENTAGE: with respect to any Bank, a fraction (expressed as a
percentage) the numerator of which is the Commitment of such Bank at such time
and the denominator of which is the Total Commitment at such time (for purposes
of computation after any termination of the Total Commitment, without giving
effect to any such termination of the Total Commitment).
PERMITTED DEBT: Indebtedness (i) which is not secured by any Lien,
(ii) which contains terms, covenants and conditions satisfactory to the Agent
and the Majority Banks, and (iii) as to its incurrence, no Default or Event of
Default has occurred and is continuing either immediately before or after giving
effect thereto.
PERMITTED INTERCOMPANY DEBT: Indebtedness of ResNet or ResNet LLC for
money borrowed from the Borrower or ResNet, as the case may be, (i) which is
evidenced by a promissory note of ResNet or ResNet LLC to the Borrower or
ResNet, as the case may be, (ii) which represents senior, unsubordinated
Indebtedness of ResNet or ResNet LLC, and (iii) the repayment of which is not
restricted in any manner by any covenant, agreement or other restriction binding
upon or affecting ResNet or ResNet LLC.
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PERMITTED LIENS: as to any Person: (i) pledges or deposits by such
Person under workers' compensation laws, unemployment insurance laws, social
security laws, or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness of such
Person), or leases to which such Person is a party, or deposits to secure public
or statutory obligations of such Person or deposits of Cash or United States
Government Bonds to secure surety, appeal, performance or other similar bonds to
which such Person is a party, or deposits as security for contested taxes or
import duties or for the payment of rent; (ii) Liens imposed by law, such as
carriers', landlords', warehousemen's, materialmen's and mechanics' liens, or
Liens arising out of judgments or awards against such Person with respect to
which such Person at the time shall currently be prosecuting an appeal or
proceedings for review; (iii) Liens for taxes not yet subject to penalties for
non-payment and Liens for taxes the payment of which is being contested as
permitted by Section 6.6 hereof; (iv) minor survey exceptions, minor
encumbrances, easements or reservations of, or rights of, others for rights of
way, highways and railroad crossings, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties; and (v) Liens incidental to the conduct of the
business of such Person or to the ownership of such Person's property that were
not incurred in connection with Indebtedness of such Person, all of which Liens
referred to in the preceding clause (v) do not in the aggregate materially
detract from the value of the properties to which they relate or materially
impair their use in the operation of the business taken as a whole of such
Person, and as to all the foregoing only to the extent arising and continuing in
the ordinary course of business.
PERSON: an individual, a corporation, a limited liability company, a
partnership, a joint venture, a trust or unincorporated organization, a joint
stock company or other similar organization, a government or any political
subdivision thereof, a court, or any other legal entity, whether acting in an
individual, fiduciary or other capacity.
PLAN: at any time an employee pension benefit plan that is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either: (i) maintained by the Borrower or any member of the
Controlled Group for employees of the Borrower, or by the Borrower for any other
member of such Controlled Group, or (ii) maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which the Borrower or any member of the Controlled
Group is then making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions.
PLEDGE AGREEMENT: the Pledge Agreement of even date herewith,
substantially in the form of Exhibit G hereto, between the Borrower and the
Agent, on behalf of itself, the Banks and the Issuing Banks, pledging all
Subsidiaries' capital stock owned by the Borrower and all intercompany notes
owing to or held by the Borrower, as the same may be, from time to time,
amended, modified or supplemented.
POST-DEFAULT RATE: (i) in respect of any Loans a rate per annum equal
to: (x) if such Loans are Base Rate Loans, two percent (2%) above the Base Rate
as in effect from time to time plus the Applicable Base Rate Margin (but in no
event less than the interest rate in effect on the due
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date), or (y) if such Loans are Eurodollar Loans, two percent (2%) above the
rate of interest in effect thereon at the time of the Event of Default that
resulted in the Post-Default Rate being instituted until the end of the then
current Interest Period therefor and, thereafter, two percent (2%) above the
Base Rate as in effect from time to time plus the Applicable Base Rate Margin
(but in no event less than the interest rate in effect on the due date); and
(ii) in respect of other amounts payable by the Borrower hereunder (including
interest to the extent permitted by law) not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate per annum during the period
commencing on the due date until such other amounts are paid in full equal to
two percent (2%) above the Base Rate as in effect from time to time plus the
Applicable Base Rate Margin (but in no event less than the interest rate in
effect on the due date).
PREFERRED STOCK DIVIDENDS: as defined in subsection 7.5(b) hereof for
payments made during the immediately preceding four consecutive full fiscal
quarters (or, for purposes of calculating Interest Coverage compliance in
subsection 6.9(b) hereof for fiscal 1997, such shorter fiscal period as may be
appropriate) for which the Agent has received financial statements in compliance
with Sections 5.1 and 5.2 hereof (or, if as at any date of determination the
Agent shall not yet have received financial statements delivered in compliance
with Section 5.1 or Section 5.2 hereof, then Preferred Stock Dividends for such
immediately preceding four consecutive full fiscal quarters (or such shorter
period) shall be determined by the Agent in its sole judgment based, in the
Agent's discretion, on such financial information as it shall have requested and
received from the Borrower).
PRINCIPAL U.S. OFFICE: the principal U.S. office of NatWest Plc
presently located at 175 Water Street, New York, New York 10038.
PROJECTIONS: with respect to the Borrower, its forecasted
consolidated Balance Sheet and related forecasted consolidated Statement of
Operations and Statement of Cash Flows for the period from the date hereof
through December 31, 2002, as updated on an annual basis pursuant hereto, all
prepared on a basis consistent with the Financial Statements, together with
appropriate supporting details and a statement of underlying assumptions.
PURCHASE MONEY SECURITY INTEREST: as defined in subsection 7.2(b)
hereof.
QUARTERLY DATES: the last day of each of March, June, September and
December, the first of which shall be the first such day after the date of this
Agreement, PROVIDED THAT, if any such date is not a Eurodollar Business Day, the
relevant Quarterly Date shall be the next succeeding Eurodollar Business Day
(or, if the next succeeding Eurodollar Business Day falls in the next succeeding
calendar month, then on the next preceding Eurodollar Business Day).
REFERENCE BANK: (i) for purposes of determining the Eurodollar Rate,
the non-United States office or offices or international banking facility or
facilities of NatWest Plc as NatWest Plc may from time to time select and (ii)
for all other purposes hereunder, the Principal U.S. Office.
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REGULATION D: Regulation D of the Board of Governors of the Federal
Reserve System, as the same may be amended or supplemented from time to time.
REGULATORY CHANGE: as to any Bank, any change after the date of this
Agreement in United States federal, state or foreign laws or regulations
(including Regulation D and the laws or regulations that designate any
assessment rate relating to certificates of deposit or otherwise) or the
adoption or making after such date of any interpretations, directives or
requests applying to a class of banks, including such Bank, of or under any
United States federal, state or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
RELEASE: as set forth in Section 101(22) of CERCLA or state or local
law.
RENTALS: for the Borrower and its Restricted Subsidiaries on a
consolidated basis, as of the date of any determination thereof, all fixed
payments (including as such all payments which the lessee is obligated to make
to the lessors on termination of the lease or surrender of the property) payable
by a Person, as lessee or sublessee under a lease of real or personal property,
during the immediately preceding four consecutive full fiscal quarters (or, for
purposes of calculating Interest Coverage compliance in subsection 6.9(b) hereof
for fiscal 1997, such shorter fiscal period as may be appropriate) for which the
Agent has received financial statements in compliance with Sections 5.1 and 5.2
hereof (or, if as at any date of determination the Agent shall not yet have
received financial statements delivered in compliance with Section 5.1 or
Section 5.2 hereof, then Rentals for such immediately preceding four consecutive
full fiscal quarters (or such shorter period) shall be determined by the Agent
in its sole judgment based, in the Agent's discretion, on such financial
information as it shall have requested and received from the Borrower), but
shall be exclusive of any amounts required to be paid by a Person (whether or
not designated as rents or additional rents) on account of maintenance, repairs,
insurance, taxes and similar charges.
REQUIRED PAYMENT: as defined in Section 2.19 hereof.
RESERVE REQUIREMENT: for any Eurodollar Loans for any quarterly
period (or, as the case may be, shorter period) as to which interest is payable
hereunder, the maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
period under Regulation D by member banks of the Federal Reserve System in New
York City with deposits exceeding One Billion Dollars against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the
effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by such member banks by reason of any
Regulatory Change against: (i) any category of liabilities that includes
deposits by references to which the Eurodollar Rate for Eurodollar Loans is to
be determined, or (ii) any category of extensions of credit or other assets that
include Eurodollar Loans.
RESNET: ResNet Communications, Inc., a Delaware corporation and
Subsidiary of the Borrower, including ResNet Communications, LLC, a Delaware
limited liability company and Subsidiary of ResNet Communications, Inc. ("ResNet
LLC").
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RESTRICTED PAYMENTS: (i) any dividend or other distribution, direct
or indirect, on account of any shares of any class of stock of the Borrower now
or hereafter outstanding, except a dividend or distribution payable solely in
shares of stock of the Borrower which are not shares of preferred stock; (ii)
any redemption, retirement, purchase or other acquisition, direct or indirect,
of any shares of any class of stock of the Borrower in respect of such shares
now or hereafter outstanding, or of any warrants, rights or options to acquire
any such shares, except to the extent that the consideration therefor consists
of shares of stock of the Borrower; (iii) any other distributions whatsoever, or
any loans or advances, to any holder of shares of any class of stock of the
Borrower now or hereafter outstanding, or of any warrants, rights or options to
acquire any such shares; and (iv) any fees or expenses paid to any shareholder
or Affiliate (other than directors, officers and full-time employees) of the
Borrower for management services provided to the Borrower or any Subsidiary.
RESTRICTED SUBSIDIARY: each Subsidiary of the Borrower which is or
becomes a Guarantor hereunder.
SEC: the Securities and Exchange Commission or any entity succeeding
to any of its principal functions.
SECURITY AGREEMENT: the Security Agreement of even date herewith,
substantially in the form of Exhibit F hereto, among the Borrower, the
Subsidiaries party thereto and the Agent, on behalf of itself, the Banks and the
Issuing Banks, as the same may be, from time to time, amended, modified or
supplemented.
SENIOR 1995 NOTES: those certain 11.5% Senior Notes due July 15, 2005
of the Borrower in an aggregate outstanding principal amount of $30,000,000, as
amended or otherwise modified as permitted hereby.
SENIOR 1995 NOTE AGREEMENT: that certain Securities Purchase Agreement
dated as of August 9, 1995 by and among the Borrower and the holders of the
Senior 1995 Notes, as amended by Amendment No. 1 thereto dated December 19,
1996, as further amended or otherwise modified as permitted hereby.
SENIOR 1996 NOTES: those certain 10.25% Senior Notes due December 15,
2006 of the Borrower in an aggregate outstanding principal amount of
$150,000,000, as amended or otherwise modified as permitted hereby.
SENIOR 1996 NOTE INDENTURE: that certain Indenture between the
Borrower and Marine Midland Bank, as Trustee, relating to the Senior 1996 Notes,
as amended or otherwise modified as permitted hereby.
SENIOR NOTE DOCUMENTS: collectively, the Senior 1995 Notes, the
Senior 1995 Note Agreement, the Senior 1996 Notes, the Senior 1996 Note
Indenture and each other agreement, instrument or other document executed in
connection therewith.
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SOLVENT: as to any Person at any time, that (i) the fair value of the
property of such Person is greater than the amount of such Person's liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(31) of the
Federal Bankruptcy Reform Act of 1978 and, in the alternative, for purposes of
the New York Uniform Fraudulent Transfer Act; (ii) the present fair saleable
value of the property of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; (iii) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(iv) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (v) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
STANDBY L/C: any L/C which is not a Documentary L/C.
SUBSIDIARY: with respect to any Person, any corporation, partnership,
limited liability company or joint venture whether now existing or hereafter
organized or acquired: (i) in the case of a corporation, of which a majority of
the securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person, or (ii) in the case of a partnership, limited
liability company or joint venture in which such Person is a general partner,
managing member or joint venturer or of which a majority of the partnership,
membership or other ownership interests are at the time owned by such Person
and/or one or more of its Subsidiaries. Unless the context otherwise requires,
references in this Agreement to "Subsidiary" or the "Subsidiaries" shall be
deemed to be references to a Subsidiary or Subsidiaries of the Borrower.
Notwithstanding anything herein to the contrary, ResNet and ResNet LLC shall
each be deemed to be a Subsidiary of the Borrower so long as (i) in the case of
ResNet, the Borrower owns 50% of ResNet's outstanding capital stock and retains
the right to elect a majority of ResNet's board of directors, and (ii) in the
case of ResNet LLC, the Borrower directly or indirectly owns over 50% of all
members' interests and is the managing member.
SUBSTANTIAL PORTION: assets of the Borrower and its Subsidiaries
which (a) represent more than fifteen percent (15%) of the consolidated assets
of the Borrower and its Subsidiaries, as would be shown in the consolidated
financial statements of the Borrower and its Subsidiaries as at the end of the
fiscal quarter immediately preceding the date on which such determination is
made or (b) are responsible for more than fifteen percent (15%) of the Operating
Cash Flow of the Borrower and its Subsidiaries for the consecutive full twelve
(12) month period ending as of the end of the fiscal quarter immediately
preceding the date on which such determination is made.
TCI CONVERTIBLE DEBT: that certain Indebtedness of ResNet in an
aggregate principal amount of up to $34,603,947 incurred pursuant to that
certain Subordinated Convertible Term Loan Agreement dated as of October 21,
1996 between ResNet and TCI Digital Satellite Entertainment, Inc.
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TERMINATION EVENT: any one of the following:
(a) a "Reportable Event" described in Section 4043 of ERISA and the
regulations issued thereunder;
(b) the withdrawal of any Loan Party or any ERISA Affiliate from a
Pension Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f)
of ERISA; or
(c) the termination of a Pension Plan, the filing of a notice of
intent to terminate a Pension Plan or the treatment of a Pension Plan amendment
as a termination under Section 4041 of ERISA;
(d) the institution of proceedings to terminate a Pension Plan by the
PBGC;
(e) any other event or condition which would constitute grounds under
Section 4042(a) of ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan;
(f) the partial or complete withdrawal of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan;
(g) the imposition of a Lien pursuant to Section 412 of the Code or
Section 302 of ERISA;
(h) any event or condition which results in the reorganization or
insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of ERISA,
respectively; or
(i) any event or condition which results in the termination of a
Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC
of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.
TOTAL COMMITMENT: the aggregate obligation of the Banks to make Loans
hereunder and issue or participate in the issuance of L/Cs hereunder not
exceeding One Hundred Million Dollars ($100,000,000), as the same shall and/or
may be increased or reduced from time to time pursuant to Article 2 hereof.
TOTAL DEBT: the aggregate outstanding principal balance of all
Indebtedness of the Borrower and its Restricted Subsidiaries on a consolidated
basis, including without limitation, all Permitted Debt (but excluding for this
purpose the TCI Convertible Debt); PROVIDED, HOWEVER, that during the period
from the date hereof through June 30, 1997, Total Debt shall be calculated net
of the total amount of cash (or other Investments permitted by subsection 7.9(a)
hereof) then held by the Borrower up to a maximum of $25,000,000. Total Debt
shall be determined by the Agent, in its reasonable judgment, based upon its
review of a certificate of the Borrower delivered to the Agent which shall set
forth, in reasonable detail, such calculation of Total Debt, along with such
financial information as the Agent shall have requested and received from the
Borrower or, in the absence of such certificate, such other pertinent financial
information as the Agent in its sole discretion shall deem appropriate.
TOTAL LEVERAGE: as at any date, the ratio determined by dividing (a)
Total Debt PLUS the amount of any outstanding preferred stock of the Borrower
providing for the payment of cash dividends, by (b) Annualized Operating Cash
Flow.
UCC: the Uniform Commercial Code as in effect in the State of New
York.
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UNREIMBURSED DRAWINGS: as defined in subsection 2.16(c) hereof.
UNUSED COMMITMENT: as at any date, for each Bank, the difference, if
any, between: (i) the amount of such Bank's Commitment as in effect on such
date, minus (ii) the sum of the then aggregate outstanding principal amount of
all Loans made by such Bank and such Bank's Percentage of the Net L/C
Obligations at such time.
WHOLLY-OWNED SUBSIDIARY: as to any Person: (i) any corporation 100% of
whose capital stock (other than directors' qualifying shares) is at the time
owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person
and (ii) any partnership, association, joint venture or other entity in which
such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a
100% equity interest at such time, and in each case where there exists no
restriction on the right or ability of such Person to receive dividend payments
or other cash flow from such corporation or other entity.
Any accounting terms used in this Agreement that are not specifically defined
herein shall have the meanings customarily given to them in accordance with
generally accepted accounting principles as in effect on the date of this
Agreement, except that references in Article 5 to such principles shall be
deemed to refer to such principles as in effect on the date of the financial
statements delivered pursuant thereto.
ARTICLE 2. COMMITMENTS; LOANS.
SECTION 2.1 LOANS. Each Bank hereby severally agrees, on the terms
and subject to the conditions of this Agreement, to make loans (individually a
"LOAN" and, collectively, the "LOANS") to the Borrower during the Credit Period
to and including the Commitment Termination Date in an aggregate principal
amount at any one time outstanding up to, but not exceeding, the Commitment of
such Bank as then in effect; PROVIDED, HOWEVER, that no Loan shall be made
hereunder if, after giving effect to the making of such Loan, the sum of the
aggregate amount of all Loans and the Net L/C Obligations then outstanding would
exceed the Total Commitment. Subject to the terms of this Agreement, during the
Credit Period the Borrower may borrow, repay (PROVIDED THAT repayment of
Eurodollar Loans shall be subject to the provisions of Section 2.27 hereof) and
reborrow up to the amount of the Total Commitment (after giving effect to the
mandatory and voluntary increases and reductions required and permitted herein)
by means of Base Rate Loans or Eurodollar Loans, and during such period and
thereafter until the date of the payment in full of all of the Loans, the
Borrower may convert Loans of one type into Loans of another type (as provided
in Section 2.21 hereof).
SECTION 2.2 NOTICES RELATING TO LOANS. The Borrower shall give the
Agent written or telephonic (followed by same day telecopy) notice of any
increase or termination or reduction of the Commitments, each borrowing
(excluding borrowings of Mandatory L/C Borrowings), conversion and prepayment of
each Loan and of the duration of each Interest Period applicable to each
Eurodollar Loan (in each case, a "BORROWING NOTICE"). Each such written notice
shall be irrevocable and shall be effective only if received by the Agent not
later than 11 a.m., New York City time, on the date that is:
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(a) In the case of an election to apply to increase the
Commitments pursuant to subsection 2.8(a) hereof, forty-five (45) Business Days
prior to the proposed effective date of such increase;
(b) In the case of each notice of termination or reduction and
each notice of borrowing or prepayment of, or conversion into, Base Rate Loans,
one (1) Business Days prior to the date of the related termination, reduction,
borrowing, prepayment or conversion; and
(c) In the case of each notice of borrowing or prepayment of, or
conversion into, Eurodollar Loans, or the duration of an Interest Period for
Eurodollar Loans, three (3) Eurodollar Business Days prior to the date of the
related borrowing, prepayment, or conversion or the first day of such Interest
Period.
Each such notice of increase or termination or reduction shall specify the
amount thereof. Each such notice of borrowing, conversion or prepayment shall
specify the amount (subject to Section 2.1 hereof) and type of Loans to be
borrowed, converted or prepaid (and, in the case of a conversion, the type of
Loans to result from such conversion), the date of borrowing, conversion or
prepayment (which shall be: (x) a Business Day in the case of each borrowing or
prepayment of Base Rate Loans, and (y) a Eurodollar Business Day in the case of
each borrowing or prepayment of Eurodollar Loans and each conversion of or into
a Eurodollar Loan). Each such notice of the duration of an Interest Period
shall specify the Loans to which such Interest Period is to relate. The Agent
shall notify the Banks of the content of each such Borrowing Notice promptly
after its receipt thereof.
SECTION 2.3 DISBURSEMENT OF LOAN PROCEEDS. The Borrower shall give
the Agent notice of each borrowing hereunder as provided in Section 2.2 hereof.
Not later than 11:00 a.m., New York City time, on the date specified for each
borrowing hereunder, each Bank shall transfer to the Agent, by wire transfer or
otherwise, but in any event in immediately available funds, the amount of the
Loan to be made by it on such date, and the Agent, upon its receipt thereof,
shall disburse such sum to the Borrower by depositing the amount thereof in an
account of the Borrower designated by the Borrower maintained with the Agent.
SECTION 2.4 NOTES.
(a) The Loans made by each Bank shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit B hereto
(each, a "NOTE" and collectively, the "NOTES"). Each Note shall be dated the
date of the initial borrowing of the Loans under this Agreement, shall be
payable to the order of such Bank in a principal amount equal to such Bank's
Commitment as originally in effect, and shall otherwise be duly completed. The
Notes shall be payable as provided in this Article 2.
(b) Each Bank shall enter on a schedule attached to its Note or
in its internal records a notation with respect to each Loan made hereunder of:
(i) the date and principal amount thereof, (ii) each payment and prepayment of
principal thereof, (iii) whether the interest rate is initially to be determined
in accordance with subsection 2.6(a)(i) or 2.6(a)(ii) hereof, and (iv) the
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Interest Period, if applicable. The failure of any Bank to make any such
notation shall not limit or otherwise affect the obligation of the Borrower to
repay the Loans in accordance with their respective terms as set forth herein.
SECTION 2.5 COMMITMENT REDUCTION; REPAYMENT OF LOANS.
(a) The Total Commitment shall be successively and permanently
reduced on each December 31 during the Credit Period commencing on December 31,
1998 and ending on December 31, 2002 in the respective amounts obtained by
multiplying (i) the amount of the Total Commitment on December 31, 1998 times
(ii) the percentage set forth below applicable to each such date (such
reductions to be applied, pursuant to Section 2.18 hereof, PRO RATA among the
Banks with respect to the amount of each Bank's Commitment), and the Borrower
shall repay outstanding Loans in an amount sufficient so that the aggregate
outstanding principal amount of Loans and Net L/C Obligations on each such date
shall not exceed the Total Commitment after giving effect to such reduction:
Percentage by Which
Total Commitment at
Commitment Reduction/ December 31, 1998
Payment Date Shall be Reduced
-------------------- --------------------
December 31, 1998 15%
December 31, 1999 20%
December 31, 2000 20%
December 31, 2001 20%
December 31, 2002 25%
(b) The Loans: (i) shall be repaid as and when necessary to
cause the aggregate principal amount of the Loans and Net L/C Obligations
outstanding not to exceed each Bank's Commitment, as increased or reduced
pursuant to Section 2.8 hereof, and (ii) may be repaid at any time and from time
to time, in whole or in part, without premium or penalty, upon prior written
notice to the Agent as provided in Section 2.2 hereof, in integral multiples of
$500,000, and any amount so repaid may, subject to the terms and conditions
hereof, including the borrowing limitation imposed by the Commitments, be
reborrowed hereunder during the Credit Period; PROVIDED, HOWEVER, that: (A)
repayment of Eurodollar Loans on any day other than the last day of an Interest
Period for such Loans shall be subject to the provisions of Section 2.27 hereof,
and (B) all repayments of Loans or any portion thereof shall be made together
with payment of all interest accrued on the amount repaid through the date of
such repayment.
(c) Except as set forth in Sections 2.22, 2.23 and 2.25 hereof,
all payments and repayments made pursuant to the terms hereof shall be applied
first to Base Rate Loans, and shall be applied to Eurodollar Loans only to the
extent any such payment exceeds the principal amount of Base Rate Loans
outstanding at the time of such payment.
(d) The Borrower may request a Eurodollar Loan only if
compliance with the Commitment reduction schedule set forth above in subsection
2.5(a) hereof (with the payments
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provided for therein being applied in accordance with subsection 2.5(c) hereof)
would not result in any portion of the principal amount of such Eurodollar Loan
being paid prior to the last day of the Interest Period applicable thereto.
SECTION 2.6 INTEREST. (a) The Borrower shall pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period commencing on the date of such Loan until such
Loan shall be paid in full, at the following rates per annum:
(i) During such periods that such Loan is a Base Rate
Loan, the Base Rate plus the Applicable Base Rate Margin; and
(ii) During such periods that such Loan is a Eurodollar
Loan, for each Interest Period relating thereto, the Eurodollar Rate for such
Loan for such Interest Period plus the Applicable Eurodollar Rate Margin.
(b) So long as no Default or Event of Default shall have
occurred and be continuing, on each occasion that, as of the last day of any
fiscal quarter ending on or after March 31, 1997, the Borrower's Total Leverage
on such date shall fall within one of the categories set forth in the table
below, the Applicable Base Rate Margin and the Applicable Eurodollar Rate Margin
in respect of Base Rate Loans and Eurodollar Loans, respectively, and the
Commitment Fee Percentage shall be automatically changed, if necessary, to
reflect the percentages indicated for such category on the table below, with any
such change to be effective on and after the date of delivery to the Agent of
the certificate described in Section 5.5 hereof relating to such fiscal quarter:
Applicable Applicable Commitment
Base Rate Eurodollar Fee
Total Leverage Margin Rate Margin Percentage
-------------- ---------- ----------- ----------
5.00 to 1 or higher 1.00% 2.00% 0.500%
Lower than 5.00 to 1 0.75% 1.75% 0.500%
Lower than 4.50 to 1 0.50% 1.50% 0.375%
Lower than 4.00 to 1 0.25% 1.25% 0.250%
In the event that any condition that gives rise to any change in a Total
Leverage category pursuant to the first sentence of this subsection 2.6(b) is no
longer satisfied as of the end of any subsequent fiscal quarter, on and after
the date of delivery to the Agent of the certificate described in Section 5.5
hereof relating to such subsequent fiscal quarter, the Applicable Base Rate
Margin, the Applicable Eurodollar Rate Margin and the Commitment Fee Percentage
shall be automatically changed to reflect the Total Leverage category indicated
by such certificate. Notwithstanding the foregoing, at any time during which
the Borrower has failed to deliver the certificate described in Section 5.5
hereof with respect to a fiscal quarter in accordance with the provisions
thereof, or at any time that a Default or Event of Default shall have occurred
and be continuing, the Applicable Base Rate Margin, the Applicable Eurodollar
Rate Margin and the Commitment Fee Percentage shall be determined by reference
to the definition of such terms, without any adjustment pursuant
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to this subsection 2.6(b), until such time as the Borrower shall deliver such
certificate in accordance with the provisions of Section 5.5 hereof or such
Default or Event of Default shall be cured or waived.
(c) Notwithstanding the foregoing, whenever an Event of Default
has occurred and is continuing, the Borrower shall pay interest on any Loan, and
on any other amount payable by the Borrower hereunder (to the extent permitted
by law) for the period commencing on the occurrence of such Event of Default
until such Event of Default has been cured or waived as acknowledged in writing
by the Agent at the applicable Post-Default Rate.
(d) Except as provided in the next sentence, accrued interest on
each Loan shall be payable: (i) in the case of a Base Rate Loan, quarterly on
the Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of
each Interest Period for such Loan (and, if such Interest Period exceeds three
months' duration, quarterly, commencing on the first quarterly anniversary of
the first day of such Interest Period), and (iii) in the case of any Loan, upon
the payment or prepayment thereof or the conversion thereof into a Loan of
another type (but only on the principal so paid, prepaid or converted).
Interest that is payable at the Post-Default Rate shall be payable from time to
time on demand of the Agent or any Bank. Promptly after the establishment of
any interest rate provided for herein or any change therein, the Agent will
notify the Banks and the Borrower thereof, PROVIDED THAT the failure of the
Agent to so notify the Borrower or the Banks shall not affect the obligations of
the Borrower hereunder or under any of the Notes in any respect.
(e) Anything in this Agreement or any of the Notes to the
contrary notwithstanding, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to any Bank to the extent that such Bank's receipt
thereof would not be permissible under the law or laws applicable to such Bank
limiting rates of interest that may be charged or collected by such Bank. Any
such payments of interest that are not made as a result of the limitation
referred to in the preceding sentence shall be made by the Borrower to such Bank
on the earliest interest payment date or dates on which the receipt thereof
would be permissible under the laws applicable to such Bank limiting rates of
interest that may be charged or collected by such Bank. Such deferred interest
shall not bear interest.
SECTION 2.7 FEES. (a) The Borrower shall pay to the Agent for
the account of each Bank a commitment fee (the "COMMITMENT FEE") equal to the
Commitment Fee Percentage per annum in effect from time to time on the average
daily amount of such Bank's Unused Commitment, for the period from the date
hereof to and including the earlier of the date such Bank's Commitment is
terminated or the Commitment Termination Date. The accrued Commitment Fee shall
be payable quarterly on the Quarterly Dates and on the earlier of the date the
Commitments are terminated or the Commitment Termination Date, and, in the event
the Borrower reduces the Commitment as provided in subsection 2.8(b) hereof, on
the effective date of such reduction.
(b) Simultaneously with the execution and delivery of this
Agreement and from time to time thereafter, the Borrower shall pay to the Agent
the fees (collectively, the "AGENCY FEES") specified in that certain letter
agreement dated as of the date hereof between the Borrower
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and the Agent and in any other letter agreement executed between the Borrower
and the Agent after the date hereof (the "LETTER AGREEMENTS").
(c) (i) The Borrower shall pay to the Agent for the benefit of
the Banks, PRO RATA according to their respective Percentages, non-refundable
letter of credit fees as follows: on the maximum amount of each L/C available
from time to time to be drawn under such outstanding L/Cs, a fee, for the period
from and including the date of issuance of such L/C to and including the
termination thereof, computed at a rate per annum equal to the Applicable
Eurodollar Rate Margin from time to time used to determine the interest rate on
Eurodollar Loans pursuant to subsection 2.6(b) hereof, payable in arrears on the
Quarterly Dates and on the date of termination thereof.
(ii) In addition to the foregoing fees described in the
preceding subsection (i), the Borrower shall pay on demand to the Issuing Bank
(as defined in Section 2.16 below), exclusively for the account of the Issuing
Bank, a fee for the period from and including the date of issuance of such
Issuing Bank's L/C to and including the termination thereof, computed at the
rate of one-quarter percent (.25%) per annum on the face amount of such L/C,
payable in arrears on the Quarterly Dates and on the date of termination thereof
and, in addition, such standard fees, charges and expenses as are customarily
charged or incurred by the Issuing Bank from time to time in connection with the
issuance, amendment, transfer, administration, cancellation or payment under any
or all L/Cs. The fees referred to in subsections 2.7(c)(i) and (ii) are
hereinafter sometimes referred to individually as an "L/C FEE" and collectively
as the "L/C FEES".
(d) The Commitment Fee, the Agency Fees and the L/C Fees are
hereinafter sometimes referred to individually as a "FEE" and collectively as
the "FEES".
SECTION 2.8 CHANGES IN COMMITMENT; PREPAYMENTS.
(a) The Borrower shall be permitted to make application(s) at any
time on or before December 31, 1998 to increase the Total Commitment (but not
the Commitment of any Bank without such Bank's agreement) in a principal amount
of not less than $25,000,000 per application (and in an integral multiple of
$500,000), and not more than $75,000,000 in aggregate principal amount for all
such applications, which increases in the Total Commitment may be effectuated,
if at all, by an increase in the Commitment(s) of NatWest Plc or the
then-existing Banks, and/or by the addition of new Banks; PROVIDED THAT (i) the
Borrower shall give notice of such application(s) to the Agent as provided in
Section 2.2 hereof and (ii) the Borrower shall have delivered to the Agent a
Compliance Certificate dated as of the date of such proposed increase, and the
matters certified therein, including without limitation, the absence of any
Default or Event of Default or Material Adverse Effect, both before and after
giving effect to such increase, shall be true as of such date.
(b) The Borrower shall be entitled to terminate or reduce the
Commitments, PROVIDED THAT the Borrower shall give notice of such termination or
reduction to the Agent as provided in Section 2.2 hereof and that any partial
reduction of the Commitments shall be in an aggregate amount equal to $500,000
or an integral multiple thereof. Any such termination or reduction shall be
permanent and irrevocable.
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(c) Commencing on May 31, 2000 and continuing on May 31 of each
fiscal year of the Borrower thereafter, the Borrower shall prepay any Loans, and
the Total Commitment shall be permanently and irrevocably reduced, by an amount
equal to fifty percent (50%) of the Borrower's Excess Cash Flow for the
immediately preceding fiscal year if at December 31 of such preceding fiscal
year Total Leverage was greater than 4.00 to 1. Simultaneously with the
delivery of the Borrower's financial statements pursuant to Section 5.1 hereof,
for each of the Borrower's fiscal years beginning with the Borrower's 1998
fiscal year, the Borrower shall provide the Agent with a schedule setting forth
the computation of Excess Cash Flow, and Total Leverage at December 31, for such
fiscal year to which such financial statements relate.
(d) The Borrower shall prepay any Loans, and the Total
Commitment shall be permanently and irrevocably reduced, by an amount equal to
one hundred percent (100%) of the aggregate net proceeds in excess of $500,000
realized in any fiscal year by the Borrower and its Subsidiaries from any and
all Asset Dispositions and Events of Loss constituting less than a Substantial
Portion, to the extent that such aggregate net proceeds are not reinvested by
the Borrower in substantially similar assets within 180 days from the date of
such disposition; PROVIDED, HOWEVER, that in any event, if the Borrower and its
Subsidiaries realize in any fiscal year aggregate net proceeds from an Event of
Loss in excess of a Substantial Portion, the Borrower shall prepay any Loans,
and the Total Commitment shall be irrevocably and permanently reduced, by an
amount equal to such amount in excess of a Substantial Portion.
(e) The Borrower shall repay the Loans, together with all
accrued interest on the amount so repaid, as and when necessary to cause the
aggregate principal amount of the Loans and Net L/C Obligations outstanding at
any time not to exceed the Total Commitment.
(f) All prepayments of the Loans shall be made together with
payment of all interest accrued on the amount prepaid, but without premium or
penalty (but subject to the provisions of Section 2.27 hereof).
SECTION 2.9 USE OF PROCEEDS OF LOANS. The proceeds of the Loans
hereunder may be used by the Borrower solely to provide funds for (a) to the
extent permitted hereunder, Capital Expenditures incurred in connection with the
Borrower's "Business Strategy" as described in that certain common stock
offering prospectus of the Borrower dated May 23, 1996 previously delivered to
the Banks (the "Prospectus") and (b) the Borrower's general corporate and
ongoing working capital needs.
SECTION 2.10 COMPUTATIONS. Interest on all Base Rate Loans shall be
computed on the basis of a year of 365 days and actual days elapsed (including
the first day but excluding the last) occurring in the period for which payable.
Interest on all Eurodollar Loans, Unreimbursed Drawings and each Fee shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last) occurring in the period for which payable.
SECTION 2.11 MINIMUM AMOUNTS OF BORROWINGS, CONVERSIONS, PREPAYMENTS
AND INTEREST PERIODS. Except for borrowings, conversions and prepayments that
exhaust the full remaining amount of the Commitments (in the case of borrowings)
or result in the conversion or
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prepayment of all Loans of a particular type (in the case of conversions or
prepayments) or conversions made pursuant to Section 2.21, subsection 2.22(b) or
Section 2.24 hereof, and except for Mandatory L/C Borrowings and mandatory
prepayments of the Loans pursuant hereto, each borrowing from the Banks, each
conversion of Loans of one type into Loans of another type and each prepayment
of principal of Loans hereunder shall be in an amount at least equal to $500,000
in the case of Base Rate Loans and $1,000,000 in the case of Eurodollar Loans or
an integral multiple thereof (borrowings, conversions and prepayments of
different types of Loans at the same time hereunder to be deemed separate
borrowings, conversions and prepayments for purposes of the foregoing, one for
each type).
SECTION 2.12 TIME AND METHOD OF PAYMENTS. All payments of
principal, interest, Fees and other amounts (including indemnities) payable by
the Borrower hereunder shall be made in Dollars, in immediately available funds,
to the Agent at the Principal U.S. Office not later than 11:00 a.m., New York
City time, on the date on which such payment shall become due (and the Agent or
any Bank for whose account any such payment is to be made may, but shall not be
obligated to, debit the amount of any such payment that is not made by such time
to any ordinary deposit account of the Borrower with the Agent or such Bank, as
the case may be). Additional provisions relating to payments are set forth in
Section 10.3 hereof. Each payment received by the Agent hereunder for the
account of a Bank shall be paid promptly to such Bank, in like funds, for the
account of such Bank's Applicable Lending Office for the Loan in respect of
which such payment is made.
SECTION 2.13 LENDING OFFICES. The Loans of each type made by each
Bank shall be made and maintained at such Bank's Applicable Lending Office for
Loans of such type.
SECTION 2.14 SEVERAL OBLIGATIONS. The failure of any Bank to make
any Loan to be made by it on the date specified therefor shall not relieve the
other Banks of their respective obligations to make their Loans on such date,
but no Bank shall be responsible for the failure of the other Banks to make
Loans to be made by such other Banks.
SECTION 2.15 GUARANTIES. The due payment and performance of the
Obligations shall be guaranteed by the execution and delivery to the Agent, on
behalf of itself, the Banks and the Issuing Banks, simultaneously with the
execution and delivery of this Agreement, by ResNet of a guaranty substantially
in the form of Exhibit D hereto (the "ResNet Guaranty") and by LodgeNet Canada
of a guaranty substantially in the form of Exhibit E hereto (the "LodgeNet
Canada Guaranty").
SECTION 2.16 LETTERS OF CREDIT.
(a) AMOUNT AND EXPIRATION.
(i) Subject to the terms and conditions of this
Agreement, the Borrower may request that NatWest Plc in its individual capacity
(in the case of Standby L/Cs) or NatWest Canada in its individual capacity (in
the case of Documentary L/Cs) issue one or more L/Cs (in such capacity, each of
NatWest Plc and NatWest Canada is herein referred to as "THE ISSUING
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BANK" and collectively as "THE ISSUING BANKS") for the account of the Borrower,
PROVIDED, HOWEVER, that no L/C shall be issued if, after giving effect to the
issuance of such L/C (i) the aggregate amount of all Net L/C Obligations and the
aggregate amount of all Loans then outstanding would exceed the Total Commitment
at such time, or (ii) the aggregate amount of all L/C Obligations then
outstanding would exceed the Maximum L/C Amount. Subject to the foregoing, the
Borrower may request the issuance of L/Cs under this Section 2.16, repay any
drawings thereunder and request the issuance of additional L/Cs under this
Section 2.16. For all purposes of this Agreement, reference to the "issue" or
"issuance" of any L/C or any L/C being "issued" shall include the amendment,
supplement or modification of any L/C, including, without limitation, any
increase in the amount thereof, or any extension or renewal thereof.
(ii) No L/C shall have an expiration date later than
the earlier of (A) three hundred sixty-five (365) days after the date of
issuance thereof, or (B) the date which is thirty (30) days prior to the
Commitment Termination Date. No L/C may by its terms be automatically
renewable, unless consented to in writing by the Agent and the Issuing Bank in
the exercise of their sole discretion, subject to the foregoing restriction
regarding expiration dates, and no L/C may be denominated or drawable other than
in United States dollars.
(b) NOTICE AND ISSUANCE.
(i) The Borrower shall give notice to the Issuing Bank
and to the Agent of a request for issuance of any L/C not less than three (3)
Business Days prior to the proposed issuance date (which prescribed time period
may be waived at the option of the Issuing Bank and the Agent in the exercise of
their sole discretion). Each such notice (an "L/C ISSUANCE REQUEST") shall
specify: (A) the requested date of such issuance (which shall be a Business
Day); (B) the maximum amount of such L/C; (C) the expiration date of such L/C;
(D) the purpose of such L/C; (E) the name and address of the beneficiary of such
L/C; and (F) the required documents under any such L/C and, if requested by the
Issuing Bank, the form of such L/C (which shall be acceptable to both of the
Issuing Bank and the Agent in their respective sole discretion). The making of
each L/C Issuance Request shall be deemed to be a representation and warranty by
the Borrower that such L/C may be issued in accordance with and will not violate
the terms of subsection 2.16(a) hereof. Each L/C Issuance Request shall be
accompanied by the Issuing Bank's customary Standby or Documentary L/C
application and other standard documents as may be required by the Issuing Bank
(the "APPLICATION DOCUMENTS") each duly completed and executed and delivered by
the Borrower.
(ii) Upon acceptance of the form of the proposed L/C by
the Issuing Bank and the Agent and upon fulfillment of the conditions set forth
above in this subsection 2.16(b) and applicable conditions in Article 4 hereof,
the Issuing Bank shall issue such Standby L/C or Documentary L/C. Each
Documentary L/C shall be issued upon such other terms and conditions as may be
approved by both the Issuing Bank and the Agent (in their sole discretion) which
are not inconsistent with this Agreement.
(iii) Notwithstanding the foregoing, the Issuing Bank
shall be under no obligation to issue any L/C if at the time of such issuance:
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(A) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or restrain the
Issuing Bank from issuing such L/C or any requirement of law applicable to the
Issuing Bank or any request or directive (whether or not having the force of
law) from any governmental authority with jurisdiction over the Issuing Bank
shall prohibit, or request that the Issuing Bank refrain from, the issuance of
letters of credit generally or such L/C in particular or shall impose upon the
Issuing Bank with respect to such L/C any requirement (for which the Issuing
Bank is not otherwise compensated) not in effect on the date hereof, or any
unreimbursed loss, cost or expense which was not applicable, in effect or known
to the Issuing Bank as of the date hereof and which the Issuing Bank in good
faith deems material to it; or
(B) the Issuing Bank shall have received notice from
any Bank prior to the issuance of such L/C that one or more of the applicable
conditions specified in this Section 2.16 or 4.2 are not then satisfied, or that
the issuance of such L/C would violate subsection 2.16(a) above.
(iv) The Issuing Bank shall promptly give written
notice to each of the other Banks of the information specified in subsections
2.16(b)(i)(A) through (E) above.
(C) REIMBURSEMENT OBLIGATIONS.
(i) The Borrower shall be obligated to reimburse the
Agent, for the account of the Issuing Bank, in immediately available funds at
the Principal U.S. Office, on the day of each payment under an L/C by the
Issuing Bank for drafts drawn and all amounts paid or disbursed under each such
L/C (all such amounts so drawn, paid or disbursed until reimbursed are
hereinafter referred to as "UNREIMBURSED DRAWINGS"); PROVIDED that if any such
Unreimbursed Drawings are not so reimbursed on the date of any drafts drawn, the
Borrower's reimbursement obligation in respect of such Unreimbursed Drawings
shall be funded on such date with the borrowing of Loans (each such borrowing a
"MANDATORY L/C BORROWING") in the full amount of the Unreimbursed Drawings from
all Banks PRO RATA based on each Bank's Percentage. The Issuing Bank shall
promptly notify the Agent of the amount of any Unreimbursed Drawings and the
Agent shall promptly notify the Banks of the amount of each such Mandatory L/C
Borrowing not later than 12:00 noon (New York City time) on the date on which
such Mandatory L/C Borrowing is to be made. Each such Bank hereby irrevocably
agrees to make Loans pursuant to each Mandatory L/C Borrowing in the amount, and
not later than 5:00 p.m. (New York City time) on the date, and in the manner
specified in the preceding sentence, for immediate payment to the Issuing Bank,
notwithstanding (i) that the amount of the Mandatory L/C Borrowing may not
comply with the minimum amount for borrowings otherwise required hereunder,
(ii) whether any conditions specified in Article 4 are then satisfied,
(iii) whether a Default or an Event of Default then exists, (iv) the date of
such Mandatory L/C Borrowing and (v) any reduction in the Total Commitment after
any such L/C was issued. In the event that the Agent delivers the
above-described notice to any Bank later than 12:00 noon (New York City time) on
the date of the required Mandatory L/C Borrowing, then such Bank shall not be
obligated to effect such Mandatory L/C Borrowing until the next succeeding
Business Day (but not later than 5:00 p.m. (New York City time)).
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(ii) Notwithstanding the foregoing, in the event that
at any time when a draft is drawn under an L/C, there are not sufficient funds
in any account of the Borrower with the Issuing Bank (or with the Agent for the
account of the Issuing Bank) or sufficient availability to permit creation of
Loans sufficient to fund payment of the drafts, any funds advanced by the
Issuing Bank (or by the Agent on behalf of the Issuing Bank) and the other Banks
in payment thereof shall be due and payable immediately and shall bear interest
until paid in full at the Post-Default Rate, such interest to be payable on
demand. In the event of any conflict, discrepancy or any omission of terms
provided herein between the terms established by the Issuing Bank in its
Application Documents or otherwise and this Loan Agreement, the terms provided
herein shall prevail. The obligations of the Banks in respect of any funds so
advanced or to be advanced by the Issuing Bank (or by the Agent on behalf of the
Issuing Bank) under this subsection (c) shall be as more particularly described
in subsections 2.16(e)(ii) and (iii) hereof.
(d) GENERAL UNCONDITIONAL OBLIGATIONS.
The obligations of the Borrower under this Agreement and the
Application Documents and any other agreement, instrument or document relating
to reimbursement or payment of L/C Obligations shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and the Application Documents, under all circumstances
whatsoever, including, without limitation, the following circumstances, whether
relating to any one or more L/Cs:
(i) any agreement between the Borrower and any
beneficiary or any agreement or instrument relating thereto (the "BENEFICIARY
DOCUMENTS") proving to be forged, fraudulent, invalid, unenforceable or
insufficient in any respect;
(ii) any amendment or waiver of or any consent to
departure from all or any of the Beneficiary Documents;
(iii) the existence of any claim, set off, defense or
other rights which the Borrower may have at any time against any beneficiary or
any transferee of any L/C (or any persons or entities for whom any beneficiary
or any such transferee may be acting), the Issuing Bank, any other Bank, the
Agent or any other person or entity, whether in connection with the Agreement,
the Beneficiary Documents or any unrelated transaction;
(iv) any demand presented under any L/C (or any
endorsement thereon) proving to be forged, fraudulent, invalid, unenforceable or
insufficient in any respect or any statement therein being inaccurate in any
respect whatsoever;
(v) payment by the Issuing Bank under any L/C against
presentation of a demand which does not comply with the terms of such L/C,
including, without limitation, the circumstances referred to in clause (iv)
above or the failure of any document to bear reference or to bear adequate
reference to such L/C;
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(vi) the use to which any L/C may be put or any acts or
omission of any beneficiary in connection therewith; or
(vii) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing.
(e) PARTICIPATIONS BY BANKS.
(i) On the date of issuance of each L/C the Issuing
Bank shall be deemed irrevocably and unconditionally to have sold and
transferred to each Bank (excluding, for all purposes of this subsection (e),
NatWest Plc as the Issuing Bank, which shall retain a portion equal to its PRO
RATA share of the Total Commitment, but for such purposes not so excluding
NatWest Canada as the Issuing Bank, which shall have no Commitment) without
recourse or warranty, and each Bank shall be deemed to have irrevocably and
unconditionally purchased and received from the Issuing Bank, an undivided
interest and participation, to the extent of such Bank's PRO RATA share of the
Total Commitment in effect on the date of such issuance, in such L/C, each
substitute letter of credit, each drawing made thereunder, the related
Application Documents and all L/C Obligations relating to such L/C and all Loan
Documents securing, guaranteeing, supporting, or otherwise benefitting the
payment of such L/C Obligation. The Issuing Bank shall furnish to any Bank,
upon request, copies of any L/C and any Application Documents as may be
requested by such Bank.
(ii) In the event that any reimbursement obligation
under subsection 2.16(c) hereof is not paid to the Issuing Bank with respect to
any L/C in full immediately or by a Mandatory L/C Borrowing from all the Banks
PRO RATA pursuant to paragraph 2.16(c)(i), the Issuing Bank shall promptly
notify the Agent to that effect, and the Agent shall promptly notify the Banks
of the amount of such reimbursement obligation and each such Bank shall
immediately pay to the Agent, for immediate payment to the Issuing Bank, in
lawful money of the United States and in immediately available funds, an amount
equal to such Bank's ratable portion of the amount of such unpaid reimbursement
obligation.
(iii) The obligation of each Bank to make Loans in
respect of each Mandatory L/C Borrowing and to make payments under the preceding
subsection (ii) shall be absolute and unconditional and irrevocable and not
subject to any qualification or exception whatsoever and shall be made in
accordance with the terms and conditions of this Agreement under all
circumstances and shall not be subject to any conditions set forth in Article 4
hereof or otherwise affected by any circumstance including, without limitation,
(A) the occurrence or continuance of a Default or Event of Default; (B) any
adverse change in the business condition (financial or otherwise), operations,
performance, properties or prospects of any Loan Party; (C) any breach of this
Agreement or any Application Documents or other Loan Documents by the Borrower,
any other Loan Party or Bank; (D) any set-off, counterclaim, recoupment, defense
or other right which such Bank or the Borrower may have at any time against the
Issuing Bank, any other Bank, any Loan Party, or any beneficiary named in any
L/C in connection herewith or otherwise; (E) the validity, sufficiency or
genuineness of documents, or of any endorsement thereon, even if such documents
should prove to be in any or all respects invalid, insufficient, fraudulent or
forged; (F) any lack of validity or enforcement of this Agreement or any of the
Loan Documents; (G) the surrender or
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impairment of any security for the performance or observance of any of the terms
of any of the Loan Documents; or (H) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. The Borrower agrees
that any Bank purchasing a participation in any L/C from the Issuing Bank
hereunder may, to the fullest extent permitted by law, exercise all of its
rights of payment with respect to such participation as fully as if such Bank
were the direct creditor of such Borrower in the amount of such participation.
(iv) Promptly after the Issuing Bank (or the Agent
acting on behalf of the Issuing Bank) receives a payment on account of a
reimbursement obligation with respect to any L/C as to which any other Bank has
funded its participation pursuant to subsection 2.16(e)(ii) above, the Issuing
Bank (or the Agent acting on behalf of the Issuing Bank) shall promptly pay to
the Agent, and the Agent shall promptly pay to each Bank which funded its
participation therein, in lawful money of the United States and in the kind of
funds so received, an amount equal to such Bank's ratable share thereof.
(v) If any payment received on account of any
reimbursement obligation with respect to an L/C and distributed to a Bank as a
participant under subsection 2.16(e)(iv) is thereafter recovered from the
Issuing Bank in connection with any bankruptcy or insolvency proceeding relating
to the Borrower or otherwise, each Bank which received such distribution shall,
upon demand by the Agent, repay to the Issuing Bank such Bank's ratable share of
the amount so recovered together with an amount equal to such Bank's ratable
share (according to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered) of any interest or other amount
paid or payable by the Issuing Bank in respect of the total amount so recovered.
(f) NON-LIABILITY.
The Borrower assumes all risks of the acts or omissions of
any beneficiary or transferee of any L/C with respect to its use of such L/C.
Neither the Agent, the Issuing Bank nor any other Bank, nor any of their
respective officers or directors, shall be liable or responsible for: (A) the
use that may be made of any L/C or any acts or omissions of any beneficiary or
transferee in connection therewith; (B) the validity, sufficiency or genuineness
of documents, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent or forged; (C)
payment by the Issuing Bank against presentation of documents that do not comply
with the terms of an L/C, including failure of any documents to bear any
reference or adequate reference to an L/C, EXCEPT that the Borrower shall have a
claim against the Issuing Bank, and such Issuing Bank shall be liable to the
Borrower, to the extent of any direct, but not consequential, damages suffered
by the Borrower that the Borrower proves were caused solely by (1) the Issuing
Bank's willful misconduct or gross negligence in determining whether documents
presented under any L/C comply with the terms of the L/C or (2) the Issuing
Bank's willful failure to make lawful payment under an L/C after the
presentation to it of a draft and documents and/or certificates strictly
complying with the terms and conditions of the L/C; (D) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they are in cipher; (E) for
errors in interpretation of technical terms; (F) for any loss or delay in the
transmission or otherwise of any document required
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in order to make a drawing under any such Letter of Credit or of the proceeds
thereof; and (G) for any consequence arising from causes beyond the control of
such Issuing Bank, including, without limitation, any government acts. None of
the above shall affect, impair, or prevent the vesting of any of such Issuing
Bank's rights or powers hereunder. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary. The Uniform Customs and Practice for
Documentary Credits as most recently published by the International Chamber of
Commerce shall be deemed a part of this Section 2.16 as if incorporated herein
in all respects and shall apply to the L/Cs.
(g) INDEMNIFICATION.
In addition to amounts payable as elsewhere provided in this
Agreement, without duplication, the Borrower agrees to indemnify and save
harmless the Agent and each Bank including the Issuing Bank, from and against
any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees and allocated costs of internal
counsel) which such Agent or Bank may incur or be subject to as a consequence,
direct or indirect, of the issuance of any L/C or any action or proceeding
relating to a court order, injunction, or other process or decree restraining or
seeking to restrain the Issuing Bank or the Agent from paying any amount under
any applicable L/C or the failure of the Issuing Bank to honor a drawing under
an L/C as a result of any act or omission, whether rightful or wrongful of any
present or future DE JURE or DE FACTO government or governmental authority,
except that no such Person shall be entitled to indemnification for matters
caused solely by such Person's gross negligence or willful misconduct. Without
modifying the foregoing, and anything contained herein to the contrary
notwithstanding, the Borrower shall cause each L/C issued for its account to be
canceled and returned to the Issuing Bank on or before the Commitment
Termination Date.
SECTION 2.17 FINANCING DOCUMENTS. The Borrower shall deliver to the
Agent, upon the execution thereof, true and complete copies of (i) each material
document relating to any equity financing or Permitted Debt not previously
delivered hereunder and (ii) each amendment or other modification to any of the
Senior Note Documents, each of the foregoing certified as such in a certificate
executed by the president, chief financial officer or chief operating officer of
the Borrower.
SECTION 2.18 PRO RATA TREATMENT AMONG BANKS. Except as otherwise
provided herein: (i) each borrowing from the Banks under Section 2.1 hereof
will be made from the Banks and each payment of each Fee shall be made for the
account of the Banks PRO RATA according to their respective Unused Commitments;
(ii) each partial reduction of the Total Commitment shall be applied to the
Commitments of the Banks PRO RATA according to each Bank's respective
Commitment; (iii) each conversion of Loans of a particular type under Section
2.21 hereof (other than conversions provided for by Section 2.24 or 2.25 hereof)
will be made PRO RATA among the Banks holding Loans of such type according to
the respective principal amounts of such Loans held by such Banks; (iv) each
payment and prepayment of principal of or interest on Loans of a particular type
will be made to the Agent for the account of the Banks holding Loans of such
type PRO RATA in accordance with the respective unpaid principal amounts of such
Loans held by such Banks; and (v) Interest
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Periods for Eurodollar Loans shall be allocated among the Banks holding
Eurodollar Loans PRO RATA according to the respective principal amounts of
Eurodollar Loans held by such Banks; PROVIDED, HOWEVER, that notwithstanding
anything to the contrary contained in this Agreement (including the provisions
of this Section 2.18 and Section 2.20 hereafter), differing payments may be made
to Non-Defaulting Banks as opposed to Defaulting Banks and no Defaulting Bank
shall be entitled to receive PRO RATA payments or repayments of Loans or other
amounts hereunder unless and until it shall become a Non-Defaulting Bank.
SECTION 2.19 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the
Agent shall have been notified by a Bank or the Borrower (the "PAYOR") prior to
the date on which such Bank is to make payment to the Agent of the proceeds of a
Loan to be made by it hereunder or the Borrower is to make a payment to the
Agent for the account of one or more of the Banks, as the case may be (such
payment being herein called the "REQUIRED PAYMENT"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient on such date and, if
the Payor has not in fact made the Required Payment to the Agent, the recipient
of such payment shall, on demand, repay to the Agent the amount made available
to it together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such day (when the recipient is a Bank) or equal to the rate of
interest applicable to such Loan (when the recipient is the Borrower).
SECTION 2.20 SHARING OF PAYMENTS AND SET-OFF AMONG BANKS. The
Borrower hereby agrees that, in addition to (and without limitation of) any
right of set-off, banker's lien or counterclaim a Bank may otherwise have, each
Bank shall be entitled, at its option, to offset balances held by it at any of
its offices against any principal of or interest on any of its Loans hereunder,
or any Fee payable to it, that is not paid when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly notify
the Borrower and the Agent thereof, PROVIDED THAT its failure to give such
notice shall not affect the validity thereof. If a Bank shall effect payment of
any principal of or interest on Loans held by it under this Agreement through
the exercise of any right of set-off, banker's lien, counterclaim or similar
right, it shall promptly purchase from the other Banks participations in the
Loans held by the other Banks in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Banks shall
share the benefit of such payment PRO RATA in accordance with the unpaid
principal and interest on the Loans held by each of them. To such end all the
Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. The Borrower agrees that any Bank so purchasing a participation in
the Loans held by the other Banks may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans in the amount of such
participation. Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Borrower.
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SECTION 2.21 CONVERSIONS OF LOANS. The Borrower shall have the
right to convert Loans of one type into Loans of another type from time to time,
PROVIDED THAT: (i) the Borrower shall give the Agent notice of each such
conversion as provided in Section 2.2 hereof; (ii) Eurodollar Loans may be
converted only on the last day of an Interest Period for such Loans; and (iii)
except as required by Sections 2.22 or 2.25 hereof, no Base Rate Loan may be
converted into a Eurodollar Loan if on the proposed date of conversion a Default
or an Event of Default exists. The Agent shall use its best efforts to notify
the Borrower of the effectiveness of such conversion, and the new interest rate
to which the converted Loans are subject, as soon as practicable after the
conversion; PROVIDED, HOWEVER, that any failure to give such notice shall not
affect the Borrower's obligations, or the Agent's or the Banks' rights and
remedies, hereunder in any way whatsoever.
SECTION 2.22 ADDITIONAL COSTS; CAPITAL REQUIREMENTS. (a) In the
event that any existing or future law or regulation, guideline or interpretation
thereof by any court or administrative or governmental authority charged with
the administration thereof, or compliance by any Bank with any request or
directive (whether or not having the force of law) of any such authority shall
impose, modify or deem applicable or result in the application of, any capital
maintenance, capital ratio or similar requirement against loan or letter of
credit commitments made by any Bank hereunder, or against letters of credit or
guaranties issued by or participations therein of, or assets held by or deposits
in or for the account of, any Bank or any corporation controlling such Bank or
impose on any Bank any other condition regarding this Agreement or any L/C or
participation therein or the issuance or acquisition of or participation in such
Bank's Commitment including in relation to L/Cs or similar contingent
obligations or the obligation of any Bank or the Borrower hereunder with respect
to such Commitment and the result of any event referred to above is to impose
upon any Bank or increase any capital requirement applicable as a result of the
making or maintenance of, such Bank's Commitment or issuing, maintaining or
participating in L/Cs or L/C Obligations or the obligation of the Borrower
hereunder with respect to such Commitment (which imposition of capital
requirements may be determined by each Bank's reasonable allocation of the
aggregate of such capital increases or impositions), then, upon demand made by
such Bank as promptly as practicable after it obtains knowledge that such law,
regulation, guideline, interpretation, request or directive exists and
determines to make such demand, the Borrower shall immediately pay to such Bank
from time to time as specified by such Bank additional commitment fees which
shall be sufficient to compensate such Bank for such imposition of or increase
in capital requirements together with interest on each such amount from the date
demanded until payment in full thereof at the Post-Default Rate. A certificate
setting forth in reasonable detail the amount necessary to compensate such Bank
as a result of an imposition of or increase in capital requirements submitted by
such Bank to the Borrower shall be conclusive, absent manifest error, as to the
amount thereof. For purposes of this Section 2.22, all references to any "Bank"
shall be deemed to include any participant in such Bank's Commitment.
(b) In the event that any Regulatory Change shall: (i) change
the basis of taxation of any amounts payable to any Bank under this Agreement or
the Notes or in respect of any Loans or L/C Obligations or L/Cs (other than
taxes imposed on the overall net income of such Bank for any such Loans by the
United States of America or the jurisdiction in which such Bank has its
principal office); or (ii) impose or modify any reserve, Federal Deposit
Insurance Corporation premium or assessment, special deposit or similar
requirements relating to any extensions of credit,
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letters of credit or guarantees issued by or participations therein of or other
assets of, or any deposits with or other liabilities of, such Bank; or (iii)
impose any other conditions affecting this Agreement in respect of Loans or L/C
Obligations or L/Cs (or any of such extensions of credit, letters of credit,
guarantees, participations, assets, deposits or liabilities); and the result of
any event referred to in clause (i), (ii) or (iii) above shall be to (i)
increase such Bank's costs of making or maintaining, participating in or
acquiring any Loans or L/Cs or L/C Obligations or its Commitment or reduce any
amount receivable by such Bank hereunder in respect of any of the foregoing or
(ii) reduce the rate of return on such Bank's capital or assets as a consequence
of its commitments or obligations hereunder to a level below that which the Bank
could have achieved (taking into consideration such Bank's policies with respect
to capital adequacy) but for the occurrence of any such event (such increases in
costs and reductions in amounts receivable are hereinafter referred to as
"ADDITIONAL COSTS"), then, upon demand made by such Bank as promptly as
practicable after it obtains knowledge that such a Regulatory Change exists and
determines to make such demand (a copy of which demand shall be delivered to the
Agent), the Borrower shall pay to such Bank from time to time as specified by
such Bank, additional commitment fees or other amounts which shall be sufficient
to compensate such Bank for such Additional Costs from the date of such change,
together with interest on each such amount from the date demanded until payment
in full thereof at the Post-Default Rate. All references to any "Bank" shall be
deemed to include any participant in such Bank's Commitment.
(c) Each Bank, if any, that is not organized under the laws of
the United States of America or any State agrees (i) prior to the first payment
to such Bank of any amounts due to such Bank under the Loan Documents, upon
request by Borrower, to execute and deliver to Borrower and the Agent completed
counterparts of IRS Form W-8, 1001, or 4224 (or any successor thereto or
substitute therefor), as applicable, and (ii) thereafter, upon request by
Borrower from time to time in order to maintain the effectiveness and accuracy
of such tax forms and otherwise to comply with United States tax laws, to
execute and deliver to the Agent and Borrower additional or supplemental tax
forms with respect to amounts due to such Bank under the Loan Documents.
(d) Determinations by any Bank for purposes of this Section 2.22
of the effect of any Regulatory Change on its costs of making or maintaining
Loans or L/Cs or L/C Obligations or on amounts receivable by it in respect of
Loans or L/Cs or L/C Obligations, and of the additional amounts required to
compensate such Bank in respect of any Additional Costs, shall be set forth in
writing in reasonable detail and shall be conclusive, absent manifest error.
SECTION 2.23 LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of an interest
rate for any Eurodollar Loans for any Interest Period therefor, the Agent
determines (which determination shall be conclusive):
(a) by reason of any event affecting the money markets in the
United States of America or the Eurodollar interbank market, quotations of
interest rates for the relevant deposits are not being provided in the relevant
amounts or for the relevant maturities for purposes of determining the rate of
interest for such Loans under this Agreement; or
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(b) the rate of interest referred to in the definition of
"Eurodollar Rate" upon the basis of which the rate of interest on any Eurodollar
Loans for such period is determined, does not accurately reflect the cost to the
Banks of making or maintaining such Loans for such period,
then the Agent shall give the Borrower and each Bank prompt notice thereof (and
shall thereafter give the Borrower and each Bank prompt notice of the cessation,
if any, of such condition), and so long as such condition remains in effect, the
Banks shall be under no obligation to make Loans of such type or to convert
Loans of any other type into Loans of such type and the Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding Loans of
the affected type either prepay such Loans in accordance with Section 2.8 hereof
or convert such Loans into Loans of another type in accordance with Section 2.21
hereof.
SECTION 2.24 ILLEGALITY. Notwithstanding any other provision in
this Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to: (i) honor its obligation to make Eurodollar Loans
hereunder, or (ii) maintain Eurodollar Loans hereunder, then such Bank shall
promptly notify the Borrower thereof (with a copy to the Agent), describing such
illegality in reasonable detail (and shall thereafter promptly notify the
Borrower and the Agent of the cessation, if any, of such illegality), and such
Bank's obligation to make Eurodollar Loans and to convert other types of Loans
into Eurodollar Loans hereunder shall, upon written notice given by such Bank to
the Borrower, be suspended until such time as such Bank may again make and
maintain Eurodollar Loans and such Bank's outstanding Eurodollar Loans shall be
converted into Base Rate Loans (as shall be designated in a notice from the
Borrower to the Agent pursuant to Section 2.2 hereof) in accordance with
Sections 2.21 and 2.25 hereof.
SECTION 2.25 CERTAIN CONVERSIONS PURSUANT TO SECTIONS 2.22 AND 2.24.
If the Loans of any Bank of a particular type (Loans of such type are
hereinafter referred to as "AFFECTED LOANS" and such type is hereinafter
referred to as the "AFFECTED TYPE") are to be converted pursuant to Section 2.22
or 2.24 hereof, such Bank's Affected Loans shall be converted into Base Rate
Loans, or Eurodollar Loans of another type, as the case may be (the "NEW TYPE
LOANS") on the last day(s) of the then current Interest Period(s) for the
Affected Loans (or, in the case of a conversion required by subsection 2.22(b)
or Section 2.24 hereof, on such earlier date as such Bank may specify to the
Borrower with a copy to the Agent) and, until such Bank gives notice as provided
below that the circumstances specified in Section 2.22 or 2.24 hereof that gave
rise to such conversion no longer exist:
(a) to the extent that such Bank's Affected Loans have been so
converted, all payments and prepayments of principal that would otherwise be
applied to such Affected Loans shall be applied instead to its New Type Loans;
(b) all Loans that would otherwise be made by such Bank as Loans
of the Affected Type shall be made instead as New Type Loans and all Loans of
such Bank that would otherwise be converted into Loans of the Affected Type
shall be converted instead into (or shall remain as) New Type Loans; and
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(c) if Loans of any of the Banks other than such Bank that are
the same type as the Affected Type are subsequently converted into Loans of
another type (which type is other than New Type Loans), then such Bank's New
Type Loans shall be automatically converted on the conversion date into Loans of
such other type to the extent necessary so that, after giving effect thereto,
all Loans held by such Bank and the Banks whose Loans are so converted are held
PRO RATA (as to principal amounts, types and, to the extent applicable, Interest
Periods) in accordance with their respective Commitments.
SECTION 2.26 ALTERNATE LENDING INSTALLATION. Each Bank agrees that
as promptly as practicable after it becomes aware of an event or the existence
of a condition that would entitle it to exercise any rights under Sections 2.22
or 2.24 hereof, such Bank shall use commercially reasonable efforts to make,
fund or maintain the affected Loans of such Bank through a different lending
installation of such Bank if (i) as a result thereof, the additional monies
which would otherwise be required to be paid in respect of such Loans would be
materially reduced or the illegality or other adverse circumstances which would
otherwise affect such Loans would cease to exist or the increased cost which
would otherwise be required to be paid in respect of such Loans would be
materially reduced and (ii) the making, funding or maintaining of such Loans
through such other lending installation would not, in the judgement of such
Bank, adversely affect such Loans or such Bank. The Borrower hereby agrees to
pay all reasonable expenses incurred by each Bank in utilizing a different
lending installation pursuant to this Section 2.26.
SECTION 2.27 INDEMNIFICATION. The Borrower shall pay to the Agent
for the account of each Bank, upon the request of such Bank through the Agent,
such amount or amounts as shall compensate such Bank for any loss (including
loss of profit), cost or expense incurred by such Bank (as reasonably determined
by such Bank) as a result of:
(a) any payment or prepayment or conversion of a Eurodollar Loan
held by such Bank on a date other than the last day of an Interest Period for
such Eurodollar Loan; or
(b) any failure by the Borrower to borrow a Eurodollar Loan held
by such Bank on the date for such borrowing specified in the relevant Borrowing
Notice under Section 2.2 hereof, such compensation to include, without
limitation, an amount equal to: (i) any loss or expense suffered by such Bank
during the period from the date of receipt of such early payment or prepayment
or the date of such conversion to the last day of such Interest Period if the
rate of interest obtainable by such Bank upon the redeployment of an amount of
funds equal to such Bank's PRO RATA share of such payment, prepayment or
conversion or failure to borrow or convert is less than the rate of interest
applicable to such Eurodollar Loan for such Interest Period, or (ii) any loss or
expense suffered by such Bank in liquidating Eurodollar deposits prior to
maturity that correspond to such Bank's PRO RATA share of such payment,
prepayment, conversion, failure to borrow or failure to convert. The
determination by each such Bank of the amount of any such loss or expense, when
set forth in a written notice to the Borrower, containing such Bank's
calculation thereof in reasonable detail, shall be presumed correct, in the
absence of manifest error.
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Banks and the Agent
that:
SECTION 3.1 ORGANIZATION. (a) Each of the Borrower and each
Subsidiary and each other Loan Party is duly organized and validly existing
under the laws of its jurisdiction of organization and has the power to own its
assets and to transact the business in which it is presently engaged and in
which it proposes to be engaged. Schedule 3.1 hereto accurately and completely
lists, as to each of the Borrower and each Subsidiary and each other Loan Party:
(i) the jurisdiction of incorporation or organization of each such entity, and
the type of legal entity that each of them is, (ii) as to each of them that is a
corporation, the classes and number of authorized and outstanding shares of
capital stock of each such corporation, (iii) as to each of them that is a legal
entity other than a corporation (but not a natural person), the type and amount
of equity interests authorized and outstanding of each such entity, and the
owners of such equity interests, and (iv) the business in which each of such
entities is engaged. All of the foregoing shares or other equity interests that
are issued and outstanding have been duly and validly issued and are fully paid
and non-assessable. The Borrower owns, beneficially and of record, all of the
outstanding shares of each class of stock of the Subsidiaries as shown on
Schedule 3.1. Except as set forth on Schedule 3.1, there are no outstanding
warrants, options, contracts or commitments of any kind entitling any Person to
purchase or otherwise acquire any shares of capital stock or other equity
interests of the Borrower (other than warrants and options now or hereafter
granted to employees and/or directors of the Borrower in the ordinary course of
its business) or any Subsidiary or any other Loan Party nor are there
outstanding any securities that are convertible into or exchangeable for any
shares of capital stock or other equity interests of the Borrower or any
Subsidiary or any other Loan Party. Except as set forth on Schedule 3.1,
neither the Borrower nor any Subsidiary nor any other Loan Party has any
Subsidiary.
(b) Each of the Borrower and each Subsidiary and each other Loan
Party is in good standing in its jurisdiction of organization and in each
jurisdiction in which it is qualified to do business, except where the failure
to be in good standing could not have a material adverse effect on the business,
operations, financial condition or properties of the Borrower or any Subsidiary
or any other Loan Party; and none of such Persons is aware of any jurisdiction
in which it is qualified to do business but not in good standing. There are no
jurisdictions in which the character of the properties owned or leased by the
Borrower or any Subsidiary or any other Loan Party or in which the transaction
of business of the Borrower or any Subsidiary or any other Loan Party requires
the Borrower or any Subsidiary or any other Loan Party to qualify to do
business, other than those jurisdictions in which such Person is qualified to do
business.
SECTION 3.2 POWER, AUTHORITY, CONSENTS. The Borrower and each
other Loan Party has the power to execute, deliver and perform the Loan
Documents to be executed by it. The Borrower has the power to borrow hereunder
and has taken all necessary corporate action to authorize the borrowing
hereunder on the terms and conditions of this Agreement. The Borrower and each
other Loan Party has taken all necessary action, corporate or otherwise, to
authorize the execution, delivery and performance of the Loan Documents to be
executed by it. No consent or approval of any Person (including, without
limitation, any stockholder of any corporate Loan Party or any partner in any
partnership Loan Party), no consent or approval of any landlord or mortgagee,
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no waiver of any Lien or right of distraint or other similar right and no
consent, license, certificate of need, approval, authorization or declaration of
any governmental authority, bureau or agency, is or will be required in
connection with the execution, delivery or performance by the Borrower or any
other Loan Party, or the validity, enforcement or priority, of the Loan
Documents.
SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS. The execution
and delivery by the Borrower and each other Loan Party of each Loan Document to
which it is a party and performance by it hereunder and thereunder, will not
violate any provision of law and will not, conflict with or result in a breach
of any order, writ, injunction, ordinance, resolution, decree, or other similar
document or instrument of any court or governmental authority, bureau or agency,
domestic or foreign, or any certificate of incorporation or by-laws of the
Borrower or any other corporate Loan Party or partnership agreement or other
organizational document or instrument of any Loan Party that is not a
corporation, or create (with or without the giving of notice or lapse of time,
or both) a default under or breach of any agreement, bond, note or indenture to
which the Borrower or any other Loan Party is a party, or by which any of them
is bound or any of their respective properties or assets is affected, or result
in the imposition of any Lien of any nature whatsoever upon any of the
properties or assets owned by or used in connection with the business of the
Borrower or any other Loan Party (other than the Liens contemplated by the
Collateral Documents). Any borrowing under this Agreement will not result in
any violation of any debt incurrence test or other applicable covenant under the
Senior Note Documents.
SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY. This
Agreement and each other Loan Document to which any Loan Party is a party has
been duly executed and delivered by the Loan Party that is a party thereto and
each constitutes the valid and legally binding obligation of the Borrower or
such other Loan Party that is a party thereto, enforceable in accordance with
its terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws, now or hereafter
in effect, relating to or affecting the enforcement of creditors' rights
generally and except that the remedy of specific performance and other equitable
remedies are subject to judicial discretion.
SECTION 3.5 PROPERTIES, LIENS. The real estate listed on Schedule
3.5 (together with the addresses thereof) constitutes all of the real property
owned, leased, subleased or used by any Loan Party. Each Loan Party owns good
and marketable fee simple title to all of its owned real estate, and valid and
marketable leasehold interests in all of its leased real estate, all as
described on Schedule 3.5. Schedule 3.5 further describes any real estate with
respect to which any Loan Party is a lessor, sublessor or assignor. Each Loan
Party also has good and marketable title to, or valid leasehold interests in,
all of its personal properties and assets. None of the properties and assets of
any Loan Party are subject to any Liens other than Permitted Liens and other
security interests permitted under the Loan Documents. Schedule 3.5 also
describes any purchase options, rights of first refusal or other similar
contractual rights pertaining to any real estate owned or leased by the Borrower
or any Loan Party.
SECTION 3.6 LITIGATION. Except as set forth on Schedule 3.6
hereto, there are no outstanding judgments, actions or proceedings, including,
without limitation, any Environmental Proceeding, pending before any court or
governmental authority, bureau or agency, with respect to
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or, to the best of the Borrower's knowledge, threatened against or affecting the
Borrower or any Subsidiary or any other Loan Party, involving, in the case of
any court proceeding, a claim in excess of $2,500,000, nor, to the best of the
Borrower's knowledge, is there any reasonable basis for the institution of any
such action or proceeding that is probable of assertion, nor are there any such
actions or proceedings in which the Borrower or any Subsidiary or any other Loan
Party is a plaintiff or complainant.
SECTION 3.7 NO DEFAULTS, COMPLIANCE WITH LAWS. Neither the
Borrower nor any Subsidiary nor any other Loan Party is in default under any
agreement, resolution, decree, bond, note, indenture, order or judgment to which
it is a party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it or used in the
conduct of its business is affected, which default could have a material adverse
effect on the business, operations, financial condition or properties of the
Borrower or any Subsidiary or any other Loan Party or on the ability of the
Borrower or any other Loan Party to perform its obligations under the Loan
Documents to which it is a party. The Borrower and each Subsidiary has complied
and is in compliance in all respects with all applicable laws, ordinances and
regulations, resolutions, ordinances, decrees and other similar documents and
instruments of all courts and governmental authorities, bureaus and agencies,
domestic and foreign, including, without limitation, all applicable provisions
of the Americans with Disabilities Act (42 U.S.C. Section 12101-12213) and the
regulations issued thereunder, and all applicable Environmental Laws and
Regulations, non-compliance with which could have a material adverse effect on
the business, operations, financial condition or properties of the Borrower or
any Subsidiary or on the ability of the Borrower or any Subsidiary to perform
its obligations under the Loan Documents to which it is a party.
SECTION 3.8 BURDENSOME DOCUMENTS. Neither the Borrower nor any of
the other Loan Parties is a party to or bound by, nor are any of the properties
or assets owned by the Borrower or any other Loan Party used in the conduct of
their respective businesses affected by, any agreement, ordinance, resolution,
decree, bond, note, indenture, order or judgment, including, without limitation,
any of the foregoing relating to any Environmental Liability, that materially
and adversely affects their respective businesses, assets or conditions,
financial or otherwise.
SECTION 3.9 FINANCIAL STATEMENTS; PROJECTIONS.
(a) Each of the Financial Statements is correct and complete and
presents fairly the consolidated financial position of the Borrower and its
Subsidiaries, and each other entity to which it relates, as at its date, and has
been prepared in accordance with generally accepted accounting principles.
Neither the Borrower nor any of the Subsidiaries, nor any other entity to which
any of the Financial Statements relates, has any material obligation, liability
or commitment, direct or contingent (including, without limitation, any
Environmental Liability), that is not reflected in the Financial Statements.
There has occurred no Material Adverse Effect since the date of the latest
balance sheet included in the Financial Statements (the "LATEST BALANCE SHEET").
The Borrower's fiscal year is the twelve-month period ending on December 31 in
each year.
(b) The Projections have been prepared on the basis of
information and accompanying assumptions that the Borrower believes to be
reasonable and reflect as of the date
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thereof the Borrower's good faith projections, after reasonable analysis, of the
matters set forth therein, based on such assumptions, it being understood that
such assumptions may be incorrect and unanticipated events and circumstances may
affect the Projections; accordingly, the Borrower's actual financial performance
and operating results may vary and such variations may be material.
SECTION 3.10 TAX RETURNS. Each of the Borrower and the Subsidiaries
has filed all federal, state and local tax returns required to be filed by it
and has not failed to pay any taxes, or interest and penalties relating thereto,
on or before the due dates thereof. Except to the extent that reserves therefor
are reflected in the Financial Statements: (i) there are no material federal,
state or local tax liabilities of the Borrower or any Subsidiary due or to
become due for any tax year ended on or prior to the date of the Latest Balance
Sheet relating to such entity, whether incurred in respect of or measured by the
income of such entity, that are not properly reflected in the Latest Balance
Sheet relating to such entity, and (ii) there are no material claims pending or,
to the knowledge of the Borrower, proposed or threatened against any of the
Borrower or any Subsidiary for past federal, state or local taxes, except those,
if any, as to which proper reserves are reflected in the Financial Statements.
SECTION 3.11 INTELLECTUAL PROPERTY. Each of the Borrower and the
Subsidiaries possesses all patents, trademarks, service marks, trade names, and
copyrights, and rights with respect to the foregoing, necessary to conduct its
business as now conducted and as proposed to be conducted, without any conflict
with the patents, trademarks, service marks, trade names, and copyrights and
rights with respect to the foregoing, of any other Person, and each of such
patents, trademarks, service marks, trade names, copyrights and rights with
respect thereto, together with any pending applications therefor, are listed on
Schedule 3.11 hereto.
SECTION 3.12 REGULATION U. No part of the proceeds received by the
Borrower or any Subsidiary from the Loans will be used directly or indirectly
for: (a) any purpose other than as set forth in Section 2.9 hereof, or (b) the
purpose of purchasing or carrying, or for payment in full or in part of
Indebtedness that was incurred for the purposes of purchasing or carrying, any
"margin stock", as such term is defined in Section 221.3 of Regulation U of the
Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II, Part
221.
SECTION 3.13 NAME CHANGES, MERGERS, ACQUISITIONS. Except as set
forth on Schedule 3.13 hereto, neither the Borrower nor any of the Subsidiaries
nor any other Loan Party has within the six-year period immediately preceding
the date of this Agreement changed its name, been the surviving entity of a
merger or consolidation, or acquired all or substantially all of the assets of
any Person.
SECTION 3.14 FULL DISCLOSURE. None of the Financial Statements, the
Prospectus, Borrower's Annual Report on Form 10-K dated March 27, 1996 relating
to the fiscal year ended December 31, 1995 filed by the Borrower with the SEC
and previously delivered to the Banks (the "1995 10-K Report"), Borrower's
Quarterly Report on Form 10-Q dated November 7, 1996 relating to the period
ending September 30, 1996 filed by the Borrower with the SEC and previously
delivered to the Banks (the "Third Quarter 10-Q Report"), the Projections, nor
any certificate, opinion, or any other statement made or furnished in writing to
the Agent or any Bank by or on
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behalf of the Borrower or any of the Subsidiaries or any other Loan Party in
connection with this Agreement or the transactions contemplated herein, contains
any untrue statement of a material fact, or omits to state a material fact
necessary in order to make the statements contained therein or herein not
misleading, as of the date such statement was made. There is no fact known to
the Borrower that has, or would in the now foreseeable future have, a material
adverse effect on the business, prospects or condition, financial or otherwise,
of the Borrower or any of the Subsidiaries or any other Loan Party, which fact
has not been set forth herein, in the Financial Statements, the Prospectus, the
1995 10-K Report, the Third Quarter 10-Q Report, the Projections, or any
certificate, opinion or other written statement so made or furnished to the
Agent or the Banks.
SECTION 3.15 LICENSES AND APPROVALS. The Borrower and each of the
Subsidiaries has all requisite power and authority and necessary licenses,
permits and governmental authorizations, including, without limitation,
licenses, permits and authorizations arising under or relating to Environmental
Laws and Regulations, to own and operate its properties and to carry on its
business as now conducted (collectively, the "LICENSES"). No event has occurred
that: (i) results in, or after notice or lapse of time or both would result in,
revocation or termination of any License, or (ii) materially and adversely
affects or in the future may (so far as the Borrower can now reasonably foresee)
materially adversely affect any of the rights of the Borrower or any of the
Subsidiaries under any License. The Borrower has no reason to believe (other
than in connection with there being no legal assurance thereof) that any License
will not be renewed in the ordinary course.
SECTION 3.16 LABOR DISPUTES; COLLECTIVE BARGAINING AGREEMENTS;
EMPLOYEE GRIEVANCES. (a) There are no collective bargaining agreements or other
labor contracts covering the Borrower or any Subsidiary; (b) no such collective
bargaining agreement or other labor contract will expire during the term of this
Agreement; (c) no union or other labor organization is seeking to organize, or
to be recognized as bargaining representative for, a bargaining unit of
employees of the Borrower or any Subsidiary; (d) there is no pending or
threatened strike, work stoppage, material unfair labor practice claim or
charge, arbitration or other material labor dispute against or affecting the
Borrower or any Subsidiary or their representative employees; (e) there has not
been, during the five (5) year period prior to the date hereof, a strike, work
stoppage, material unfair labor practice claim or charge, arbitration or other
material labor dispute against or affecting the Borrower or any Subsidiary or
any of their representative employees, and (f) there are no actions, suits,
charges, demands, claims, counterclaims or proceedings pending or, to the best
of the Borrower's knowledge, threatened against the Borrower or any of the
Subsidiaries, by or on behalf of, or with, its employees, other than employee
grievances arising in the ordinary course of business that are not, in the
aggregate, material.
SECTION 3.17 CONDITION OF ASSETS. The Collateral and all of the
assets and properties of the Borrower and its Subsidiaries that are reasonably
necessary for the operation of its business, are in good working condition,
ordinary wear and tear excepted, and are able to serve the function for which
they are currently being used.
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SECTION 3.18 ERISA. (a) No Employee Benefit Plan is maintained
or has ever been maintained by any Loan Party or any ERISA Affiliate, nor has
any Loan Party or any ERISA Affiliate ever contributed to a Multiemployer Plan.
(b) There are no agreements which will provide payments to any
officer, employee, shareholder or highly compensated individual which will be
"parachute payments" under 280G of the Code that are nondeductible to any Loan
Party and which will be subject to tax under Section 4999 of the Code for which
any Loan Party will have a material withholding liability.
SECTION 3.19 MATERIAL AGREEMENTS. All of the agreements, contracts
and leases of the Borrower and its Subsidiaries with lodging industry,
residential and other customers relating to the provision of the Borrower's
video and video-related services (guest-pay, free-to-guest, right-of-entry and
other) are freely assignable by the Borrower or its Subsidiaries, except as
listed on Schedule 3.19 hereto. Borrower has previously provided true and
correct copies of a representative sample of such contracts to the Agent,
including copies of any such contracts which are not freely assignable by the
Borrower or its Subsidiaries. Also set forth on Schedule 3.19 hereto is an
accurate and complete list of the following agreements, documents or instruments
to which the Borrower or any of its Subsidiaries is subject: (a) all material
master agreements with studios and other program providers, (b) any lease of
equipment having a remaining term of one year or longer and requiring aggregate
rental and other payments in excess of $50,000 per annum; and (c) all material
licenses and permits held by the Borrower or its Subsidiaries.
SECTION 3.20 COLLATERAL DOCUMENTS. (a) The Pledge Agreement is
effective to create in favor of the Agent, for the benefit of itself, the Banks
and the Issuing Banks, a legal, valid and enforceable security interest in the
Pledged Collateral (as defined in the Pledge Agreement) and, when the Pledged
Collateral is delivered to the Agent, the Pledge Agreement shall constitute a
fully perfected first priority Lien on, and security interest in, all right,
title and interest of the pledgor thereunder in such Pledged Collateral, in each
case prior and superior in right to any other Person.
(b) The Security Agreement is effective to create in favor of
the Agent, for the benefit of itself, the Banks and the Issuing Banks, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and, when financing statements in appropriate form are filed
in the offices specified therein, the Security Agreement shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest
of the grantors thereunder in such Collateral, in each case prior and superior
in right to any other Person, other than with respect to Permitted Liens and
other security interests permitted by the Loan Documents.
(c) When the Patent and Trademark Security Agreement is filed in
the United States Patent and Trademark Office, said Security Agreement shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the Loan Parties in the Intellectual Property Collateral (as
defined in said Security Agreement) in which a security interest may be
perfected by filing, recording or registering a security agreement, financing
statement or analogous document in the United States Patent and Trademark
Office, in each case prior and superior in right to any other Person (it being
understood that subsequent recordings in the United
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States Patent and Trademark Office may be necessary to perfect a lien on
registered patents, trademarks and applications therefor acquired by the Loan
Parties after the date hereof).
SECTION 3.21 SOLVENCY. The Borrower (individually, and on a
consolidated basis) and each of its Subsidiaries is Solvent on the date hereof
and will be Solvent after giving effect to the transactions contemplated by the
Loan Documents and the Senior Note Documents.
ARTICLE 4. CONDITIONS TO THE LOANS.
SECTION 4.1 CONDITIONS TO INITIAL LOANS. The obligation of each
Bank to make the initial Loan to be made by it hereunder shall be subject to the
fulfillment (to the satisfaction of the Agent and the Banks) of the following
conditions precedent on or prior to the Closing Date:
(a) LOAN DOCUMENTS. This Agreement shall have been executed by
the Borrower, the Agent, the Issuing Banks and each of the Banks; the Notes
shall have been executed by the Borrower; ResNet and LodgeNet Canada shall each
have executed its Guaranty; and each other Loan Document shall have been
executed by the parties thereto.
(b) COLLATERAL. The Borrower and the Subsidiaries shall have
executed and delivered the Collateral Documents, in appropriate form for
recording where necessary, together with:
(i) acknowledgment copies of all UCC-1 financing
statements filed, registered or recorded to perfect the security interests of
the Agent for the benefit of the Banks, or other evidence satisfactory to the
Agent that there has been filed, registered or recorded all financing statements
and other filings, registrations and recordings necessary and advisable to
perfect the Liens of the Agent for the benefit of the Banks in accordance with
applicable law;
(ii) written advice relating to such Lien and judgment
searches as the Agent shall have requested of the Borrower and its Subsidiaries,
and such termination statements or other documents as may be necessary to
confirm that the Collateral is subject to no other Liens in favor of any Persons
(other than Permitted Liens and any other security interests permitted under the
Loan Documents);
(iii) all certificates and instruments representing the
Pledged Collateral and undated stock transfer powers executed in blank;
(iv) evidence that all other actions necessary or, in
the opinion of the Agent and its counsel, desirable to perfect and protect the
first priority security interest created by the Collateral Documents (subject to
Permitted Liens and any other security interests permitted under the Loan
Documents), and to enhance the Agent's ability to preserve and protect its
interest in and access to the Collateral, have been taken;
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(v) standard lenders payable endorsements with respect
to the insurance policies or other instruments or documents evidencing insurance
coverage on the properties of the Borrower and its Subsidiaries in accordance
with Section 6.8 hereof; and
(vi) funds sufficient to pay any filing or recording
tax or fees in connection with any and all UCC-1 financing statements and any
other filings or actions taken in regard to the Collateral.
(c) SENIOR NOTE REFINANCING. (i) the Senior 1996 Notes in an
aggregate principal amount of not less than $150,000,000 shall have been issued
on terms and conditions acceptable to the Agent; (ii) the Borrower's 9.95% and
10.35% Senior Notes due August 1, 2003 shall have been repaid in full, and the
Agent shall have received evidence that all indebtedness, obligations and
liabilities in connection therewith have been discharged at an aggregate cost to
the Borrower not exceeding $33,000,000; (iii) Amendment No. 1 to the Securities
Purchase Agreement relating to the Senior 1995 Notes shall have been executed
and delivered by the parties thereto; and (iv) the Notes hereunder shall be
outstanding and there shall not have occurred (and consummation of the
transactions contemplated hereby, including the issuance of the Senior 1996
Notes, shall not cause) any event of default or event, which, with notice or
lapse of time, or both, would constitute an event of default under the Senior
1995 Note Agreement or any other Senior Note Document.
(d) PAYMENT OF FEES. The Borrower shall have paid to the Agent
the Agency Fees due on the Closing Date and shall have executed and delivered to
the Agent the Letter Agreement.
(e) LEGAL OPINIONS. Eric R. Jacobsen, Vice President, General
Counsel and Secretary of the Borrower, and Pillsbury Madison & Sutro LLP,
counsel to the Borrower and ResNet, shall have delivered their opinions to the
Agent substantially in the composite form of Exhibit I hereto; Mark G. Baker,
LL.M. & Associates, special counsel to LodgeNet Canada, shall have delivered its
opinion in form and substance satisfactory to the Agent.
(f) FINANCIALS AND SENIOR NOTE DOCUMENTS. The Agent shall have
received true and complete copies of the following, each certified as such in a
certificate executed by the president, chief financial officer or chief
operating officer of the Borrower:
(i) The Financial Statements and the Projections; and
(ii) The Senior Note Documents, each as amended and in
effect on the date hereof.
(g) CORPORATE ORGANIZATION, AUTHORIZATION, GOOD STANDING. The
Agent shall have received copies of the following:
(i) Any consents, approvals and waivers referred to in
Section 3.2 hereof;
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(ii) The certificate of incorporation of the Borrower
and of ResNet, each certified by the Secretary of State of Delaware; the
certificate of incorporation of LodgeNet Canada, certified by its corporate
secretary;
(iii) The by-laws of the Borrower, ResNet and LodgeNet
Canada certified by their respective corporate secretaries;
(iv) All corporate action taken by the Borrower, ResNet
and LodgeNet Canada to authorize the execution, delivery and performance of each
of the Loan Documents to which it is a party and the transactions contemplated
thereby, certified by their respective corporate secretaries;
(v) Good standing certificates, as of dates not more
than fifteen (15) days prior to the Closing Date, with respect to the Borrower,
from the States of Delaware, South Dakota, California, Texas, Florida, New York,
Illinois, Hawaii, Ohio, Washington, Georgia, Nevada, Arizona, Louisiana,
Colorado, Virginia, Michigan, Pennsylvania, North Carolina, Minnesota,
Wisconsin, South Carolina and New Jersey; with respect to ResNet, from the
States of Arizona, California, Colorado, Delaware, Florida, Illinois, Michigan,
Missouri, New Jersey, New York, South Dakota, Tennessee, Texas and Virginia; and
(vi) Incumbency certificates (with specimen signatures)
with respect to officers of the Borrower, ResNet and LodgeNet Canada.
(h) OFFICER'S CERTIFICATE. (i) The Borrower shall have
complied and shall then be in compliance with all of the terms, covenants and
conditions of this Agreement;
(ii) There shall exist no Default or Event of Default
hereunder;
(iii) The representations and warranties contained in
Article 3 hereof shall be true and correct on the Closing Date;
(iv) Since December 31, 1995, there has not occurred
any event or circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect; and
(v) The Borrower (individually, and on a consolidated
basis) and each of its Subsidiaries shall be Solvent on the Closing Date and
will continue to be Solvent after giving effect to the transactions contemplated
hereby;
and the Agent shall have received a certificate of the chief financial officer
dated the Closing Date certifying, INTER ALIA, that the conditions set forth in
this subsection 4.1(h) are satisfied on such date.
(i) EXCHANGE OF NOTES. The Loans represented by the Notes
outstanding under the Original Loan Agreement (the "Original Notes") shall be
repaid, and the Original Notes shall be exchanged for Notes hereunder in
substantially the form of Exhibit B hereto.
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(j) OTHER DOCUMENTS. The Agent shall have received such other
certificates, opinions, approvals, documents or other evidence of compliance
with the conditions set forth in this Section 4.1 as the Agent and its counsel
may request.
SECTION 4.2 CONDITIONS TO SUBSEQUENT LOANS AND L/CS. The
obligation of each Bank to make each Loan subsequent to its initial Loan and the
obligation of the Issuing Bank to issue each L/C shall be subject to the
fulfillment (to the satisfaction of the Agent) of the following conditions
precedent:
(a) In respect of each Loan, the Agent shall have received a
Borrowing Notice in accordance with Section 2.2 hereof.
(b) In respect of each requested L/C, the Issuing Bank and the
Agent shall have received a Notice of Issuance in accordance with Section 2.16
hereof, together with all other documents required to be delivered in connection
with a Notice of Issuance and all Application Documents, and the Issuing Bank
shall have been paid any and all fees then due in accordance with the terms of
Section 2.16 hereof.
(c) The Agent shall have received a Compliance Certificate dated
the date of such Loan or L/C (as the case may be) and effective as of such date,
and the matters certified therein, including, without limitation, the absence of
any Default or Event of Default, shall be true as of such date.
(d) Neither the Agent nor any Bank nor an Issuing Bank shall
have received from the Borrower any notice that any Collateral Document will no
longer secure on a first priority basis (subject to Permitted Liens and other
security interests permitted under the Loan Documents) future advances or future
Loans to be made or extended under this Agreement.
(e) All legal matters incident to such Loan or L/C (as the case
may be) shall be satisfactory to counsel for the Agent.
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER
INFORMATION.
While the Commitments are outstanding, and, in the event any Loan or
any L/C Obligation remains outstanding, so long as the Borrower is indebted to
the Banks or the Agent and until payment in full of the Notes and full and
complete performance of all of its other obligations arising hereunder, the
Borrower shall deliver to each Bank:
SECTION 5.1 ANNUAL FINANCIAL STATEMENTS. Annually, as soon as
available, but in any event within ninety (90) days after the last day of each
of its fiscal years, a consolidated and consolidating balance sheet of the
Borrower and the Subsidiaries as at such last day of the fiscal year, and
consolidated and consolidating statements of income and retained earnings and
statements of cash flow, for such fiscal year, each prepared in accordance with
generally accepted accounting principles consistently applied, in reasonable
detail, and, as to the consolidated statements, certified
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without qualification by Arthur Andersen & Co. or another firm of independent
certified public accountants satisfactory to the Agent, or certified, as to the
consolidating statements, by the chief financial officer of the Borrower, as
fairly presenting the financial position and the results of operations of the
Borrower and the Subsidiaries as at and for the year ending on its date and as
having been prepared in accordance with generally accepted accounting
principles.
SECTION 5.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available,
but in any event within forty-five (45) days after the end of the Borrower's
first three fiscal quarterly periods (and for purposes of calculating the
financial ratios in Section 6.9 hereof, for the immediately preceding two or
four consecutive full fiscal quarters (including fiscal quarters ending prior to
the date of this Agreement) necessary to such calculations), a consolidated and
consolidating balance sheet of the Borrower and the Subsidiaries as of the last
day of such quarter and consolidated and consolidating statements of income and
retained earnings and statements of cash flow, for such quarter, and on a
comparative basis figures for the corresponding period of the immediately
preceding fiscal year, all in reasonable detail, each such statement to be
certified in a certificate of the president, chief financial officer or chief
operating officer of the Borrower as accurately presenting the financial
position and the results of operations of the Borrower and the Subsidiaries as
at its date and for such quarter and as having been prepared in accordance with
generally accepted accounting principles consistently applied (subject to
non-material, year-end audit adjustments in accordance with generally accepted
accounting principles).
SECTION 5.3 PROJECTIONS. Annually, as soon as available, but in
any event within ninety (90) days after the last day of each of its fiscal
years, a forecasted consolidated balance sheet and related forecasted
consolidated statement of operations and statement of cash flows of the Borrower
for the period from the first day of the Borrower's then current fiscal year
through December 31, 2002, all prepared on a basis consistent with the Financial
Statements, together with appropriate supporting details and a statement of
underlying assumptions.
SECTION 5.4 COMPLIANCE INFORMATION. Promptly after a written
request therefor, such other financial data or information evidencing compliance
with the requirements of this Agreement, the Notes, the Collateral Documents and
the other Loan Documents, as any Bank may reasonably request from time to time.
SECTION 5.5 NO DEFAULT CERTIFICATE. At the same time as it
delivers the financial statements required under the provisions of Sections 5.1
and 5.2 hereof, a certificate of the president, chief financial officer or chief
operating officer of the Borrower to the effect that no Event of Default
hereunder and that no default under any other agreement to which the Borrower or
any of its Subsidiaries is a party or by which it is bound, or by which, to the
best knowledge of the Borrower or any Subsidiary, any of its properties or
assets, taken as a whole, may be materially affected, and no event which, with
the giving of notice or the lapse of time, or both, would constitute such an
Event of Default or default, exists, or, if such cannot be so certified,
specifying in reasonable detail the exceptions, if any, to such statement. Such
certificate shall be accompanied by a detailed calculation indicating compliance
with the covenants contained in Sections 6.9, 7.13 and 7.14 hereof.
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SECTION 5.6 ACCOUNTANTS' REPORTS. Promptly upon receipt thereof,
copies of all reports submitted to the Borrower or any of its Subsidiaries by
its independent accountants in connection with any annual or interim audit or
review of the books of the Borrower or its Subsidiaries made by such
accountants, including, without limitation, any report addressing whether a
Default or an Event of Default had occurred hereunder.
SECTION 5.7 COPIES OF DOCUMENTS. Promptly upon their becoming
available, copies of any: (i) financial statements, projections, non-routine
reports, notices (other than routine correspondence), requests for waivers and
proxy statements, in each case delivered by the Borrower or any of its
Subsidiaries to any holder of Indebtedness of the Borrower other than the Banks;
(ii) correspondence or notices received by the Borrower from any federal, state
or local governmental authority that regulates the operations of the Borrower or
any of its Subsidiaries, relating to an actual or threatened change or
development that would be materially adverse to the Borrower or any Subsidiary;
(iii) registration statements and any amendments and supplements thereto, and
any regular and periodic reports, if any, filed by the Borrower or any of its
Subsidiaries with any securities exchange or with the SEC (or any governmental
authority succeeding to any or all of the functions of the SEC); (iv) letters of
comment or correspondence sent to the Borrower or any of its Subsidiaries by any
such securities exchange or the SEC in relation to the Borrower or any of its
Subsidiaries and its affairs, except to the extent sent in the ordinary course
of business with respect to routine filings; and (v) any appraisals received by
the Borrower or any of its Subsidiaries with respect to material properties or
assets of the Borrower or its Subsidiaries.
SECTION 5.8 NOTICES OF DEFAULTS. Promptly, notice of the
occurrence of any Default or Event of Default, or any event that would
constitute or cause a material adverse change in the condition, financial or
otherwise, or the operations of the Borrower or any of its Subsidiaries.
SECTION 5.9 ERISA NOTICES AND REQUESTS. Notice of each of the
following within ten (10) days after such event or occurrence:
(a) any Loan Party or ERISA Affiliate knowing or having reason
to know that a Termination Event has occurred or that a Defined Contribution
Plan has been terminated or partially terminated, together with a written
statement by the appropriate chief financial officer setting forth the details
of such event;
(b) the filing of a request for a funding waiver by any Loan
Party or ERISA Affiliate with respect to any Pension Plan, and a copy of such
request and all communications received by any Loan Party or ERISA Affiliate
with respect to such request;
(c) receipt by any Loan Party or ERISA Affiliate of a notice of
the PBGC's intent to terminate a Pension Plan, and a copy of such notice;
(d) the failure of any Loan Party or ERISA Affiliate to make a
required installment or payment under Section 302 of ERISA or Section 412 of the
Code by the applicable due date thereof, together with a written notice of such
failure;
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(e) any Loan Party or ERISA Affiliate knowing or having reason
to know that a prohibited transaction (as defined in Section 406 of ERISA or
Section 4975 of the Code) has occurred with respect to any Employee Benefit
Plan, and a written statement by the appropriate chief financial officer setting
forth the details of such transaction and the action taken with respect thereto;
(f) any increase in the benefits of any existing Employee
Benefit Plan or the establishment of any new Employee Benefit Plan or the
commencement of contributions to any Employee Benefit Plan to which any Loan
Party or ERISA Affiliate had not theretofore been contributing, together with a
written notice of such occurrence;
(g) receipt by any Loan Party or ERISA Affiliate of any
favorable or unfavorable determination letter from the IRS regarding the
qualification of a Pension Plan under Section 401(a) of the Code, together with
a copy of such letter;
(h) the filing of an annual report (Form 5500 series), including
Schedule B thereto, filed by any Loan Party or ERISA Affiliate with respect to
an Employee Benefit Plan, together with a copy of such report;
(i) receipt by any Loan Party or ERISA Affiliate of an actuarial
report for any Pension Plan, together with a copy of such report;
(j) receipt by any Loan Party or ERISA Affiliate of all
correspondence with the PBGC, the Secretary of Labor of the United States of
America or any representative of the IRS with respect to any Employee Benefit
Plans, relating to an actual or threatened change or development which would be
materially adverse to the Borrower or any ERISA Affiliate; and
(k) receipt by any Loan Party or ERISA Affiliate of any
correspondence from a Multiemployer Plan with respect to withdrawal liability.
SECTION 5.10 ADDITIONAL INFORMATION; GUEST-PAY ROOMS. Such other
information regarding the business, affairs and condition of the Borrower and
its Subsidiaries as the Agent or the Majority Banks may from time to time
reasonably request, including, without limitation, as soon as available, but in
any event not later than forty-five (45) days after the end of the first three
fiscal quarters of the Borrower and not later than ninety (90) days after the
end of the last fiscal quarter of the Borrower, a report, certified by the
president, chief financial officer or chief operating officer of the Borrower as
having been prepared personally by him or under his personal supervision and to
be substantially true and complete, of (i) the number of Guest-Pay Rooms served
by the Borrower and its Subsidiaries and (ii) the number of residential units
served by ResNet (on a state-by-state basis) as of the last day of such fiscal
quarter, together with such other information with respect to billings,
operating costs, Operating Cash Flow or other matters as the Agent or the
Majority Banks may reasonably request from time to time.
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ARTICLE 6. AFFIRMATIVE COVENANTS.
While the Commitments are outstanding, and, in the event any Loan or
any L/C Obligation remains outstanding, so long as the Borrower is indebted to
the Banks or the Agent, and until payment in full of the Notes and full and
complete performance of all of its other obligations arising hereunder, the
Borrower shall and shall cause each Subsidiary to:
SECTION 6.1 BOOKS AND RECORDS. Keep proper books of record and
account in a manner reasonably satisfactory to the Agent in which full, true and
correct entries shall be made of all dealings or transactions in relation to its
business and activities.
SECTION 6.2 INSPECTIONS AND AUDITS. Permit the Banks to make or
cause to be made (and, after the occurrence of and during the continuance of an
Event of Default, at the Borrower's expense), inspections and audits of any
books, records and papers of the Borrower and each of its Subsidiaries and to
make extracts therefrom and copies thereof, or to make inspections and
examinations of any properties and facilities of the Borrower and its
Subsidiaries (including the Collateral), on reasonable notice, at all such
reasonable times and as often as any Bank may reasonably require, in order to
assure that the Borrower is and will be in compliance with its obligations under
the Loan Documents (including the Collateral Documents) or to evaluate the
Banks' investment in the then outstanding Notes. The Agent and each Bank agrees
to hold in confidence all information, whether furnished to it pursuant to any
such inspection or audit or otherwise under the Loan Documents, that is
indicated as confidential by the Borrower in writing at the time furnished and
not otherwise generally available to the public; PROVIDED, THAT, the Agent and
the Banks shall be permitted to disclose such confidential information (a) among
each other and their respective directors, officers, employees, agents and
Affiliates, (b) to their attorneys and accountants, (c) in connection with the
enforcement of the rights of the Agent or the Banks under the Loan Documents,
(d) in connection with assignments or participations and the solicitation
thereof pursuant to Section 10.13 hereof, provided that each such actual or
prospective assignees or purchaser agrees to be bound by the provisions of this
sentence, and (e) as may otherwise be requested by any regulatory authority
having jurisdiction over the Agent, the Banks or such participant or assignee,
or by any applicable law, rule, regulation or judicial process.
SECTION 6.3 MAINTENANCE AND REPAIRS. Maintain in good repair,
working order and condition, subject to normal wear and tear, all properties and
assets from time to time owned by it and used in or necessary for the operation
of its business (including the Collateral), and make all reasonable repairs,
replacements, additions and improvements thereto, unless any failure to
accomplish any of the foregoing would not and could not be reasonably expected
to, either singly or in the aggregate, have a material adverse effect on the
Collateral or the business, operations or financial condition of the Borrower or
any Subsidiary.
SECTION 6.4 CONTINUANCE OF BUSINESS. Do, or cause to be done, all
things reasonably necessary to preserve and keep in full force and effect its
corporate existence and all permits, rights and privileges necessary for the
proper conduct of its business, comply in all material respects with all
applicable laws, regulations and orders and, except as otherwise permitted
pursuant to and in accordance with Sections 7.4 and 7.7, continue to engage in
the same line of business.
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SECTION 6.5 COPIES OF CORPORATE DOCUMENTS. Subject to the
prohibitions set forth in Section 7.12 hereof, promptly deliver to the Agent
copies of any amendments or modifications to its and any Subsidiary's
certificate of incorporation and by-laws, certified with respect to the
certificate of incorporation by the Secretary of State of its state of
incorporation and, with respect to the by-laws, by the secretary or assistant
secretary of such corporation.
SECTION 6.6 PERFORM OBLIGATIONS. Pay and discharge all of its
obligations and liabilities, including, without limitation, all taxes,
assessments and governmental charges upon its income and properties when due,
unless and to the extent only that such obligations, liabilities, taxes,
assessments and governmental charges shall be contested in good faith and by
appropriate proceedings and that, to the extent required by generally accepted
accounting principles then in effect, proper and adequate book reserves relating
thereto are established by the Borrower, or, as the case may be, by the
appropriate Subsidiary, and then only to the extent that a bond is filed in
cases where the filing of a bond is necessary to avoid the creation of a Lien
against any of its properties.
SECTION 6.7 NOTICE OF LITIGATION. Promptly notify the Agent in
writing of any litigation, legal proceeding or dispute, other than disputes in
the ordinary course of business or, whether or not in the ordinary course of
business, involving amounts in excess of $2,500,000, affecting the Borrower or
any Subsidiary whether or not fully covered by insurance, and regardless of the
subject matter thereof (excluding, however, any actions relating to workers'
compensation claims or negligence claims relating to use of motor vehicles, if
fully covered by insurance, subject to deductibles).
SECTION 6.8 INSURANCE. (a) (i) In addition to insurance
requirements set forth in the Collateral Documents, maintain with responsible
insurance companies acceptable to the Agent such insurance on such of its
properties, in such amounts and against such risks as is customarily maintained
by similar businesses (provided, that the Borrower and each Subsidiary may in
lieu of maintaining such insurance maintain a system or systems of
self-insurance in accordance with good business practice and as customary for
corporations of established reputation engaged in the same or similar business
and owning and operating similar properties as the Borrower or such Subsidiary),
including workers' compensation insurance, general liability and property and
casualty insurance. All such insurance (except for workers' compensation
insurance) shall name the Agent as loss payee and as additional insured (in the
case of general liability), for the benefit of itself, the Banks and the Issuing
Banks, as their interests may appear. Upon request of the Agent or any Bank,
the Borrower shall furnish the Agent, with sufficient copies for each Bank, at
reasonable intervals (but not more than once per policy year), a certificate of
an officer of the Borrower (and, if requested by the Agent, any insurance broker
of the Borrower) setting forth the nature and extent of all insurance maintained
by the Borrower and its Subsidiaries in accordance with this Section 6.8 or any
Collateral Document (and which, in the case of a certificate of a broker, was
placed through such broker).
(b) Carry all insurance available through the PBGC or any
private insurance companies covering its obligations, if any, to the PBGC.
SECTION 6.9 FINANCIAL COVENANTS. Have or maintain, on a
consolidated basis, at all times:
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(a) Total Leverage during any fiscal quarter ending in any
period set forth below at not more than the applicable ratio set forth opposite
such period:
During each Fiscal Quarter
Ending in Each of the
Following Periods Maximum Total Leverage
-------------------------- ----------------------
from the Closing Date through
December 31, 1997 5.75 to 1
from January 1, 1998 through
December 31, 1998 5.25 to 1
from January 1, 1999 and
continuing thereafter 4.50 to 1
(b) Interest Coverage for each fiscal period set forth below
(determined as of the last day of such fiscal period) at not less than the
applicable ratio set forth opposite such fiscal period:
Fiscal Period Minimum Interest Coverage
----------------- -------------------------
One fiscal quarter ending
March 31, 1997 1.25 to 1
Two fiscal quarters ending
June 30, 1997 1.50 to 1
Three fiscal quarters ending
September 30, 1997 1.50 to 1
Four fiscal quarters ending
December 31, 1997 1.75 to 1
Four fiscal quarters ending at
each of the following dates:
March 31, June 30, September 30
and December 31 in each of the
fiscal years 1998, 1999, 2000,
2001 and 2002 2.00 to 1
(c) That number of Guest-Pay Rooms as of the end of each fiscal
quarter of the Borrower (i) which is not less than ninety percent (90%) of the
number of Guest Pay Rooms as of the end of the immediately preceding fiscal
quarter of the Borrower and (ii) which is not less than ninety percent (90%) of
the number of Guest Pay Rooms as of the end of the corresponding fiscal quarter
of the Borrower ending in the immediately preceding fiscal year.
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SECTION 6.10 NOTICE OF CERTAIN EVENTS. (a) Promptly notify the
Agent in writing of the occurrence of any Reportable Event, as defined in
Section 4043 of ERISA, if a notice of such Reportable Event is required under
ERISA to be delivered to the PBGC within 30 days after the occurrence thereof,
together with a description of such Reportable Event and a statement of the
action the Loan Party or the ERISA Affiliate intends to take with respect
thereto, together with a copy of the notice thereof given to the PBGC.
(b) Promptly notify the Agent in writing if any Loan Party or
ERISA Affiliate receives an assessment of withdrawal liability in connection
with a complete or partial withdrawal with respect to any Multiemployer Plan,
together with a statement of the action that such Loan Party or ERISA Affiliate
intends to take with respect thereto.
(c) Promptly notify the Agent in writing if the Borrower or any
other Loan Party receives: (i) any notice of any violation or administrative or
judicial complaint or order having been filed or about to be filed against the
Borrower or such other Loan Party alleging violations of any Environmental Law
and Regulation, or (ii) any notice from any governmental body or any other
Person alleging that the Borrower or such other Loan Party is or may be subject
to any Environmental Liability; and promptly upon receipt thereof, provide the
Agent with a copy of such notice together with a statement of the action the
Borrower or such other Loan Party intends to take with respect thereto.
SECTION 6.11 COMPLY WITH ERISA. Materially comply with all
applicable provisions of ERISA and the Code now or hereafter in effect.
SECTION 6.12 ENVIRONMENTAL COMPLIANCE. Operate all property owned,
operated or leased by it in material compliance with all Environmental Laws and
Regulations, such that no Environmental Liability arises under any Environmental
Laws and Regulations, which would result in a Lien on any property of the
Borrower or any other Loan Party; PROVIDED, HOWEVER, that in the event that any
such claim is made or any such Environmental Liability arises, the Borrower or
such other Loan Party shall (subject to the Borrower's or such Loan Party's
right to contest such claim in good faith and at its own expense by appropriate
legal proceedings, PROVIDED, HOWEVER, that during such contest, the Borrower or
such other Loan Party shall, at the option of the Agent, set aside reserves in
an amount satisfactory to the Agent, assuring the discharge of the Borrower's or
such Loan Party's obligations thereunder and of any additional interest charge,
penalty or expense arising from or incurred as a result of such contest), at its
own cost and expense, in a timely manner, immediately satisfy such claim or
Environmental Liability.
SECTION 6.13 FURTHER ASSURANCES.
(a) DISCLOSURE. The Borrower shall ensure that all written
information, exhibits and reports furnished to the Agent or the Banks do not and
will not contain any untrue statement of a material fact and do not and will not
omit to state any material fact or any fact necessary to make the statements
contained therein not misleading, in light of the circumstances in which made,
and will promptly disclose to the Agent and the Banks and correct any defect or
error that may be discovered therein or in any Loan Document or in the
execution, acknowledgment or recordation thereof.
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(b) PROTECTION OF EXISTING INTERESTS. Promptly upon request by
the Agent or the Majority Banks, the Borrower shall (and shall cause any of its
Subsidiaries to) do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments which
the Agent or such Banks, as the case may be, may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
or any other Loan Document, (ii) to subject to the Liens created by any of the
Collateral Documents any of the properties, rights or interests covered by any
of the Collateral Documents, (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and the Liens
intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Agent and the Banks the
rights granted or now or hereafter intended to be granted to the Banks under any
Loan Document or under any other document executed in connection therewith.
(c) HEADQUARTERS PROPERTY. Within 180 days after completion of
construction on the real property constituting Borrower's new chief executive
offices, if the Borrower shall not have refinanced such property with a third
party lender as permitted by subsection 7.1(b) hereof, then the Borrower shall
execute and deliver a mortgage, in form and substance satisfactory to the Agent,
granting the Agent a perfected Lien (subject only to Permitted Liens and other
security interests permitted under the Loan Documents), together with any such
surveys, title insurance policies, environmental reports, appraisals or other
instruments and documents as the Agent may require.
(d) SECURITY INTEREST IN ADDITIONAL COLLATERAL. Promptly, and
in any event within 30 days after the acquisition or construction by the
Borrower, ResNet or any other Restricted Subsidiary of property of the type that
would have constituted Collateral on the date hereof (and also including real
property that is not being held for sale by the Borrower or its Subsidiaries),
in each case in which the Agent does not have a perfected security interest
under the Collateral Documents (other than (x) property of the type covered by
the Pledge Agreement which is provided for in subsection 6.13(e) hereof, (y)
property subject to Liens permitted under subsection 7.2(d) hereof under
agreements which prohibit the creation of additional Liens on such property, or
(z) any other property with a fair market value of less than $500,000
individually; PROVIDED that all such other property collectively shall have a
fair market value of less than $2,500,000), or within 30 days after request by
the Agent with respect to any other property of the Borrower or its Restricted
Subsidiaries deemed material by the Agent or the Majority Banks (the "ADDITIONAL
COLLATERAL"), the Borrower will, and will cause each of its Restricted
Subsidiaries to, take all necessary action, including (i) the amendment or
supplementing of the Security Agreement to subject such Additional Collateral to
the terms thereof, (ii) the filing of appropriate financing statements under the
provisions of the UCC, applicable foreign, domestic or local laws, rules or
regulations in each of the offices where such filing is necessary or
appropriate, and (iii) with respect to real property, the execution of a
mortgage and the providing of environmental reports, title insurance policies,
surveys and appraisals, in order to grant to the Agent a perfected Lien (subject
only to Permitted Liens and other security interests permitted under the Loan
Documents) in such Collateral pursuant to, and to the full extent required by,
the Collateral Documents and this Agreement.
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(e) ADDITIONAL PLEDGE. The Borrower shall, and shall cause each
Restricted Subsidiary to, pursuant to and in accordance with the Pledge
Agreement, pledge and deliver to the Agent for the benefit of itself, the Banks
and the Issuing Banks, all shares of stock, intercompany promissory notes and
other property that would have constituted Collateral under the Pledge Agreement
on the date hereof that are acquired by the Borrower or any Restricted
Subsidiary after the date hereof.
(f) GRANT OF SECURITY BY NEW RESTRICTED SUBSIDIARIES. The
Borrower will cause each Restricted Subsidiary of the Borrower established or
created after the Closing Date to grant to the Agent a first priority Lien
(subject to Permitted Liens and other security interests permitted under the
Loan Documents) on all property (tangible and intangible) of such Restricted
Subsidiary by executing and delivering an appropriate supplement to the Security
Agreement and an appropriate supplement to the Pledge Agreement, or on other
terms satisfactory in form and substance to the Agent. The Borrower shall cause
each such Restricted Subsidiary, at its own expense, to execute, acknowledge and
deliver, or cause the execution, acknowledgment and delivery of, and thereafter
register, file or record in any appropriate governmental office, any documents
or instruments reasonably deemed by the Agent to be necessary or desirable for
the creation and perfection of the foregoing Liens. The Borrower will cause
each of its Restricted Subsidiaries to take all actions requested by the Agent
(including, without limitation, the filing of UCC-1s) in connection with the
granting of such security interests.
(g) ADDITIONAL GUARANTORS. The Borrower will cause (i) each
Wholly-Owned Subsidiary of the Borrower established or created after the Closing
Date, (ii) ResNet LLC or any other Subsidiary of ResNet Communications, Inc.,
and (iii) any other Subsidiary of the Borrower designated by the Borrower as a
Guarantor, to execute an appropriate Guaranty satisfactory in form and substance
to the Agent pursuant to which such Subsidiary shall guarantee the Obligations
of the Borrower hereunder.
ARTICLE 7. NEGATIVE COVENANTS.
So long as any Bank shall have any Commitment hereunder, or any Loan
or any other Obligation shall remain outstanding, unpaid or unsatisfied to the
Banks, the Issuing Banks or the Agent, the Borrower shall not, and shall not
permit any Restricted Subsidiary or any of its other Subsidiaries, to do, agree
to do, or permit to be done, any of the following:
SECTION 7.1 INDEBTEDNESS. As to the Borrower or any Restricted
Subsidiary, create, incur, permit to exist or have outstanding any Indebtedness,
except:
(a) Indebtedness of the Borrower and the Guarantors to the Banks
and the Agent under this Agreement and the Notes;
(b) Indebtedness of the Borrower incurred pursuant to the Senior
1995 Notes and the Senior 1996 Notes;
(c) Permitted Debt and the TCI Convertible Debt;
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(d) Taxes, assessments and governmental charges, non-interest
bearing accounts payable and accrued liabilities, in any case not more than 120
days past due from the original due date thereof, and non-interest bearing
deferred liabilities other than for borrowed money (e.g., deferred compensation
and deferred taxes), in each case incurred and continuing in the ordinary course
of business;
(e) Indebtedness secured by the security interests referred to
in subsection 7.2(b) hereof and Capitalized Lease Obligations, in an aggregate
amount for such Indebtedness and Capitalized Lease Obligations not exceeding
$5,000,000, and in each case incurred only if, after giving effect thereto, the
limitation on Capital Expenditures set forth in Section 7.13 hereof would not be
breached;
(f) As set forth on Schedule 7.1 hereto;
(g) Indebtedness, not exceeding an amount equal to 5% of the
consolidated assets of the Borrower and its Restricted Subsidiaries taken as a
whole, of Restricted Subsidiaries which are acquired by the Borrower after the
date hereof; PROVIDED, HOWEVER, that such Indebtedness was not created in
anticipation of or in connection with such acquisition;
(h) Indebtedness not to exceed $15,000,000 in the aggregate
incurred by the Borrower in connection with its purchase and construction of
improvements on real property constituting the Borrower's new chief executive
offices; PROVIDED, THAT such Indebtedness shall not exceed the lesser of the
cost or fair market value of such real property and shall not be renewed,
extended or, except in accordance with Section 7.8 hereof, prepaid from the
proceeds of any borrowing by the Borrower or any Subsidiary;
(i) Refinancings of Indebtedness permitted pursuant hereto in
accordance with Section 7.8 hereof; and
(j) Permitted Intercompany Debt, so long as (i) no Default or
Event of Default has occurred and is continuing either before or after giving
effect thereto, (ii) no Material Adverse Effect would result therefrom, and
(iii) during the time such Debt is outstanding, neither ResNet nor ResNet LLC
shall make any distributions on or in respect of its capital stock or membership
interests to any Person other than the Borrower or ResNet; PROVIDED, HOWEVER,
that ResNet LLC may make such distributions as are permitted by subsection
7.5(c) hereof.
SECTION 7.2 LIENS. Create, or assume or permit to exist, any Lien
on any of the properties or assets of the Borrower or any Restricted Subsidiary,
whether now owned or hereafter acquired, except:
(a) Permitted Liens;
(b) Purchase money mortgages or security interests, conditional
sale arrangements and other similar security interests, on motor vehicles and
equipment acquired by the Borrower or any Subsidiary (hereinafter referred to
individually as a "PURCHASE MONEY SECURITY
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INTEREST") with the proceeds of the Indebtedness referred to in subsection
7.1(e) hereof; PROVIDED, HOWEVER, that:
(i) The transaction in which any Purchase Money
Security Interest is proposed to be created is not then prohibited by this
Agreement;
(ii) Any Purchase Money Security Interest shall attach
only to the property or asset acquired in such transaction and shall not extend
to or cover any other assets or properties of the Borrower or a Subsidiary;
(iii) The Indebtedness secured or covered by any
Purchase Money Security Interest shall not exceed the lesser of the cost or fair
market value of the property or asset acquired and shall not be renewed,
extended or, except in accordance with Section 7.8 hereof, prepaid from the
proceeds of any borrowing by the Borrower or any Subsidiary; and
(iv) Any such Lien shall be created within one hundred
twenty (120) days after the date on which the property or asset to which such
Lien relates is acquired;
(c) The interests of the lessor under any Capitalized Lease
permitted hereunder;
(d) As set forth on Schedule 7.2 hereto;
(e) A mortgage securing the Indebtedness referred to in
subsection 7.1(h) hereof; PROVIDED THAT such mortgage shall attach only to the
real property to which such Indebtedness relates and shall not extend to or
cover any other assets or properties of the Borrower or a Subsidiary; and
(f) Liens securing Indebtedness of newly-acquired Restricted
Subsidiaries; PROVIDED, THAT such Liens (i) existed at the time such Restricted
Subsidiary was acquired, extend only to the property and assets of such
Restricted Subsidiary and were not created in anticipation of or in connection
with such acquisition, (ii) do not exceed 5% of the consolidated assets of the
Borrower and its Restricted Subsidiaries taken as a whole, and (iii) secure
Indebtedness which does not exceed the limitation set forth in subsection 7.1(g)
hereof.
SECTION 7.3 GUARANTIES. As to the Borrower or any Restricted
Subsidiary, assume, endorse, be or become liable for, or guarantee, the
obligations of any Person, except:
(a) as permitted under Sections 7.1 and 7.9 hereof; and
(b) by the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
For the purposes hereof, the term "guarantee" or "guaranties" shall include any
agreement, whether such agreement is on a contingency or otherwise, to purchase,
repurchase or otherwise acquire
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Indebtedness of any other Person, or to purchase, sell or lease, as lessee or
lessor, property or services, in any such case primarily for the purpose of
enabling another person to make payment of Indebtedness, or to make any payment
(whether as an advance, capital contribution, purchase of an equity interest or
otherwise) to assure a minimum equity, asset base, working capital or other
balance sheet or financial condition, in connection with the Indebtedness of
another Person, or to supply funds to or in any manner invest in another Person
in connection with such Person's Indebtedness.
SECTION 7.4 MERGERS, ACQUISITIONS. As to the Borrower or any
Restricted Subsidiary, merge or consolidate with any Person (whether or not the
Borrower or any Subsidiary is the surviving entity), or acquire all or
substantially all of the assets or any of the capital stock of any Person;
except, so long as no Default or Event of Default shall have occurred and be
continuing either immediately before or after giving effect thereto and no
Material Adverse Effect would result therefrom, that (a) any Wholly-Owned
Subsidiary of the Borrower may merge with and into the Borrower so long as the
Borrower is the surviving entity, (b) any Wholly-Owned Subsidiary of the
Borrower may merge with and into any other Wholly-Owned Subsidiary of the
Borrower, and (c) any acquisition constituting an Investment made in accordance
with the conditions set forth in subsection 7.9(e) hereof shall be permitted
hereunder.
SECTION 7.5 REDEMPTIONS; DISTRIBUTIONS.
(a) As to the Borrower or any Restricted Subsidiary, make or
become obligated to make, directly or indirectly, any purchase, redemption,
retirement, repayment, prepayment, defeasance, or acquisition, whether by way of
put, call, sinking fund or otherwise, with respect to any shares of any class of
capital stock (or warrants or options with respect thereto) of the Borrower or,
except as permitted in accordance with subsections 7.9(d) or 7.9(e) hereof, any
Subsidiary, now or hereafter outstanding or set apart any sum for any such
purpose; PROVIDED, HOWEVER, that the Borrower may purchase or acquire shares of
capital stock of the Borrower or a Restricted Subsidiary (or options, warrants
or other rights to acquire such capital stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of capital stock of
the Borrower or such Restricted Subsidiary; or
(b) As to the Borrower, declare or pay any dividends or make any
distribution of any kind on the Borrower's outstanding stock, or set aside any
sum for any such purpose, PROVIDED, HOWEVER, that the Borrower may (i) declare
or pay any dividend payable solely in shares of its capital stock and (ii) so
long as no Default or Event of Default has occurred and is continuing, pay
dividends on shares of preferred stock issued after the date of this Agreement
and solely for cash proceeds if such dividends do not exceed an annual amount
equal to ten percent (10%) of such cash proceeds (the "PREFERRED STOCK
DIVIDENDS"); or
(c) As to any Restricted Subsidiary, declare or pay any
dividends or make any distribution of any kind on the outstanding capital stock
(or membership interests, in the case of a limited liability company) of any
Restricted Subsidiary, or set aside any sum for any such purpose, except for
payments or distributions made to the Borrower; PROVIDED, HOWEVER, that ResNet
LLC shall be permitted to pay pro rata dividends or distributions on its
outstanding membership
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interests, including the interests of its minority member(s), for the purpose of
enabling its members to meet their federal, state and local estimated tax
obligations.
SECTION 7.6 STOCK ISSUANCES. As to any Restricted Subsidiary of
the Borrower, not issue any additional shares or any right or option to acquire
any shares, or any security convertible into any shares, of such Restricted
Subsidiary's capital stock, except (a) as permitted under Section 7.5 hereof,
(b) for the purpose of qualifying directors of such Restricted Subsidiary, (c)
for issuances, at the greater of cost or fair value (as determined in good faith
by the Borrower's board of directors), of securities or other ownership
interests in any Restricted Subsidiary of the Borrower constituting an
Investment made after the date of this Agreement in accordance with subsection
7.9(e) hereof, and (d) for issuances of securities in any Restricted Subsidiary
at a price equal to the greater of book value or fair value (as determined in
good faith by the Borrower's board of directors), which issuances do not
exceed, in the aggregate, 40% of the issued and outstanding capital stock of
such Restricted Subsidiary (or 50% of the issued and outstanding capital stock,
in the case of ResNet) and subject to the further condition that no restriction
shall be imposed or permitted to exist on Borrower's right or ability to receive
dividend payments or other cash flow from such Restricted Subsidiary or to
exercise its voting rights as to such Restricted Subsidiary in each case in an
amount or percentage at least proportionate to its ownership interest in such
Restricted Subsidiary; PROVIDED, HOWEVER, that all issuances of securities or
other ownership interests permitted under clauses (c) and (d) above shall not
exceed a Substantial Portion in regard to Restricted Subsidiaries other than
ResNet.
SECTION 7.7 CHANGES IN BUSINESS; ASSET DISPOSITIONS. Make any
material change in its business, or in the nature of its operation, or liquidate
or dissolve itself (or suffer any liquidation or dissolution), or make any Asset
Disposition or sell or transfer (other than in an original issuance) any shares
of stock or any Indebtedness, whether now owned or hereafter acquired, or
discount, sell, pledge, hypothecate or otherwise dispose of accounts receivable;
except (a) (i) the Borrower may dissolve any Subsidiary which is not a
Restricted Subsidiary, provided, that, immediately thereafter, all of the
proceeds thereof are received by the Borrower in proportion to its ownership of
such Subsidiary and (ii) the Borrower and its Subsidiaries may make Asset
Dispositions which, in the aggregate in any fiscal year, do not constitute a
Substantial Portion, PROVIDED, THAT (1) the asset which is the subject of such
Asset Disposition shall not consist of any security or other ownership interest
in a Restricted Subsidiary, (2) no Default or Event of Default shall have
occurred and be continuing either immediately before or after giving effect
thereto, (3) no Material Adverse Effect would result therefrom, (4) the
consideration received therefor is at least equal to the fair market value of
such Assets, (5) the consideration received therefor is at least 75% in cash and
the balance in a promissory note on commercially reasonable terms and not
subordinate to any other Indebtedness of the purchaser thereof and (6) the
aggregate net proceeds thereof are applied as required by subsection 2.8(d)
hereof; and (b) as permitted pursuant to and in accordance with subsection
7.9(e) hereof.
SECTION 7.8 PREPAYMENTS AND REPAYMENTS OF INDEBTEDNESS. As to the
Borrower or any Restricted Subsidiary, make any voluntary or optional
prepayment, repurchase, redemption or defeasance of any Indebtedness for
borrowed money incurred or permitted to exist under the terms of this Agreement,
other than Indebtedness evidenced by the Notes; PROVIDED, HOWEVER, that
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the Borrower or any Restricted Subsidiary may refinance Indebtedness for money
borrowed incurred pursuant to and in accordance with Section 7.1 hereof, so long
as: (1) except to the extent otherwise permitted pursuant to subsection 7.1(g)
hereof, the principal amount of the proposed Indebtedness shall not exceed the
principal amount of the Indebtedness being refinanced, (2) such refinancing
would not result in the payment of a prepayment penalty or other similar fees in
respect thereof which in the aggregate would exceed $10,000,000, but in any case
payment of such penalty or fees shall be permitted only to the extent such
penalty or fees are payable out of the proceeds of the proposed Indebtedness,
(3) the terms and conditions of the proposed Indebtedness are no less favorable
to the Borrower, its Restricted Subsidiaries or, in the Agent's determination,
the Banks, than the Indebtedness being refinanced, and (4) no Default or Event
of Default shall have occurred and be continuing either immediately before or
after giving effect to such refinancing and no Material Adverse Effect would
result from such refinancing.
SECTION 7.9 INVESTMENTS. Make, or suffer to exist, any Investment
in any Person, including, without limitation, any shareholder, director, officer
or employee of the Borrower or any of its Subsidiaries, except:
(a) Investments in:
(i) obligations issued or guaranteed by the United
States of America;
(ii) certificates of deposit, bankers acceptances and
other "money market instruments" issued by any commercial bank organized under
the laws of the United States or any State thereof or any other country which is
a member of the Organization for Economic Cooperation and Development (provided
that such bank is acting through a branch or agency located in the United
States) and having capital and surplus in an aggregate amount of not less than
$100,000,000 (an "ELIGIBLE BANK");
(iii) open market commercial paper bearing the highest
credit rating issued by Standard & Poor's Corporation or by another nationally
recognized credit rating agency;
(iv) repurchase agreements entered into with any
Eligible Bank relating to United States of America government obligations; and
(v) shares of "money market funds", each having net
assets of not less than $100,000,000;
in each case maturing or being due or payable in full not more than 180 days
after the Borrower's acquisition thereof;
(b) Investments in the form of loans to employees of the
Borrower or any Subsidiary, PROVIDED THAT the outstanding principal amount of
all such loans to any one employee shall at no time exceed $60,000 and that the
aggregate outstanding principal amount of all such loans shall at no time exceed
$250,000;
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(c) Investments by the Borrower in any Subsidiary and by any
Subsidiary in the Borrower or another Subsidiary as in effect on the date
hereof;
(d) So long as no Default or Event of Default shall have
occurred and be continuing either immediately before or after giving effect to
any such Investment, Investments consisting of Permitted Intercompany Debt or
intercompany Investments between the Borrower and any of its Wholly-Owned
Subsidiaries or between any such Wholly-Owned Subsidiaries and the Borrower or
any other Wholly-Owned Subsidiary; and
(e) (A) Investments in ResNet which consist of Permitted
Intercompany Debt, (B) Investments in Restricted Subsidiaries other than ResNet,
(C) Investments, other than those set forth above, by the Borrower or its
Subsidiaries in other Persons which do not exceed in the aggregate at any time
outstanding an amount equal to 10% of the consolidated assets of the Borrower
and its Restricted Subsidiaries taken as a whole, and (D) non-cash, acquisition
Investments by the Borrower (x) of any entity which has had positive Operating
Cash Flow during the immediately preceding twelve-month period, (y) in which
shares of the Borrower's common stock constitute the sole consideration used in
the acquisition transaction, and (z) the cumulative aggregate amount of shares
of the Borrower's common stock used for such Investments during the Credit
Period does not exceed 20% of the number of Borrower's shares of common stock
outstanding on the date hereof;
PROVIDED, THAT in the case of (B) , (C) and (D) above:
(i) the entire amount of all Indebtedness assumed,
directly or indirectly, by the Borrower or any Subsidiary in connection with
each such Investment shall be permitted under Section 7.1 hereof;
(ii) except to the extent permitted under Section 7.1
hereof, all liabilities associated with any such Investment shall be
non-recourse to the Borrower and its Subsidiaries (other than the Subsidiary in
which any such Investment is being made), and the Borrower and its Subsidiaries
shall have no further obligation to provide funds or otherwise finance such
Investment;
(iii) each such Investment shall be in Persons
incorporated, organized or otherwise formed under the laws of any state of the
United States of America or any province of Canada;
(iv) to the extent any such Investment constitutes, or
otherwise results in the creation of, a direct or indirect Wholly-Owned
Subsidiary of the Borrower, upon the creation of such Subsidiary, such
Subsidiary shall execute and deliver to the Agent an appropriate Guaranty of the
Obligations satisfactory in form and substance to the Agent;
(v) no such Investment shall be of the nature which
would subject the Agent or any Bank to regulatory or third party approval in
connection with the exercise of their rights and remedies under this Agreement,
the Guaranties or any other Loan Document; and
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(vi) no Default or Event of Default shall have occurred
and be continuing either immediately before or after giving effect to such
Investment and no Material Adverse Effect would result therefrom.
SECTION 7.10 FISCAL YEAR. Change its fiscal year.
SECTION 7.11 ERISA OBLIGATIONS. (a) Permit the occurrence of any
Termination Event, or the occurrence of a termination or partial termination of
a Defined Contribution Plan which would result in a liability to any Loan Party
or ERISA Affiliate in excess of $100,000; or
(b) Permit the present value of all benefit liabilities under
all Pension Plans to exceed the current value of the assets of such Pension
Plans allocable to such benefit liabilities by more than $100,000; or
(c) Permit any accumulated deficiency (as defined in Section 302
of ERISA and Section 412 of the Code) with respect to any Pension Plan, whether
or not waived; or
(d) Fail to make any contribution or payment to any
Multiemployer Plan which any Loan Party or ERISA Affiliate may be required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto which results in or is likely to result in a liability in
excess of $100,000; or
(e) Engage, or permit any Loan Party or ERISA Affiliate to
engage, in any prohibited transaction under Section 406 of ERISA or Section 4975
of the Code, for which a civil penalty pursuant to Section 502(i) of ERISA or a
tax pursuant to Section 4975 of the Code in excess of $100,000 is imposed; or
(f) Engage or permit any Loan Party or ERISA Affiliate to
engage, in any breach of fiduciary duty under Part 4 of Title I of ERISA for
which twenty percent (20%) of the applicable recovery amount imposed under
Section 502(l) of ERISA could exceed $100,000; or
(g) Permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any Employee
Benefit Plan which establishment or amendment could result in liability to any
Loan Party or ERISA Affiliate or increase the obligation of any Loan Party or
ERISA Affiliate to a Multiemployer Plan which liability or increase,
individually or together with all similar liabilities and increases, is material
to any Loan Party or ERISA Affiliate; or
(h) Permit any Loan Party or ERISA Affiliate to be or become
obligated to the PBGC in excess of $100,000 other than in respect of annual
premium payments; or
(i) Fail, or permit any Loan Party or ERISA Affiliate to fail,
to establish, maintain and operate each Employee Benefit Plan in compliance in
all material respects with the provisions of ERISA, the Code and all other
applicable laws and the regulations and interpretations thereof, which action or
omission by such Loan Party or ERISA Affiliate is not curable or resolvable
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under the Voluntary Compliance Resolutions Program or the Closing Agreement
Program with the IRS (which action is at all times being diligently pursued by
such Loan Party or ERISA Affiliate in good faith by appropriate proceedings) and
would result in a liability to any Loan Party or ERISA Affiliate in excess of
$100,000.
SECTION 7.12 AMENDMENTS OF DOCUMENTS. As to the Borrower or any
Restricted Subsidiary, modify, amend, supplement or terminate, or agree to
modify, amend, supplement or terminate, its certificate of incorporation
(except, with respect to the Borrower or a Restricted Subsidiary and to the
extent permitted hereunder, in connection with the issuance of capital stock of
the Borrower or a Restricted Subsidiary pursuant to a public offering or private
placement of such securities; PROVIDED, THAT reasonably prior to the
effectiveness of any such amendment, the Borrower shall deliver a copy of such
amendment to the Agent) or by-laws; or modify, amend or supplement, or agree to
modify, amend or supplement, any Senior Note Document if the effect of such
amendment, modification or supplement is to increase the principal amount of the
Senior 1995 Notes or the Senior 1996 Notes, increase the interest rate on the
Senior 1995 Notes or the Senior 1996 Notes, change (to earlier dates) the dates
upon which payments of principal or interest are due on the Senior 1995 Notes or
the Senior 1996 Notes, shorten the amortization schedule on the Senior 1995
Notes or the Senior 1996 Notes, alter any default, event of default or condition
thereto with respect to the Senior Note Documents or the remedies applicable
thereto in a manner which would be adverse to the Borrower, its Subsidiaries or,
in the Agent's determination, to the Banks, grant any security interest in favor
of the holders of the Senior 1995 Notes or the Senior 1996 Notes, change the
redemption provisions of the Senior Note Documents in a manner which, in the
Agent's determination, would be adverse to the Banks, or, together with all
other amendments, modifications or supplements made to the Senior Note
Documents, would increase materially the obligations of the Borrower under the
Senior Note Documents or confer additional rights on the holders of the Senior
1995 Notes or the Senior 1996 Notes which would be adverse to the Borrower, its
Subsidiaries or, in the Agent's determination, the Banks.
SECTION 7.13 CAPITAL EXPENDITURES. Make or be or become obligated
to make Capital Expenditures in the aggregate for the Borrower and its
Restricted Subsidiaries during each fiscal year of the Borrower in excess of the
sum of (i) the respective base amounts set forth below opposite each fiscal year
(each, a "Base Maximum Capital Expenditures Amount"), PLUS (ii) the amount of
net cash proceeds received by the Borrower during such fiscal year from the
issuance by the Borrower after January 1, 1997 of capital stock and/or Permitted
Debt, PLUS (iii) the amount of any increase in the Total Commitment effected by
the Borrower during such fiscal year pursuant to an election under subsection
2.8(a) hereof, MINUS (iv) any scheduled reduction pursuant to subsection 2.5(a)
hereof as it relates to all such prior increases:
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Fiscal Year
Ending Base Maximum Capital
December 31, Expenditures Amount
------------ --------------------
1996 $100,000,000
1997 $130,000,000
1998 $60,000,000
1999 $30,000,000
2000 $35,000,000
2001 $40,000,000
2002 $25,000,000
PROVIDED, HOWEVER, that the amount permitted to be expended in a fiscal year
which is not expended in such fiscal year, shall be permitted to be expended in
the immediately succeeding fiscal year only.
SECTION 7.14 RENTAL OBLIGATIONS. Enter into, or permit to remain in
effect, any Lease (other than Capitalized Leases that are governed by subsection
7.1(e) hereof) if, after giving effect thereto, the aggregate amount of all
Rentals due from the Borrower and its Restricted Subsidiaries thereunder would
exceed $750,000 during any fiscal year.
SECTION 7.15 USE OF CASH. Use, or permit to be used, in any manner
or to any extent, any of the Borrower's Cash for the benefit of any Person,
except: (a) in connection with the payment or prepayment of expenses (other
than Capital Expenditures) incurred for the benefit of the Borrower in the
maintenance and operation of its business, in each case only in the ordinary
course of its business, (b) for Capital Expenditures permitted by Section 7.13
hereof, (c) for the payment (but not prepayment, except to the extent permitted
by this Agreement) of scheduled, required payments of principal and interest on
Indebtedness of the Borrower permitted to exist hereunder, and (d) for uses that
are otherwise specifically permitted by this Agreement.
SECTION 7.16 MANAGEMENT FEES. Pay, or be or become obligated to
pay, any Management Fees to any Person, or any interest on any deferred
obligation therefor, including, without limitation, to any shareholder,
director, officer or employee of the Borrower.
SECTION 7.17 TRANSACTIONS WITH AFFILIATES. Except as expressly
permitted by this Agreement, directly or indirectly: (a) make any Investment in
an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
assets to an Affiliate; (c) merge into or consolidate with or purchase or
acquire assets from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of any Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
PROVIDED, HOWEVER, that: (i) Investments expressly permitted by Section 7.9
hereof may be made, (ii) any Affiliate who is a natural person may serve as an
employee or director of the Borrower or any Subsidiary and receive reasonable
compensation for his services in such capacity, and (iii) the Borrower or any
Subsidiary may enter into any transaction with an Affiliate providing for the
leasing of property, the rendering or receipt of services or the purchase or
sale of product, inventory and other assets in the ordinary course of business
if the monetary or business consideration arising therefrom would be
substantially as
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advantageous to the Borrower or a Subsidiary as the monetary or business
consideration that would obtain in a comparable arm's length transaction with a
Person not an Affiliate (and for this purpose, the payment of a Management Fee
by ResNet to the Borrower shall be deemed to be a permitted transaction
hereunder).
SECTION 7.18 HAZARDOUS MATERIAL. (a) Cause or permit: (i) any
Hazardous Material to be placed, held, located or disposed of, on, under or at
any real property of Borrower or any Subsidiary or any part thereof, except for
such Hazardous Materials that are necessary for the Borrower's or any
Subsidiary's or any tenant's operation of its business thereon and which shall
be used, stored, treated and disposed of in compliance with all applicable
Environmental Laws and Regulations or (ii) such real property or any part
thereof to be used as a collection, storage, treatment or disposal site for any
Hazardous Material.
(b) The Borrower and each Subsidiary acknowledges and agrees
that the Agent and the Banks shall have no liability or responsibility for
either:
(i) damage, loss or injury to human health, the
environment or natural resources caused by the presence, disposal, release or
threatened release of Hazardous Materials on any part of such real property; or
(ii) abatement and/or clean-up required under any
applicable Environmental Laws and Regulations for a release, threatened release
or disposal of any Hazardous Materials located at such real property or used by
or in connection with the Borrower's or any Subsidiary's or any such tenant's
business.
ARTICLE 8. EVENTS OF DEFAULT.
If any one or more of the following events ("EVENTS OF DEFAULT") shall
occur and be continuing, the Commitments shall terminate (except for the
obligations of the Banks under Section 2.16 hereof in respect of the purchase of
participations in the L/Cs from the Issuing Bank) and the entire unpaid balance
of the principal of and interest on the Notes outstanding and all other
obligations and Indebtedness of the Borrower to the Banks and the Agent arising
hereunder and under the other Loan Documents shall immediately become due and
payable upon written notice to that effect given to the Borrower by the Agent
(except that in the case of the occurrence of any Event of Default described in
Section 8.6 no such notice shall be required), without presentment or demand for
payment, notice of non-payment, protest or further notice or demand of any kind,
all of which are expressly waived by the Borrower:
SECTION 8.1 PAYMENTS. Failure to (a) make any payment or mandatory
prepayment of principal when due on any Loan or any Note or (b) make any payment
of any interest on any Loan or Note or any Fee or other amount owing under the
Loan Documents within five (5) Business Days of when due; or
SECTION 8.2 CERTAIN COVENANTS. Failure to perform or observe any
of the agreements of the Borrower or any Subsidiary contained in Section 6.9 or
Article 7 hereof; or
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SECTION 8.3 OTHER COVENANTS. (a) Failure by the Borrower to
perform or observe any other term, condition or covenant of this Agreement or of
any of the other Loan Documents to which it is a party, which shall remain
unremedied for a period of thirty (30) days after notice thereof shall have been
given to the Borrower by the Agent; or
(b) Failure by any Loan Party other than the Borrower to perform
or observe any term, condition or covenant of any of the Loan Documents to which
it or he is a party, which shall remain unremedied for a period of thirty (30)
days after notice thereof shall have been given to the Borrower by the Agent; or
SECTION 8.4 OTHER DEFAULTS. (a) Failure to perform or observe
any term, condition or covenant of any bond, note, debenture, loan agreement,
indenture, guaranty, trust agreement, mortgage or similar instrument to which
the Borrower or any Subsidiary is a party or by which it is bound, or by which
any of its properties or assets may be affected including, without limitation,
any Senior Note Document (a "DEBT INSTRUMENT"), so that, as a result of any such
failure to perform, the Indebtedness included therein or secured or covered
thereby may be declared due and payable prior to the date on which such
Indebtedness would otherwise become due and payable; or
(b) Any event or condition referred to in any Debt Instrument
shall occur or fail to occur, so that, as a result thereof, the Indebtedness
included therein or secured or covered thereby may be declared due and payable
prior to the date on which such Indebtedness would otherwise become due and
payable; or
(c) Failure to pay any Indebtedness for borrowed money due at
final maturity or pursuant to demand under any Debt Instrument;
PROVIDED, HOWEVER, that the provisions of this Section 8.4 shall not be
applicable to (i) any Debt Instrument other than a guarantee (as defined in
Section 7.3 hereof) that, on the date this Section 8.4 would otherwise be
applicable thereto, relates to or evidences Indebtedness in a principal amount
of less than $2,500,000 or (ii) Debt Instruments which constitute guaranties (as
defined in Section 7.3 hereof) that, on the date this Section 8.4 would
otherwise be applicable thereto, relate to or evidence, both individually and
collectively, Indebtedness in a principal amount of less than $2,500,000; or
SECTION 8.5 REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made in writing to the Banks or the Agent in any of the Loan Documents
or in connection with the making of the Loans, or any certificate, statement or
report made or delivered in compliance with this Agreement, shall have been
false or misleading in any material respect when made or delivered; or
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SECTION 8.6 BANKRUPTCY.
(a) The Borrower or any Subsidiary shall make an assignment for
the benefit of creditors, file a petition in bankruptcy, be adjudicated
insolvent, petition or apply to any tribunal for the appointment of a receiver,
custodian, or any trustee for it or a substantial part of its assets, or shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or the Borrower or any
Subsidiary shall take any corporate action to authorize any of the foregoing
actions; or there shall have been filed any such petition or application, or any
such proceeding shall have been commenced against it, that remains undismissed
for a period of sixty (60) days or more; or any order for relief shall be
entered in any such proceeding; or the Borrower or any Subsidiary by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or the appointment of a custodian, receiver
or any trustee for it or any substantial part of any of its properties, or shall
suffer any custodianship, receivership or trusteeship to continue undischarged
for a period of sixty (60) days or more; or
(b) The Borrower or any Subsidiary shall generally not pay its
debts as such debts become due; or
(c) The Borrower or any Subsidiary shall have concealed,
removed, or permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them or made or
suffered a transfer of any of its property that may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or
SECTION 8.7 JUDGMENTS. Any judgment against the Borrower or any
Subsidiary or any attachment, levy or execution against any of its properties
for any amount in excess of $2,500,000, individually or in the aggregate, shall
remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of thirty (30) days or more; or
SECTION 8.8 ERISA.
(a) The termination of any Plan or the institution by the PBGC
of proceedings for the involuntary termination of any Plan, in either case, by
reason of, or that results or could result in, a "material accumulated funding
deficiency" under Section 412 of the Code; or
(b) Failure by the Borrower to make required contributions, in
accordance with the applicable provisions of ERISA, to each of the Plans
hereafter established or assumed by it; or
SECTION 8.9 CHANGE OF CONTROL. At any time, (i) any Person or
"group" has acquired "beneficial ownership" (as such terms are defined under
Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934,
as amended) either directly or indirectly, of more than thirty-seven percent
(37%) of the outstanding shares of stock of the Borrower having the right to
vote for the election of directors of the Borrower under ordinary circumstances
or (ii) more than
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fifty percent (50%) of the Persons constituting the Borrower's board of
directors at the beginning of any consecutive twenty-four (24) month period
shall have been replaced by new directors not nominated for membership on the
board of directors by two-thirds of the directors who were directors at the
beginning of such period.
SECTION 8.10 COLLATERAL.
(a) any Collateral Document shall for any reason cease to be
valid and binding on or enforceable in any material respect against the Borrower
or any Loan Party thereto, or the Borrower or any Loan Party shall so state in
writing or bring an action to limit its obligations or liabilities thereunder;
or
(b) any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security interest in the
Collateral purported to be covered thereby or such security interest shall for
any reason cease to be a perfected and first priority security interest subject
only to Permitted Liens and other security interests permitted under the Loan
Documents.
ARTICLE 9. THE AGENT.
SECTION 9.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents with such powers as are specifically delegated to
the Agent by the terms of this Agreement and the other Loan Documents together
with such other powers as are reasonably incidental thereto. The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents and shall not be a trustee for any Bank.
The Agent shall not be responsible to the Banks for any recitals, statements,
representations or warranties contained in this Agreement or the other Loan
Documents in any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement or the other Loan Documents, or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or the other Loan Documents or any other document
referred to or provided for herein or therein or for the collectibility of the
Loans or for any failure by the Borrower or any of the other Loan Parties to
perform any of its obligations hereunder or under the other Loan Documents. The
Agent may employ agents and attorneys-in-fact and shall not be answerable,
except as to money or securities received by it or its authorized agents, for
the negligence or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or under the other Loan Documents or
in connection herewith or therewith, except for its or their own gross
negligence or willful misconduct.
SECTION 9.2 RELIANCE BY AGENT. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of
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the proper person or persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or the other Loan
Documents, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or under the other Loan Documents in
accordance with instructions signed by the Majority Banks, and such instructions
of the Majority Banks and any action taken or failure to act pursuant thereto
shall be binding on all of the Banks.
SECTION 9.3 EVENTS OF DEFAULT. The Agent shall not be deemed to
have knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans) unless the Agent has received notice from a
Bank or the Borrower specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give notice thereof to the Banks (and
shall give each Bank notice of each such non-payment). The Agent shall (subject
to Section 9.7 hereof) take such action with respect to such Default as shall be
directed by the Majority Banks.
SECTION 9.4 RIGHTS AS A BANK. With respect to its Commitment and
the Loans made by it, the Agent in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may exercise the same
as though it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrower or its Affiliates, as
if it were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower or its Affiliates, for services in connection
with this Agreement or any of the other Loan Documents or otherwise without
having to account for the same to the Banks.
SECTION 9.5 INDEMNIFICATION. The Banks shall indemnify the Agent
(to the extent not reimbursed by the Borrower under Sections 10.1 and 10.2
hereof), ratably in accordance with the aggregate principal amount of the Loans
made by the Banks (or, if no Loans are at the time outstanding, ratably in
accordance with their respective Commitments), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this Agreement or any of the other Loan Documents or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated by or referred to herein or therein or the transactions
contemplated hereby and thereby (including, without limitation, the costs and
expenses that the Borrower is obligated to pay under Sections 10.1 and 10.2
hereof, but excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or of any such
other documents, PROVIDED THAT no Bank shall be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
SECTION 9.6 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the
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Borrower and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or the other Loan Documents. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Borrower of this Agreement or the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of the Borrower. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder or under the other Loan Documents, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower, that
may come into the possession of the Agent or any of its Affiliates.
SECTION 9.7 FAILURE TO ACT. Except for action expressly required
of the Agent hereunder, the Agent shall in all cases be fully justified in
failing or refusing to act hereunder or thereunder unless it shall be
indemnified to its satisfaction by the Banks against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action.
SECTION 9.8 RESIGNATION OR REMOVAL OF AGENT. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving not less than thirty (30) days' prior written
notice thereof to the Banks and the Borrower, and the Agent may be removed at
any time with or without cause by the Majority Banks. Upon any such resignation
or removal, the Majority Banks shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Majority Banks
and shall have accepted such appointment within 30 days after the retiring
Agent's giving of notice of resignation or the Majority Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Banks, after
consultation with the Borrower, appoint a successor Agent which shall be a bank
with a combined capital and surplus of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article 9 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent.
SECTION 9.9 SHARING OF PAYMENTS.
(a) Prior to any acceleration by the Agent and the Banks of the
Obligations:
(i) in the event that any Bank shall obtain payment in
respect of a Note, or interest thereon, whether voluntarily or involuntarily,
and whether through the exercise of a right of banker's lien, set-off or
counterclaim against the Borrower or any other Loan Party or otherwise, in a
greater proportion than any such payment obtained by any other Bank in respect
of the corresponding Note held by it, then the Bank so receiving such greater
proportionate payment shall purchase for cash from the other Bank or Banks such
portion of each such other Bank's or
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Banks' Loan as shall be necessary to cause such Bank receiving the proportionate
overpayment to share the excess payment with each Bank; and
(ii) in the event that any Bank shall obtain payment in
respect of any Interest Rate Contract to which such Bank is a party, whether
voluntarily or involuntarily, and whether through the exercise of a right of
banker's lien, set-off or counterclaim against the Borrower or any other Loan
Party or otherwise, such Bank shall be permitted to retain the full amount of
such payment and shall not be required to share such payment with any other
Bank.
(b) Upon or following any acceleration by the Agent and the
Banks of the Obligations, in the event that any Bank shall obtain payment in
respect of a Note, or interest thereon, or in respect of an Interest Rate
Contract to which such Bank is a party, or receive any collateral or proceeds
thereof with respect to any Note or any Interest Rate Contract to which it is a
party, whether voluntarily or involuntarily, and whether through the exercise of
a right of banker's lien, set-off or counterclaim against the Borrower or any
other Loan Party or otherwise, in a greater proportion than any such payment
obtained by any other Bank in respect of the aggregate amount of the
corresponding Note held by such Bank and any Interest Rate Contract to which
such Bank is a party, then the Bank so receiving such greater proportionate
payment or such greater proportionate amount of collateral, shall purchase for
cash from the other Bank or Banks such portion of each such other Bank's or
Banks' Loan, or shall provide the other Banks with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such Bank
receiving the proportionate overpayment to share the excess payment or benefits
of such collateral or proceeds ratably with each Bank. For the purposes of this
subsection 9.9(b), payments on Notes received by each Bank and receipt of
collateral by each Bank shall be in the same proportion as the proportion of:
(A) the sum of: (x) the Obligations owing to such Bank in respect of the Note
held by such Bank, plus (y) the Obligations owing to such Bank in respect of
Interest Rate Contracts to which such Bank is party, if any, to (B) the sum of:
(x) the Obligations owing to all of the Banks in respect of all of the Notes,
plus (y) the Obligations owing to all of the Banks in respect of all Interest
Rate Contracts to which any Bank is a party;
PROVIDED, HOWEVER, that, with respect to subsections 9.9(a)(i) and (b) above, if
all or any portion of such excess payment or benefits is thereafter recovered
from the Bank that received the proportionate overpayment, such purchase of
Loans or payment of benefits, as the case may be, shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery, but
without interest.
SECTION 9.10 COLLATERAL MATTERS.
(a) The Agent is authorized on behalf of all the Banks, without
the necessity of any notice to or further consent from the Banks, from time to
time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
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(b) The Banks irrevocably authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all
Loans and all other Obligations payable under this Agreement and under any other
Loan Document; (ii) constituting property sold or to be sold or disposed of as
part of or in connection with any Asset Disposition permitted hereunder pursuant
to Section 7.7; (iii) constituting property in which the Borrower or any
Subsidiary of the Borrower owned no interest at the time the Lien was granted or
at any time thereafter; (iv) constituting property leased to the Borrower or any
Subsidiary of the Borrower under a lease which has expired or been terminated in
a transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Borrower or such Subsidiary to be, renewed
or extended; (v) consisting of an instrument evidencing Indebtedness or other
debt instrument, if the Indebtedness evidenced thereby has been paid in full; or
(vi) if approved, authorized or ratified in writing by the Majority Banks or all
the Banks, as the case may be, as provided in Section 10.6 hereof. Upon request
by the Agent at any time, the Banks will confirm in writing the Agent's
authority to release particular types or items of Collateral pursuant to this
subsection 9.10(b).
ARTICLE 10. MISCELLANEOUS PROVISIONS.
SECTION 10.1 FEES AND EXPENSES; INDEMNITY. The Borrower will
promptly pay all costs of the Agent in preparing the Loan Documents and all
costs and expenses of the issue of the Notes and of the Borrower's and the other
Loan Parties' performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with (including,
without limitation, all costs of filing or recording any assignments, mortgages,
financing statements and other documents and all lien search, appraisal and
environmental review fees and expenses), and the reasonable fees and expenses
and disbursements of counsel to the Agent in connection with the preparation,
execution and delivery, syndication, administration, interpretation and
enforcement of this Agreement, the other Loan Documents and all other
agreements, instruments and documents relating to this transaction, the
consummation of the transactions contemplated by all such documents, the
preservation of all rights of the Banks and the Agent, the negotiation,
preparation, execution and delivery of any amendment, modification or supplement
of or to, or any consent or waiver under, any such document (or any such
instrument that is proposed but not executed and delivered) and with any claim
or action threatened, made or brought against any of the Banks or the Agent
arising out of or relating to any extent to this Agreement, the other Loan
Documents or the transactions contemplated hereby or thereby (other than a claim
or action resulting from the gross negligence, willful misconduct, or
intentional violation of law by the Agent and/or the Banks). In addition, the
Borrower will promptly pay all costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel) suffered or incurred
by each Bank in connection with its enforcement of the payment of the Notes held
by it or any other sum due to it under this Agreement or any of the other Loan
Documents or any of its other rights hereunder or thereunder. In addition to
the foregoing, the Borrower shall indemnify each Bank and the Agent and each of
their respective directors, officers, employees, attorneys, agents and
Affiliates against, and hold each of them harmless from, any loss, liabilities,
damages, claims, costs and expenses (including reasonable attorneys' fees and
disbursements) suffered or incurred by any of them arising out of, resulting
from or in any manner connected with, the execution, delivery and performance of
each of the Loan Documents, the Loans and any and all transactions related to or
consummated in
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connection with the Loans (other than as a result of the gross negligence,
willful misconduct or intentional violation of law by the Agent and/or the
Banks), including, without limitation, losses, liabilities, damages, claims,
costs and expenses suffered or incurred by any Bank or the Agent or any of their
respective directors, officers, employees, attorneys, agents or Affiliates
arising out of or related to any Environmental Liability or Environmental
Proceeding, or in investigating, preparing for, defending against, or providing
evidence, producing documents or taking any other action in respect of any
commenced or threatened litigation, administrative proceeding or investigation
under any federal securities law or any other statute of any jurisdiction, or
any regulation, or at common law or otherwise against the Agent, the Banks or
any of their officers, directors, affiliates, agents or Affiliates, that is
alleged to arise out of or is based upon: (i) any untrue statement or alleged
untrue statement of any material fact of the Borrower and its affiliates in any
document or schedule filed with the SEC or any other governmental body; (ii) any
omission or alleged omission to state any material fact required to be stated in
such document or schedule, or necessary to make the statements made therein, in
light of the circumstances under which made, not misleading; (iii) any acts,
practices or omission or alleged acts, practices or omissions of the Borrower or
its agents related to the making of any acquisition, purchase of shares or
assets pursuant thereto, financing of such purchases or the consummation of any
other transactions contemplated by any such acquisitions that are alleged to be
in violation of any federal securities law or of any other statute, regulation
or other law of any jurisdiction applicable to the making of any such
acquisition, the purchase of shares or assets pursuant thereto, the financing of
such purchases or the consummation of the other transactions contemplated by any
such acquisition; or (iv) any withdrawals, termination or cancellation of any
such proposed acquisition for any reason whatsoever. The indemnity set forth
herein shall be in addition to any other obligations or liabilities of the
Borrower to the Agent and the Banks hereunder or at common law or otherwise.
The provisions of this Section 10.1 shall survive the payment of the Notes and
the termination of this Agreement.
SECTION 10.2 TAXES. If, under any law in effect on the date of the
closing of any Loan hereunder, or under any retroactive provision of any law
subsequently enacted, it shall be determined that any Federal, state or local
tax is payable in respect of the issuance of any Note, or in connection with the
filing or recording of any assignments, mortgages, financing statements, or
other documents (whether measured by the amount of Indebtedness secured or
otherwise) as contemplated by this Agreement, then the Borrower will pay any
such tax and all interest and penalties, if any, and will indemnify the Banks
and the Agent against and save each of them harmless from any loss or damage
resulting from or arising out of the nonpayment or delay in payment of any such
tax. If any such tax or taxes shall be assessed or levied against any Bank or
any other holder of a Note, such Bank, or such other holder, as the case may be,
may notify the Borrower and make immediate payment thereof, together with
interest or penalties in connection therewith, and shall thereupon be entitled
to and shall receive immediate reimbursement therefor from the Borrower.
Notwithstanding any other provision contained in this Agreement, the covenants
and agreements of the Borrower in this Section 10.2 shall survive payment of the
Notes and the termination of this Agreement.
SECTION 10.3 PAYMENTS. As set forth in Article 2 hereof, all
payments by the Borrower on account of principal, interest, fees and other
charges (including any indemnities) shall
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be made to the Agent at the Principal U.S. Office of the Agent, in lawful money
of the United States of America in immediately available funds, by wire transfer
or otherwise, not later than 11:00 A.M. New York City time on the date such
payment is due. Any such payment made on such date but after such time shall, if
the amount paid bears interest, be deemed to have been made on, and interest
shall continue to accrue and be payable thereon until, the next succeeding
Business Day. If any payment of principal or interest becomes due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day and such extension shall be included in computing interest in
connection with such payment. All payments hereunder and under the Notes shall
be made without set-off or counterclaim and in such amounts as may be necessary
in order that all such payments shall not be less than the amounts otherwise
specified to be paid under this Agreement and the Notes (after withholding for
or on account of: (i) any present or future taxes, levies, imposts, duties or
other similar charges of whatever nature imposed by any government or any
political subdivision or taxing authority thereof, other than any tax (except
those referred to in clause (ii) below) on or measured by the net income of the
Bank to which any such payment is due pursuant to applicable federal, state and
local income tax laws, and (ii) deduction of amounts equal to the taxes on or
measured by the net income of such Bank payable by such Bank with respect to the
amount by which the payments required to be made under this sentence exceed the
amounts otherwise specified to be paid in this Agreement and the Notes). Upon
payment in full of any Note, the Bank holding such Note shall mark the Note
"Paid" and return it to the Borrower.
SECTION 10.4 SURVIVAL OF AGREEMENTS AND REPRESENTATIONS;
CONSTRUCTION. All agreements, representations and warranties made herein shall
survive the delivery of this Agreement and the Notes. The headings used in this
Agreement and the table of contents are for convenience only and shall not be
deemed to constitute a part hereof. All uses herein of the masculine gender or
of singular or plural terms shall be deemed to include uses of the feminine or
neuter gender, or plural or singular terms, as the context may require.
SECTION 10.5 LIEN ON AND SET-OFF OF DEPOSITS. As further security
for the due payment and performance of all the Obligations, the Borrower hereby
grants to Agent for the ratable benefit of the Banks a Lien on any and all
deposits or other sums at any time credited by or due from the Agent or any Bank
to the Borrower, whether in regular or special depository accounts or otherwise,
and any and all monies, securities and other collateral of the Borrower, and the
proceeds thereof, now or hereafter held or received by or in transit to any Bank
or the Agent from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums, monies,
securities and other collateral, may at any time after the occurrence and during
the continuance of any Event of Default be set-off, appropriated and applied by
any Bank or the Agent against any of the Obligations, whether or not any of such
Obligations is then due or is secured by any Collateral, all as set forth in and
pursuant to Section 2.20 hereof.
SECTION 10.6 AMENDMENTS AND WAIVERS; ENTIRE AGREEMENT. Any
provision of this Agreement, the Notes or the other Loan Documents may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Borrower and the Majority Banks (and, if the rights or duties of
the Agent are affected thereby, by the Agent); PROVIDED THAT no such amendment
or waiver shall, unless signed by all the Non-Defaulting Banks, (i) increase the
Commitment of any Bank or amend subsection 2.8(a) hereof or subject any Bank to
any additional
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obligation (it being understood that a waiver of any Default or Event of Default
or of a non-scheduled reduction in the Total Commitment shall not constitute a
change in the terms of any Commitment of any Bank), (ii) reduce the principal of
or rate of interest on any Loan or Fees hereunder (other than as a result of
waiving the applicability of any Post-Default Rate), (iii) amend subsection
2.5(a) hereof or extend the date fixed for any payment of principal of any Loan
pursuant to Article 2 hereof or of interest on any Loan or any Fees hereunder or
for any termination of any Commitment (it being understood that any waiver of
the application of any prepayment of, or the method of application of any
prepayment to the amortization of, the Loans shall not constitute any such
extension), (iv) release any Guarantor or release all or substantially all of
the Collateral (except as expressly permitted by this Agreement and the Loan
Documents), (v) change the definition of Majority Banks or the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans and Net L/C
Obligations which shall be required for the Banks or any of them to take any
action under this Section 10.6 or any other provision of this Agreement or (vi)
amend or modify this Section 10.6. Any waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No consent
to or demand on the Borrower in any case shall, of itself, entitle it to any
other or further notice or demand in similar or other circumstances. This
Agreement, the other Loan Documents and the Letter Agreements embody the entire
agreement and understanding among the Banks, the Agent and the Borrower and
supersede all prior agreements and understandings relating to the subject matter
hereof.
SECTION 10.7 REMEDIES CUMULATIVE; COUNTERCLAIMS. Each and every
right granted to the Agent and the Banks hereunder or under any other document
delivered hereunder or in connection herewith, or allowed it by law or equity,
shall be cumulative and may be exercised from time to time. No failure on the
part of the Agent or any Bank or the holder of any Note to exercise, and no
delay in exercising, any right shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude any other or future exercise
thereof or the exercise of any other right. The due payment and performance of
the Obligations shall be without regard to any counterclaim, right of offset or
any other claim whatsoever that the Borrower may have against any Bank or the
Agent and without regard to any other obligation of any nature whatsoever that
any Bank or the Agent may have to the Borrower, and no such counterclaim or
offset shall be asserted by the Borrower in any action, suit or proceeding
instituted by any Bank or the Agent for payment or performance of the
Obligations.
SECTION 10.8 ADDITIONAL ACTIONS. At any time and from time to time,
upon the request of the Agent, the Borrower shall execute, deliver and
acknowledge or cause to be executed, delivered and acknowledged, such further
documents and instruments and do such other acts and things as the Agent may
reasonably request in order to fully effect the purposes of this Agreement, the
other Loan Documents and any other agreements, instruments and documents
delivered pursuant hereto or in connection with the Loans.
SECTION 10.9 NOTICES. All notices, requests, reports and other
communications pursuant to this Agreement shall be in writing, either by letter
(delivered by hand or commercial messenger service or sent by certified mail,
return receipt requested, except for routine reports delivered in compliance
with Article 5 hereof which may be sent by ordinary first-class mail) or
telegram or telecopy, addressed as follows:
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(a) If to the Borrower:
LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
Attention: Mr. Jeffrey T. Weisner
Vice President, Finance
Telecopier No.: (605) 330-1323
with a copy to:
Eric R. Jacobsen, Esq.
Vice President, General Counsel and Secretary
LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
Telecopier No.: (605) 330-1323
(b) If to any Bank:
To its address set forth below its
name on the signature pages hereof,
with a copy to the Agent; and
(c) If to the Agent:
National Westminster Bank Plc, as Agent
175 Water Street
New York, New York 10038
Attention: Mr. Phillip Krall
Telecopier No.: (212) 602-4319
with a copy (other than in the case
of Borrowing Notices and reports
and other documents delivered in
compliance with Article 5 hereof) to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: James M. Reum, Esq.
Telecopier No.: (312) 558-5700
Any notice, request, demand or other communication hereunder shall be deemed to
have been given on: (x) the day on which it is telecopied to such party at its
telecopier number specified above
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(provided such notice shall be effective only if followed by one of the other
methods of delivery set forth herein) or delivered by receipted hand or such
commercial messenger service to such party at its address specified above, or
(y) on the third Business Day after the day deposited in the mail, postage
prepaid, if sent by mail, or (z) on the day it is delivered to the telegraph
company, addressed as aforesaid, if sent by telegraph. Any party hereto may
change the Person, address or telecopier number to whom or which notices are to
be given hereunder, by notice duly given hereunder; PROVIDED, HOWEVER, that any
such notice shall be deemed to have been given hereunder only when actually
received by the party to which it is addressed.
SECTION 10.10 COUNTERPARTS. This Agreement may be signed in any
number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
SECTION 10.11 SEVERABILITY. The provisions of this Agreement are
severable, and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Agreement in
any jurisdiction. Each of the covenants, agreements and conditions contained in
this Agreement is independent and compliance by the Borrower with any of them
shall not excuse non-compliance by the Borrower with any other. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or an Event of Default if
such action is taken or condition exists.
SECTION 10.12 SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights and obligations under this
Agreement without the prior written consent of all the Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; PROVIDED
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii) or (iv) of Section 10.6 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Sections 2.22, 2.23,
2.24 and 2.25 hereof with respect to its participating interest. An assignment
or other transfer which is not permitted by subsection (c) or (d) below shall be
given
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effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or
other institutions (each an "Assignee") all, or a proportionate part (comprising
equal percentages of such Bank's Loans and Note(s)) of all, of its rights and
obligations under this Agreement and the other Loan Documents, and such Assignee
shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit B hereto executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower, which shall not be unreasonably withheld, and the
Agent; PROVIDED that if (i) an Assignee is an affiliate of such transferor Bank
or was a Bank immediately prior to such assignment or (ii) a Default or Event of
Default has occurred and is continuing, no such consent of the Borrower shall be
required. No assignment pursuant to the immediately preceding sentence shall to
the extent such assignment represents an assignment to an institution other than
one or more Banks hereunder, be in an aggregate amount less than $5,000,000
unless the entire Commitment of the assigning Bank is so assigned. Upon
execution and delivery of such instrument and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank, the Agent and the Borrower shall make appropriate arrangements so that, if
required, a new Note is issued to the Assignee. In connection with any such
assignment, the transferor Bank shall pay to the Agent an administrative fee for
processing such assignment in the amount of $3,000. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Agent certification as to exemption
from deduction or withholding of any United States federal income taxes in
accordance with subsection 2.22(c) hereof.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and any other Loan Document to a Federal Reserve
Bank. No such assignment shall release the transferor Bank from its obligations
hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Sections 2.22,
2.24 or 10.3 hereof than such Bank would have been entitled to receive with
respect to the rights transferred, unless such transfer is made with the
Borrower's prior written consent or by reason of the provisions of Sections 2.22
or 2.24 hereof requiring such Bank to designate a different Applicable Lending
Office under certain circumstances or at a time when the circumstances giving
rise to such greater payment did not exist.
SECTION 10.13 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF TRIAL
BY JURY. (a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER
DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH AND
THEREWITH, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH,
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THE LAWS AND DECISIONS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES
PERTAINING TO CONFLICTS OF LAWS.
(b) THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS
AGREEMENT, AND EACH OTHER LOAN DOCUMENT MAY BE BROUGHT IN ANY COURT OF THE STATE
OF NEW YORK, COUNTY OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK. THE BORROWER, BY THE EXECUTION AND DELIVERY OF
THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS,
NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR PROCEEDING BY DELIVERY
THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED FOR IN SECTION 10.9
HEREOF. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. THE
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW
YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
NEW YORK. NOTHING IN THIS SECTION 10.15 SHALL AFFECT OR IMPAIR IN ANY MANNER OR
TO ANY EXTENT THE RIGHT OF ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW.
(c) EACH OF THE BORROWER, THE BANKS AND THE AGENT WAIVES TRIAL
BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY,
PERFECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
LODGENET ENTERTAINMENT
CORPORATION
By /s/ Jeffrey T. Welsner
---------------------------------------
Jeffrey T. Welsner
Title Vice President - Finance, Treasurer
------------------------------------
NATIONAL WESTMINSTER BANK PLC,
AS AGENT, ISSUING BANK AND AS A BANK
By /s/ Phillip Krall
---------------------------------------
Title V.P.
------------------------------------
Lending Office for Base Rate and Eurodollar Loans:
175 Water Street
19th Floor, Agency Division
New York, New York 10038
Attention: Shawn Bernard
Telephone: (212) 602-4250
Telecopier: (212) 602-4118
Address for Notices:
National Westminster Bank Plc
175 Water Street, 26th Floor
New York, New York 10038
Attention: Phillip Krall
Telephone: (212) 602-4568
Telecopier: (212) 602-4319
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NATIONAL WESTMINSTER BANK
OF CANADA,
AS AN ISSUING BANK
By /s/ Glen Bays
-----------------------------------
Title Vice President
--------------------------------
Global Structured Trade Finance
Address for Notices:
National Westminster Bank of Canada
200 Bay Street, South Tower
Suite 2060
Toronto, Ontario M5J 2J1
Attention: Glen Bays
Telephone: (416) 865-0170
Telecopier: (416) 865-0934
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EXHIBITS AND SCHEDULES
EXHIBITS
A Commitments and Percentages
B Promissory Note
C Assignment and Assumption Agreement
D ResNet Guaranty
E LodgeNet Canada Guaranty
F Security Agreement
G Pledge Agreement
H Patent and Trademark Security Agreement
I Borrower U.S. Legal Opinion
SCHEDULES
3.1 Organization and Capitalization
3.5 Real Estate
3.6 Litigation
3.11 Intellectual Property
3.13 Name Changes, Mergers
3.19 Material Agreements
7.1 Outstanding Indebtedness
7.2 Permitted Liens
<PAGE>
EXHIBIT A
COMMITMENTS AND PERCENTAGES
BANK COMMITMENT PERCENTAGE
National Westminster Bank Plc $100,000,000 100%
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$__________ New York, New York
December __, 1996
FOR VALUE RECEIVED, LODGENET ENTERTAINMENT CORPORATION, a Delaware
corporation (the "BORROWER"), hereby promises to pay to the order
of______________________________(the "BANK") the principal sum of
_______________ DOLLARS ($__________) or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loans made by the Bank under the Credit
Agreement (defined below), at such rates and on such dates and in such amounts
as are specified in, and in accordance with, the provisions of the Amended and
Restated Credit Agreement dated as of December __, 1996 by and among the
Borrower, the Banks signatory thereto and National Westminster Bank Plc, as
Agent (as it may from time to time be amended, modified and/or supplemented, the
"CREDIT AGREEMENT").
This Note is one of the Notes referred to in, was executed and
delivered pursuant to, and evidences obligations of the Borrower under the
Credit Agreement, to which reference is hereby made for a statement of the terms
and conditions under which the loan evidenced hereby is made and is to be
prepaid and repaid and for a statement of the Agent's and the Banks' remedies
upon the occurrence of an Event of Default (as defined therein). The Credit
Agreement is incorporated herein by reference in its entirety. Capitalized
terms used but not otherwise defined herein are used in this Note as defined in
the Credit Agreement.
All indebtedness outstanding under this Note shall bear interest (computed
in the same manner as interest on this Note prior to the relevant due date) at
the applicable Post-Default Rate (as such term is defined in the Credit
Agreement) for all periods when an Event of Default has occurred and is
continuing, commencing on the occurrence of such Event of Default until such
Event of Default has been cured or waived as acknowledged in writing by the
Agent, and all of such interest shall be payable on demand.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Bank to the extent
that the Bank's receipt thereof would not be permissible under the law or laws
applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank. Any such payments of interest which are not made as a
result of the limitation referred to in the preceding sentence shall be made by
the Borrower to the Bank on the earliest interest payment date or dates on which
the receipt thereof would be permissible under such laws applicable to the Bank
limiting rates of interest which may be charged or collected by the Bank.
Payments of both principal and interest on this Note are to be made at the
office of the Agent at 175 Water Street, New York, New York 10038 or such other
place as the holder hereof shall designate to the Borrower in writing, in lawful
money of the United States of America in immediately available funds.
<PAGE>
The Bank is hereby authorized by the Borrower to record on the schedule to
this Note (or on a supplemental schedule thereto) the amount of each Loan made
by the Bank to the Borrower and the amount of each payment or prepayment of
principal of such Loans received by the Bank, it being understood, however, that
failure to make any such notation shall not affect the rights of the Bank or the
obligations of the Borrower hereunder in respect of this Note. The Bank may, at
its option, record such matters in its internal records rather than on such
schedule.
Upon the occurrence of any Event of Default, as defined in the Credit
Agreement, the principal amount of and interest on this Note may be declared due
and payable in the manner and with the effect provided in the Credit Agreement.
The Borrower shall pay costs and expenses of collection, including, without
limitation, attorneys' fees and disbursements in the event that any action, suit
or proceeding is brought by the holder hereof to collect this Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS AND DECISIONS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS
RULES PERTAINING TO CONFLICTS OF LAWS.
LODGENET ENTERTAINMENT CORPORATION
By
---------------------------------
Title
------------------------------
2
<PAGE>
SCHEDULE TO NOTE
This Note evidences the Loans made under the within described Credit
Agreement, in the principal amounts, and on the dates set forth below, subject
to the payments or prepayments of principal set forth below:
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT PAID BALANCE
DATE MADE LOAN OR PREPAID OUTSTANDING INITIALS
- --------- --------- ----------- ----------- --------
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
Dated ___________
Reference is hereby made to the Amended and Restated Credit Agreement
dated as of December __, 1996 (the "CREDIT AGREEMENT") by and among LodgeNet
Entertainment Corporation, a Delaware corporation (the "BORROWER"), the Banks
signatory thereto (collectively, the "BANKS") and National Westminster Bank Plc
in its capacity as agent for the Banks (in such capacity, the "AGENT").
Capitalized terms used herein that are defined in the Credit Agreement that are
not otherwise defined herein shall have the respective meanings ascribed thereto
in the Credit Agreement.
_______________________________, a __________________ (the "ASSIGNOR")
and _____________________________________, a ________________, (the "ASSIGNEE")
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a __ % interest in and
to all of the Assignor's rights and obligations under the Credit Agreement and
the other Loan Documents as of the Effective Date (as defined below) (including,
without limitation, such percentage interest in the Assignor's Commitment as in
effect on the Effective Date, and the Loans owing to the Assignor on the
Effective Date, and the Note(s) held by the Assignor).
2. The Assignor: (i) represents and warrants that as of the date
hereof its Commitment (without giving effect to assignments thereof that have
not yet become effective) is $__________ and the aggregate outstanding principal
amount of Loans owing to it (without giving effect to assignments thereof that
have not yet become effective) is $__________; (ii) represents and warrants that
it is the legal and beneficial owner of the interest being assigned by it
hereunder, and that such interest is free and clear of any adverse claim; (iii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Credit Agreement or any other instrument or document furnished pursuant
thereto; and (iv) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
other Loan Party or the performance or observance by the Borrower or any other
Loan Party of any of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto; and (v) attaches the Note(s)
referred to in paragraph 1 above and requests that the Agent exchange such
Note(s) for new Note(s) as follows: a Note dated the Effective Date (as such
term is defined below) in the principal amount of $ __________ payable to the
order of the Assignee and a Note dated the Effective Date in the principal
amount of $ __________ payable to the order of the Assignor.
3. The Assignee: (i) confirms that it has received a copy of the
Credit Agreement, together with copies of such financial statements and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into
<PAGE>
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoints and authorizes the Agent to take such
action as its agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank; and (v) specifies
as its addresses for Base Rate Loans and Eurodollar Loans (and address for
notices) the offices set forth beneath its name on the signature pages hereof.
4. The effective date for this Assignment and Assumption Agreement
shall be ________________ (the "EFFECTIVE DATE"). Following the execution of
this Assignment and Assumption Agreement, it will be delivered to the Agent for
acceptance by the Agent and the Borrower.
5. Upon such acceptance, as of the Effective Date: (i) the Assignee
shall be a party to the Credit Agreement and, to the extent provided in this
Assignment and Assumption Agreement, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Assumption Agreement, relinquish its rights and be released from
its obligations under the Credit Agreement.
6. Upon such acceptance, from and after the Effective Date, the
Agent shall make all payments under the Credit Agreement and the Note(s) in
respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest and commitment fees with respect thereto) to the
Assignee. The Assignor and Assignee shall make all appropriate adjustments in
payments under the Credit Agreement and the Note(s) for periods prior to the
Effective Date directly between themselves.
7. This Assignment and Assumption Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be duly executed on the date first above written.
[NAME OF ASSIGNOR]
By
--------------------------------
Title
-----------------------------
[NAME OF ASSIGNEE]
By
--------------------------------
Title
-----------------------------
Lending Office for Base Rate Loans:
Lending Office for Eurodollar
Loans:
Attention:
Address for Notices:
Attention:
Telephone No.:
Telex No.:
Accepted this ___ day Accepted this ___ day
of ______________, ___ of _____________, ____
NATIONAL WESTMINSTER BANK PLC, LODGENET ENTERTAINMENT
as Agent CORPORATION
By By
--------------------------- ---------------------------
Title Title
------------------------ ------------------------
3
<PAGE>
EXHIBIT D
GUARANTY
THIS GUARANTY, made this 19th day of December, 1996 by RESNET
COMMUNICATIONS, INC., a Delaware corporation (the "GUARANTOR"), in favor of
NATIONAL WESTMINSTER BANK PLC, New York branch, as Agent, for the benefit of
itself, the Issuing Banks and the Banks signatory to the hereinafter defined
Credit Agreement (in such capacity, together with its successors in such
capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this Guaranty,
LodgeNet Entertainment Corporation, a Delaware corporation (the "BORROWER"), has
entered into an Amended and Restated Credit Agreement dated the date hereof
(such agreement, including all exhibits thereto, as it may from time to time be
amended, modified or supplemented, is hereinafter referred to as the "CREDIT
AGREEMENT") with the Agent and the Banks, pursuant to which the Banks have
agreed to make a revolving loan and letter of credit facility available to the
Borrower in the aggregate principal sum of up to One Hundred Million Dollars
($100,000,000), subject to adjustment, upon and subject to the terms and
conditions of the Credit Agreement (the "FACILITY");
WHEREAS, the Guarantor will derive benefits, both directly and indirectly,
from the Borrower's obtaining the Facility from the Banks pursuant to the Credit
Agreement;
WHEREAS, it is a condition precedent to the obligation of the Banks to
make the Facility available to the Borrower that the Guarantor shall have
executed and delivered this Guaranty; and
WHEREAS, all capitalized terms used herein that are defined in the Credit
Agreement and that are not otherwise defined herein shall have the respective
meanings ascribed thereto therein, unless the context otherwise requires; if at
any time no Agent shall exist under the Credit Agreement, each reference herein
to the Agent shall be deemed to refer to the Majority Banks until such time as a
successor Agent shall be appointed under the Credit Agreement;
NOW, THEREFORE, in order to induce the Agent, the Issuing Banks and the
Banks to execute and deliver the Credit Agreement and to make the Facility
available to the Borrower, and in consideration of the benefits expected to
accrue to the Guarantor by reason thereof, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Guarantor hereby
represents and warrants to, and covenants and agrees with the Agent, for the
benefit of itself, the Banks and the Issuing Banks, as follows:
1. The Guarantor hereby irrevocably and unconditionally guarantees to the
Agent, for the benefit of itself, the Banks and the Issuing Banks, the punctual
payment of the full amount, when due (whether by demand, acceleration or
otherwise), of: (a) the principal of and interest on, and fees and expenses due
pursuant to, the promissory notes issued by the Borrower pursuant to the Credit
Agreement (hereinafter referred to, together with any and all amendments,
modifications, substitutions and/or replacements thereof and thereto, as the
"NOTES"), and (b) all other
<PAGE>
Indebtedness, liabilities and obligations of the Borrower to the Banks, the
Issuing Banks and the Agent, whether under the Credit Agreement or otherwise
created, whether now or hereafter existing, and whether or not currently
contemplated, due or to become due, direct or contingent, joint, several or
independent, secured or unsecured and whether matured or unmatured (all of the
Indebtedness, liabilities and obligations included in clauses (a) and (b) of
this paragraph 1 are hereinafter referred to collectively as the "GUARANTEED
OBLIGATIONS"); subject, however, to the provisions of subparagraph 14(a)(ii)
hereof and subject, further, to the limitation that in no event shall the
obligation of the Guarantor for payment of Guaranteed Obligations exceed
Permitted Intercompany Debt at the time outstanding. This is a guaranty of
payment and not of collection, and is the primary obligation of the Guarantor;
and the Agent, on behalf of itself, the Banks and the Issuing Banks, may enforce
this Guaranty against the Guarantor without any prior enforcement of the
Guaranteed Obligations against the Borrower.
2. All payments made by the Guarantor under or by virtue of this Guaranty
shall be paid to the Agent at its office at 175 Water Street, New York, New York
10038 or such other place as the Agent may hereafter designate in writing. The
Guarantor hereby agrees to make all payments under or by virtue of this Guaranty
to the Agent as aforesaid. The Agent shall not be required otherwise to
establish its authority to receive any payment made under or by virtue hereof.
3. The Guarantor hereby waives notice of acceptance of this Guaranty,
notice of the creation, renewal or accrual of any of the Guaranteed Obligations
and notice of any other liability to which this Guaranty may apply, and notice
or proof of reliance by the Agent and/or the Banks upon this Guaranty, and
waives diligence, protest, notice of protest, presentment, demand of payment,
notice of dishonor or nonpayment of any of the Guaranteed Obligations, suit or
taking other action or making any demand against, and any other notice to the
Borrower or any other party liable thereon.
4. So far as the Guarantor is concerned, the Agent, on behalf of itself,
the Banks and the Issuing Banks, may, at any time and from time to time, without
the consent of, or notice to the Guarantor, and without impairing or releasing
any of the obligations of the Guarantor hereunder, upon or without any terms or
conditions and in whole or in part:
(a) modify or change the manner, place or terms of, and/or change or
extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any liability incurred directly or
indirectly in respect thereof, provided that such modification, change,
extension, renewal or alteration, or the manner in which it was implemented,
does not violate the provisions of the Credit Agreement, and this Guaranty shall
apply to the Guaranteed Obligations as so modified, changed, extended, renewed
or altered;
(b) sell, exchange, release, surrender, realize upon or otherwise
deal with, in any manner and in any order, any property by whomsoever at any
time pledged or mortgaged to secure, or howsoever securing the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset or right
with respect thereto;
2
<PAGE>
(c) exercise or refrain from exercising any rights against the
Borrower or others (including, without limitation any other guarantor of payment
of the Guaranteed Obligations) or otherwise act or refrain from acting; and when
making any demand hereunder against the Guarantor, the Agent, on behalf of the
Banks, may, but shall be under no obligation to, make a similar demand on any
other guarantor of payment of the Guaranteed Obligations, and any failure by the
Agent or the Banks to make any such demand or to collect any payments from, or
release of any other guarantor of payment of the Guaranteed Obligations shall
not relieve the Guarantor of its obligations and liabilities hereunder, and
shall not release, impair or affect the rights and remedies, express or implied,
or as a matter of law, of the Agent or the Banks against the Guarantor (for the
purposes hereof, "demand" shall include the commencement and continuance of any
legal proceedings);
(d) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and subordinate the payment
of all or any part thereof to the payment of any liability (whether due or not)
of the Borrower to creditors of the Borrower other than the Banks and the
Guarantor;
(e) apply any sums by whomsoever paid or howsoever realized to any of
the Guaranteed Obligations, regardless of what liability or liabilities of the
Borrower remain unpaid; and
(f) amend or otherwise modify the Credit Agreement, consent to or
waive any breach of, or any act, omission or default or Event of Default under
the Credit Agreement, the Notes, or any agreements, instruments or documents
referred to therein or executed and delivered pursuant thereto or in connection
therewith, and this Guaranty shall apply to the Guaranteed Obligations as set
forth in each of such documents as so amended and modified. Any such action,
shall not impair or release any of the obligations of the Guarantor hereunder.
5. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
the validity, regularity or enforceability of the Credit Agreement, the Notes or
any of the other Guaranteed Obligations or any collateral security therefor or
guaranty thereof or rights of offset with respect thereto at any time or from
time to time held by the Agent or the Banks and without regard to any defense,
offset or counterclaim that may at any time be available to or be asserted by
the Borrower against the Agent or the Banks and that constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Guaranteed Obligations or any part thereof, or of the Guarantor under this
Guaranty, in bankruptcy or in any other instance.
6. Until all of the Guaranteed Obligations have been indefeasibly paid in
full in cash, the Guarantor hereby irrevocably waives, for the benefit of the
Banks, any and all rights that it presently has, or may hereafter have, whether
by virtue of any payment or payments hereunder or otherwise, to be subrogated to
the rights of the Agent or the Banks against the Borrower with respect to any
such indebtedness of the Borrower to the Banks.
3
<PAGE>
7. The Guarantor agrees to be bound by, and to comply with all of the
terms, covenants and provisions of, the Credit Agreement to the extent that the
same impose obligations in respect of or grant rights against it as a Guarantor
or otherwise.
8. The Guarantor makes the following representations and warranties,
which shall survive the execution and delivery of this Guaranty:
(a) The Guarantor has examined the Credit Agreement, including the
exhibits and schedules thereto, and all of the representations and warranties
set forth in the Credit Agreement, to the extent the same relate to the
Guarantor, are true and correct.
(b) The Guarantor is a corporation, duly organized, validly existing
and in good standing under the laws of Delaware. The Guarantor has all
requisite power and authority, corporate or otherwise, to execute, deliver and
perform this Guaranty, and has taken all necessary action, corporate or
otherwise, to authorize the execution, delivery and performance of this
Guaranty. This Guaranty has been duly executed and delivered and constitutes
the valid and legally binding obligation of the Guarantor, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or moratorium laws, now or
hereafter in effect, relating to or affecting the enforcement of creditors'
rights generally, and further subject to the discretion of the court in granting
the remedy of specific performance and other equitable remedies.
(c) No consent or approval of any Person (including, without
limitation, stockholders of the Guarantor), no consent or approval of any
landlord or mortgagee, no waiver of any Lien or right of distraint or other
similar right and no consent, license, approval, authorization or declaration
of, any governmental authority, bureau or agency, is or will be required in
connection with the execution, delivery, performance, validity, enforcement or
priority of this Guaranty, or any other agreements, instruments or documents to
be executed or delivered pursuant hereto or thereto.
(d) The execution and delivery of this Guaranty and any other
agreements, instruments or documents to be executed and delivered hereunder, and
performance hereunder and thereunder will not violate any provision of law,
statute, rule or regulation to which the Guarantor is subject or conflict with
or result in a breach of any judgment, decree, writ, injunction, ordinance,
resolution, award, franchise, order, permit or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or the charter or by-laws of the Guarantor, or create (with or without
the giving of notice or lapse of time, or both) a default under any agreement,
bond, note or indenture to which the Guarantor is a party or by which it is
bound.
9. All notices, requests, demands or other communications hereunder shall
be in writing, either by letter (delivered by hand or commercial messenger
service or sent by certified mail, return receipt requested) or telegram or
telecopy, addressed as follows:
4
<PAGE>
(a) if to the Guarantor:
c/o LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
Attention: Jeffrey T. Weisner/Eric R. Jacobsen
Telecopier No.: (605) 330-1323
(b) If to the Agent:
National Westminster Bank Plc, as Agent
175 Water Street
New York, New York 10038
Attention: Phillip Krall
Telecopier No.: (212) 602-4319
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: James M. Reum
Telecopier No.: (312) 558-5700
Any notice, request, demand or other communication hereunder shall be deemed to
have been given on the day on which it is telecopied to such party at the
telecopier number specified above or delivered by hand or by such commercial
messenger service to such party at its address specified above, or, if sent by
mail, on the third Business Day after the day deposited in the mail, postage
prepaid, or in the case of telegraphic notice, when delivered to the telegraph
company, addressed as aforesaid. The Agent or the Guarantor may change the
Person, address or telecopier number to whom or which notices are to be given
hereunder, by notice duly given hereunder; PROVIDED, HOWEVER, that any such
notice shall be deemed to have been given hereunder only when actually received
by the party to which it is addressed.
10. No delay on the part of the Agent or the Banks in exercising any of
the options, powers or rights of the Agent or the Banks, and no partial or
single exercise thereof, whether arising hereunder, under the Credit Agreement,
the Notes, or otherwise, shall constitute a waiver thereof or affect any right
hereunder. No waiver of any of such rights and no modification, amendment or
discharge of this Guaranty shall be deemed to be made by the Agent or the Banks
or shall be effective unless the same shall be in a writing executed and
delivered in accordance with the provisions of the Credit Agreement and then
such waiver shall apply only with respect to the specific instance involved and
shall in no way impair the rights of the Agent or the Banks or the obligations
of the Guarantor to the Agent or the Banks in any other respect at any other
time.
11. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE AGENT, THE BANKS
AND THE GUARANTOR HEREUNDER SHALL BE GOVERNED
5
<PAGE>
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO ITS RULES PERTAINING TO CONFLICTS OF LAWS. THE GUARANTOR
WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS GUARANTY. IN THE EVENT THE AGENT OR THE
BANKS BRING ANY ACTION OR SUIT IN ANY COURT OF RECORD IN THE STATE OF NEW YORK
TO ENFORCE ANY OR ALL LIABILITIES OF THE GUARANTOR HEREUNDER, SERVICE OF PROCESS
MAY BE MADE UPON THE GUARANTOR BY MAILING A COPY OF THE SUMMONS TO THE GUARANTOR
BY CERTIFIED OR REGISTERED MAIL, AT THE ADDRESS SPECIFIED IN PARAGRAPH 9 HEREOF,
AND THE GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK, COUNTY OF NEW YORK, AND THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK OVER THE PERSON OF THE GUARANTOR AND HEREBY WAIVES
ANY CLAIM THAT NEW YORK COUNTY OR THE SOUTHERN DISTRICT OF NEW YORK IS AN
INCONVENIENT FORUM. THE GUARANTOR HEREBY WAIVES THE RIGHT TO INTERPOSE
COUNTERCLAIMS OR SET-OFFS OF ANY KIND AND DESCRIPTION IN ANY SUCH ACTION OR SUIT
ARISING HEREUNDER OR IN CONNECTION HEREWITH.
12. If claim is ever made upon the Agent or the Banks for repayment or
recovery of any amount or amounts received by it in payment or on account of any
of the Guaranteed Obligations and it repays all or part of such amount by reason
of any: (a) judgment, decree or order of any court or administrative body
having jurisdiction over it or any of its property, or (b) settlement or
compromise of any such claim effected by it with any such claimant (including
the Borrower), then, and in either such event, the Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon the
Guarantor, notwithstanding the cancellation of any instrument evidencing any of
the Guaranteed Obligations, and the Guarantor shall be and remain liable
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by the Agent or the Banks, as
applicable.
13. This Guaranty shall be binding upon the Guarantor and its successors
and assigns, and shall inure to the benefit of the Agent and the Banks and their
respective successors and assigns; PROVIDED, HOWEVER, that the Guarantor shall
not be entitled to assign or delegate any of its rights or obligations under
this Guaranty without the prior written consent of the Majority Banks, and any
purported assignment in the absence of such consent shall be void. This
Guaranty embodies the entire agreement and understanding between the Agent, on
behalf of itself and the Banks, and the Guarantor relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to the
subject matter hereof.
14. (a) The provisions of this Guaranty are severable, and in an action
or proceeding involving any state, federal or applicable foreign bankruptcy,
insolvency or other law affecting the rights of creditors generally:
(i) If any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or
6
<PAGE>
provision, or part thereof, in such jurisdiction and shall not in any manner
affect such clause or provision in any other jurisdiction, or any other clause
or provision in this Guaranty in any jurisdiction, or any other clause or
provision in this Guaranty in any jurisdiction.
(ii) If the guaranty hereunder by the Guarantor would be held or
determined to be void, invalid or unenforceable on account of the amount of the
Guarantor's aggregate liability under this Guaranty, then, notwithstanding any
other provision of this Guaranty to the contrary, the aggregate amount of such
liability shall, without any further action by any of the Agent, the Banks, the
Guarantor or any other Person, be automatically limited and reduced to the
highest amount that is valid and enforceable as determined in such action or
proceeding, which (without limiting the generality of the foregoing) may be an
amount that is not greater than the greater of:
(A) the fair consideration actually received by the
Guarantor under the terms of and as a result of the Credit Agreement and any and
all predecessor credit agreements which the Credit Agreement amends and restates
(including, without limiting the generality of the foregoing, and to the extent
not inconsistent with applicable federal, state and applicable foreign laws
affecting the enforceability of guaranties, investments made in, and capital
contributions or advances made to, the Guarantor by the Borrower with the
proceeds of any credit extended under the Credit Agreement whether or not any
such investments, capital contributions or advances were direct or indirect, and
the release of the Guarantor from its obligations under any other guaranty or
collateral security documents, or both) in exchange for its guaranty of the
Obligations; or
(B) the excess of: (1) the amount of the fair saleable
value of the consolidated assets of the Guarantor as of the date of this
Guaranty as determined in accordance with applicable federal, state and
applicable foreign laws governing determinations of the insolvency of debtors as
in effect on the date hereof, over (2) the amount of all consolidated
liabilities of the Guarantor as of the date of this Guaranty, also as determined
on the basis of applicable federal, state and applicable foreign laws governing
the insolvency of debtors as in effect on the date hereof.
(b) If any other guaranty by any one or more other guarantors of the
Guaranteed Obligations is held or determined to be void, invalid or
unenforceable, in whole or in part, such holding or determination shall not
impair or affect the validity and enforceability of:
(i) the guaranty hereunder by the Guarantor, which shall
continue in full force and effect in accordance with its terms; or
(ii) any clause or provision not so held to be void, invalid or
unenforceable.
[signature page follows]
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered on the day and year first above written.
RESNET COMMUNICATIONS, INC.
By
---------------------------------
Title
------------------------------
8
<PAGE>
EXHIBIT E
GUARANTY
THIS GUARANTY, made this 19th day of December, 1996 by LODGENET
ENTERTAINMENT (CANADA) CORPORATION, a Canadian corporation (the "GUARANTOR"), in
favor of NATIONAL WESTMINSTER BANK PLC, New York branch, as Agent, for the
benefit of itself, the Issuing Banks and the Banks signatory to the hereinafter
defined Credit Agreement (in such capacity, together with its successors in
such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this Guaranty,
LodgeNet Entertainment Corporation, a Delaware corporation (the "BORROWER"), has
entered into an Amended and Restated Credit Agreement dated the date hereof
(such agreement, including all exhibits thereto, as it may from time to time be
amended, modified or supplemented, is hereinafter referred to as the "CREDIT
AGREEMENT") with the Agent and the Banks, pursuant to which the Banks have
agreed to make a revolving loan and letter of credit facility available to the
Borrower in the aggregate principal sum of up to One Hundred Million Dollars
($100,000,000), subject to adjustment, upon and subject to the terms and
conditions of the Credit Agreement (the "FACILITY");
WHEREAS, the Guarantor will derive benefits, both directly and indirectly,
from the Borrower's obtaining the Facility from the Banks pursuant to the Credit
Agreement;
WHEREAS, it is a condition precedent to the obligation of the Banks to
make the Facility available to the Borrower that the Guarantor shall have
executed and delivered this Guaranty; and
WHEREAS, all capitalized terms used herein that are defined in the Credit
Agreement and that are not otherwise defined herein shall have the respective
meanings ascribed thereto therein, unless the context otherwise requires; if at
any time no Agent shall exist under the Credit Agreement, each reference herein
to the Agent shall be deemed to refer to the Majority Banks until such time as a
successor Agent shall be appointed under the Credit Agreement;
NOW, THEREFORE, in order to induce the Agent, the Issuing Banks and the
Banks to execute and deliver the Credit Agreement and to make the Facility
available to the Borrower, and in consideration of the benefits expected to
accrue to the Guarantor by reason thereof, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Guarantor hereby
represents and warrants to, and covenants and agrees with the Agent, for the
benefit of itself, the Banks and the Issuing Banks, as follows:
1. The Guarantor hereby irrevocably and unconditionally guarantees to the
Agent, for the benefit of itself, the Banks and the Issuing Banks, the punctual
payment of the full amount, when due (whether by demand, acceleration or
otherwise), of: (a) the principal of and interest on, and fees and expenses due
pursuant to, the promissory notes issued by the Borrower pursuant to the Credit
Agreement (hereinafter referred to, together with any and all amendments,
modifications, substitutions and/or replacements thereof and thereto, as the
"NOTES"), and (b) all other Indebtedness, liabilities and obligations of the
Borrower to the Banks, the Issuing Banks and the
<PAGE>
Agent, whether under the Credit Agreement or otherwise created, whether now or
hereafter existing, and whether or not currently contemplated, due or to become
due, direct or contingent, joint, several or independent, secured or unsecured
and whether matured or unmatured (all of the Indebtedness, liabilities and
obligations included in clauses (a) and (b) of this paragraph 1 are hereinafter
referred to collectively as the "GUARANTEED OBLIGATIONS"); subject, however, to
the provisions of subparagraph 14(a)(ii) hereof. This is a guaranty of payment
and not of collection, and is the primary obligation of the Guarantor; and the
Agent, on behalf of itself, the Banks and the Issuing Banks, may enforce this
Guaranty against the Guarantor without any prior enforcement of the Guaranteed
Obligations against the Borrower.
2. All payments made by the Guarantor under or by virtue of this Guaranty
shall be paid to the Agent at its office at 175 Water Street, New York, New York
10038 or such other place as the Agent may hereafter designate in writing. The
Guarantor hereby agrees to make all payments under or by virtue of this Guaranty
to the Agent as aforesaid. The Agent shall not be required otherwise to
establish its authority to receive any payment made under or by virtue hereof.
3. The Guarantor hereby waives notice of acceptance of this Guaranty,
notice of the creation, renewal or accrual of any of the Guaranteed Obligations
and notice of any other liability to which this Guaranty may apply, and notice
or proof of reliance by the Agent and/or the Banks upon this Guaranty, and
waives diligence, protest, notice of protest, presentment, demand of payment,
notice of dishonor or nonpayment of any of the Guaranteed Obligations, suit or
taking other action or making any demand against, and any other notice to the
Borrower or any other party liable thereon.
4. So far as the Guarantor is concerned, the Agent, on behalf of itself,
the Banks and the Issuing Banks, may, at any time and from time to time, without
the consent of, or notice to the Guarantor, and without impairing or releasing
any of the obligations of the Guarantor hereunder, upon or without any terms or
conditions and in whole or in part:
(a) modify or change the manner, place or terms of, and/or change or
extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any liability incurred directly or
indirectly in respect thereof, provided that such modification, change,
extension, renewal or alteration, or the manner in which it was implemented,
does not violate the provisions of the Credit Agreement, and this Guaranty shall
apply to the Guaranteed Obligations as so modified, changed, extended, renewed
or altered;
(b) sell, exchange, release, surrender, realize upon or otherwise
deal with, in any manner and in any order, any property by whomsoever at any
time pledged or mortgaged to secure, or howsoever securing the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset or right
with respect thereto;
(c) exercise or refrain from exercising any rights against the
Borrower or others (including, without limitation any other guarantor of payment
of the Guaranteed Obligations) or otherwise act or refrain from acting; and when
making any demand hereunder against the Guarantor, the Agent, on behalf of the
Banks, may, but shall be under no obligation to, make a similar demand
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on any other guarantor of payment of the Guaranteed Obligations, and any failure
by the Agent or the Banks to make any such demand or to collect any payments
from, or release of any other guarantor of payment of the Guaranteed Obligations
shall not relieve the Guarantor of its obligations and liabilities hereunder,
and shall not release, impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Agent or the Banks against the Guarantor
(for the purposes hereof, "demand" shall include the commencement and
continuance of any legal proceedings);
(d) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and subordinate the payment
of all or any part thereof to the payment of any liability (whether due or not)
of the Borrower to creditors of the Borrower other than the Banks and the
Guarantor;
(e) apply any sums by whomsoever paid or howsoever realized to any of
the Guaranteed Obligations, regardless of what liability or liabilities of the
Borrower remain unpaid; and
(f) amend or otherwise modify the Credit Agreement, consent to or
waive any breach of, or any act, omission or default or Event of Default under
the Credit Agreement, the Notes, or any agreements, instruments or documents
referred to therein or executed and delivered pursuant thereto or in connection
therewith, and this Guaranty shall apply to the Guaranteed Obligations as set
forth in each of such documents as so amended and modified. Any such action,
shall not impair or release any of the obligations of the Guarantor hereunder.
5. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
the validity, regularity or enforceability of the Credit Agreement, the Notes or
any of the other Guaranteed Obligations or any collateral security therefor or
guaranty thereof or rights of offset with respect thereto at any time or from
time to time held by the Agent or the Banks and without regard to any defense,
offset or counterclaim that may at any time be available to or be asserted by
the Borrower against the Agent or the Banks and that constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Guaranteed Obligations or any part thereof, or of the Guarantor under this
Guaranty, in bankruptcy or in any other instance.
6. Until all of the Guaranteed Obligations have been indefeasibly paid in
full in cash, the Guarantor hereby irrevocably waives, for the benefit of the
Banks, any and all rights that it presently has, or may hereafter have, whether
by virtue of any payment or payments hereunder or otherwise, to be subrogated to
the rights of the Agent or the Banks against the Borrower with respect to any
such indebtedness of the Borrower to the Banks.
7. The Guarantor agrees to be bound by, and to comply with all of the
terms, covenants and provisions of, the Credit Agreement to the extent that the
same impose obligations in respect of or grant rights against it as a Guarantor
or otherwise.
8. The Guarantor makes the following representations and warranties,
which shall survive the execution and delivery of this Guaranty:
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(a) The Guarantor has examined the Credit Agreement, including the
exhibits and schedules thereto, and all of the representations and warranties
set forth in the Credit Agreement, to the extent the same relate to the
Guarantor, are true and correct.
(b) The Guarantor is a corporation, duly organized, validly existing
and in good standing under the laws of Canada. The Guarantor has all requisite
power and authority, corporate or otherwise, to execute, deliver and perform
this Guaranty, and has taken all necessary action, corporate or otherwise, to
authorize the execution, delivery and performance of this Guaranty. This
Guaranty has been duly executed and delivered and constitutes the valid and
legally binding obligation of the Guarantor, enforceable in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or moratorium laws, now or hereafter in effect,
relating to or affecting the enforcement of creditors' rights generally, and
further subject to the discretion of the court in granting the remedy of
specific performance and other equitable remedies.
(c) No consent or approval of any Person (including, without
limitation, stockholders of the Guarantor), no consent or approval of any
landlord or mortgagee, no waiver of any Lien or right of distraint or other
similar right and no consent, license, approval, authorization or declaration
of, any governmental authority, bureau or agency, is or will be required in
connection with the execution, delivery, performance, validity, enforcement or
priority of this Guaranty, or any other agreements, instruments or documents to
be executed or delivered pursuant hereto or thereto.
(d) The execution and delivery of this Guaranty and any other
agreements, instruments or documents to be executed and delivered hereunder, and
performance hereunder and thereunder will not violate any provision of law,
statute, rule or regulation to which the Guarantor is subject or conflict with
or result in a breach of any judgment, decree, writ, injunction, ordinance,
resolution, award, franchise, order, permit or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or the charter or by-laws of the Guarantor, or create (with or without
the giving of notice or lapse of time, or both) a default under any agreement,
bond, note or indenture to which the Guarantor is a party or by which it is
bound.
9. All notices, requests, demands or other communications hereunder shall
be in writing, either by letter (delivered by hand or commercial messenger
service or sent by certified mail, return receipt requested) or telegram or
telecopy, addressed as follows:
(a) if to the Guarantor:
c/o LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
Attention: Jeffrey T. Weisner/Eric R. Jacobsen
Telecopier No.: (605) 330-1323
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(b) If to the Agent:
National Westminster Bank Plc, as Agent
175 Water Street
New York, New York 10038
Attention: Phillip Krall
Telecopier No.: (212) 602-4319
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: James M. Reum
Telecopier No.: (312) 558-5700
Any notice, request, demand or other communication hereunder shall be deemed to
have been given on the day on which it is telecopied to such party at the
telecopier number specified above or delivered by hand or by such commercial
messenger service to such party at its address specified above, or, if sent by
mail, on the third Business Day after the day deposited in the mail, postage
prepaid, or in the case of telegraphic notice, when delivered to the telegraph
company, addressed as aforesaid. The Agent or the Guarantor may change the
Person, address or telecopier number to whom or which notices are to be given
hereunder, by notice duly given hereunder; PROVIDED, HOWEVER, that any such
notice shall be deemed to have been given hereunder only when actually received
by the party to which it is addressed.
10. No delay on the part of the Agent or the Banks in exercising any of
the options, powers or rights of the Agent or the Banks, and no partial or
single exercise thereof, whether arising hereunder, under the Credit Agreement,
the Notes, or otherwise, shall constitute a waiver thereof or affect any right
hereunder. No waiver of any of such rights and no modification, amendment or
discharge of this Guaranty shall be deemed to be made by the Agent or the Banks
or shall be effective unless the same shall be in a writing executed and
delivered in accordance with the provisions of the Credit Agreement and then
such waiver shall apply only with respect to the specific instance involved and
shall in no way impair the rights of the Agent or the Banks or the obligations
of the Guarantor to the Agent or the Banks in any other respect at any other
time.
11. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE AGENT, THE BANKS
AND THE GUARANTOR HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES
PERTAINING TO CONFLICTS OF LAWS. THE GUARANTOR WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS GUARANTY. IN THE EVENT THE AGENT OR THE BANKS BRING ANY ACTION OR SUIT IN
ANY COURT OF RECORD IN THE STATE OF NEW YORK TO ENFORCE ANY OR ALL LIABILITIES
OF THE GUARANTOR HEREUNDER, SERVICE OF PROCESS MAY BE MADE UPON THE GUARANTOR BY
MAILING A
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COPY OF THE SUMMONS TO THE GUARANTOR BY CERTIFIED OR REGISTERED MAIL, AT THE
ADDRESS SPECIFIED IN PARAGRAPH 9 HEREOF, AND THE GUARANTOR HEREBY CONSENTS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, AND
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OVER THE
PERSON OF THE GUARANTOR AND HEREBY WAIVES ANY CLAIM THAT NEW YORK COUNTY OR THE
SOUTHERN DISTRICT OF NEW YORK IS AN INCONVENIENT FORUM. THE GUARANTOR HEREBY
WAIVES THE RIGHT TO INTERPOSE COUNTERCLAIMS OR SET-OFFS OF ANY KIND AND
DESCRIPTION IN ANY SUCH ACTION OR SUIT ARISING HEREUNDER OR IN CONNECTION
HEREWITH.
12. If claim is ever made upon the Agent or the Banks for repayment or
recovery of any amount or amounts received by it in payment or on account of any
of the Guaranteed Obligations and it repays all or part of such amount by reason
of any: (a) judgment, decree or order of any court or administrative body
having jurisdiction over it or any of its property, or (b) settlement or
compromise of any such claim effected by it with any such claimant (including
the Borrower), then, and in either such event, the Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon the
Guarantor, notwithstanding the cancellation of any instrument evidencing any of
the Guaranteed Obligations, and the Guarantor shall be and remain liable
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by the Agent or the Banks, as
applicable.
13. This Guaranty shall be binding upon the Guarantor and its successors
and assigns, and shall inure to the benefit of the Agent and the Banks and their
respective successors and assigns; PROVIDED, HOWEVER, that the Guarantor shall
not be entitled to assign or delegate any of its rights or obligations under
this Guaranty without the prior written consent of the Majority Banks, and any
purported assignment in the absence of such consent shall be void. This
Guaranty embodies the entire agreement and understanding between the Agent, on
behalf of itself and the Banks, and the Guarantor relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to the
subject matter hereof.
14. (a) The provisions of this Guaranty are severable, and in an action
or proceeding involving any state, federal or applicable foreign bankruptcy,
insolvency or other law affecting the rights of creditors generally:
(i) If any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Guaranty in any
jurisdiction, or any other clause or provision in this Guaranty in any
jurisdiction.
(ii) If the guaranty hereunder by the Guarantor would be held or
determined to be void, invalid or unenforceable on account of the amount of the
Guarantor's aggregate liability under this Guaranty, then, notwithstanding any
other provision of this Guaranty to the contrary, the aggregate amount of such
liability shall, without any further action by any of the Agent, the Banks,
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the Guarantor or any other Person, be automatically limited and reduced to the
highest amount that is valid and enforceable as determined in such action or
proceeding, which (without limiting the generality of the foregoing) may be an
amount that is not greater than the greater of:
(A) the fair consideration actually received by the
Guarantor under the terms of and as a result of the Credit Agreement and any and
all predecessor credit agreements which the Credit Agreement amends and restates
(including, without limiting the generality of the foregoing, and to the extent
not inconsistent with applicable federal, state and applicable foreign laws
affecting the enforceability of guaranties, investments made in, and capital
contributions or advances made to, the Guarantor by the Borrower with the
proceeds of any credit extended under the Credit Agreement whether or not any
such investments, capital contributions or advances were direct or indirect, and
the release of the Guarantor from its obligations under any other guaranty or
collateral security documents, or both) in exchange for its guaranty of the
Obligations; or
(B) the excess of: (1) the amount of the fair saleable
value of the consolidated assets of the Guarantor as of the date of this
Guaranty as determined in accordance with applicable federal, state and
applicable foreign laws governing determinations of the insolvency of debtors as
in effect on the date hereof, over (2) the amount of all consolidated
liabilities of the Guarantor as of the date of this Guaranty, also as determined
on the basis of applicable federal, state and applicable foreign laws governing
the insolvency of debtors as in effect on the date hereof.
(b) If any other guaranty by any one or more other guarantors of the
Guaranteed Obligations is held or determined to be void, invalid or
unenforceable, in whole or in part, such holding or determination shall not
impair or affect the validity and enforceability of:
(i) the guaranty hereunder by the Guarantor, which shall
continue in full force and effect in accordance with its terms; or
(ii) any clause or provision not so held to be void, invalid or
unenforceable.
[signature page follows]
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IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered on the day and year first above written.
LODGENET ENTERTAINMENT (CANADA)
CORPORATION
By:
---------------------------------
Title:
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EXHIBIT F
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "AGREEMENT"), dated as of December 19,
1996, is made between NATIONAL WESTMINSTER BANK PLC, a United Kingdom public
limited company, as agent for the Banks and the Issuing Banks (as defined
below) (in such capacity, and together with its successors as agent for the
Banks and the Issuing Banks, the "AGENT"), LODGENET ENTERTAINMENT CORPORATION, a
Delaware corporation (the "BORROWER"), RESNET COMMUNICATIONS, INC., a Delaware
corporation ("RESNET"), LODGENET ENTERTAINMENT (CANADA) CORPORATION, a Canadian
corporation ("LODGENET CANADA", and collectively with the Borrower and ResNet,
the "GRANTORS", and each individually, a "GRANTOR").
RECITALS
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement dated as of December 19, 1996 by and among the Borrower, the
several financial institutions from time to time party thereto (the "BANKS"),
the Agent (also in its capacity as an Issuing Bank and Bank), and National
Westminster Bank of Canada, as an Issuing Bank (as amended, restated, modified,
renewed, supplemented or extended from time to time, the "CREDIT AGREEMENT").
WHEREAS, it is a condition precedent to each Bank's obligation to make its
initial Loan under the Credit Agreement and for the Issuing Banks to issue
letters of credit that the Borrower enter into this Agreement and grant to the
Agent, for the benefit of itself, the Banks and the Issuing Banks, the security
interests hereinafter provided to secure the obligations of the Borrower
described below.
WHEREAS, ResNet and LodgeNet Canada each is a direct or indirect subsidiary
of the Company and will derive substantial and direct benefits (which benefits
are hereby acknowledged by each such Grantor) from the Loans and the letters of
credit and other benefits to be provided to the Borrower under the Credit
Agreement.
WHEREAS, in order to secure the performance of the obligations of the
Borrower under the Credit Agreement and the other Loan Documents, ResNet and
LodgeNet Canada have executed those certain guaranties dated the date hereof (as
amended, restated, supplemented or otherwise modified from time to time, the
"GUARANTIES").
WHEREAS, it is a condition precedent to each Bank's obligation to make its
initial Loan under the Credit Agreement and for the Issuing Banks to issue
letters of credit that ResNet and LodgeNet Canada enter into this Agreement and
grant to the Agent, for the benefit of itself, the Banks and the Issuing Banks,
the security interests hereinafter provided to secure the obligations of
Grantors and the Borrower described below.
<PAGE>
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Agreement and not otherwise defined herein have the meanings specified in
the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings:
"ACCOUNTS" means any and all "accounts," as such term is defined in
the UCC, whether now existing or hereafter arising or acquired by any Grantor,
and in any event includes all accounts receivable, contract rights, rights to
payment and other obligations of any kind owed to such Grantor arising out of or
in connection with the sale or lease of merchandise, goods or commodities or the
rendering of services or arising from any other transaction, however evidenced,
and whether or not earned by performance, all guaranties, indemnities and
security with respect to the foregoing, and all letters of credit relating
thereto, in each case whether now existing or hereafter acquired or arising.
"BANK PARTY" means, as the context may require, any Bank (including
any Bank in its capacity as a counterparty to an Interest Rate Contract or
currency hedging agreement), any Issuing Bank or the Agent, and each of their
respective successors, transferees or assigns.
"BOOKS" means all books, records and other written, electronic or
other documentation in whatever form maintained now or hereafter by or for any
Grantor in connection with the ownership of its assets or the conduct of its
business or evidencing or containing information relating to the Collateral,
including: (i) ledgers; (ii) records indicating, summarizing, or evidencing
such Grantor's assets (including Inventory and Rights to Payment), business
operations or financial condition; (iii) computer programs and software;
(iv) computer discs, tapes, files, manuals, spreadsheets; (v) computer printouts
and output of whatever kind; (vi) any other computer prepared or electronically
stored, collected or reported information and equipment of any kind; and
(vii) any and all other rights now or hereafter arising out of any contract or
agreement between such Grantor and any service bureau, computer or data
processing company or other Person charged with preparing or maintaining any of
such Grantor's books or records or with credit reporting, including with regard
to such Grantor's Accounts.
"CHATTEL PAPER" means any "chattel paper," as such term is defined in
the UCC, whether now existing or hereafter arising or acquired by any Grantor.
"COLLATERAL" has the meaning specified in Section 2.
"CONTRACTS" means all the contracts, undertakings or agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Accounts, and including, without limitation, all of each
Grantor's
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right, title and interest in, to and under all of its Leases, contracts,
permits, licenses (to the extent permitted by applicable law or regulation),
franchises, certificates and other agreements including, without limitation, all
film and program license agreements, agreements for the provision of management,
engineering or other similar services and agreements relating to the provision
of video on-demand, network-based video games, basic and premium cable
television programming and other interactive multimedia entertainment and
information services.
"DEPOSIT ACCOUNT" means any demand, time, savings, passbook or like
account now or hereafter maintained by or for the benefit of any Grantor with a
bank, savings and loan association, credit union or like organization (including
the Agent) and all funds and amounts therein, whether or not restricted or
designated for a particular purpose.
"DOCUMENTS" means any and all "documents," as such term is defined in
the UCC, including without limitation all documents of title, bills of lading,
dock warrants, dock receipts, warehouse receipts and other documents of any
Grantor, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made available
to such Grantor for the purpose of ultimate sale or exchange of goods or for the
purpose of loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with goods in a manner preliminary to their sale
or exchange, in each case whether now existing or hereafter acquired or arising.
"EQUIPMENT" means all "equipment," as such term is defined in the UCC
(other than automobiles, trucks, tractors, rolling stock and other vehicles),
whether now existing or hereafter acquired by any Grantor in all of its forms,
wherever located, and in any event includes any and all machinery, furniture,
equipment, furnishings and fixtures in which such Grantor now or hereafter
acquires any right, and all other goods and tangible personal property (other
than Inventory), including tools, parts and supplies, computer and other
electronic data processing equipment and other office equipment, computer
programs and related data processing software, and all additions, substitutions,
replacements, parts, accessories, and accessions to and for the foregoing, now
owned or hereafter acquired, and including any of the foregoing which are or are
to become fixtures on real property.
"FINANCING STATEMENTS" has the meaning specified in Section 3.
"FIXTURES" shall mean any "fixtures" as such term is defined in the
UCC, whether now owned or hereafter acquired by any Grantor.
"GENERAL INTANGIBLES" means any "general intangibles," as such term is
defined in the UCC, whether now existing or hereafter arising or acquired by any
Grantor, and in any event includes: (i) all tax and other refunds, rebates or
credits of every kind and nature to which such Grantor is now or hereafter may
become entitled; (ii) all goodwill, choses in action and causes of action,
whether legal or equitable, whether in contract or tort and however arising;
(iii) all Intellectual Property Collateral; (iv) all uncertificated securities
and interests in limited and general partnerships; (v) all rights of stoppage in
transit, replevin and reclamation; (vi) all licenses, permits,
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consents, indulgences and rights of whatever kind issued in favor of or
otherwise recognized as belonging to such Grantor by any Governmental Authority;
and (vii) all indemnity agreements, guaranties, insurance policies and other
contractual, equitable and legal rights of whatever kind or nature; in each case
whether now existing or hereafter acquired or arising.
"INSTRUMENTS" means any and all negotiable instruments, certificated
securities and every other writing which evidences a right to the payment of
money, in each case whether now existing or hereafter acquired by any Grantor.
"INTELLECTUAL PROPERTY COLLATERAL" means the following properties and
assets owned or held by any Grantor or in which such Grantor otherwise has any
interest, now existing or hereafter acquired or arising:
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses (including without limitation such patents, patent
applications and patent licenses as described in SCHEDULE E), present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof;
(ii) all copyrights and applications for copyright, domestic or
foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship, all rights, claims and demands in any way
relating to any such copyrights or works, including royalties and rights to sue
for past, present or future infringement, and all rights of renewal and
extension of copyright;
(iii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, all licenses relating to any of
the foregoing and all income and royalties with respect to any licenses
(including without limitation such marks, names, applications and licenses as
described in SCHEDULE E), whether registered or unregistered and wherever
registered, all rights to sue for past, present or future infringement or
unconsented use thereof, all rights arising therefrom and pertaining thereto and
all reissues, extensions and renewals thereof;
(iv) all trade secrets, confidential information, customer lists,
license rights, advertising materials, operating manuals, methods, processes,
know-how, sales literature, drawings, specifications, blue prints, descriptions,
inventions, name plates and catalogs; and
(v) the entire goodwill of or associated with the businesses now or
hereafter conducted by such Grantor connected with and symbolized by any of the
aforementioned properties and assets.
"INVENTORY" means any "inventory," as such term is defined in the UCC,
wherever located, whether now owned or hereafter acquired by any Grantor, and in
any event includes all goods (including goods in transit) which are held for
sale, lease or other disposition, including those
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held for display or demonstration or out on lease or consignment or to be
furnished under a contract of service, or which are raw materials, work in
process, finished goods or materials used or consumed in such Grantor's
business, and the resulting product or mass, and all repossessed, returned,
rejected, reclaimed and replevied goods, together with all parts, components,
supplies, packing and other materials used or usable in connection with the
manufacture, production, packing, shipping, advertising, selling or furnishing
of such goods; and all other items hereafter acquired by such Grantor by way of
substitution, replacement, return, repossession or otherwise, and all additions
and accessions thereto, and any Document representing or relating to any of the
foregoing at any time.
"INVESTMENT PROPERTY" shall have the meaning ascribed thereto in
Section 9-115 of the UCC in those jurisdictions in which such definition has
been adopted and shall include without limitation (i) all securities, whether
certificated or uncertificated, stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Grantor including
without limitation, the rights of such Grantor to any securities account of such
Grantor and financial assets held by a securities intermediary in such
securities account and any fee, credit balance or other money owing by any
securities intermediary with respect to that account; (iii) all securities
accounts held by any Grantor; (iv) all commodity contracts held by any Grantor
and (v) all commodity accounts held by any Grantor.
"PROCEEDS" means "proceeds," as such term is defined in the UCC, and
in any event, includes whatever is receivable or received from or upon the sale,
lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Collateral or other assets of any Grantor, any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to or
for the account of such Grantor from time to time with respect to any of the
Collateral, any and all payments (in any form whatsoever) made or due and
payable to such Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), any and all other amounts from time to time paid or
payable under or in connection with any of the Collateral or for or on account
of any damage or injury to or conversion of any Collateral by any Person, any
and all other tangible or intangible property received upon the sale or
disposition of Collateral, and all proceeds of proceeds.
"RIGHTS TO PAYMENT" means all Accounts, and any and all rights and
claims to the payment or receipt of money or other forms of consideration of any
kind in, to and under all Contracts, Chattel Paper, Documents, General
Intangibles, Instruments and Proceeds.
"SECURED OBLIGATIONS" means all Obligations of the Borrower under the
Credit Agreement and all obligations of ResNet and LodgeNet Canada under the
Guaranties and all obligations of each Grantor under each other Loan Document to
which any Grantor is or may become a party, whether for principal, interest,
costs, fees, expenses, indemnities or otherwise, and all obligations of each
Grantor existing under this Agreement, in each case whether now existing or
hereafter arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined.
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"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; PROVIDED, HOWEVER, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of New York or by the Personal Property Security Act (the "PPSA") as in effect
in the Canadian provinces of Ontario or British Columbia, the term "UCC" shall
mean the Uniform Commercial Code or the PPSA as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
(c) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings assigned to
them in the UCC or, if not defined in the UCC, such terms shall have the
meanings assigned to them in the UCC in effect in the State of New York.
(d) AFFILIATES OF BANKS AS SECURED PARTIES. Notwithstanding anything
herein to the contrary, the pledge and security interests granted hereby shall
be deemed to be for the benefit of the Bank Parties and Affiliates of the Banks
that are parties to Interest Rate Contracts and currency hedging agreements with
the Company, and accordingly, references herein to any Bank shall, to such
extent, be deemed to include such Affiliates.
SECTION 2 SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. As security for the payment and
performance of the Secured Obligations, and to induce the Agent and the Banks to
enter into the Credit Agreement and to make the Loans as provided therein and
for the Issuing Banks to issue the letters of credit in accordance with the
terms and conditions thereof, each Grantor hereby grants, pledges, assigns,
transfers, hypothecates and sets over to the Agent, for the benefit of itself,
the Banks and the Issuing Banks, a security interest in all of such Grantor's
right, title and interest in, to and under the following property, wherever
located and whether now existing or owned or hereafter acquired or arising
(collectively, the "COLLATERAL"): (i) all Accounts; (ii) all Chattel Paper;
(iii) all Deposit Accounts; (iv) all Documents; (v) all Contracts and General
Intangibles; (vi) all Instruments; (vii) all Books;(viii) all Fixtures;(ix) all
Investment Property;(x) all Equipment;(xi) all Inventory; (xii) all money, cash
or cash equivalents; and (xiii) all products and Proceeds of any and all of the
foregoing.
(b) GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) each Grantor shall remain liable under any Contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by the
Agent of any of the rights hereunder shall not release any Grantor from any of
its duties or obligations under such contracts, agreements and other documents
included in the Collateral, and (iii) neither the Agent nor any other Bank Party
shall have any obligation or liability under any Contracts, agreements and other
documents included in the Collateral by reason of this Agreement, nor shall the
Agent or any other Bank Party be obligated to perform any of the obligations or
duties of any Grantor thereunder
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or to take any action to collect or enforce any such contract, agreement or
other document included in the Collateral hereunder.
(c) CONTINUING SECURITY INTEREST. Each Grantor agrees that this
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 25.
SECTION 3 FINANCING STATEMENTS, ETC. Each Grantor shall execute and
deliver to the Agent concurrently with the execution of this Agreement, and at
any time and from time to time thereafter, all financing statements,
continuation financing statements, termination statements, security agreements,
chattel mortgages, assignments, patent, copyright and trademark collateral
assignments, fixture filings, blocked account agreements, warehouse receipts,
documents of title, affidavits, reports, notices, schedules of account, letters
of authority and all other documents and instruments, in form satisfactory to
the Agent (the "FINANCING STATEMENTS"), and take all other action, as may be
necessary or as the Agent may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the Agent's security
interest in the Collateral and to accomplish the purposes of this Agreement.
SECTION 4 REPRESENTATIONS AND WARRANTIES. In addition to and not in
limitation of the representations and warranties of any Grantor set forth in any
other Loan Document which such Grantor is a party to, each Grantor represents
and warrants to the Agent that:
(a) LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL. Each
Grantor's chief executive office, corporate office and principal place of
business is located at the address set forth in SCHEDULE A, and all other
locations where such Grantor conducts business or Collateral is kept are set
forth in SCHEDULE A.
(b) LOCATIONS OF BOOKS. All locations where Books pertaining to the
Rights to Payment are kept, including all equipment necessary for accessing such
Books and the names and addresses of all service bureaus, computer or data
processing companies and other Persons keeping any Books or collecting Rights to
Payment for any Grantor, are set forth in SCHEDULE B.
(c) TRADE NAMES AND TRADE STYLES. All trade names and trade styles
under which each Grantor presently conducts its business operations are set
forth in SCHEDULE C, and, except as set forth in SCHEDULE C, such Grantor has
not, at any time during the preceding five (5) years: (i) been known as or used
any other corporate, trade or fictitious name; (ii) changed its name; (iii) been
the surviving or resulting corporation in a merger or consolidation; or
(iv) acquired through asset purchase or otherwise any business of any Person.
(d) OWNERSHIP OF COLLATERAL. Each Grantor is, and, except as
permitted by Section 5(i), will continue to be, the legal and beneficial owner
of the Collateral (or, in the case of after-acquired Collateral, at the time
such Grantor acquires rights in such Collateral, will be the legal and
beneficial owner thereof), and has good, indefeasible and merchantable title to
the Collateral free and clear of any and all Liens other than Permitted Liens.
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(e) ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. (i) This
Agreement creates a valid and continuing security interest which is enforceable
against the Collateral in which each Grantor now has rights and will create a
security interest which is enforceable against the Collateral in which such
Grantor hereafter acquires rights at the time such Grantor acquires any such
rights; and (ii) subject to Permitted Liens, the Agent has a perfected and first
priority security interest in the Collateral in which each Grantor now has
rights, and will have a perfected and first priority security interest in the
Collateral in which such Grantor hereafter acquires rights at the time such
Grantor acquires any such rights, in each case for the Agent's own benefit, the
Banks and the Issuing Banks, and in each case securing the payment and
performance of the Secured Obligations. All action necessary or desirable to
protect and perfect such security interest in the existing Collateral has been
duly taken.
(f) OTHER FINANCING STATEMENTS. Other than (i) financing statements
or similar filings naming the owner of the asset to which such lien relates as
debtor, under the UCC or any comparable law ("UCC FINANCING STATEMENTS")
disclosed to the Agent and filed in connection with the Permitted Liens and
(ii) UCC Financing Statements in favor of the Agent in its capacity as Agent for
the benefit of itself, the Banks and the Issuing Banks under the Credit
Agreement and any other Loan Documents, no effective UCC Financing Statement
naming any Grantor as debtor, assignor, grantor, mortgagor, pledgor or the like
and covering all or any part of the Collateral is on file in any filing or
recording office in any jurisdiction.
(g) RIGHTS TO PAYMENT. (i) The Rights to Payment represent valid,
binding and enforceable obligations of the account debtors or other Persons
obligated thereon, representing undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in any documents related
thereto, and are and will be genuine, free from Liens other than Permitted
Liens, and not subject to any adverse claims, counterclaims, setoffs, defaults,
disputes, defenses, discounts, retainages, holdbacks or conditions precedent of
any kind of character, except to the extent permitted under the Credit Agreement
or to the extent, if any, that such account debtors or other Persons may be
entitled to normal and ordinary course trade discounts, returns, adjustments and
allowances in accordance with Section 5(n), or as otherwise disclosed to the
Agent in writing;
(ii) no Grantor has assigned any of its rights under the Rights to
Payment except as provided in this Agreement or as set forth in the Credit
Agreement or other Loan Documents; and
(iii) no Grantor has knowledge of any fact or circumstance which would
impair the validity or collectibility of any of the Rights to Payment.
(h) CONTRACTS. The Contracts to which such Grantor is a party
included in the Collateral constitute valid and legally binding obligations of
such Grantor and, to the best of such Grantor's knowledge, the other parties
thereto enforceable in accordance with their terms.
(i) INVENTORY. With respect to any Inventory in which the Agent is
granted a security interest pursuant to the terms of this Agreement, (i) such
Inventory is located at the locations set forth on SCHEDULE A hereto, (ii) no
Inventory is now, or shall at any time or times hereafter be stored with a
bailee, warehouseman or similar party (except as disclosed on SCHEDULE
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D) without the Agent's prior written consent, and if the Agent gives such
written consent, the applicable Grantor will concurrently therewith at the
Agent's reasonable request use its best efforts to cause any such bailee,
warehouseman or similar party to issue and deliver to the Agent in form and
substance acceptable to the Agent, warehouse receipts therefor in the Agent's
name, (iii) such Inventory is of good and merchantable quality, free from any
defects, (iv) such Inventory is not subject to any licensing, patent, royalty,
trademark, trade name or copyright agreements with any third parties which would
require any consent of any third party upon sale or disposition of that
Inventory or the payment of any monies to any third party as a precondition of
such sale or other disposition, and (v) the completion of manufacture, sale or
other disposition of such Inventory by the Agent following an Event of Default
will not require the consent of any Person and will not constitute a breach or
default under any contract or agreement to which any Grantor is a party or to
which such Inventory is subject.
(j) INTELLECTUAL PROPERTY. (i) Except as set forth in SCHEDULE E,
each Grantor does not own, possess or use under any licensing arrangement any
patents, copyrights, trademarks, service marks or trade names, nor is there
currently pending before any governmental authority any application for
registration of any patent, copyright, trademark, service mark or trade name;
(ii) all patents, copyrights, trademarks, service marks and trade
names are subsisting and none have been adjudged invalid or unenforceable in
whole or in part;
(iii) all maintenance fees required to be paid on account of any
patents have been timely paid for maintaining such patents in force, and, to
each Grantor's knowledge, each of the patents is valid and enforceable;
(iv) to each Grantor's knowledge after due inquiry, no material
infringement or unauthorized use presently is being made of any Intellectual
Property Collateral by any Person;
(v) each Grantor is the sole and exclusive owner of the Intellectual
Property Collateral identified on SCHEDULE E (other than Intellectual Property
Collateral licensed by such Grantor) and the past, present and contemplated
future use of such Intellectual Property Collateral by such Grantor has not,
does not and will not infringe or violate any right, privilege or license
agreement of or with any other Person; and
(vi) each Grantor either owns, has material rights under, is a party
to, or an assignee of a party to all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
trade names and all other Intellectual Property Collateral necessary to continue
to conduct its business as heretofore conducted.
(k) EQUIPMENT. None of the Equipment or other Collateral is affixed
to real property, except Collateral with respect to which each Grantor has
supplied the Agent with all information and documentation necessary to make all
fixture filings required to perfect and protect the priority of the Agent's
security interest in all such Collateral which may be fixtures as against all
Persons having an interest in the premises to which such property may be
affixed.
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(l) DEPOSIT ACCOUNTS. The names and addresses of all financial
institutions at which each Grantor maintains its Deposit Accounts, and the
account numbers and account names of such Deposit Accounts, are set forth in
SCHEDULE F.
(m) CHATTEL PAPER AND INSTRUMENTS. All action necessary to protect
and perfect the security interest of the Agent in all Instruments and Chattel
Paper (including the delivery of all originals thereof to the Agent and the
legending of all Chattel Paper) has been duly taken.
(n) CORPORATE EXISTENCE AND POWER. Each Grantor (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has the power and authority to own its
assets, carry on its business, and execute, deliver, and perform its obligations
under this Agreement and any other Loan Document to which it is a party; (iii)
is duly qualified as a foreign corporation, and licensed and in good standing,
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification or license
except where the failure to be so qualified or licensed will not have a Material
Adverse Effect; (iv) has all necessary governmental licenses, authorizations,
consents and approvals to own its assets and carry on its business, and in all
material respects is in compliance with all applicable requirements of law.
(o) CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by each Grantor of this Agreement and each other Loan
Document to which it is a party, have been duly authorized by all necessary
corporate action, and do not and will not: (i) contravene the terms of any of
such Grantor's charter documents; (ii) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document evidencing any
contractual obligation to which such Grantor is a party or any order,
injunction, writ or decree of any governmental authority to which such Grantor
or its property is subject; or (iii) violate any requirement of law.
(p) GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
governmental authority (except for the filing of the Financing Statements) is
necessary or required in connection with the execution, delivery or performance
by, or enforcement against, each Grantor of this Agreement or any other Loan
Document to which it is a party or the transactions contemplated hereby or
thereby.
(q) This Agreement constitutes the legal, valid and binding
obligation of each Grantor enforceable against such Grantor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
SECTION 5 COVENANTS. In addition to and not in limitation of the
covenants of each Grantor set forth in any other Loan Document which such
Grantor is a party to, which are incorporated herein by reference, so long as
any of the Secured Obligations remain unsatisfied or any Bank shall have
outstanding any Commitment or any Loan, or any letter of credit shall be
outstanding and not cash collateralized, or any Bank shall be a counterparty to
any Interest Rate Contract or currency hedging agreement with the Borrower, each
Grantor agrees that:
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(a) DEFENSE OF COLLATERAL. Each Grantor will defend the Collateral
against all claims and demands of all Persons at any time claiming the same or
any interest therein adverse to the Agent.
(b) PRESERVATION OF COLLATERAL. Each Grantor shall maintain,
preserve and protect the Collateral which is used or useful in its business in
good working order and condition, ordinary wear and tear excepted and make all
necessary repairs thereto and remedies and replacements thereof except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect, except as permitted by the Credit Agreement.
(c) COMPLIANCE WITH LAWS, ETC. Each Grantor will comply in all
material respects with all requirements of law of any governmental authority
having jurisdiction over it or its business (including the Federal Fair Labor
Standards Act) relating in a material way to the possession, operation,
maintenance and control of the Collateral, except such as may be contested in
good faith or as to which a bona fide dispute may exist.
(d) LOCATION OF BOOKS AND CHIEF EXECUTIVE OFFICE. Each Grantor will:
(i) keep all Books pertaining to the Rights to Payment at the locations set
forth in SCHEDULE B; and (ii) give at least thirty (30) days' prior written
notice to the Agent of (A) any changes in any such location where Books
pertaining to the Rights to Payment are kept, including any change of name or
address of any service bureau, computer or data processing company or other
Person preparing or maintaining any Books or collecting Rights to Payment for
such Grantor or (B) any changes in the location of such Grantor's chief
executive office or principal place of business.
(e) LOCATION OF COLLATERAL. Each Grantor will: (i) keep the
Collateral at the locations set forth in SCHEDULE A or SCHEDULE D and not remove
the Collateral from such locations (other than Collateral in transit between
locations set forth in SCHEDULE A or SCHEDULE D in the ordinary course of
business and disposals of Collateral permitted by subsection (i) below) except
upon at least thirty (30) days' prior written notice of any removal to the
Agent; (ii) give the Agent written notice of the locations where Collateral is
kept within thirty (30) days after the end of each fiscal quarter of such
Grantor; (iii) give the Agent at least thirty (30) days' prior written notice
of any hereinafter acquired or arising Collateral which will be located other
than at the locations set forth in SCHEDULE A or SCHEDULE D; and (iv) give the
Agent at least thirty (30) days' prior written notice of the creation and
maintenance of any Deposit Account not set forth on SCHEDULE F.
(f) CHANGE IN NAME, IDENTITY OR STRUCTURE. Each Grantor will give
the Agent at least thirty (30) days' prior written notice of (i) any change in
name, (ii) any changes in, additions to or other modifications of its trade
names and trade styles set forth in SCHEDULE C, and (iii) any changes in its
identity or structure in any manner which might make any Financing Statement
filed hereunder incorrect or misleading.
(g) MAINTENANCE OF RECORDS. Each Grantor will keep accurate and
complete Books with respect to the Collateral, and at the Agent's request such
Grantor shall legend the Books pertaining to such Collateral with an appropriate
disclosure of the Agent's security interest hereunder.
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(h) DISPOSITION OF COLLATERAL. No Grantor will surrender or lose
possession of (other than to the Agent), sell, lease, rent, or otherwise dispose
of or transfer any of the Collateral or any right or interest therein, except to
the extent permitted by the Credit Agreement.
(i) LIENS. Other than liens in favor of the Agent in its capacity as
Agent under the Credit Agreement and Permitted Liens, each Grantor will keep the
Collateral free of all liens and security interests of any kind.
(j) EXPENSES. Each Grantor will maintain, keep and preserve the
Collateral at its own cost and expense in accordance with its customary business
practices.
(k) LEASED PREMISES. At the Agent's request, each Grantor will use
its best efforts to obtain from each Person from whom such Grantor leases any
premises at which Collateral is at any time present such subordination, waiver,
consent and estoppel agreements as the Agent may reasonably require, in form and
substance reasonably satisfactory to the Agent.
(l) RIGHTS TO PAYMENT. Each Grantor will:
(i) with such frequency as the Agent may reasonably require upon the
occurrence and during the continuance of an Event of Default, furnish to the
Agent (A) master customer listings, including all names and addresses, together
with copies or originals (as requested by the Agent) of documents, customer
statements, repayment histories and present status reports relating to the
Accounts; (B) accurate records and summaries of Accounts, including detailed
agings specifying the name, face value and date of each invoice, and listings of
Accounts that are disputed or have been cancelled; and (C) such other matters
and information relating to the Accounts as the Agent shall from time to time
reasonably request;
(ii) in accordance with its sound business judgment perform and comply
in all material respects with its obligations in respect of the Accounts and
other Rights to Payment;
(iii) upon the request of the Agent (A) at any time, notify all or any
designated portion of the account debtors and other obligors on the Rights to
Payment of the security interest hereunder, and (B) if an Event of Default has
occurred and is continuing, notify the account debtors and other obligors on the
Rights to Payment or any designated portion thereof that payment shall be made
directly to the Agent or to such other Person or location as the Agent shall
specify; and
(iv) establish such lockbox, blocked account or similar arrangements
for the payment of the Accounts and other Rights to Payment as the Agent shall
require.
(m) CONTRACTS. Each Grantor will:
(i) at its sole cost and expense, appear in and defend any action or
proceeding which arises under, grows out of or is in any manner connected with
the obligations, covenants, conditions, duties, agreements or liabilities of
such Grantor under the Contracts included in the Collateral, and which is
material to the operations or financial condition of such Grantor; and
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(ii) comply with, perform and discharge each and every obligation,
covenant, condition, duty and agreement that the Contracts included in the
Collateral provide are to be performed by such Grantor.
(n) DOCUMENTS, ETC. Each Grantor will:
(i) immediately deliver to the Agent, or an agent designated by it,
appropriately endorsed or accompanied by appropriate instruments of transfer or
assignment, all Documents, Instruments and Chattel Paper, and all other Rights
to Payment at any time evidenced by promissory notes, trade acceptances or other
instruments, and
(ii) at the reasonable request of the Agent mark all Documents and
Chattel Paper with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of National
Westminster Bank Plc, as agent, for the benefit of itself and certain other
Banks."
(o) INVENTORY. Each Grantor will:
(i) at such times as the Agent shall reasonably request but in any
event not more than once each fiscal year, prepare and deliver to the Agent a
report of all Inventory, in form and substance satisfactory to the Agent; and
(ii) upon the request of the Agent after an Event of Default has
occurred and is continuing, take a physical listing of the Inventory and
promptly deliver a copy of such physical listing to the Agent.
(p) EQUIPMENT. Each Grantor will:
(i) upon the Agent's reasonable request but in any event not more
than once each fiscal year, prepare and deliver to the Agent a report of each
item of Equipment, in form and substance satisfactory to the Agent; and
(ii) upon the request of the Agent after an Event of Default has
occurred and is continuing, take a physical listing of the Equipment and
promptly delivery a copy of such physical listing to the Agent.
(q) INTELLECTUAL PROPERTY COLLATERAL. Each Grantor will:
(i) not enter into any agreements or transactions (including any
license or royalty agreement) pertaining to any Intellectual Property Collateral
except in the ordinary course of business;
(ii) if reasonably within such Grantor's abilities, not allow or
suffer any Intellectual Property Collateral to become abandoned, nor any
registration thereof to be terminated, forfeited,
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expired or dedicated to the public unless such Intellectual Property Collateral
is no longer useful or necessary to the operation of its business;
(iii) diligently prosecute all applications for patents, copyrights
and trademarks useful and necessary to the operation of its business, and file
and prosecute any and all continuations, continuations-in-part, applications for
reissue, applications for certificate of correction and like matters as shall be
reasonable and appropriate in accordance with prudent business practice, and
promptly and timely pay any and all maintenance, license, registration and other
fees, taxes and expenses incurred in connection with any Intellectual Property
Collateral; and
(iv) provide the Agent on a quarterly basis with a list of all new
applications and registrations for United States and foreign patents,
copyrights, trademarks, service marks or trade names, which such new
applications and registrations shall be subject to the terms and conditions of
the Credit Agreement and this Agreement.
(r) NOTICES, REPORTS AND INFORMATION. Each Grantor will (i) notify
the Agent of any material claim made or asserted against the Collateral by any
Person and of any change in the composition of the Collateral or other event
which could materially adversely affect the value of the Collateral or the
Agent's Lien thereon; (ii) furnish to the Agent such statements and schedules
further identifying and describing the Collateral and such other reports and
other information in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail; and (iii) upon the reasonable request of the
Agent make such demands and requests for information and reports as such Grantor
is entitled to make in respect of the Collateral.
(s) FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and from
time to time upon the written consent of the Agent and at the sole expense of
each Grantor, each Grantor shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further actions as the
Agent may deem desirable to obtain the full benefits of this Agreement and of
the rights and powers herein granted, including without limitation (i) using its
best efforts to secure all consents and approvals necessary or appropriate for
the assignment to or for the benefit of the Agent, for the benefit of itself,
the Banks and the Issuing Banks, of any license or contract held by such Grantor
or to which such Grantor has any rights not heretofore assigned, (ii) filing any
financing or continuation statements under the UCC with respect to the Liens and
security interests granted hereunder or under any other Loan Document,
(iii) transferring Collateral to the Agent's possession for the benefit of
itself, the Banks and the Issuing Banks (if such Collateral consists of Chattel
Paper or if a security interest in such Collateral can be perfected only by
possession), and (iv) using its best efforts to obtain waivers of Liens, if any
exist, from landlords and mortgagees. Each Grantor also hereby authorizes the
Agent, for the benefit of itself, the Banks and the Issuing Banks, to file any
such financing or continuation statements without the signature of such Grantor
to the extent permitted by applicable law. If any amount payable under or in
connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instruments, other than checks and notes received in the
ordinary course of business, shall be duly endorsed in a manner satisfactory to
the Agent immediately upon such Grantor's receipt thereof.
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(t) RIGHT OF INSPECTION. The Agent shall have the right to inspect
the Collateral and the corporate, financial and operating records of each
Grantor in accordance with the terms of SECTION 6.2 of the Credit Agreement.
SECTION 6 COLLECTION OF RIGHTS TO PAYMENT. Until the Agent exercises
its rights hereunder to collect Rights to Payment, each Grantor shall endeavor
in the first instance diligently to collect all amounts due or to become due on
or with respect to the Rights to Payment. At the request of the Agent, upon and
after the occurrence of any Event of Default, all remittances received by such
Grantor shall be held in trust for the Agent and, in accordance with the Agent's
instructions, remitted to the Agent or deposited to an account with the Agent in
the form received (with any necessary endorsements or instruments of assignment
or transfer).
SECTION 7 AUTHORIZATION; AGENT APPOINTED ATTORNEY-IN-FACT. Each
Grantor hereby irrevocably constitutes and appoints the Agent, for the benefit
of itself, the Banks and the Issuing Banks, and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of such Grantor and
in the name of such Grantor or in its own name, from time to time in the Agent's
sole discretion for the purpose of carrying out the terms of this Agreement, to
take any and all appropriate action and to execute and deliver any and all
documents which may be necessary or desirable to accomplish the purposes of this
Agreement and, without limiting the generality of the foregoing, hereby grants
to the Agent, for the benefit of itself, the Banks and the Issuing Banks, the
power and right, on behalf of such Grantor, without notice to or assent by such
Grantor, and at any time, to do the following:
(i) sign any of the Financing Statements which must be executed or
filed to perfect or continue perfected, maintain the priority of or provide
notice of the Agent's security interest in the Collateral;
(ii) take possession of and endorse any notes, acceptances, checks,
drafts, money orders or other forms of payment or security and collect any
Proceeds of any Collateral;
(iii) sign and endorse any invoice or bill of lading relating to any
of the Collateral, warehouse or storage receipts, drafts against customers or
other obligors, assignments, notices of assignment, verifications and notices to
customers or other obligors;
(iv) notify the Postal Service authorities to change the address for
delivery of mail addressed to any Grantor to such address as the Agent may
designate and, without limiting the generality of the foregoing, establish with
any Person lockbox or similar arrangements for the payment of the Rights to
Payment;
(v) receive, open and dispose of all mail addressed to any Grantor;
(vi) send requests for verification of Rights to Payment to the
customers or other obligors of any Grantor;
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(vii) contact, or direct any Grantor to contact, all account debtors
and other obligors on the Rights to Payment and instruct such account debtors
and other obligors to make all payments directly to the Agent;
(viii) assert, adjust, sue for, compromise or release any claims under
any policies of insurance;
(ix) exercise dominion and control over, and refuse to permit further
withdrawals from, Deposit Accounts maintained with the Agent;
(x) notify each Person maintaining lockbox or similar arrangements for
the payment of the Rights to Payment to remit all amounts representing
collections on the Rights to Payment directly to the Agent;
(xi) ask, demand, collect, receive and give acquittances and receipts
for any and all Rights to Payment, enforce payment or any other rights in
respect of the Rights to Payment and other Collateral, grant consents, agree to
any amendments, modifications or waivers of the agreements and documents
governing the Rights to Payment and other Collateral, and otherwise file any
claims, take any action or institute, defend, settle or adjust any actions,
suits or proceedings with respect to the Collateral, as the Agent may deem
necessary or desirable to maintain, preserve and protect the Collateral, to
collect the Collateral or to enforce the rights of the Agent with respect to the
Collateral;
(xii) execute any and all applications, documents, papers and
instruments necessary for the Agent to use the Intellectual Property Collateral
and grant or issue any exclusive or non-exclusive license or sublicense with
respect to any Intellectual Property Collateral;
(xiii) execute any and all endorsements, assignments or other
documents and instruments necessary to sell, lease, assign, convey or otherwise
transfer title in or dispose of the Collateral;
(xiv) execute any and all such other documents and instruments, and do
any and all acts and things for and on behalf of each Grantor, which the Agent
may deem necessary or advisable to maintain, protect, realize upon and preserve
the Collateral; and
(xv) execute any and all such other documents and instruments, and do
any and all acts and things for and on behalf of each Grantor, which the Agent
may deem necessary or advisable to maintain, protect, and preserve the Agent's
security interest in the Collateral.
The Agent agrees that, except upon and after the occurrence of an
Event of Default, it shall not exercise the power of attorney, or any rights
granted to the Agent, pursuant to clauses (ii) through (xiv). The foregoing
power of attorney is coupled with an interest and irrevocable so long as any
Bank has outstanding any Commitment or Loan, or any letter of credit remains
outstanding, or the Secured Obligations have not been paid and performed in full
or any Bank is a counterparty to an Interest Rate Contract or a currency hedging
agreement with the Borrower. Each
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<PAGE>
Grantor hereby ratifies, to the extent permitted by law, all that the Agent
shall lawfully and in good faith do or cause to be done by virtue of and in
compliance with this Section 7.
SECTION 8 AGENT PERFORMANCE OF GRANTORS' OBLIGATIONS. After an
Event of Default has occurred and is continuing, the Agent may perform or pay
any obligation which each Grantor has agreed to perform or pay under or in
connection with this Agreement, and such Grantor shall reimburse the Agent on
demand for any amounts paid by the Agent pursuant to this Section 8.
SECTION 9 AGENT'S DUTIES. Notwithstanding any provision contained
in this Agreement, but subject to the following sentence, the Agent shall have
no duty to exercise any of the rights, privileges or powers afforded to it and
shall not be responsible to any Grantor or any other Person for any failure to
do so or delay in doing so. Beyond the exercise of reasonable care to assure
the safe custody of Collateral in the Agent's possession and the accounting for
moneys actually received by the Agent hereunder, the Agent shall have no duty or
liability to exercise or preserve any rights, privileges or powers pertaining to
the Collateral.
SECTION 10 REMEDIES. (a) REMEDIES. After an Event of Default has
occurred and is continuing, the Agent shall have, in addition to all other
rights and remedies granted to it in this Agreement, the Credit Agreement or any
other Loan Document, all rights and remedies of a secured party under the UCC
and other applicable laws. Without limiting the generality of the foregoing,
each Grantor agrees that the Agent may:
(i) peaceably and without notice enter any premises of such Grantor,
take possession of any the Collateral, remove or dispose of all or part of the
Collateral on any premises or elsewhere, or, in the case of Equipment, render it
nonfunctional, and otherwise collect, receive, appropriate and realize upon all
or any part of the Collateral, and demand, give receipt for, settle, renew,
extend, exchange, compromise, adjust, or sue for all or any part of the
Collateral, as the Agent may determine;
(ii) require such Grantor to assemble all or any part of the
Collateral and make it available to the Agent at any place and time designated
by the Agent;
(iii) use or transfer any of such Grantor's rights and interests in
any Intellectual Property Collateral, by license, by sublicense (to the extent
permitted by an applicable license) or otherwise, on such conditions and in such
manner as the Agent may determine;
(iv) secure the appointment of a receiver of the Collateral or any
part thereof to the extent and in the manner provided by applicable law;
(v) withdraw (or cause to be withdrawn) any and all funds from Deposit
Accounts;
(vi) sell, resell, lease, use, assign, transfer or otherwise dispose
of any or all of the Collateral in its then condition or following any
commercially reasonable preparation or processing (utilizing in connection
therewith any of such Grantor's assets, without charge or liability to the Agent
therefor) at public or private sale, by one or more contracts, in one or more
parcels, at the
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<PAGE>
same or different times, for cash or credit, or for future delivery without
assumption of any credit risk, all as the Agent deems advisable; PROVIDED,
HOWEVER, that such Grantor shall be credited with the net proceeds of sale only
when such proceeds are finally collected by the Agent. The Agent shall have the
right upon any such public sale, and, to the extent permitted by law, upon any
such private sale, to purchase the whole or any part of the Collateral so sold,
free of any right or equity of redemption, which right or equity of redemption
such Grantor hereby releases, to the extent permitted by law. Each such Grantor
hereby agrees that the sending of notice by ordinary mail, postage prepaid, to
the address of such Grantor set forth on the signature page hereto, of the place
and time of any public sale or of the time after which any private sale or other
intended disposition is to be made, shall be deemed reasonable notice thereof if
such notice is sent ten (10) days prior to the date of such sale or other
disposition or the date on or after which such sale or other disposition may
occur, PROVIDED that the Agent may provide such Grantor shorter notice or no
notice, to the extent permitted by the UCC or other applicable law; and
(vii) at its sole option and discretion, be entitled to assume any and
all of the obligations of such Grantor under any of the Contracts included in
the Collateral and to perform any and all acts that such Grantor is required or
entitled to perform thereunder including, without limitation, enforcement of
such Grantor's rights pursuant to the terms thereof.
(b) LICENSE. For the purpose of enabling the Agent to exercise its
rights and remedies under this Section 10, each Grantor hereby grants to the
Agent an irrevocable, non-exclusive and assignable license (exercisable without
payment or royalty or other compensation to such Grantor) to use, license or
sublicense any Intellectual Property Collateral.
(c) PROCEEDS ACCOUNT. To the extent that any of the Secured
Obligations may be contingent, unmatured or unliquidated (including with respect
to undrawn amounts under any letter of credit), at such time as there may exist
an Event of Default, the Agent may, at its election, (i) retain the proceeds of
any sale, collection, disposition or other realization upon the Collateral (or
any portion thereof) in a special purpose non-interest-bearing restricted
deposit account (the "PROCEEDS ACCOUNT") created and maintained by the Agent for
such purpose (which shall constitute a Deposit Account included within the
Collateral hereunder) until such time as the Agent may elect to apply such
proceeds to the Secured Obligations, and each Grantor agrees that such retention
of such proceeds by the Agent shall not be deemed strict foreclosure with
respect thereto; (ii) in any manner elected by the Agent, estimate the
liquidated amount of any such contingent, unmatured or unliquidated claims and
apply the proceeds of the Collateral against such amount; or (iii) otherwise
proceed in any manner permitted by applicable law. Each Grantor agrees that the
Proceeds Account shall be a blocked account and that upon the irrevocable
deposit of funds into the Proceeds Account, such Grantor shall not have any
right of withdrawal with respect to such funds. Accordingly, such Grantor
irrevocably waives until the termination of the security interests granted under
this Agreement in accordance with Section 25 the right to make any withdrawal
from the Proceeds Account and the right to instruct the Agent to honor drafts
against the Proceeds Account.
(d) APPLICATION OF PROCEEDS. Subject to subsection (c) immediately
above, the cash proceeds actually received from the sale or other disposition or
collection of Collateral upon the exercise of any remedy by the Agent under this
SECTION 10, and any other amounts received in
-18-
<PAGE>
respect of the Collateral the application of which is not otherwise provided for
herein, shall be distributed to the Banks pro rata and applied as follows:
FIRST: to the payment of the costs and expenses of such sale,
including reasonable compensation to the Agent and its agents and
attorneys, and of any judicial or private proceedings in which such
sale may be made, and of all other expenses, liabilities and advances
made or incurred by the Agent, together with interest on such costs,
expenses and liabilities and on all advances made by the Agent from
the date any such cost, expense or liability is past due or unpaid or
any such advance is made, in each case until paid in full;
SECOND: to the payment of any other fees, costs or other
expenses constituting obligations under the Loan Documents other than
amounts payable under subparagraph "First" above, together with
interest on each such amount at the Post-Default Rate from and after
the date such amount is due, owing or unpaid until paid in full;
THIRD: to the payment of (i) any interest then due, owing or
unpaid in respect of any Loan or any other Secured Obligation; and
(ii) with respect to any Interest Rate Contracts or currency hedging
agreement with the Borrower to which a Bank is a party, the interest
due and owing in respect of any amounts payable thereunder, in each
case together with, to the maximum extent permitted by law, interest
thereon at the Post-Default Rate from the date such amount is due,
owing or unpaid until paid in full to be applied in accordance with
the Credit Agreement;
FOURTH: to the payment of the whole amount of principal then
due, owing or unpaid in respect of any Loan, or any other Secured
Obligation secured by this Agreement, to be applied in accordance with
the Credit Agreement; and
FIFTH: the surplus, if any, to be paid to the applicable Grantor
or whomever lawfully may be entitled to receive such surplus.
Each Grantor shall remain liable to the Agent for any deficiency which exists
after any sale or other disposition or collection of Collateral.
SECTION 11 CERTAIN WAIVERS. Each Grantor waives, to the fullest
extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the Secured
Obligations; (ii) any right to require the Agent (A) to proceed against any
Person, (B) to exhaust any other collateral or security for any of the Secured
Obligations, (C) to pursue any remedy in the Agent's power, or (D) to make or
give any presentments, demands for performance, notices of nonperformance,
protests, notices of protests or notices of dishonor in connection with any of
the Collateral; and (iii) all claims, damages, and demands against the Agent
arising out of the repossession, retention, sale or application of the proceeds
of any sale of the Collateral.
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<PAGE>
SECTION 12 [Intentionally Blank]
SECTION 13 NOTICES. All notices or other communications hereunder to
the Agent shall be given in the manner and to the addresses specified in the
Credit Agreement, and if to a Grantor, as set forth on the signature pages
hereto. All such notices and other communications shall be effective (i) if
delivered by hand or pre-paid courier service, when delivered; (ii) if sent by
mail, upon the earlier of the date of receipt or five (5) Business Days after
deposit in the mail, first class, postage prepaid; (iii) if sent by telex, upon
receipt by the sender of an appropriate answerback; and (iv) if sent by
facsimile transmission, when sent.
SECTION 14 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
the Agent to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to the Agent.
SECTION 15 COSTS AND EXPENSES; INDEMNIFICATION; OTHER CHARGES.
(a) COSTS AND EXPENSES. Each Grantor agrees to pay on demand:
(i) the reasonable out-of-pocket costs and expenses of the Agent and
any of its Affiliates, and the Agent's reasonable attorney costs, in connection
with the negotiation, preparation, execution, delivery and administration of
this Agreement, and any amendments, modifications or waivers of the terms
thereof, and the custody of the Collateral;
(ii) all title, appraisal (including the allocated costs of internal
appraisal services), survey, audit, consulting, search, recording, filing and
similar costs, fees and expenses incurred or sustained by the Agent or any of
its Affiliates in connection with this Agreement or the Collateral; and
(iii) all costs and expenses of the Agent and its Affiliates,
including attorney costs, in connection with the enforcement or attempted
enforcement of, and preservation of any rights or interests under, this
Agreement, including in any out-of-court workout or other refinancing or
restructuring or in any bankruptcy case, and the protection, sale or collection
of, or other realization upon, any of the Collateral, including all expenses of
taking, collecting, holding, sorting, handling, preparing for sale, selling, or
the like, and other such expenses of sales and collections of Collateral, and
any and all losses, costs and expenses sustained by the Agent as a result of any
failure by such Grantor to perform or observe its obligations contained herein.
(b) INDEMNIFICATION. Each Grantor shall pay, indemnify, and hold the
Agent, each Bank, each Issuing Bank and each of their respective Affiliates,
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements, of any kind or nature whatsoever with
respect to the execution, delivery,
-20-
<PAGE>
enforcement, performance and administration of this Agreement (including
attorney costs), or the transactions contemplated hereby, and with respect to
any investigation, litigation or proceeding (including any insolvency proceeding
or appellate proceeding) related to this Agreement, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person.
(c) OTHER CHARGES. Each Grantor agrees to indemnify the Agent, each
Bank and each Issuing Bank against and hold each harmless from any and all
present and future stamp, transfer, or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery, or registration of, or otherwise with
respect to, this Agreement.
(d) INTEREST. Any amounts payable to the Agent, each Bank and each
Issuing Bank under this Section 15 or otherwise under this Agreement if not paid
upon demand shall bear interest from the date of such demand until paid in full
at the Post-Default Rate.
SECTION 16 BINDING EFFECT. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by each Grantor and the Agent, and
their respective successors and assigns, PROVIDED, HOWEVER, that such Grantor
may not assign any of its rights hereunder or interests herein without the
written consent of the Agent and the Majority Banks. Each Grantor acknowledges
that upon any assignment or other transfer by the Agent or any other Bank Party
of any of the Secured Obligations, the Agent or such other Bank Party may
transfer its interest herein, or any part thereof, to the assignee or
transferee, who shall thereupon become vested with all the rights, remedies,
powers, security interests and liens herein granted to the Agent or such other
Bank Party, or the transferred part thereof, subject, however, to the
restrictions contained herein. No Persons other than each of Grantors, the Bank
Parties, the Agent and the respective assignees of the Bank Parties and the
Agent are intended to be benefited hereby or shall have any rights hereunder, as
third-party beneficiaries or otherwise.
SECTION 17 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT
THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
SECTION 18 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS
OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE GRANTORS
AND THE AGENT FOR THE BENEFIT OF THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
GRANTOR AND THE AGENT FOR THE BENEFIT OF THE BANKS IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
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<PAGE>
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE GRANTORS AND THE AGENT
FOR THE BENEFIT OF ITSELF, THE BANKS AND THE ISSUING BANKS EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY NEW YORK LAW.
SECTION 19 WAIVER OF JURY TRIAL. EACH GRANTOR AND THE AGENT FOR THE
BENEFIT OF THE BANKS WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GRANTORS AND THE AGENT FOR THE
BENEFIT OF ITSELF, THE BANKS AND THE ISSUING BANKS EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
SECTION 20 AMENDMENT. This Agreement shall not be amended except by
the written agreement of the parties as provided in the Credit Agreement.
SECTION 21 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction. This Agreement is to be read, construed and applied
together with the Credit Agreement and the other Loan Documents which, taken
together, set forth the complete understanding and agreement of the Agent, the
Banks, the Issuing Banks and each Grantor with respect to the matters referred
to herein and therein.
SECTION 22 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
-22-
<PAGE>
SECTION 23 INCORPORATION OF PROVISIONS OF THE CREDIT AGREEMENT. To
the extent the Credit Agreement contains provisions of general applicability to
the Loan Documents, including any such provisions contained in Article 10
thereof, such provisions are incorporated herein by this reference.
SECTION 24 NO INCONSISTENT REQUIREMENTS. Each Grantor acknowledges
that this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms;
PROVIDED, in the event any terms or conditions contained herein conflict with
any term or condition set forth in the Credit Agreement, such term or condition
set forth in the Credit Agreement shall control.
SECTION 25 TERMINATION. Upon termination of the Commitments of the
Banks under the Loan Documents, the surrender of any letters of credit issued by
any Issuing Bank for the account of the Borrower, the termination of all
Interest Rate Contracts and currency hedging agreements with the Borrower to
which any Bank is a counterparty, and payment and performance in full of all
Secured Obligations, this Agreement and the security interests granted under
this Agreement shall terminate and the Agent shall promptly execute and deliver
to each Grantor such documents and instruments reasonably requested by such
Grantor as shall be necessary to evidence termination of this Agreement and of
all security interests given by such Grantor to the Agent hereunder; PROVIDED,
HOWEVER, that the obligations of such Grantor under Section 15 shall survive
such termination.
SECTION 26 LIMITATION ON SECURED OBLIGATIONS. Notwithstanding any
provision herein contained to the contrary, liability hereunder shall be limited
to an amount not to exceed the amount which could be claimed by the Agent and
Banks from each Grantor under this Agreement without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute of common law.
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<PAGE>
IN WITNESS WHEREOF, each Grantor has executed this Agreement as of the
day and year first above written.
NATIONAL WESTMINSTER BANK PLC, as Agent
By:_______________________________________
Name:_____________________________________
Title:______________________________________
LODGENET ENTERTAINMENT CORPORATION
By:_______________________________________
Name:_____________________________________
Title:______________________________________
RESNET COMMUNICATIONS, INC.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
LODGENET ENTERTAINMENT (CANADA)
CORPORATION
By:_______________________________________
Name:_____________________________________
Title:______________________________________
<PAGE>
SCHEDULE A
LOCATIONS OF CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS, INCLUDING OF COLLATERAL
a. Chief Executive Office and Principal Place of Business:
Borrower: LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
ResNet: ResNet Communications, Inc.
808 West Avenue North
Sioux Falls, South Dakota 57104
LodgeNet Canada: LodgeNet Entertainment (Canada) Corporation
Suite 3300
130 Adelaide Street West
Toronto, Ontario M5H3P5
b. Other locations where Grantor conducts business or
Collateral is kept:
See attached Exhibit 1.
<PAGE>
SCHEDULE B
LOCATIONS OF BOOKS PERTAINING TO RIGHTS TO PAYMENT
Borrower: LodgeNet Entertainment Corporation
808 West Avenue North
Sioux Falls, South Dakota 57104
ResNet: ResNet Communications, Inc.
808 West Avenue North
Sioux Falls, South Dakota 57104
LodgeNet Canada: LodgeNet Entertainment (Canada) Corporation
Suite 3300
130 Adelaide Street West
Toronto, Ontario M5H3P5
<PAGE>
SCHEDULE C
TRADE NAMES AND TRADE STYLES; OTHER CORPORATE, TRADE OR FICTITIOUS NAMES, ETC.
None.
<PAGE>
SCHEDULE D
INVENTORY STORED WITH WAREHOUSEMEN OR ON LEASED PREMISES, ETC.
None.
<PAGE>
SCHEDULE E
PATENTS, COPYRIGHTS, TRADEMARKS, ETC.
BORROWER TRADEMARK REGISTRATIONS
MARK REG. NO.
---- --------
LodgeNet 1,378,457
LodgeNet Entertainment Class 41,
(and Design) Serial No. 74/669,535
LodgeNet Entertainment Class 38,
(and Design) Serial No. 74/669,533
LodgeNet Class 38,
Serial No. 74/669,534
BORROWER TRADEMARK APPLICATIONS
Traveler's TV Mall, Serial No. 74/615,989
TV Mall, filed November 6, 1995
LodgeNet Passport, filed February 15, 1996, Serial No. 75/058,170
ResNet, Serial No. 75/016091
ResNet Communications, filed March 14, 1996, Serial No. 75/072,868
B-LAN, filed October 31, 1996
BORROWER TRADEMARK LICENSES
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
Technology License Borrower and ResNet January 10, 1996
Agreement
<PAGE>
BORROWER PATENTS
U.S. Patent No. Date Issued Title
- --------------- ----------- -----
5455619 October 3, 1995 Video Distribution System
Addressing Device for
Identifying Remote
Locations
5,506,572 April 9, 1996 Low Battery Detection
System
4,502,098 February 26, 1985 Circuit Assembly
4,920,432 April 24, 1990 System for Random Access
to an Audio/Video Data
Library with Independent
Selection and Display at
each of a Plurality of
Remote Locations
BORROWER PATENT APPLICATIONS
Serial No. Date Filed Title
- ---------- ---------- -----
08/288,626 August 10, 1994 System for Collecting and
Processing User Inputs
RESNET TRADEMARK LICENSES
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
Technology License Borrower and ResNet January 10, 1996
Agreement
<PAGE>
SCHEDULE F
DEPOSIT ACCOUNTS
BANK NAME BANK ADDRESS BANK ACCTS
--------- ------------ ----------
Bank of Boston 100 Federal St. 512-83883
Lock Box Boston, MA 02110
Bank of Boston 100 Federal St.
CDA - Maine Boston, MA 02110 80-028-0539
Bank of Boston 100 Federal St.
Payroll Boston, MA 02110 512-83906
First National Bank P.O. Box 5186
401K Trust Sioux Falls, SD 57117-5186 301-991-1
First National Bank P.O. Box 5186
Checking Sioux Falls, SD 57117-5186 301-645-4
First National Bank P.O. Box 5186
Golf Classic Sioux Falls, SD 57117-5186 302-002-3
First National Bank P.O. Box 5186
Payroll Sioux Falls, SD 57117-5186 301-862-8
First National Bank P.O. Box 5186
Per Diem Sioux Falls, SD 57117-5186 301-870-8
Harris Bank P.O. Box 755
CDA Chicago, IL 60690-0755 04-325-397-8
Harris Bank P.O. Box 755
Lock Box Chicago, IL 60690-0755 325-400-0
Mercantile Bank 8th and Locust P.O. Box 524
Checking St. Louis, MO 63186-0524 100500333-8
<PAGE>
EXHIBIT G
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "AGREEMENT"), dated as of December 19,
1996, is made by LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (the
"PLEDGOR"), in favor of NATIONAL WESTMINSTER BANK PLC, a United Kingdom public
limited company, as agent for the benefit of itself, the Banks and the Issuing
Banks (as defined below) (in such capacity, and together with its successors as
agent for the Banks, the "AGENT").
RECITALS
WHEREAS, the Pledgor is a party to that certain Amended and Restated
Credit Agreement dated as of December 19, 1996 by and among the Pledgor, the
several financial institutions from time to time party thereto (the "BANKS"),
the Agent (also in its capacity as an Issuing Bank and Bank) and National
Westminster Bank of Canada, as an Issuing Bank (as amended, restated, modified,
renewed, supplemented or extended from time to time, the "CREDIT AGREEMENT");
and
WHEREAS, it is a condition precedent to each Bank's obligation to make
its initial Loan under the Credit Agreement and for the Issuing Banks to issue
letters of credit that the Pledgor enter into this Agreement and grant to the
Agent, for the benefit of itself, the Banks and the Issuing Banks, the security
interests hereinafter provided to secure the obligations of the Pledgor
described below.
NOW, THEREFORE, to induce the Banks to make Loans under the Credit
Agreement, and in consideration of such extensions of credit as the Banks have
made or may hereafter make to the Pledgor, the Pledgor, intending to be legally
bound hereby, covenants and agrees as follows:
SECTION 1 DEFINITIONS; INTERPRETATIONS.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Agreement and not otherwise defined herein have the meanings specified in
the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings:
"BANK PARTY" means, as the context may require, any Bank (including
any Bank in its capacity as a counterparty to an Interest Rate Contract or
currency hedging agreement), any Issuing Bank or the Agent, and each of
their respective successors, transferees and assigns.
<PAGE>
"BOOK-ENTRY SHARES" means any Pledged Shares evidenced or represented
by a book-entry on the books of a Clearing Corporation.
"CLEARING CORPORATION" means a "clearing corporation", as defined in
Section 8-102(3) of the UCC, at which the Agent and the Pledgor each
maintains a securities account.
"COMMISSION" has the meaning specified in subsection 11(b)(i).
"IRREVOCABLE PROXIES" has the meaning specified in subsection 7(c).
"PLEDGE AGREEMENT SUPPLEMENT" has the meaning specified in subsection
3(b).
"PLEDGED COLLATERAL" has the meaning specified in Section 2.
"PLEDGED NOTES" means all intercompany notes referred to in subsection
(g) of Section 2.
"PLEDGED SHARES" means all shares of capital stock or other equity
securities referred to in subsections (a), (b) and (c) of Section 2.
"PLEDGED SUBSIDIARIES" means, collectively, the Subsidiaries of the
Pledgor listed on SCHEDULE 1 hereto or on any Pledge Agreement Supplement
attached hereto.
"SECURED OBLIGATIONS" means all Obligations (as defined in the Credit
Agreement).
"SECURITIES ACT" has the meaning specified in subsection 11(b)(i).
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; PROVIDED, HOWEVER, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Pledged
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean
the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions related to such provisions.
(c) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.
(d) AFFILIATES OF BANKS AS SECURED PARTIES. Notwithstanding anything
herein to the contrary, the pledge and security interests granted hereby
shall be deemed to be for the benefit of the Bank Parties and Affiliates of
the Banks that are parties to Interest Rate Contracts or currency hedging
agreements with the Borrower, and accordingly, references herein to any
Bank shall, to such extent, be deemed to include such Affiliates.
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SECTION 2 PLEDGE. As security for the payment, in full in cash when
due, whether at stated maturity, by acceleration or otherwise, and performance
of the Secured Obligations, the Pledgor hereby pledges, assigns, transfers,
hypothecates and sets over to the Agent, for the benefit of itself, the Banks
and the Issuing Banks, and grants to the Agent, for the benefit of itself, the
Banks and the Issuing Banks, a security interest in all of the Pledgor's right,
title and interest in, to and under the following, whether now existing or owned
or hereafter acquired or arising (collectively, the "PLEDGED COLLATERAL"):
(a) all shares of capital stock or other equity securities of the
Pledged Subsidiaries now owned by the Pledgor, as more fully described in
SCHEDULE 1 attached hereto, including, without limitation, any such
securities that are Book-Entry Shares;
(b) all shares of capital stock or other equity securities of any
Pledged Subsidiary hereafter acquired, received or owned by the Pledgor
(whether in connection with any recapitalization, reclassification or
reorganization of the capital of a Pledged Subsidiary or otherwise),
including, without limitation, any such securities that are Book-Entry
Shares;
(c) all shares of capital stock or other equity securities hereafter
acquired, received or owned by the Pledgor of any Person who, after the
date hereof, becomes, as a result of any occurrence, a Pledged Subsidiary,
including, without limitation, any such securities that are Book-Entry
Shares;
(d) all certificates, instruments or other writings representing or
evidencing the Pledged Shares (other than any Book-Entry Shares or any
other Pledged Shares that constitute part of a fungible bulk of securities
in the possession of a Clearing Corporation);
(e) all warrants, options and other rights entitling the Pledgor to
acquire any interest in any Pledged Shares;
(f) all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of the Pledged Shares;
(g) all now owned or hereafter acquired intercompany notes owing to
the Pledgor by any direct or indirect Subsidiary, together with all other
promissory notes, instruments, debt securities or other property hereafter
delivered to the Pledgor in substitution for or in addition to the Pledged
Notes; and
(h) all cash and non-cash proceeds of the foregoing.
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SECTION 3 DELIVERY OR TRANSFER OF PLEDGED COLLATERAL.
(a) All original certificates, instruments or other writings
representing or evidencing the Pledged Shares (other than certificated
securities that constitute part of a fungible bulk of securities in the
possession of a Clearing Corporation) shall be delivered to the Agent
concurrently with the execution and delivery of this Agreement (or
immediately upon obtaining of any such Pledged Shares hereafter), and shall
be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form
and substance satisfactory to the Agent.
(b) In the event that any Pledged Shares are Book-Entry Shares which
are registered in the name of a Clearing Corporation, concurrently with the
execution and delivery of this Agreement (or immediately upon obtaining any
such Pledged Shares hereafter), the Pledgor shall cause such Clearing
Corporation to make appropriate entries on its books reducing the account
of the Pledgor and increasing the account of the Agent by the number of
such shares pledged or purported to be pledged hereunder.
(c) In the event that any Pledged Shares are certificated securities
that constitute part of a fungible bulk of securities in the custody of a
Clearing Corporation and are registered in such Clearing Corporation's
name, concurrently with the execution and delivery of this Agreement (or
immediately upon obtaining any such Pledged Shares hereafter), the Pledgor
shall cause such Clearing Corporation to make appropriate entries on its
books reducing the account of the Pledgor and increasing the account of the
Agent by the number of such shares pledged or purported to be pledged
hereunder.
(d) All original Pledged Notes outstanding on the date hereof shall
be delivered to the Agent concurrently with the execution and delivery of
this Agreement (or immediately upon obtaining of any such Pledged Notes
hereafter), and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to the Agent.
(e) No later than ten (10) Business Days after obtaining any Pledged
Shares or Pledged Notes hereafter, the Pledgor agrees that it will (i)
deliver to the Agent a duly executed Pledge Agreement Supplement in
substantially the form of SCHEDULE 2 attached hereto (a "PLEDGE AGREEMENT
SUPPLEMENT") identifying such additional Pledged Shares or Pledged Notes,
and (ii) deliver or otherwise cause the transfer of such additional Pledged
Shares or Pledged Notes to the Agent pursuant to subsection (a), (b), (c)
or (d) above, as applicable. The Pledgor hereby authorizes the Agent to
attach each Pledge Agreement Supplement to this Agreement and agrees that
all shares of capital stock, notes or other securities listed thereon shall
for all purposes hereunder constitute Pledged Collateral.
(f) The Agent shall have the right, at any time in its discretion and
without notice to the Pledgor, to transfer to or to register in its name or
the name of any of its nominees any or all of the Pledged Shares, subject
only to the provisions of Section 7(a). In addition, the
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Agent shall have the right at any time to exchange certificates,
instruments or other writings representing or evidencing Pledged Shares for
certificates, instruments or other writings of smaller or larger
denominations. As soon as practicable after the purchase or receipt by the
Pledgor of any Book-Entry Shares, the Pledgor shall cause the issuer
thereof to issue stock certificates with respect to such shares and shall,
no later than ten (10) Business Days after receipt thereof, deliver such
certificates to the Agent in accordance with this Section.
SECTION 4 REPRESENTATIONS AND WARRANTIES. In addition to and not in
limitation of the representations and warranties of the Pledgor set forth in the
Credit Agreement, the Pledgor represents and warrants to the Agent and the other
Bank Parties that:
(a) The Pledgor is the sole record legal and beneficial owner of the
Pledged Collateral. No other Person, except the Agent pursuant to this
Agreement, has any right, title, claim or interest (by way of Lien,
purchase option or otherwise) in or against or to the Pledged Collateral,
except the restrictions relating to the transfer of Pledgor's shares and
membership interests in ResNet and ResNet LLC, respectively, under that
certain Stockholders' Agreement dated as of October 21, 1996 between
Pledgor and TCI Satellite Entertainment, Inc.
(b) The pledge of the Pledged Collateral pursuant to this Agreement
creates in favor of the Agent, for the benefit of itself, the Banks and the
Issuing Banks, a legally valid, binding and enforceable, first priority
perfected, security interest in the Pledged Collateral, securing the
payment of the Secured Obligations. The Pledgor acknowledges that, to the
extent the Pledged Collateral constitutes "instruments" under the UCC, no
filings or recordings (including, without limitation, filings under the
UCC) are necessary to be made under present law in order to perfect,
protect and preserve the security interest of the Agent, for the benefit of
itself, the Banks and the Issuing Banks, in the Pledged Collateral created
or intended to be created by this Agreement.
(c) All Pledged Shares have been duly authorized, validly issued and
fully paid and are non-assessable.
(d) No approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any governmental authority is necessary
or required in connection with the execution, delivery or performance by,
or enforcement against, the Pledgor of this Agreement, the exercise by the
Agent of the voting or other rights provided for in this Agreement, or the
remedies in respect of the Pledged Collateral pursuant to this Agreement,
except as may be required in connection with the disposition of the Pledged
Shares by laws affecting the offering and sale of securities generally.
(e) The Pledgor has full power, authority and legal right to pledge
the Pledged Collateral pursuant to this Agreement. There are and will be
no restrictions on the transferability of any Pledged Collateral
transferred or delivered by the Pledgor hereunder to the Agent or with
respect to the foreclosure, transfer or disposition thereof by the Agent,
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except the restrictions relating to the transfer of Pledgor's shares and
membership interests in ResNet and ResNet LLC, respectively, under that
certain Stockholders' Agreement dated as of October 21, 1996 between
Pledgor and TCI Satellite Entertainment, Inc.
(f) The Pledgor has delivered or otherwise caused the transfer to the
Agent, pursuant to subsection 3(a), 3(b), 3(c) or 3(d), as applicable, of
all Pledged Shares and Pledged Notes.
(g) All Pledged Shares are (i) certificated securities represented or
evidenced by certificates, instruments or other writings, the originals of
which are in the possession of the Pledgor (prior to delivery to the Agent
hereunder),(ii) certificated securities that constitute part of a fungible
bulk of securities in the custody of a Clearing Corporation and registered
in such Clearing Corporation's name, or (iii) uncertificated securities
that are Book-Entry Shares registered in the name of a Clearing
Corporation.
(h) As of the date hereof, the Pledgor has no Pledged Subsidiaries
other than those listed on SCHEDULE 1 attached hereto. Set forth on
SCHEDULE 1 attached hereto is a true, compete and accurate list of all
Pledged Shares and Pledged Notes. All the information set forth on
SCHEDULE 1 attached hereto is true, complete and accurate.
(i) None of the Pledged Shares constitutes "margin stock", as such
term is defined in Section 221.2(h) of Regulation U of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II, Part 221.
(j) The Indebtedness represented by the Pledges Notes comprises all
of the Indebtedness owed by any Subsidiary to the Pledgor.
The foregoing representations and warranties shall survive the execution and
delivery of this Agreement and shall be deemed restated automatically at each
such time as any additional Pledged Collateral is delivered hereunder to the
Agent.
SECTION 5 COVENANTS. In addition to and not in limitation of the
covenants of the Pledgor set forth in the Credit Agreement, so long as any of
the Secured Obligations remain unsatisfied or any Bank shall have outstanding
any Commitment or any Loan, or any letter of credit shall be outstanding and not
cash collateralized, or any Bank shall be a counterparty to any Interest Rate
Contract or currency hedging agreement with the Borrower, the Pledgor agrees
that:
(a) The Pledgor, for itself and its successors and assigns, does
hereby irrevocably waive and release all preemptive, first-refusal and
other similar rights of the Pledgor to purchase any or all of the Pledged
Shares upon any sale thereof by the Agent hereunder, whether such right to
purchase arises under any of the Pledgor's charter documents, by agreement,
by operation of law or otherwise.
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(b) The Pledgor warrants and covenants to defend the Agent's security
interest in and to the Pledged Collateral against the claims and demands of
all other Persons at any time claiming the same or any interest therein
adverse to the Agent.
(c) The Pledgor agrees that it will not (i) sell, assign, transfer,
surrender or otherwise dispose of, or grant any option, warrant or other
right or interest with respect to, any of the Pledged Collateral, (ii)
create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, except for the Lien created by this Agreement and
Permitted Liens, or (iii) enter into any shareholder agreement, voting
agreement, voting trust, irrevocable proxies (other than the Irrevocable
Proxies) or any other similar agreement or instrument with respect to any
Pledged Collateral.
(d) The Pledgor shall, no later than ten (10) Business Days after its
acquisition (directly or indirectly) of any Pledged Shares or Pledged Notes
hereafter, pledge such shares or notes hereunder pursuant to subsection
3(e) and deliver or otherwise cause the transfer of such shares to the
Agent in accordance with subsection 3(a), 3(b), 3(c) or 3(d), as
applicable. The Pledgor shall not cause or permit any issuer of Pledged
Shares to issue in favor of any Person other than the Pledgor any shares of
capital stock or other equity securities, except as permitted by the Credit
Agreement.
(e) The Pledgor shall pay promptly when due all taxes and other
governmental charges, all Liens and all other charges now or hereafter
imposed upon, relating to or affecting any Pledged Collateral to the extent
the Pledgor is required to do so under the Credit Agreement.
(f) The Pledgor will deliver promptly to the Agent and the other Bank
Parties all reports and notices received by the Pledgor in respect of any
Pledged Collateral.
(g) At the option of the Agent upon the occurrence and during the
continuance of an Event of Default, the Pledgor shall not demand, sue for
or receive any payments with respect to the Pledged Collateral and in the
event that the Pledgor, as record and beneficial owner of the Pledged
Collateral, shall have received, or shall have become entitled to receive,
any cash dividends or other payments or distributions in the ordinary
course, the Pledgor shall deliver to the Agent, and the Agent shall be
entitled to receive and retain, all such cash payments or other
distributions as additional security for the Secured Obligations.
SECTION 6 FURTHER ASSURANCES. The Pledgor agrees that at any time
and from time to time, at its own cost and expense, it will promptly procure,
execute and deliver all further instruments, documents and agreements, and take
all further action, that may be necessary or desirable, or that the Agent may
request, in order to establish, maintain, preserve, protect and perfect the
Pledged Collateral, any security interest granted or purported to be granted
hereby and the priority of such security interest, or to enable the Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral. Without limiting the generality of the foregoing, the
Pledgor further agrees that it shall, concurrently with the execution of this
Agreement
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<PAGE>
and at any time and from time to time thereafter (a) procure, execute and
deliver to the Agent all stock powers, endorsements, financing statements,
assignments and other instruments of transfer requested by the Agent, (b)
deliver to the Agent immediately upon receipt the originals of all Pledged
Shares and Pledged Notes and all certificates, instruments and other writings
evidencing the Pledged Collateral, and (c) cause the Lien of the Agent to be
recorded or registered in the books of any Clearing Corporation requested by
the Agent.
SECTION 7 VOTING RIGHTS; DIVIDENDS.
(a) So long as no Default or Event of Default shall exist or result
therefrom:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Shares or
any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Credit Agreement.
(ii) The Pledgor shall be entitled to receive and retain any
and all dividends, distributions or cash payments paid in respect of
the Pledged Collateral, in compliance with the terms of the Credit
Agreement, except the following:
(A) dividends and payments paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Pledged Collateral;
(B) dividends, payments and other distributions paid or
payable in cash in respect of any Pledged Shares in connection
with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus; and
(C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral;
all of which shall be, and all of which shall be forthwith delivered
to the Agent to hold as, Pledged Collateral and shall, if received by
the Pledgor, be received in trust for the benefit of the Agent, be
segregated from the other property or funds of the Pledgor, and be
forthwith delivered to the Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement and indemnity).
(iii) The Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may request for the purpose of enabling the
Pledgor to exercise the voting and other rights which it is entitled
to exercise pursuant to clause (i) above and to receive the dividends
or distributions which it is authorized to receive and retain pursuant
to clause (ii) above.
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(b) Upon the occurrence and during the continuance of a Default or an
Event of Default:
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 7(a)(i) above shall cease upon written notice
thereof from the Agent, and all such rights shall thereupon become
vested in the Agent, for the benefit of itself, the Banks and the
Issuing Banks, who shall thereupon have the sole right to exercise
such voting and other consensual rights.
(ii) All rights of the Pledgor to receive the dividends or
distributions which it would otherwise be authorized to receive and
retain pursuant to Section 7(a)(ii) above shall cease, and all such
rights shall thereupon become vested in the Agent, for the benefit of
itself, the Banks and the Issuing Banks, who shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends.
(iii) All dividends or distributions which are received by the
Pledgor contrary to the provisions of paragraph (ii) of this Section
7(b) shall be received in trust for the benefit of the Agent, for the
benefit of itself, the Banks and the Issuing Banks, shall be
segregated from other funds of the Pledgor and shall be forthwith paid
over to the Agent as Pledged Collateral in the same form as so
received (with any necessary endorsement or indemnity).
(c) In order to permit the Agent to exercise the voting and other
rights which it may be entitled to exercise pursuant to Section 7(b)(i)
above, and to receive all dividends and distributions which it may be
entitled to receive under Section 7(b)(ii) above, the Pledgor shall at any
time and from time to time upon the written request of the Agent, execute
and deliver such further documents and do such further acts and things as
the Agent may reasonably request in order to effect the purposes of this
Agreement, including, without limitation, delivering to the Agent on the
date hereof or at any time hereafter irrevocable proxies in respect of the
Pledged Shares in the form of SCHEDULE 3 hereto (the "IRREVOCABLE
PROXIES").
SECTION 8 AUTHORIZATION; AGENT APPOINTED ATTORNEY-IN-FACT. The Agent
shall have the right to, in the name of the Pledgor, or in the name of the
Agent, or otherwise, without notice to or assent by the Pledgor, and the Pledgor
hereby constitutes and appoints the Agent (and any of the Agent's officers,
employees or agents designated by the Agent) as the Pledgor's true and lawful
attorney-in-fact, with full power and authority to take any action and execute
any and all endorsements, assignments, documents, instruments or UCC financing
statements which the Agent may deem necessary or desirable to accomplish the
purposes of this Agreement, including, without limitation, (a) upon the
occurrence and during the continuance of an Event of Default, to receive,
endorse and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same, (b) to
perfect or continue perfected, maintain the priority of or provide notice
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of the Agent's security interest in, the Pledged Collateral or (c) upon the
occurrence and during the continuance of an Event of Default, to maintain,
protect, sell, assign, convey or otherwise transfer title in or dispose of the
Pledged Collateral. The foregoing power of attorney is coupled with an interest
and irrevocable so long as any Bank has outstanding any Commitment or Loan, or a
letter of credit remains outstanding, or the Secured Obligations have not been
paid and performed in full or any Bank is a counterparty to an Interest Rate
Contract or currency hedging agreement with the Borrower. The Pledgor hereby
ratifies all that the Agent shall lawfully and in good faith do or cause to be
done by virtue of and in compliance with this Section.
SECTION 9 AGENT PERFORMANCE OF PLEDGOR'S OBLIGATIONS. Upon the
occurrence and during the continuance of an Event of Default, the Agent may
perform or pay any obligation which the Pledgor has agreed to perform or pay
under or in connection with this Agreement, and the Pledgor shall reimburse the
Agent on demand for any amounts paid by the Agent pursuant to Section 16(a).
SECTION 10 NO RESPONSIBILITY FOR CERTAIN ACTIONS. Except for the
safe custody of the Pledged Collateral in their possession pursuant to Section
9-207 of the UCC and the accounting for monies actually received by them,
neither the Agent nor any Bank Party shall have responsibility for
(a) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether
or not the Agent or any Bank Party has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve any rights against any
parties with respect to any Pledged Collateral. The Agent shall have no duty
with respect to the custody, safekeeping and physical preservation of the
Pledged Collateral in its possession other than as set forth in Section 9-207 of
the UCC.
SECTION 11 REMEDIES IN GENERAL. Upon the occurrence and during the
continuance of an Event of Default:
(a) The Agent may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it under the Credit Agreement or any other Loan Document, all
the rights and remedies of a secured party under the UCC and other
applicable laws, and the Agent may also, without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at
any of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the Pledgor of the time
and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned. The Pledgor hereby waives any claims against
the Agent arising by reason of the fact that the price at which any Pledged
Collateral may have been sold at such a private sale
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was less than the price which might have been obtained at a public sale,
even if the Agent accepts the first offer received and does not offer such
Pledged Collateral to more than one offeree, so long as such sale is
conducted in a commercially reasonable manner and made on commercially
reasonable terms.
(b) If the Agent shall determine to exercise its right to sell all or
any of the Pledged Collateral pursuant to this Section, the Pledgor agrees
that, upon request of the Agent, the Pledgor will, at its own expense:
(i) execute and deliver and cause each issuer of Pledged
Collateral to execute and deliver all such instruments and documents,
and do or cause to be done all such other acts and things, as may be
necessary or, in the opinion of the Agent, advisable to register such
Pledged Collateral under the provisions of the Securities Act of 1933,
as from time to time amended (the "SECURITIES ACT"), in accordance
with the intended method of distribution thereof, and to cause the
registration statement relating thereto to become effective and to
remain effective for such period as prospectuses are required by law
to be furnished, and to make all amendments and supplements thereto
and to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission (the "COMMISSION") applicable thereto;
(ii) qualify the Pledged Collateral under the state securities
or "Blue Sky" laws and to obtain all necessary governmental approvals
for the sale of the Pledged Collateral in any state, as requested by
the Agent;
(iii) cause each issuer of the Pledged Collateral to enter into
customary agreements and take such other actions as are required in
order to expedite or facilitate the disposition of such Pledged
Collateral, as Agent or the managing underwriter therefor requests,
and will cause each issuer of Pledged Collateral otherwise to comply
with all applicable rules and regulations of the Commission; and
(iv) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Pledged Collateral or any
part thereof valid and binding and in compliance with applicable law.
The Pledgor further acknowledges the impossibility of ascertaining the
amount of damages which would be suffered by the Agent or the Bank Parties
by reason of the failure by the Pledgor to perform any of the covenants
contained in this Section 11(b) and, consequently, agrees that, if the
Pledgor shall fail to perform any of such covenants, the Agent shall be
entitled to specific performance.
(c) The Pledgor recognizes that, by reason of the aforementioned
requirements and certain prohibitions contained in the Securities Act and
applicable state securities laws,
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the Agent may, at its option, elect not to require the Pledgor to register
the offering or sale of all or any part of the Pledged Collateral under the
provisions of the Securities Act and may therefore be compelled, with
respect to any sale of all or any part of the Pledged Collateral, to limit
purchasers to those who will agree, among other things, to acquire such
securities for their own account, for investment, and not with a view to
the distribution or resale thereof. The Pledgor acknowledges and agrees
that any such sale may result in prices and other terms less favorable to
the seller than if such sale were a public sale without such restrictions
and notwithstanding such circumstances, agrees that any such sale shall not
be deemed to have been made in a manner not commercially reasonable solely
by reason of such sale's being conducted in such manner. The Agent shall
be under no obligation to delay the sale of any of the Pledged Collateral
for the period of time necessary to permit the Pledgor to register such
securities for public sale under the Securities Act, or under applicable
state securities laws, even if the Pledgor would agree to do so.
(d) If the Agent determines to exercise its right to sell any or all
of the Pledged Collateral, upon written request, the Pledgor shall, and
shall cause each of its Subsidiaries to, from time to time, furnish to the
Agent all such information as the Agent may reasonably request in order to
determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by the Agent as exempt transactions
under the Securities Act and rules of the Commission thereunder, as the
same are from time to time in effect.
(e) In connection with any disposition of the Pledged Collateral, if
the Agent elects to obtain the advice of an investment banking firm, such
firm shall be selected by the Pledgor from among three (3) nationally known
investment banking firms which are member firms of the New York Stock
Exchange, which three firms shall be proposed by the Agent to the Pledgor
(and may include an Affiliate of any Bank). Such selection by the Pledgor
shall be made within five (5) Business Days after receipt by the Pledgor of
the names of the firms proposed by the Agent. In the absence of such
selection by the Pledgor within such period, the Agent may select any one
of such firms. The Pledgor agrees that the sale or other disposition of
all or any part of the Pledged Collateral in reliance on the advice of the
investment banking firm so selected shall be deemed to be commercially
reasonable under the UCC.
(f) The Pledgor shall indemnify and hold harmless the Agent, the Bank
Parties and any underwriter or financial advisor to the Agent or the Bank
Parties (and the officers, directors, shareholders, employees, attorneys,
and agents of each of them), from and against any and all loss, liability,
claim, damage and expense (including, without limitation, attorney costs)
under the Securities Act, any "Blue Sky" law or otherwise insofar as such
loss, liability, claim, damage or expense arises out of or is based upon
any untrue statement or alleged untrue statements of a material fact
contained in a registration statement or prospectus or on any preliminary
prospectus or any amendment or supplement thereto (collectively, the
"OFFERING DOCUMENTS"), or arises out of or is based upon any omission or
alleged omission to state therein a material fact required to be stated or
necessary to make
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the statements therein not misleading, such indemnification to remain
operative regardless of any investigation made by or on behalf of the
Agent, the Bank Parties or any underwriter or financial advisor or any
other person or entity indemnified hereunder. This indemnification does
not apply to losses, claims, damages, liabilities or expenses that are
caused by any such untrue statement or omission or alleged untrue statement
or omission based upon information furnished in writing to the issuer of
such Pledged Collateral by the Agent or on the Agent's behalf expressly for
use in any of the Offering Documents.
(g) Any and all reasonable expenses which may be charged to or for
the account of the Agent or the Bank Parties hereunder, including brokers'
or underwriters' commissions or discounts, financial advisory fees,
accounting fees, attorney costs, costs of printing and other expenses of
offering, sale, or transfer shall be reimbursed by or charged to the
Pledgor pursuant to Section 16(a).
(h) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from,
or other realization upon all or any part of the Pledged Shares or Pledged
Notes upon the exercise of any remedy by the Agent under this Section 11
shall be distributed to each Bank pro rata and shall be applied by the
Agent as follows:
FIRST: to the payment of the costs and expenses of such sale,
including reasonable compensation to the Agent and its agents and
attorneys, and of any judicial or private proceedings in which such
sale may be made, and of all other expenses, liabilities and advanced
made or incurred by the Agent, together with interest on such costs,
expenses and liabilities and on all advances made by the Agent from
the date any such cost, expense or liability is past due or unpaid or
any such advance is made, in each case until paid in full;
SECOND: to the payment of any other fees, costs or other
expenses constituting obligations under the Loan Documents other than
amounts payable under subparagraph "First" above, together with
interest on each such amount at the Post-Default Rate from and after
the date such amount is due, owing or unpaid until paid in full;
THIRD: to the payment of (i) any interest then due, owing or
unpaid in respect of any Loan or any other Secured Obligation secured
by this Agreement; and (ii) and with respect to any Interest Rate
Contracts or currency hedging agreements with the Borrower to which a
Bank is a party, the interest due and owing in respect of any amounts
payable thereunder, in each case together with, to the maximum extent
permitted by law, interest thereon at the Post-Default Rate from the
date such amount is due, owing or unpaid until paid in full to be
applied in accordance with the Credit Agreement;
-13-
<PAGE>
FOURTH: to the payment of the whole amount of principal then
due, owing or unpaid in respect of any Loan, or any other Secured
Obligation secured by this Agreement, to be applied in accordance with
the Credit Agreement; and
FIFTH: the surplus, if any, to be paid to the Pledgor or to
whomever lawfully may be entitled to receive such surplus.
The Pledgor shall remain liable to the Agent for any deficiency which exists
after any sale or other disposition or collection of the Pledged Shares.
SECTION 12 NOTICES. All notices or other communications hereunder
shall be given in the manner and to the addresses as specified, and shall be
effective as provided, in the Credit Agreement.
SECTION 13 AMENDMENTS; WAIVERS. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be made as
provided in the Credit Agreement. No failure on the part of the Agent or any
Bank Party to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. Unless otherwise specified in any such waiver or consent, a
waiver or consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14 CUMULATIVE REMEDIES. The rights, powers and remedies of
the Agent under this Agreement are cumulative and shall be in addition to all
rights, powers and remedies available to the Agent and the other Bank Parties
pursuant to the Credit Agreement, the other Loan Documents and at law or in
equity, all of which rights, powers and remedies shall be cumulative and may be
exercised successively or concurrently without impairing the Agent's rights
hereunder.
SECTION 15 CERTAIN WAIVERS. The Pledgor waives, to the fullest
extent permitted by law, any right to require the Agent or the Bank Parties (i)
to proceed against any Person, (ii) to exhaust any other collateral or security
for any of the Secured Obligations, (iii) to pursue any remedy in the Agent's or
any of the Bank Parties' power, or (iv) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Pledged
Collateral.
SECTION 16 COSTS AND EXPENSES; INDEMNIFICATION; OTHER CHARGES.
(a) INDEMNIFICATION. The Pledgor shall pay, indemnify, and hold the
Agent, each Bank, each Issuing Bank and each of their respective Affiliates,
officers, directors, employees, counsel, agents and attorneys-in-fact harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses or disbursements,
of any kind or nature whatsoever in accordance with the terms and conditions of
the Credit Agreement.
-14-
<PAGE>
(b) OTHER CHARGES. The Pledgor agrees to indemnify the Agent, each
Bank and each Issuing Bank against and hold each harmless from any and all
present and future stamp, transfer, or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery, or registration of, or otherwise with
respect to, this Agreement.
(c) INTEREST. Any amounts payable to the Agent, each Bank and each
Issuing Bank under this Section 16 or otherwise under this Agreement if not paid
upon demand shall bear interest from the date of such demand until paid in full
at the Post-Default Rate.
SECTION 17 BINDING EFFECT; TRANSFERABILITY; NO THIRD-PARTY
BENEFICIARIES. This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the Pledgor and the Agent, and their respective successors and
assigns, PROVIDED, HOWEVER, that the Pledgor may not assign any of its rights
hereunder or interests herein except as permitted by the terms of the Credit
Agreement. The Pledgor acknowledges that upon any assignment or other transfer
by the Agent or any other Bank Party of any of the Secured Obligations, the
Agent or such other Bank Party may transfer its interest herein, or any part
thereof, to the assignee or transferee, who shall thereupon become vested with
all the rights, remedies, powers, security interests and liens herein granted to
the Agent or such other Bank Party, or the transferred part thereof, subject,
however, to the restrictions contained herein. No Persons other than the
Pledgor, the Bank Parties, the Agent and the respective assignees of the Bank
Parties and the Agent are intended to be benefited hereby or shall have any
rights hereunder, as third-party beneficiaries or otherwise.
SECTION 18 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE BANKS
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PLEDGOR AND THE AGENT, FOR THE BENEFIT OF ITSELF, THE
BANKS AND THE ISSUING BANKS, CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE
PLEDGOR AND THE AGENT, FOR THE BENEFIT OF ITSELF, THE BANKS AND THE ISSUING
BANKS, IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION
IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE PLEDGOR AND
THE AGENT, FOR THE BENEFIT OF ITSELF, THE BANKS AND THE ISSUING BANKS, EACH
WAIVE PERSONAL SERVICE OF ANY SUMMONS,
-15-
<PAGE>
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
NEW YORK LAW.
SECTION 19 WAIVER OF JURY TRIAL. THE PLEDGOR AND THE AGENT, FOR THE
BENEFIT OF ITSELF, THE BANKS AND THE ISSUING BANKS, EACH WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE PLEDGOR AND THE AGENT, FOR THE BENEFIT OF ITSELF, THE BANKS AND THE ISSUING
BANKS, EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
SECTION 20 ENTIRE AGREEMENT. This Agreement, together with the other
Loan Documents, embodies the entire agreement and understanding among the
Pledgor, the Banks, the Agent and each Issuing Bank and supersedes all prior or
contemporaneous agreements and understandings of such Persons, oral or written,
relating to the subject matter hereof and thereof.
SECTION 21 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 22 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
-16-
<PAGE>
SECTION 23 INCORPORATION OF PROVISIONS OF THE CREDIT AGREEMENT. To
the extent the Credit Agreement contains provisions of general applicability to
the Loan Documents, including any such provisions contained in Article 10
thereof, such provisions are incorporated herein by this reference.
SECTION 24 NO INCONSISTENT REQUIREMENTS. The Pledgor acknowledges
that this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms;
PROVIDED, in the event any terms or conditions contained herein conflict with
any term or condition set forth in the Credit Agreement, such term or conditions
set forth in the Credit Agreement shall control.
SECTION 25 CONTINUING SECURITY INTEREST; TERMINATION. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
apply to all past, present and future Secured Obligations, including Secured
Obligations that arise under transactions that continue any Secured Obligation,
increase or decrease any Secured Obligation, or from time to time create new
Secured Obligations after all or any prior Secured Obligations have been
satisfied. Upon termination of the Commitments of the Banks under the Loan
Documents, the surrender of any letters of credit issued by any Issuing Bank for
the account of the Pledgor, the termination of all Interest Rate Contracts and
currency hedging agreements with the Borrower to which any Bank is a
counterparty, and the payment and performance in full of all Loans and all
Secured Obligations, the security interests granted under this Agreement shall
terminate and the Pledgor shall be entitled to the return, upon its request and
at its expense, of such of the Pledged Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof. Notwithstanding the foregoing,
the obligations of the Pledgor under Sections 11(f) and 16 shall survive such
termination.
-17-
<PAGE>
IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of the
day and year first above written.
LODGENET ENTERTAINMENT CORPORATION
By: ______________________________________
Name: ______________________________________
Title:______________________________________
Accepted:
NATIONAL WESTMINSTER BANK PLC, as Agent
By: ________________________________
Name: ________________________________
Title: ________________________________
<PAGE>
SCHEDULE 1
TO
PLEDGE AGREEMENT
I. PLEDGED SHARES
<TABLE>
<CAPTION>
NUMBER
NAME OF NUMBER OF NUMBER OF OF SHARES
PLEDGED JURISDICTION OF CLASS OF SHARES SHARES OWED BY
SUBSIDIARY INCORPORATION STOCK ISSUED OUTSTANDING PLEDGOR
- ---------- --------------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ResNet Delaware Common 1,052,520 1,052,520 1,000,000
Communications,
Inc.
LodgeNet Canada Class A Common 2,175,000 2,175,000 2,175,000
Entertainment
(Canada)
Corporation
</TABLE>
II. PLEDGED NOTES
<TABLE>
<CAPTION>
ISSUER ISSUE DATE PRINCIPAL AMOUNT MATURITY DATE
------ ---------- ---------------- -------------
<S> <C> <C> <C>
ResNet Communications, Inc. January 10, 1996 see attached Schedule A see attached Schedule A
</TABLE>
<PAGE>
SCHEDULE A TO SCHEDULE 1 TO PLEDGE AGREEMENT
<TABLE>
<CAPTION>
INTEREST
MATURITY PRINCIPAL AMORTIZATION PRINCIPAL INTEREST PAYMENT INTEREST
LOAN DATE DATE AMOUNT SCHEDULE PAID RATE SCHEDULE PAID
- --------- -------- --------- ------------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
11/31/96 12/15/06 $237,497 N/A - 0 - 10.25% June 15 and - 0 -
December 15
</TABLE>
<PAGE>
SCHEDULE 2
TO
PLEDGE AGREEMENT
PLEDGE AGREEMENT SUPPLEMENT
This Pledge Agreement Supplement, dated as of __________, 199__, is
delivered pursuant to Section 3(d) of the Pledge Agreement referred to below.
The undersigned hereby agrees that this Pledge Agreement Supplement may be
attached to the Pledge Agreement, dated as of _____________, 199__ (as amended,
restated, modified, renewed, supplemented or extended from time to time, the
"PLEDGE AGREEMENT"; the terms defined therein and not otherwise defined herein
being used as therein defined), made by the undersigned in favor of National
Westminster Bank Plc, as Agent for the Banks referred to therein, and that the
shares of capital stock, promissory notes or other securities listed on Annex A
to this Pledge Agreement Supplement shall be and become part of the Pledged
Collateral referred to in the Pledge Agreement and shall secure all Secured
Obligations.
The undersigned agrees that the shares of capital stock, promissory notes
and other securities listed below shall for all purposes constitute Pledged
Collateral and shall be subject to the security interest created by the Pledge
Agreement.
The undersigned hereby certifies that the representations and warranties
set forth in Section 4 of the Pledge Agreement are true and correct with respect
to the Pledged Shares listed below on and as of the date hereof.
LODGENET ENTERTAINMENT CORPORATION
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
Accepted:
NATIONAL WESTMINSTER BANK PLC, as Agent
By: ________________________________
Name: ________________________________
Title: ________________________________
<PAGE>
ANNEX A
TO
PLEDGE AGREEMENT SUPPLEMENT
I. PLEDGED SHARES
NUMBER
<TABLE>
<CAPTION>
NUMBER
NAME OF NUMBER OF NUMBER OF OF SHARES
PLEDGED JURISDICTION OF CLASS OF SHARES SHARES OWED BY
SUBSIDIARY INCORPORATION STOCK ISSUED OUTSTANDING PLEDGOR
- ---------- ------------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
II. PLEDGED NOTES
ISSUER ISSUE DATE PRINCIPAL AMOUNT MATURITY DATE
------ ---------- ---------------- -------------
<PAGE>
SCHEDULE 3
TO
PLEDGE AGREEMENT
IRREVOCABLE PROXY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby make,
constitute and appoint NATIONAL WESTMINSTER BANK PLC, its successors and
assigns, as Agent (the "AGENT") for the Banks (the "BANKS") and the Issuing
Banks (the "ISSUING BANKS") signatory to the Credit Agreement referred to below,
and each of the Agent's officers and employees, its true and lawful attorneys,
for it and in its name, place and stead, to act as its proxy in respect of all
of the shares of capital stock of ________________________, a __________________
corporation (hereinafter referred to as the "CORPORATION"), that it now or
hereafter may own or hold, including, without limitation, the right, on its
behalf, to demand the call by any proper officer of the Corporation pursuant to
the provisions of the Corporation's Certificate of Incorporation or By-Laws and
as permitted by law of a meeting of the Corporation's shareholders and at any
such meeting of shareholders, annual, general or special, to vote for the
transaction of any and all business that may come before such meeting, or at any
adjournment thereof, including, without limitation, the right to vote for the
sale of all or any part of the assets of the Corporation and/or the liquidation
and dissolution of the Corporation; giving and granting to its said attorneys
full power and authority to do and perform each and every act and thing whether
necessary or desirable to be done in and about the premises, as fully as it
might or could do if personally present with full power of substitution,
appointment and revocation, hereby ratifying and confirming all that its said
attorneys shall do or cause to be done by virtue hereof.
This Proxy is given to the Agent and to its officers and employees in
consideration of (i) the Loans made by the Banks to the undersigned and (ii) the
letters of credit issued by the Issuing Banks to the undersigned, and in order
to carry out the covenant of the undersigned contained in that certain Pledge
Agreement dated December 19, 1996 between the undersigned and the Agent, for the
ratable benefit of the Banks and the Issuing Banks, and this Proxy shall not be
revocable or revoked by the undersigned, shall be binding upon the undersigned
and its successors and assigns until the payment in full of all of the Secured
Obligations (as defined in the aforesaid Pledge Agreement) and may be exercised
only after an Event of Default under the Credit Agreement (as such terms are
defined in the aforesaid Pledge Agreement).
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy
this _____ day of _______, 199_.
LODGENET ENTERTAINMENT CORPORATION
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
-21-
<PAGE>
EXHIBIT H
PATENT AND TRADEMARK SECURITY AGREEMENT
This PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement") is made
this 19th day of December, 1996, by and between LODGENET ENTERTAINMENT
CORPORATION, a Delaware corporation ("BORROWER"), having an office at 808 West
Avenue North, Sioux Falls, South Dakota 57104, RESNET COMMUNICATIONS, INC., a
Delaware corporation ("RESNET", and together with the Borrower, the "GRANTORS",
and each individually, a "GRANTOR"), having an office at 808 West Avenue North,
Sioux Falls, South Dakota 57104, and NATIONAL WESTMINSTER BANK PLC, a United
Kingdom public limited company, as Agent for the Banks and the Issuing Banks
referred to below (in such capacity, hereinafter referred to as the "AGENT"),
with a place of business located at 175 Water Street, New York, New York 10038;
W I T N E S S E T H:
WHEREAS:
(A) Borrower has entered into that certain Amended and Restated Credit
Agreement of even date herewith (such agreement, as it may from time to time be
amended, modified and/or supplemented, is hereinafter referred to as the "CREDIT
AGREEMENT") with the several financial institutions from time to time party
thereto (collectively, the "BANKS"), the Agent (also in its capacity as an
Issuing Bank and Bank) and National Westminster Bank of Canada, as an Issuing
Bank, providing for extensions of credit to be made to Borrower by the Banks and
the Issuing Banks;
(B) All of the indebtedness, liabilities and obligations of the
Borrower to the Banks, the Issuing Banks and the Agent, whether now existing or
hereafter arising, and whether or not currently contemplated, under or arising
out of the Credit Agreement and all other instruments and Loan Documents
executed and delivered in connection with any of the foregoing are hereinafter
referred to collectively as the "OBLIGATIONS";
(C) In order to secure the performance of the Obligations, ResNet has
executed that certain Guaranty of even date herewith (as such agreement may from
time to time be amended, modified and/or supplemented, hereinafter referred to
as the "GUARANTY")
(D) Each of Borrower and ResNet has adopted, has used and is using the
service marks and/or trademarks described on Schedule A and Schedule B attached
hereto, respectively, is the owner of the U.S. Patent and Trademark Office
trademark and/or service mark registrations and applications listed on Schedule
A and Schedule B attached hereto, respectively, and is a party to the trademark
and/or service mark licenses, listed on Schedule A and Schedule B attached
hereto, respectively (collectively, the "SERVICE MARKS"), along with the
goodwill of the business associated therewith;
<PAGE>
(E) Each of Borrower and ResNet owns the patents and the U.S. Patent
and Trademark Office patent applications listed on Schedule C and Schedule D
attached hereto, respectively, and is a party to the patent licenses, listed on
Schedule C and Schedule D attached hereto, respectively (collectively, the
"PATENTS", and together with the Service Marks, the "INTELLECTUAL PROPERTY
COLLATERAL");
(F) The Obligations and the Guaranty are secured by the grant by the
Grantors to the Agent, for the benefit of itself, the Banks and the Issuing
Banks, of liens on and security interests in the properties and assets of the
Grantors including, without limitation, the Intellectual Property Collateral,
pursuant to that certain Security Agreement of even date herewith (as such
agreement may from time to time be amended, modified and/or supplemented,
hereinafter referred to as the "SECURITY AGREEMENT") between the Grantors, the
other grantor party thereto and the Agent;
(G) It is a condition precedent to the obligations of the Banks and
the Issuing Banks under the Credit Agreement that the Grantors execute and
deliver this Agreement; and
(H) All capitalized terms used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and subject to the terms and conditions set forth in the Security
Agreement, the parties hereto hereby agree as follows:
1. Each Grantor hereby grants unto the Agent, for the benefit of
itself, the Banks and the Issuing Banks, on the terms and conditions contained
in the Security Agreement, which are incorporated herein and made a part hereof,
and as additional security for the Obligations, a security interest and first
Lien upon all of such Grantor's right, title and interest in, to and under (i)
the Service Marks and the goodwill of the business symbolized by the Service
Marks, (ii) all products and proceeds of the Service Marks and the goodwill of
the business symbolized by the Service Marks, including, without limitation, any
claim by such Grantor against third parties for past, present or future (a)
infringement or dilution of any trademark and/or service mark, any trademark
and/or service mark registration, any trademark and/or service mark registration
issued with respect to any trademark and/or service mark application, or any
trademark and/or service mark licensed under any trademark and/or service mark
license or (b) injury to the goodwill associated with any trademark and/or
service mark, any trademark and/or service mark registration, any trademark
and/or service mark registration issued with respect to any trademark and/or
service mark application, or any trademark and/or service mark licensed under
any trademark and/or service mark license, (iii) the Patents and (iv) all
products and proceeds of the Patents, including, without limitation, any claim
by such Grantor against third parties for past, present or future infringement
of any patent, any patent issued pursuant to a patent application and any patent
licensed under any patent license.
-2-
<PAGE>
2. Each Grantor shall take all action, under both statutory and
common law, which in its reasonable business judgment, may be necessary or
useful to perfect title to the Intellectual Property Collateral and to maintain
and/or defend the Intellectual Property Collateral including, without
limitation, the defense of the Intellectual Property Collateral, surveillance of
marks or patents owned and/or used by third parties which may be related to the
Intellectual Property Collateral, bringing actions against infringing marks,
patents and uses, and bringing cancellation or opposition proceedings in order
to enforce rights in the Intellectual Property Collateral, all as determined to
be appropriate in such Grantor's reasonable business judgment.
3. This Agreement shall terminate upon written notice from the Agent
to the Grantors that all of the Obligations secured hereby have been fully paid
and performed and, upon such termination, the Agent shall promptly execute and
deliver to the Grantors such release documents or instruments as the Grantors
may reasonably request in furtherance and in evidence of such termination.
4. This Agreement shall be binding upon the Grantors, their
successors and assigns and shall inure to the benefit of the Agent and its
successors and assigns.
5. This Agreement may not be amended or modified except with the
written consent of the Agent.
6. The Grantors will provide any additional documentation to support
or confirm the security interest created under this Agreement as the Agent may
request.
[SIGNATURE PAGE FOLLOWS]
-3-
<PAGE>
IN WITNESS WHEREOF, the Grantors and the Agent have caused this Agreement
to be executed by their officers thereunto duly authorized on the day and year
first above written.
LODGENET ENTERTAINMENT CORPORATION
By:_______________________________________
Name:_____________________________________
Title:______________________________________
RESNET COMMUNICATIONS, INC.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
NATIONAL WESTMINSTER BANK PLC, as Agent
By:_______________________________________
Name:_____________________________________
Title:______________________________________
-4-
<PAGE>
BORROWER'S ACKNOWLEDGMENT
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK)
I, ___________________, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that __________________, personally known to
me to be ___________ of LODGENET ENTERTAINMENT CORPORATION, and personally known
to me to be the same person whose name is subscribed to the foregoing
instrument, appeared before me this day in person and acknowledged that (s)he
signed and delivered said instrument as ___________ of said corporation, as
his(her) free and voluntary act, and as the free and voluntary act and deed of
said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this ____ day of __________, 1996.
___________________________________
NOTARY PUBLIC
My Commission Expires:_____________
<PAGE>
RESNET'S ACKNOWLEDGMENT
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK)
I, ___________________, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that __________________, personally known to
me to be ___________ of RESNET COMMUNICATIONS, INC., and personally known to me
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that (s)he signed and
delivered said instrument as ___________ of said corporation, as his(her) free
and voluntary act, and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this ____ day of __________, 1996.
___________________________________
NOTARY PUBLIC
My Commission Expires:_____________
<PAGE>
NATIONAL WESTMINSTER BANK PLC ACKNOWLEDGMENT
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK)
I, _______________, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that _____________, personally known to me to be a
_______________ of NATIONAL WESTMINSTER BANK PLC, and personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that (s)he signed and
delivered said instrument as a ____________ of said corporation, as (her)his
free and voluntary act, and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this ____ day of _________, 1996.
_________________________________
NOTARY PUBLIC
My Commission Expires: _________
<PAGE>
SCHEDULE A TO PATENT AND TRADEMARK SECURITY AGREEMENT
BORROWER TRADEMARK REGISTRATIONS
MARK REG. NO.
---- --------
LodgeNet 1,378,457
LodgeNet Entertainment Class 41,
(and Design) Serial No. 74/669,535
LodgeNet Entertainment Class 38,
(and Design) Serial No. 74/669,533
LodgeNet Class 38,
Serial No. 74/669,534
BORROWER TRADEMARK APPLICATIONS
Traveler's TV Mall, Serial No. 74/615,989
TV Mall, filed November 6, 1995
LodgeNet Passport, filed February 15, 1996, Serial No. 75/058,170
ResNet, Serial No. 75/016091
ResNet Communications, filed March 14, 1996, Serial No. 75/072,868
B-LAN, filed October 31, 1996
BORROWER TRADEMARK LICENSES
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
Technology License Borrower and ResNet January 10, 1996
Agreement
-5-
<PAGE>
SCHEDULE B TO PATENT AND TRADEMARK SECURITY AGREEMENT
RESNET TRADEMARK REGISTRATIONS
MARK REG. NO.
---- --------
None.
RESNET TRADEMARK APPLICATIONS
None.
RESNET TRADEMARK LICENSES
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
Technology License Borrower and ResNet January 10, 1996
Agreement
<PAGE>
SCHEDULE C TO PATENT AND TRADEMARK SECURITY AGREEMENT
BORROWER PATENTS
U.S. Patent No. Date Issued Title
- --------------- ----------- -----
5455619 October 3, 1995 Video
Distribution
System Addressing
Device for
Identifying
Remote Locations
5,506,572 April 9, 1996 Low Battery
Detection System
4,502,098 February 26, 1985 Circuit Assembly
4,920,432 April 24, 1990 System for Random
Access to an
Audio/Video Data
Library with
Independent
Selection and
Display at each
of a Plurality of
Remote Locations
BORROWER PATENT APPLICATIONS
Serial No. Date Filed Title
- ---------- ---------- -----
08/288,626 August 10, 1994 System for
Collecting and
Processing User
Inputs
BORROWER PATENT LICENSES
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
None.
<PAGE>
SCHEDULE D TO PATENT AND TRADEMARK SECURITY AGREEMENT
RESNET PATENTS
U.S. Patent No. Date Issued Title
- --------------- ----------- -----
None.
RESNET PATENT APPLICATIONS
Serial No. Date Issued Title
- ---------- ----------- -----
None.
RESNET PATENT LICENSES
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
None.
<PAGE>
EXHIBIT I
BORROWER U.S. LEGAL OPINION
1. Each of the Borrower and ResNet is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware. Each of the Borrower and ResNet has the requisite corporate power
and authority to own, pledge, mortgage and operate its properties, to lease
any properties it operates under lease, to conduct its business as presently
conducted and to execute and deliver each of the Loan Documents to which it
is a party. Each of the Borrower and ResNet is duly licensed or qualified and
is in good standing as a foreign corporation in each jurisdiction in which
the character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification necessary,
except where the failure to qualify or be so licensed would not have a
material adverse effect on the financial condition or business of the
Borrower or ResNet.
2. The execution, delivery and performance of each of the Loan
Documents to which the Borrower or ResNet is a party have been duly
authorized by the Borrower and ResNet (as applicable), and each of the Loan
Documents constitutes the legal, valid and binding obligation of the Borrower
and ResNet (as applicable) enforceable in accordance with its terms.
3. Assuming the proceeds of the loans are used solely for the purposes
set forth in the Credit Agreement, neither the execution and delivery by each
of the Borrower and ResNet of the Loan Documents to which it is a party, nor
the consummation by each of the Borrower and ResNet of the transactions
contemplated thereby: (i) violates any provision of the Borrower's or ResNet's
respective certificates of incorporation or bylaws; (ii) violates any law or
regulation (including any applicable order or decree of any court or
governmental instrumentality known to us) applicable to the Borrower or
ResNet; (iii) results in the breach of, or constitutes a default under, any
indenture, mortgage, deed of trust, lease or other agreement to which the
Borrower or ResNet is a party or by which they or each of their respective
properties are bound; (iv) results in the creation or imposition of any lien
upon any of the property of the Borrower or ResNet under any indenture,
mortgage or other agreement described in clause (iii) above; or (v) requires
the consent or approval of, or any filing or registration with, any
governmental body, agency or authority other than (a) the filing of the
Financing Statements and (b) those which have been obtained.
4. To our knowledge, there are no judgments outstanding against the
Company or ResNet. Except as set forth on Schedule 3.6 of the Credit
Agreement, there is no action, suit or proceeding pending before any court or
any governmental or regulatory authority, against or otherwise involving the
Borrower or its Subsidiaries, or to our knowledge threatened, which, if
adversely determined, would have a material adverse effect upon the
consolidated financial condition or business of the Borrower.
5. To our knowledge, neither the Borrower nor ResNet is in default
with respect to any agreement, resolution, decree, bond, note, indenture,
order or judgment to which it is a party or by which it is bound, or any
other agreement or other instrument by which any of the properties or assets
owned or used by the Borrower or its Subsidiaries in the conduct of their
respective businesses is affected.
<PAGE>
6. Neither the Borrower nor ResNet is an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, or controlled by such a company.
7. Neither the Borrower nor ResNet is a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
8. The provisions of the Security Agreement are sufficient to create
in the Agent's favor a security interest in all right, title and interest of
the Borrower and ResNet in those items and types of Collateral in which a
security interest may be created under Article 9 of the Code. The description
of the Collateral set forth in the Financing Statements is sufficient to
perfect a security interest in the items and types of Collateral in which a
security interest may be perfected by the filing of a financing statement
under the Code. Assuming that the Financing Statements have been filed in the
offices set forth on Schedule __ hereto and have not subsequently been
released, terminated or modified, the Agent's security interest in the
Collateral has been perfected, to the extent such security interest may be
perfected under the Code by the filing of the Financing Statements.
9. Assuming that the Agent has taken and is retaining possession of
the stock certificates evidencing the shares of stock described in the Pledge
Agreement (the "Pledged Stock") and the Agent has taken such Pledged Stock in
good faith without notice (actual or constructive) of any adverse claim
within the meaning of the Code, there has been created under the Pledge
Agreement, and there has been granted to the Agent a valid and perfected
first priority security interest and lien upon the Pledged Stock to the
extent a security interest may be obtained by possession under the Code.
10. Assuming that the Agent has taken delivery of the intercompany
notes that are negotiable instruments within the meaning of Article 3 of the
Code (the "Pledged Notes") in good faith and without notice or knowledge that
any item thereof is overdue or has been dishonored or of any defense against
a claim to any item thereof on the part of any Person, and that such Pledged
Notes have been drawn, issued or endorsed to the Agent as such or to the
order of the Agent as such or to bearer or blank, there has been created
under the Pledge Agreement, and there has been granted to the Agent a valid
and perfected first priority security interest and lien upon the Pledged
Notes.
11. There are no state or local taxes, fees or other charges payable in
connection with the execution or delivery of the Loan Documents or the
recordation, filing or enforcement of the Financing Statements other than
nominal recording fees in the appropriate state or county offices.
12. The interest rates applicable to the obligations of the Borrower
under the Credit Agreement and the Notes do not violate any law, rule or
regulation prescribing a maximum rate of interest.
2
<PAGE>
SCHEDULE 3.1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
ORGANIZATION
LODGENET ENTERTAINMENT CORPORATION
(i) State of Incorporation: Delaware
(ii) Capitalization:
(a) Common Stock, $.01 par value
20,000,000 Shares authorized; 11,045,369 Shares outstanding
(b) Preferred Stock, $.01 par value
5,000,000 Shares authorized; none outstanding
(iii) States of Qualification
All fifty (50) states
(iv) Business
Providing video-on-demand, network-based video games, cable
television programming and other interactive entertainment and
information services to the lodging and multi-family residential
dwelling unit markets.
1
<PAGE>
RESNET COMMUNICATIONS, INC.
(i) State of Incorporation: Delaware
(ii) Capitalization:
(a) Common Stock, $.01 par value
10,000,000 Shares authorized; 1,052,520 Shares outstanding
(b) Preferred Stock, $.01 par value
5,000,000 Shares authorized; none outstanding
(iii) States of Qualification
Presently qualified in all states other than Connecticut,
Louisiana, Mississippi, Missouri, Montana, and Wisconsin
(iv) Business
Providing video-on-demand, network-based video games, cable
television programming and other interactive entertainment and
information services to the multi-family residential dwelling
unit markets.
2
<PAGE>
LODGENET ENTERTAINMENT (CANADA) CORPORATION
(i) Jurisdiction of Incorporation: Canada
(ii) Capitalization:
(a) Common Stock, $1.00 par value
Class A (voting): no maximum authorized; 2,175,000 Shares
outstanding
Class B (voting): no maximum authorized; none outstanding
(iii) Jurisdictions of Qualification
British Columbia
New Brunswick
Nova Scotia
Ontario
Quebec
(iv) Business
Providing video-on-demand, network-based video games, cable
television programming and other interactive entertainment and
information services to the lodging market.
3
<PAGE>
SCHEDULE 3.5
TO
AMENDED AND RESTATED CREDIT AGREEMENT
PROPERTIES
PROPERTIES LEASED
1. 808 West Avenue North (Headquarters)
Sioux Falls, SD 57104
2. 1700 West Russell Street
Sioux Falls, SD 57104
3. 1200 West Avenue North
Sioux Falls, SD 57104
4. 704 West Avenue North (Headquarters of ResNet Communications, Inc.)
Sioux Falls, SD 57104
5. 1408 D. Avenue
Sioux Falls, SD 57104
6. 909 E. Las Colinas Boulevard
Suite 1950
Irving, TX 75039
7. 3313 Vincent Road
Suite 110
Pleasant Hill, CA 94523
8. 1020 Auahi Building 6 Bay 7B
Honolulu, HI 96814
9. 6225 Harrison Drive #6
Las Vegas, NV 89120
10. 250 W. Beaver Creek Road Unit 15
Richmond Hill, ON CANADA L4B 1C7
11. 5061 W. 161st Street
Brook Park, OH 44142
<PAGE>
12. 521 A Flint Trail
Jonesboro, GA 30236
13. 121 Division Street
Suite A
Clermont, FL 34711-7700
14. 708 N. Valley Street
Suite C
Anaheim, CA 92801
PROPERTIES SUBLEASED, ETC.
None.
PROPERTY OWNED
Approximately 23 acre parcel of land on Maple Lane and Markey Avenue in
Sioux Falls, South Dakota on which is being constructed the Company's
National Headquarters and Distribution Center.
PURCHASE OPTIONS, ETC.
There are no unexpired purchase options, rights of first refusal or other
similar contractual rights pertaining to any real estate owned or leased
by the Borrower or any Loan Party.
<PAGE>
SCHEDULE 3.6
TO
AMENDED AND RESTATED CREDIT AGREEMENT
LITIGATION
On February 16, 1995, On Command Video Corporation filed a lawsuit in
Federal District Court in Northern California asserting patent infringement
by the Company relating to its on-demand video system. The complaint
requests an unspecified amount of damages and injunctive relief. The Company
has carefully reviewed the allegations of infringement and is of the opinion
that the Company does not infringe on the patent and the allegations are
without merit. The company filed an answer and counterclaim to the lawsuit
on April 17, 1995, denying the claims, asserting affirmative defenses and
asserting a counterclaim for declaratory relief. The Company is currently
engaged in litigation with respect to this matter and is continuing to
vigorously defend itself. On February 28, 1996, On Command Video Corporation
filed a related lawsuit in Superior Court of the State of California, County
of San Francisco, alleging interference with prospective economic advantage
and misappropriation of trade secrets. The state court action has been
stayed pending resolution of the federal litigation. The Company believes
that this lawsuit is also groundless and without merit.
<PAGE>
SCHEDULE 3.11
TO
AMENDED AND RESTATED CREDIT AGREEMENT
INTELLECTUAL PROPERTY
TRADEMARKS/SERVICE MARKS:
- ------------------------
1. LodgeNet, Reg. No. 1, 378, 457 (Registered)
2. LodgeNet Entertainment (& Design), Class 41, Serial No. 74/669,535
3. LodgeNet Entertainment (& Design), Class 38, Serial No. 74/669,533
4. LodgeNet, Class 38, Serial No. 74/669,534
5. Traveler's TV Mall, Serial No. 74/615,989 (Applied)
6. TV Mall, filed 11/6/95 (Applied)
7. LodgeNet Passport, filed 2/15/96, Serial No. 75/058,170 (Applied)
8. ResNet, Serial No. 75/016091 (Applied)
9. ResNet Communications, filed 3/14/96, Serial No. 75/072,868 (Applied)
10. B-LAN (Applied 10/31/96)
PATENTS AND PATENTS PENDING:
- ---------------------------
1. Video Distribution System Addressing Device for Identifying Remote
Locations Patent No. 5455619 (issued 10/3/95)
2. Low Battery Detection System
Patent No. 5506572 (issued 4/9/96)
3. System for Collecting and Processing User Imputs
Application No. 08/288,626 (filed 8/10/94)
4. Circuit Assembly
Patent No. 4502098 (issued 2/2/85)
5. System for Random Access to an Audio/Video Data Library with Independent
Selection and Display at each of a Plurality of Remote Locations Patent
No. 4,920,432 (issued 4/24/90)
Patent/Trademark Lst
December 18, 1996
<PAGE>
SCHEDULE 3.13
TO
AMENDED AND RESTATED CREDIT AGREEMENT
NAME CHANGES, MERGERS
October, 1993: LodgeNet Entertainment Corporation, a South Dakota
corporation, merged into LodgeNet Entertainment
Corporation, a Delaware corporation.
October, 1993: LNET, Inc., a Delaware corporation, changed its name to
LodgeNet Entertainment Corporation, a Delaware corporation.
September, 1991: Satellite Movie Company Incorporated, a South Dakota
corporation, changed its name to LodgeNet Entertainment
Corporation, a South Dakota corporation.
<PAGE>
SCHEDULE 3.19
TO
AMENDED AND RESTATED CREDIT AGREEMENT
MATERIAL AGREEMENTS
CONTRACTS NOT FREELY ASSIGNABLE
1. Confidential License Agreement for Use of Super Nintendo
Entertainment System with Integrated Hotel Entertainment and Hotel
Guest Related Communications System dated as of March 12, 1993 by
and between the Company and Nintendo of America, Inc.
MASTER AGREEMENTS
1. See attached Exhibit A (Studio Contracts).
EQUIPMENT LEASES
None.
MATERIAL LICENSES AND PERMITS
2. See attached Exhibit B (Programming Agreements).
<PAGE>
EXHIBIT A
STUDIO AGREEMENTS
STUDIO AGREEMENTS
STUDIO NAME DATE OF AGREEMENT
COLUMBIA PICTURES PAY TELEVISION 10/16/86
HBO ENTERPRISES 10/5/92
PARAMOUNT PICTURES CORPORATION 7/24/86
SHOWTIME NETWORKS INC 1/18/90(MISSING)
SHOWTIME NETWORKS INC 10/8/94(AMENDMENT)
TWENTIETH CENTURY FOX 5/1/96
UNIVERSAL PAY TELEVISION, INC 5/30/91
WALT DISNEY PICTURES AND TELEVISION 10/10/90
WARNER BROTHERS, INC. UNDATED(AMENDMENT)
Page 1
<PAGE>
EXHIBIT B
INDEX OF
NETWORK/PROGRAMMING AGREEMENTS
- -A-
ARTS & ENTERTAINMENT CABLE NETWORK SMATV Affiliate Agreement - June 27, 1989
ARTS & ENTERTAINMENT CABLE NETWORK SMATV Amendment (Extension) - March 1,
1990
ARTS & ENTERTAINMENT CABLE NETWORK SMATV Amendment (Extension) - June 26, 1993
ARTS & ENTERTAINMENT CABLE NETWORK SMATV Amendment (Extension) - October 18,
1995
- -B-
BLACK ENTERTAINMENT TELEVISION SMATV Affiliation Agreement - (Unexecuted)
- -C-
Residential and Non-Residential Distribution Agreement for CARTOON NETWORK -
(Unexecuted)
CNBC - SEE FINANCIAL NEWS NETWORK
CABLE NEWS NETWORK, INC. SMATV Private Cable Distribution Agreement -
August 5, 1991
Terms and Conditions for Cablecast of CABLE NEWS NETWORK and HEADLINE NEWS -
August 17, 1995
Residential and Non-Residential Distribution Agreement for CABLE NEWS NETWORK
and HEADLINE NEWS - (Unexecuted)
Residential and Non-Residential Distribution Agreement for CABLE NEWS NETWORK
INTERNATIONAL - (Unexecuted)
COUNTRY MUSIC TELEVISION Hotel/Motel Affiliate Agreement - May 17, 1994
1
<PAGE>
Affiliation Agreement (SMATV System) between Lodge Net Entertainment and
National Cable Satellite Corporation, d/b/a C-SPAN - November 9, 1995
- -D-
The DISNEY CHANNEL Hotel/Motel Distribution Agreement - July 1, 1988
DISNEY CHANNEL letter modifying Subscription Fee - September 30, 1991
DISNEY CHANNEL Letter Agreement amending 1988 Agreement - October 3, 1991
DISNEY CHANNEL Letter Agreement amending 1988 Agreement - October 31, 1991
DISNEY CHANNEL Letter Agreement extending term of 1988 Agreement - April 21,
1993
DISNEY CHANNEL Letter Agreement amending 1988 Agreement - March 30, 1995
DISNEY CHANNEL letter increasing Subscriber Fee - September 15, 1995
- -E-
ESPN, Inc. letter discussing volume discount - January 20, 1993
ESPN2 Hotel Affiliation Agreement - August 1, 1993
ESPN, Inc. Hotel Affiliation Agreement - September 1, 1993
ESPN/ESPN2 letter detailing Charter Affiliate Benefits - September 1, 1993
ESPN, Inc. Hospital Affiliation Agreement - April 1, 1994
ESPN, Inc. letter discussing fee increase - September 30, 1994
ESPN, Inc. letter discussing fee increase - September 30, 1994
ESPN, Inc. letter discussing fee increase - December 13, 1995
ESPN, Inc. letter granting temporary authorization to LodgeNet to receive
ESPN and ESPN2 through PrimeStar Partners, L.P. - June 6, 1996
ESPN, Inc. Hotel Affiliation Agreement - September 1, 1996
2
<PAGE>
- -F-
The FAMILY CHANNEL SMATV Distribution Agreement - August/September 1990
The FAMILY CHANNEL Rate Card Rider B-1 Extension - December 20, 1995
FINANCIAL NEWS NETWORK, INC. Cable Affiliation Agreement - November 28, 1990
CNBC letter increasing CNBC's distribution - May 23, 1995
CNBC - Agreement Term Sheet Among LodgeNet Entertainment Corporation, CNBC,
Inc. and National Broadcasting Company, Inc. - September 16, 1996
- -G-
The GOLF CHANNEL Private Cable Affiliation Agreement - September 9, 1996
- -H-
HBO-CINEMAX Service Affiliation Agreement for Lodging Industry Distributors -
January 1, 1993
HBO Service Affiliation Agreement - June 1, 1986
HBO Letter Agreement - June 1, 1986
HBO Letter Agreement - January 1, 1989
HBO Letter Agreement - August 1, 1990
HBO Letter Agreement amending 8/1/90 Letter Agreement - August 1, 1990
HBO Letter Agreement - November 2, 1992
HBO letter - December 22, 1995
- -J-
JNG (JAPAN NETWORK) Service Affiliation Agreement for Lodging Industry
Distribution - June 29, 1993
Maintenance Agreement (JNG) - June 29, 1993
3
<PAGE>
Amendment to JNG Service Affiliation Agreement for Lodging Industry
Distributor -
- -L-
SMATV and Non-Residential TVRO Distribution Agreement (LIFETIME Network) -
January 1, 1994
- -N-
The NASHVILLE NETWORK Hotel/Motel Affiliate Agreement - August 30, 1990
- -P-
License Agreement (Hotel/Motel) (PLAYBOY) January 1, 1988
Satellite Master Antenna Television License Agreement between PLAYBOY Video
Entertainment Group, Inc. and Satellite Movie Company Incorporated - October
20, 1988
- -S-
Science Fiction Channel Agreement for Distribution to SMATV Affiliates - Five
Year - SMATV Service Agreement (Southern Satellite Systems, Inc) (WTBS) -
September 1, 1993
- -T-
Turner Network Television, Inc. National Hotel/Motel/Hospital Distribution
Agreement - April 12, 1991
Turner Cable Network Sales, Inc. CABLE NEWS NETWORK INC. SMATV Private Cable
Distribution Agreement - August 5, 1991
Residential and Non-Residential Distribution Agreement for Turner Classic
Movies - 4/25/95 (Unexecuted)
Residential and Non-Residential Distribution Agreement for Turner Network
Television - 5/23/95 (Unexecuted)
December 18, 1996 4
<PAGE>
8/15/95 Letter from Verna Page of Turner Network Sales Inc.
Terms and Conditions for Distribution of CABLE NEWS NETWORK and HEADLINE NEWS
- - 12/1/95
Terms and Conditions for Distribution of Turner Network Television - April
13, 1996 - (Unexecuted)
- -U-
Cable Affiliation Agreement (Univision) - (Unexecuted)
Agreement for Distribution of the USA Network Service to SMATV Affiliates -
10/12/95
Broadcast Basic Tier/Cable Programming Services SMATV Distributor Satellite
Transmission Service Agreement (United Video/WGN) - November 22, 1995
- -W-
The WEATHER CHANNEL Affiliation Agreement SMATV - November 15, 1995
Star Jr. Addendum (The WEATHER CHANNEL)- November 15, 1995
Equipment Agreement (The WEATHER CHANNEL) - November 15, 1995
December 18, 1996 5
<PAGE>
SCHEDULE 7.1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
OUTSTANDING INDEBTEDNESS
There is no Indebtedness outstanding, except as provided in subsections (a),
(b), (c), (d), (e), (g), (h), (i), and (j) of Section 7.1 of the Credit
Agreement.
<PAGE>
SCHEDULE 7.2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
LIENS
There are no Liens other than those provided for in subsections (a), (b),
(c), (e), and (f) of Section 7.2 of the Credit Agreement.
<PAGE>
EXHIBIT 10B
FIRST AMENDMENT
TO CONFIDENTIAL LICENSE AGREEMENT
FOR USE OF SUPER NINTENDO ENTERTAINMENT SYSTEM
WITH INTEGRATED HOTEL ENTERTAINMENT AND
HOTEL GUEST RELATED COMMUNICATIONS SYSTEM
THIS FIRST AMENDMENT ("Amendment") dated October 17, 1996, is between
NINTENDO of America Inc., having a place of business at 4820 150th Avenue
N.E., Redmond, Washington 98052, USA ("NINTENDO") and Lodgenet Entertainment
Corporation, having a place of business at 808 West Avenue North, Sioux
Falls, South Dakota 57104, USA ("LICENSEE").
RECITALS
I. Effective May 12, 1993, the parties entered into a Confidential
License Agreement for Use of Super Nintendo Entertainment System With
Integrated Hotel Entertainment and Hotel Guest Related Communications System
("Agreement"). Defined terms which are capitalized herein shall be deemed to
have the same definitions as set forth in the Agreement unless specified
otherwise herein.
II. NINTENDO and LICENSEE wish to amend the Agreement in accordance
with the terms and conditions of this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, NINTENDO and LICENSEE hereby agree as
follows:
A. The following shall be added to Section 2 of the Agreement:
2.8 "Territory" shall mean Brazil, Canada, South Korea and the
United States, together with any other countries that the parties may
mutually agree upon in writing.
2.9 "Approved Sub-Distributor(s)" shall mean and be limited to
those accounts of LICENSEE which specialize in selling the Licensed Products
to Licensed Hotels in all or a specified portion of the Territory. All
Approved Sub-Distributors must be approved, in writing, by NINTENDO (NINTENDO
shall make its best efforts to review and respond to such request for
approval within thirty (30) days of receipt thereof) and must have delivered
to NINTENDO a fully executed original Approved Sub-Distributor Acknowledgment
prior to performing such services. Those accounts of LICENSEE listed on
attached Exhibit A are hereby approved by NINTENDO for the portion of the
Territory described therein; provided, such accounts of LICENSEE must deliver
to NINTENDO fully executed original Approved Sub-Distributor Acknowledgment
prior to performing such services. LICENSEE may terminate any Approved
Sub-Distributor without NINTENDO's consent or approval.
2.10 "Approved Sub-Distributor Acknowledgment" shall mean a
written acknowledgment in the form attached hereto as Exhibit B, which sets
forth the conditions applicable to Approved Sub-Distributors.
2.11 "Licensed Hotel Acknowledgment" shall mean a written
acknowledgment in the form attached hereto as Exhibit C, which sets forth
conditions applicable to Licensed Hotels.
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET / NOA
October 9, 1996
Page 1
<PAGE>
B. Sections 4.1 and 4.2 of the Agreement are hereby deleted in their
entirety and replaced with the following:
4.1 GRANT. NINTENDO hereby grants to LICENSEE and LICENSEE hereby
------
accepts under the terms and conditions herein stated, a nonexclusive right
and license to solicit placement of the Licensed Products in conjunction with
LICENSEE's placement of the LodgeNet System in the Licensed Hotels in the
TERRITORY. To this end, the Modified Super NES units shall be sold to
LICENSEE by NINTENDO, and the Licensed Software shall be licensed to LICENSEE
by NINTENDO. NINTENDO hereby grants LICENSEE the right to appoint Approved
Sub-Distributors for the distribution and sale of the Licensed Products to
Licensed Hotels in the Territory, with NINTENDO's prior written approval.
4.2 SUBLICENSING. LICENSEE shall have the right to sublicense the
-------------
rights granted herein with the Territory to Licensed Hotels and Approved
Sub-Distributors. Subject to Section 4.2.1, Licensed Hotels added after the
effective date of this Amendment shall execute and deliver a Licensed Hotel
Acknowledgment. All Approved Sub-Distributors shall execute and deliver to
LICENSEE an Approved Sub-Distributor Acknowledgment. Notwithstanding the
foregoing, LICENSEE shall enforce all applicable and material restrictions,
conditions and limitations of the Agreement and shall ensure that all
Approved Sub-Distributors and Licensed Hotels shall comply with the terms of
the Agreement. If LICENSEE does not undertake such enforcement efforts,
NINTENDO, upon twenty (20) days' written notice to LICENSEE, may undertake
such enforcement efforts and LICENSEE shall provide reasonable assistance as
may be requested by NINTENDO. No rights with respect to the Licensed
Products shall vest in any Approved Sub-Distributor appointed after the date
hereof until it has executed and delivered an Approved Sub-Distributor
Acknowledgment or Licensed Hotel Acknowledgment, as the case may be.
4.2.1 Exception to Requirement to Obtain Licensed Hotel
-------------------------------------------------
Acknowledgment. LICENSEE or an Approved Sub-Distributor is not required to
- ---------------
obtain a Licensed Hotel Acknowledgment from a Licensed Hotel if the following
conditions apply:
i) The Licensed Hotel has not purchased or otherwise
acquired title or an ownership interest of any kind whatsoever to all or part
of the Licensed Products; and
ii) The LICENSEE continuously maintains the ability to
render the Licensed Products inoperable by the Licensed Hotels; and
iii) The LICENSEE shall render the Licensed Products
inoperable by the Licensed Hotels in the event of default by the Licensed
Hotel, any termination of the License Agreement (between NINTENDO and
LICENSEE) or the business relationship between LICENSEE and Licensed Hotel.
C. The following additions shall be made to Section 9 of the Agreement:
9.4 Approved Sub-Distributor Records Retention. All Approved
-------------------------------------------
Sub-Distributors shall maintain during the Term of the Agreement and for a
period of two (2) years thereafter, complete and accurate books and records
as well as copies of all correspondence between LICENSEE, the Licensed Hotels
and NINTENDO and all other correspondence of any kind relating to obligations
assumed by Approved Sub-Distributors under the Agreement.
9.5 Approved Sub-Distributor Record Audits. NINTENDO or its
---------------------------------------
authorized agent, upon reasonable notice to Approved Sub-Distributor,
reserves the right to conduct audits of all Approved Sub-Distributors'
records during the Term of the Agreement to verify Royalty Reports. NINTENDO
shall be
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET / NOA
October 9, 1996
Page 2
<PAGE>
allowed to make examinations of books, records and correspondence reasonably
relating to verification of such Royalty Reports and calculations. The
provisions of Section 9.3 apply to such audits.
D. Section 11.5 of the Agreement is hereby deleted in its entirety and
replaced with the following:
11.5 Hold Harmless. LICENSEE agrees to indemnify and hold harmless
--------------
NINTENDO against any and all losses, claims, demands, damages, liabilities
and expenses, including reasonable attorney fees, which are based in whole or
in part upon any act or omission, whether negligent or otherwise, of LICENSEE
or its employees, agents, sub-licensees, or sub-distributors including, but
not limited to, claim of products liability with respect to (a) the LodgeNet
System, the Modified LodgeNet System or Licensed Products, (b) failure to
comply with applicable laws, regulations or orders relating to or in any way
affecting this Agreement, (c) the performance by LICENSEE of this Agreement
as provided herein, (d) the performance by any Approved Sub-Distributor of
their obligations pursuant to the Approved Sub-Distributor Acknowledgment
and/or (e) the performance by any Licensed Hotel of their obligations
pursuant to the Licensed Hotel Acknowledgement, where required. The foregoing
indemnifications shall not extend to any losses, claims, demands, damages,
liabilities or expenses to the extent arising out of NINTENDO's negligence or
matters included in NINTENDO's indemnification of LICENSEE set forth in
Section 11.2 herein.
E. Section 13 of the Agreement is hereby deleted in its entirety and
replaced with the following:
13. Compliance With Applicable Laws, Duties, Tariffs
------------------------------------------------
13.1 Nintendo /Licensee. The parties shall at all times comply with
-------------------
all applicable laws and regulations affecting this Agreement and the
performance by the parties of this Agreement.
13.2 Approved Sub-Distributor. Licensee shall require that the
-------------------------
Approved Sub-Distributor shall abide all federal, state, local laws, orders
and regulations in the Territory relating to its activities as an Approved
Sub-Distributor. NINTENDO shall not be responsible for any taxes, duties,
tariffs, fees or costs assessed upon the purchase, importation or sale by
Approved Sub-Distributor of the Licensed Products. The royalties payable to
Nintendo shall be net of any taxes, duties, tariffs, fees or costs assessed
upon the purchase, importation or sale by Approved Sub-Distributor of the
Licensed Products.
F. Royalty Report. Nintendo and Licensee acknowledge and agree that
---------------
Licensee has provided and shall continue to provide Nintendo a royalty report
on use of the Licensed Products by Licensed Hotels substantially in the form
attached as Exhibit D.
G. Miscellaneous. References in the Agreement to the "Agreement" shall
--------------
mean the Agreement as modified by this Agreement. Exhibits A, B, C and D are
attached hereto and are hereby incorporated by reference. Except as specifically
set forth herein, all terms and conditions of the Agreement shall remain in
full force and effect. This Amendment shall be effective as of the last
signature date below. For convenience of the parties, authorized signatures
may be transmitted via facsimile in counterparts.
FIRST AMENDMENT
SNES INTEGRATED HOTAL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 3
<PAGE>
IN WITNESS WHEREOF, NINTENDO and LICENSEE have entered into this
Amendment as of the last date set forth below.
NINTENDO: LICENSEE:
NINTENDO OF AMERICA INC. LODGENET ENTERTAINMENT CORPORATION
By: /s/ PHILIP ROGERS By: /s/ LISA FERRIS
----------------------------- ----------------------------
Title: E.V.P. Ops Title: Contract Administrator
----------------------------- ----------------------------
Date: 11/1/96 Date: 10-17-96
----------------------------- ----------------------------
FIRST AMENDMENT
SNES INTEGRATED HOTAL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 4
<PAGE>
EXHIBIT A
APPROVED SUB-DISTRIBUTORS
DISTRIBUTOR NAME/ADDRESS DISTRIBUTOR TERRITORY
- ------------------------ ---------------------
GTV South Korea
22 Jeong-Dong, Chung-Gu
Seoul Korea 100-702
Attn.: Mr. Michael Cho
Telephone No.:
Facsimile No.:
TVA Brazil
Rua do Rocio 313
Sao Paulo Brazil
Attn.: Ms. Katia Murgell
Telephone No.:
Facsimile No.:
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 5
<PAGE>
EXHIBIT B
- -------------------------------------
(Date)
- -------------------------------------
(Name of Approved Sub-Distributor)
- -------------------------------------
(Address of Approval Sub-Distributor)
RE: Approved Sub-Distributor Acknowledgment
Dear Approved Sub-Distributor:
As you know, Lodgenet Entertainment Corporation ("Lodgenet") is an authorized
licensee of select NINTENDO brand video game products for commercial use in
authorized hotel guest rooms. Pursuant to the terms of our license agreement
with Nintendo of America Inc. ("Nintendo"), Lodgenet must obtain Nintendo's
approval to your appointment as our sub-distributor for the territory of ____
_______________ (insert territory) and to your use of certain proprietary
information and intellectual property rights associated with Nintendo
products. In order to induce Nintendo to approve your appointment, we ask
that you acknowledge and agree as follows:
1. Lodgenet Agreement. You are a sub-distributor of Lodgenet and will
------------------
not have a contractual relationship with Nintendo. Nintendo requires that you
acknowledge Nintendo's rights as provided herein. Nintendo is a beneficiary
of your commitments under this letter agreement, and Nintendo has reserved the
right to enforce Nintendo's rights directly.
2. Approved Sub-Distributor Responsibilities. In the event that: (a)
-----------------------------------------
any Licensed Hotel purchases or otherwise acquires title or an ownership
interest of any kind in Nintendo products, and (b) you do not continuously
maintain the ability to render the Nintendo products inoperable by the
Licensed Hotel, then it is your responsibility to obtain a Licensed Hotel
Acknowledgment (form attached) from each such hotel in which you place
Nintendo products.
3. Nonexclusive Rights; Intellectual Property Rights; Confidentiality.
-------------------------------------------------------------------
You agree that all right, title and interest in the proprietary information
and intellectual property rights associated with the Nintendo products,
including the modified Super NES consoles and licensed Nintendo games, belong
to Nintendo and are licensed to Lodgenet and granted to you, as an Approved
Sub-Distributor, on a nonexclusive basis by Nintendo. You will not at any
time do or cause to be done anything impairing Nintendo's rights. You shall
not represent that you have any ownership in Nintendo's rights. You agree to
keep information related to the Nintendo products confidential and to permit
only those employees having a need to know such information to have access
thereto.
4. Modification and Use of Nintendo Products. You shall not modify the
------------------------------------------
Nintendo products, including the modified Super NES console or licensed
Nintendo games. You acknowledge and agree that the modified Super NES
consoles may only be used with the licensed Nintendo games provided by
Nintendo.
5. Security of Nintendo Game Disks. You shall keep the licensed
--------------------------------
Nintendo games and game disks in a secure location and shall not copy or
permit copying thereof.
6. Termination; No Continuing Use. Unless otherwise agreed in writing
-------------------------------
by Nintendo, you must return all copies of the licensed Nintendo games, game
disks and documents containing Nintendo's proprietary information or
intellectual property rights to Nintendo and all of your rights therein
terminate upon termination of your agreement with Lodgenet or upon
notification of termination of the agreement between Nintendo and Lodgenet.
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 6
<PAGE>
7. Guest Information. You agree to provide to Nintendo (through
------------------
Lodgenet) information on use of the Nintendo products and licensed Nintendo
games by your hotel customers. The information shall be in a form
substantially similar to that in the report form attached as Schedule 1.
8. Records Audit. For Nintendo's benefit, you shall retain and use
--------------
reasonable commercial efforts to cause your hotel customers to retain accurate
and complete records with respect to the use of the Nintendo products. Such
records shall provide the basis for the information contained in attached
Schedule 1 and shall include: (a) total number of Nintendo Super NES boards
installed and the total number of guest rooms serviced by such Super NES
boards, by hotel; (b) the date of installation and use by hotel; and, (c) the
licensed Nintendo software titles offered to each hotel.
9. Advertising and Promotion of Nintendo Products. You agree to use
-----------------------------------------------
Nintendo's trademarks and copyrights only in connection with the advertising
and promotion of the authorized Nintendo products. All such advertising and
promotion shall be of good quality. Advertising and promotion materials
related to the Nintendo products which are created by you or your hotel
customers must be approved in advance of use by Nintendo. Such materials may
be transmitted to Lodgenet (Fax: ____________ Attn: ____________). Nintendo
has advised us that they will use their best efforts to review and provide
approval and/or corrections for such materials within thirty (30) days.
Approved Sub-Distributor may utilize pre-approved art solely in connection
with the advertising and promotion of the licensed products without prior
submission to or approval of Nintendo so long as the Approved Sub-Distributor
does not modify the pre-approved art. Sub-Distributor shall properly
attribute all intellectual property rights.
10. Limitation on Liability. Nintendo makes no representations or
------------------------
warranties to you regarding their products. Nintendo disclaims all implied
representations and warranties, including implied warranties of
merchantability or fitness for a particular purpose. Nintendo does not
warrant that use of Nintendo's products, or its intellectual property rights
will not infringe upon the rights of others.
11. Hold Harmless. You shall indemnify and hold Nintendo harmless
--------------
against any and all losses, claims, demands, damages, liabilities and
expenses, including reasonable attorneys' fees to the extent arising from any
act or omission by you or your employees or agents.
12. No Effect on Other Agreement. This letter is executed solely at the
---------------------------------
request of and solely for the benefit of Nintendo and Lodgenet and this
letter agreement does not alter or amend in any respect the obligations of
the Approved Sub-Distributor to Lodgenet under the Equipment Supply and
Technology License Agreement executed by Approved Sub-Distributor and
Lodgenet.
Please acknowledge your understanding and acceptance of the provisions set
forth above by signing and returning two (2) copies of this acknowledgment to
Lodgenet. We will forward the acknowledgment to Nintendo and retain a signed
copy for our files.
Lodgenet Entertainment Corporation
By:
-----------------------------------
Its:
----------------------------------
Acknowledged and Accepted this
____ day of _______ 1996.
Approved Sub-Distributor
By:
-----------------------------------
Its:
----------------------------------
Schedule 1, Royalty Report Form is attached
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 7
<PAGE>
MONTHLY ROYALTY REPORTING
<TABLE>
FOR MONTH:
# OF GAMES AVAILABLE:
# OF DAYS IN MONTH AVAILABLE:
---------------------------
- ---------------------------------------------------------------------------------
CURRENT CURRENT
(New installations) # OF # OF # OF DAYS MONTH MONTH
HOTEL/NAME ROOMS SNES AVAILABLE BUYS GROSS SALES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance 150 4 31 60 $239.40
235 6 31 95 $379.05
125 3 31 50 $199.50
(Include any monthly adjustments in this section. Should an existing hotel increase or decrease room count.)
- ------------------------------------------------------------------------------------------------------------
Monthly Totals 360 9 $817.95
- ------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------
Cumulative Totals 510 13 205
- --------------------------------------------------------------------
(Beginning Balance + Monthly Totals)
</TABLE>
<TABLE>
# of Total Avg. Min. Played # of Rooms
Games Titles Bays Minutes Played (Total Min/# Buys) Available
------------ ---- -------------- ------------------ ----------
<S> <C> <C> <C> <C>
Vegas Stakes 20 1100 55 510
Super Punch Out 20 1200 60 510
F-Zero 12 1000 83 510
Super Play Action Football 10 1200 120 510
Ken Griffey Major Leag. Baseball 20 900 45 510
Super Mario World 30 800 27 510
Tetris & Dr. Malro 30 1200 40 510
The Legend of Zelda 10 1200 120 510
Donkey Kong Country 35 1200 34 510
Super Soccer 18 1200 67 510
Totals 205 11000
</TABLE>
Schedule 1
<PAGE>
EXHIBIT C
LICENSED HOTEL ACKNOWLEDGMENT
Lodgenet Entertainment Corporation ("Lodgenet") is an authorized licensee of
select NINTENDO brand video game products for commercial use in authorized
hotel guest rooms. In certain circumstances Lodgenet has granted a portion
of its rights with regard to a specified territory to an approved
sub-distributor, such as __________________________ (if applicable, insert
name of approved sub-distributor) ("Sub-Distributor"). You are permitted to
use certain proprietary information and intellectual property rights
associated with Nintendo products only on condition that you acknowledge and
agree as follows:
1. Nonexclusive Rights; Intellectual Property Rights; Confidentiality.
-------------------------------------------------------------------
You agree that all right, title and interest in the proprietary information
and intellectual property rights associated with the Nintendo products,
including the modified Super NES consoles and licensed Nintendo games, belong
to Nintendo and are sublicensed to you on a nonexclusive basis by Nintendo.
You will not at any time do or cause to be done anything impairing Nintendo's
rights. You shall not represent that you have any ownership in Nintendo's
rights. You agree to keep information related to the Nintendo products
confidential and to permit only those employees having a need to know such
information to have access thereto.
2. Modification and Use of Nintendo Products. You shall not modify the
------------------------------------------
Nintendo products, including the modified Super NES console or licensed
Nintendo games. You acknowledge and agree that the modified Super NES
consoles may only be used with the licensed Nintendo games.
3. Security of Nintendo Game Disks. You shall keep the licensed
--------------------------------
Nintendo games and game disks in a secure location and shall not copy or
permit copying thereof.
4. Termination; No Continuing Use. Unless otherwise agreed in writing
-------------------------------
by Nintendo, you must return all copies of the licensed Nintendo games, game
disks and documents containing Nintendo's proprietary information or
intellectual property rights to Nintendo and all of your rights therein
terminate upon termination of your agreement with Lodgenet or its
Sub-Distributor, as the case may be, or upon notification of termination of
the agreement between Nintendo and Lodgenet.
5. Advertising and Promotion of Nintendo Products. You agree to use
-----------------------------------------------
Nintendo's trademarks and copyrights only in connection with the advertising
and promotion of the authorized Nintendo products. All such advertising and
promotion shall be of good quality. Advertising and promotion materials
related to the Nintendo products which are created by you must be approved in
advance of use by Nintendo. Such materials should be transmitted to Lodgenet
or its Sub-Distributor, as the case may be, (Lodgenet Fax: ________________
Attn: _______________, Sub-Distributor Fax: ______________ Attn: ____________).
Nintendo has advised us that they will promptly review and provide approval
and/or corrections for such materials.
6. Limitation on Liability. Nintendo makes no representations or
------------------------
warranties to you regarding their products. Nintendo disclaims all implied
representations and warranties, including implied warranties of
merchantability or fitness for a particular purpose. Nintendo does not
warrant that use of Nintendo's products, or its intellectual property rights
will not infringe upon the rights of others.
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 9
<PAGE>
Please acknowledge your understanding and acceptance of the provisions set
forth above by signing and returning a copy of this acknowledgment to
Lodgenet or its Sub-Distributor, as the case may be.
---------------------------------------
(Print Name of Licensed Hotel)
By:
------------------------------------
Its:
-----------------------------------
Date:
----------------------------------
FIRST AMENDMENT
SNES INTEGRATED HOTEL LICENSE AGMT
LODGENET/NOA
October 9, 1996
Page 10
<PAGE>
Monthly Royalty Reporting
FOR MONTH:
# OF GAMES AVAILABLE:
# OF DAYS IN MONTH AVAILABLE:
<TABLE>
----------------------------
- ---------------------------------------------------------------------------------
CURRENT CURRENT
(New Installations) # OF # OF # OF DAYS MONTH MONTH
HOTEL/NAME ROOMS SNES AVAILABLE BUYS GROSS SALES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance 150 4 31 60 $239.40
235 6 31 95 $379.05
125 3 31 50 $199.50
(Include any monthly adjustments in this section. Should an existing hotel increase or decrease room count.)
- ------------------------------------------------------------------------------------------------------------
Monthly Totals 360 9 $817.95
- ------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------
Cumulative Totals 510 13 205
- --------------------------------------------------------------------
(Beginning Balance & Monthly Totals)
</TABLE>
<TABLE>
# of Total Avg. Min. Played # of Rooms
Games Titles Bays Minutes Played (Total Min/# Buys) Available
------------ ---- -------------- ------------------ ----------
<S> <C> <C> <C> <C>
Vegas Stakes 20 1100 55 510
Super Punch Out 20 1200 60 510
F-Zero 12 1000 83 510
Super Play Action Football 10 1200 120 510
Ken Griffey Major Leag. Baseball 20 900 45 510
Super Mario World 30 800 27 510
Tetris & Dr. Malro 30 1200 40 510
The Legend of Zelda 10 1200 120 510
Donkey Kong Country 35 1200 34 510
Super Soccer 18 1200 67 510
Totals 205 11000
</TABLE>
Exhibit "D"
<PAGE>
EXHIBIT 11.1
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Loss before extraordinary loss.......................................... $(3.326) $(7,026) $(13,357)
Extraordinary loss...................................................... (1,324) -- (3,253)
------------ ------------ ------------
Net loss attributable to common stock................................... $(4,650) $(7,026) $(16,610)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding:
Shares outstanding.................................................... 7,275,481 7,337,147 9,570,779
Additional equivalent shares issuable from assumed exercise of common
stock options (1)................................................... 51,267 45,324 53,447
------------ ------------ ------------
7,326,748 7,382,471 9,264,226
------------ ------------ ------------
------------ ------------ ------------
Per share amounts:
Loss before extraordinary loss........................................ $(0.45) $(0.95) $(1.39)
Extraordinary loss.................................................... (0.18) -- (0.34)
------------ ------------ ------------
Net loss attributable to common stock................................. $(0.63) $(0.95) $(1.73)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Includes the effect of options issued during the twelve months preceding the
Company's initial public offering. Other options and warrants have not been
included because their effect would be anti-dilutive
<PAGE>
EXHIBIT 12.1
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIOS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPUTATION OF COVERAGE OF FIXED CHARGES
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net loss................................................... $ (3,797) $ (2,057) $ (4,650) $ (7,026) $ (16,610)
Add:
Extraordinary loss (1)................................. -- -- 1,324 -- 3,253
Provision for income taxes............................. -- -- -- 66 28
Add fixed charges (2):
Interest expense....................................... 1,783 2,096 966 4,522 8,243
Interest portion of rentals............................ -- 27 74 106 159
--------- --------- --------- --------- ----------
Earnings available to cover fixed charges.................. (2,014) 66 (2,286) (2,332) (4,927)
Less fixed charges....................................... 1,783 2,123 1,040 4,628 8,402
--------- --------- --------- --------- ----------
Deficiency in the coverage of fixed charges................ $ (3,797) $ (2,057) $ (3,326) $ (6,960) $ (13,329)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
- ------------------------
(1) In 1994--loss on early termination of the Company's bank credit facility. In
1996--loss on early redemption of 9.95% and 10.35% Senior Notes.
(2) Fixed charges consist of interest on all indebtedness, including
amortization of debt expense, and one-third of rental expense (which is
estimated to represent the approximate interest portion thereof).
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
LodgeNet Entertainment (Canada) Corporation, a Canadian corporation
ResNet Communications, Inc., a Delaware corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LODGENET ENTERTAINMENT CORPORATION AND ITS
SUBSIDIARIES AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 86,177
<SECURITIES> 0
<RECEIVABLES> 19,213
<ALLOWANCES> (785)
<INVENTORY> 0
<CURRENT-ASSETS> 106,540
<PP&E> 234,265
<DEPRECIATION> (70,108)
<TOTAL-ASSETS> 279,768
<CURRENT-LIABILITIES> 21,796
<BONDS> 179,233
0
0
<COMMON> 111
<OTHER-SE> 120,539
<TOTAL-LIABILITY-AND-EQUITY> 279,768
<SALES> 97,721
<TOTAL-REVENUES> 97,721
<CGS> 44,379
<TOTAL-COSTS> 58,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,243
<INCOME-PRETAX> (13,329)
<INCOME-TAX> 28
<INCOME-CONTINUING> (13,357)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,253)
<CHANGES> 0
<NET-INCOME> (16,610)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> 0
</TABLE>
