<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
LODGENET ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
3900 WEST INNOVATION STREET
SIOUX FALLS, SOUTH DAKOTA 57107
------------------------
April 8, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of LodgeNet Entertainment Corporation. The meeting will be held on Wednesday,
May 13, 1998, at 9:00 a.m. local time, at LodgeNet's National Headquarters and
Distribution Center, 3900 West Innovation Street, Sioux Falls, South Dakota
57107. We encourage you to read carefully the enclosed Notice of Annual Meeting
and Proxy Statement.
We hope you will be able to attend the Annual Meeting. Whether or not you
plan to attend, we urge you to complete, sign, date and promptly return the
enclosed proxy card in the enclosed envelope in order to make certain that your
shares will be represented at the Annual Meeting. Your vote is important,
whether you own a few shares or many.
Very truly yours,
<TABLE>
<S> <C>
/s/ Tim C. Flynn /s/ Scott C. Petersen
Tim C. Flynn Scott C. Petersen
PRESIDENT AND CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER
</TABLE>
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to its Bylaws and the call of its
Board of Directors, the Annual Meeting of Stockholders (the "Meeting") of
LodgeNet Entertainment Corporation (the "Company") will be held at LodgeNet's
National Headquarters and Distribution Center, 3900 West Innovation Street,
Sioux Falls, South Dakota 57107 on Wednesday, May 13, 1998, at 9:00 a.m.,
Central Daylight Time, for the purpose of considering and voting upon the
following matters:
TO RECEIVE AND CONSIDER:
The report of Management on the business of the Company and the Company's
audited financial statements for the fiscal year ended December 31, 1997,
together with the report thereon of Arthur Andersen LLP, the Company's
independent public accountants.
TO ACT ON:
1. ELECTION OF DIRECTORS. To elect two persons to the Board of Directors
of the Company to serve for a three-year term expiring in 2001 and until
such persons' successors are elected and qualified. The Board of
Directors' nominees are:
Lawrence Flinn, Jr.
Scott C. Petersen
2. AMENDMENT OF STOCK OPTION PLAN. To ratify and approve an amendment of
the Company's 1993 Stock Option Plan, as amended and restated effective
August 15, 1996, (the "Plan") to authorize up to an additional 800,000
shares available for issuance upon the exercise of stock options granted
pursuant to the Plan.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To
ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1998.
4. OTHER BUSINESS. To transact such other business as may properly come
before the Meeting and at any and all adjournments thereof.
Only those stockholders of record on March 25, 1998 shall be entitled to
notice of and to vote in person or by proxy at the Meeting.
The Proxy Statement which accompanies this notice contains additional
information regarding the proposals to be considered at the Meeting and
stockholders are encouraged to read it in its entirety.
As set forth in the enclosed Proxy Statement, the proxy is solicited by and
on behalf of the Board of Directors of the Company. It is expected that these
materials will be first mailed to stockholders on or about April 8, 1998.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO BE SURE
THAT YOUR STOCK IS VOTED. YOUR VOTE IS IMPORTANT, WHETHER YOU OWN A FEW SHARES
OR MANY.
By Order of the Board of Directors,
/s/ Eric R. Jacobsen
Eric R. Jacobsen
SECRETARY
Dated: April 8, 1998
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
3900 WEST INNOVATION STREET
SIOUX FALLS, SOUTH DAKOTA 57107
(605) 988-1000
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1998
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of LodgeNet Entertainment Corporation (the
"Company") for use at the Annual Meeting of Stockholders (the "Meeting") of the
Company to be held on Wednesday, May 13, 1998, at LodgeNet's National
Headquarters and Distribution Center, 3900 West Innovation Street, Sioux Falls,
South Dakota 57107 at 9:00 a.m., Central Daylight Time, and at any and all
adjournments thereof. Tim C. Flynn and Scott C. Petersen, the designated
proxyholders (the "Proxyholders"), are members of the Company's management. This
Proxy Statement and the enclosed proxy card (the "Proxy") and other enclosures
will be first mailed to stockholders on or about April 8, 1998. Only
stockholders of record on March 25, 1998 (the "Record Date") are entitled to
vote in person or by proxy at the Meeting.
MATTERS TO BE CONSIDERED
The matters to be considered and voted upon at the Meeting will be:
1. ELECTION OF DIRECTORS. To elect two persons to the Board of Directors
of the Company to serve for a three-year term expiring in 2001 and until
each such persons' successors are elected and qualified. The Board of
Directors' nominees are:
Lawrence Flinn, Jr.
Scott C. Petersen
2. AMENDMENT OF STOCK OPTION PLAN. To ratify and approve an amendment of
the Company's 1993 Stock Option Plan, as amended and restated effective
August 15, 1996 (the "Plan") to authorize up to an additional 800,000
shares available for issuance upon the exercise of stock options granted
pursuant to the Plan (the "Plan Amendment").
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To
ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1998.
4. OTHER BUSINESS. To transact such other business as may properly come
before the Meeting and at any and all adjournments thereof.
VOTING AND REVOCABILITY OF PROXIES
A Proxy for use at the Meeting is enclosed. The Proxy must be signed and
dated by you or your authorized representative or agent. You may revoke a Proxy
at any time before it is exercised at the Meeting by submitting to the Secretary
of the Company a written revocation of such proxy or a duly executed proxy
bearing a later date or by voting in person at the Meeting.
<PAGE>
Unless revoked, the shares of common stock represented by Proxies will be
voted in accordance with the instructions given thereon. In the absence of any
instruction in the Proxy, your shares of common stock will be voted: (i) "FOR"
the election of the nominees for director set forth herein; (ii) "FOR" approval
of the Plan Amendment; and (iii) "FOR" the ratification of the appointment of
Arthur Andersen LLP as the Company's independent public accountants for the
fiscal year ending December 31, 1998.
The enclosed Proxy confers discretionary authority with respect to any
amendments or modifications of the proposals or other business which properly
may be brought before the Meeting. As of the date hereof, management is not
aware of any such amendments or modifications or other matters to be presented
for action at the Meeting. However, if any other matters properly come before
the Meeting, the Proxies solicited hereby will be voted by the Proxyholders in
accordance with the recommendation and in the discretion of the Board of
Directors.
COSTS OF SOLICITATION OF PROXIES
This Proxy is made on behalf of the Board of Directors of the Company and
the Company will bear the costs of solicitation. The expense of preparing,
assembling, printing and mailing this Proxy Statement and the materials used in
this solicitation of Proxies also will be borne by the Company. It is
contemplated that Proxies will be solicited principally through the mail, but
directors, officers and regular employees of the Company may solicit Proxies
personally or by telephone. Although there is no formal agreement to do so, the
Company may reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding these proxy materials to
their principals. The Company does not intend to utilize the services of other
individuals or entities not employed by or affiliated with the Company in
connection with the solicitation of Proxies.
OUTSTANDING SECURITIES AND VOTING RIGHTS
The authorized capital of the Company consists of 20,000,000 shares of
common stock, par value $.01 per share, of which 11,513,031 shares were issued
and outstanding on the Record Date, and 5,000,000 shares of preferred stock,
$.01 par value, of which there are no shares outstanding.
A majority of the outstanding shares of common stock constitutes a quorum
for the conduct of business at the Meeting. Each stockholder is entitled to one
vote, in person or by proxy, for each share of common stock standing in his or
her name on the books of the Company as of the Record Date on any matter
submitted to the stockholders. The Company's Certificate of Incorporation does
not authorize cumulative voting. In the election of directors, the persons
receiving the highest number of votes will be elected. The approval of the Plan
Amendment and the ratification of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1998
require the affirmative vote of a majority of the common stock represented and
entitled to vote at the Meeting. Shares represented by a proxy card marked as
abstaining on any proposal will be counted as a vote against that matter. If a
broker which is the record holder of certain shares indicates on a proxy that it
does not have discretionary authority to vote on a particular matter as to such
shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to a particular matter,
these non-voted shares will be counted for quorum purposes but are not deemed to
be present or represented for purposes of determining whether stockholder
approval of that matter has been obtained.
Brokers and nominees holding common stock in "street name" which are members
of a stock exchange are required by the rules of the exchange to transmit this
Proxy Statement to the beneficial owner of the common stock and to solicit
voting instructions with respect to the matters submitted to the stockholders.
In the event any such broker or nominee has not received instructions from the
beneficial owner by the date specified in the statement accompanying such
material, the broker or nominee may give or authorize the giving of a Proxy to
vote such common stock on the matters to be considered at the Meeting; PROVIDED,
HOWEVER, that the broker or nominee may not give or authorize the giving of a
Proxy for
2
<PAGE>
any matter if it has notice of any contest with respect to any matter, and,
PROVIDED, FURTHER, that the broker or nominee may not vote the common stock
"FOR" any matter which substantially affects the rights or privileges of the
common stock without specific instructions from the beneficial owner. If you
hold your common stock in "street name" and you fail to instruct your broker or
nominee as to how to vote your common stock, your broker or nominee may, in its
discretion, vote your common stock "FOR" the election of the Board of Directors'
nominees and "FOR" the proposal to ratify the appointment of Arthur Andersen LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 1998.
BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of common stock as
of the Record Date by each person known to the Company to be the record or
beneficial owner of more than five percent of the outstanding shares of common
stock (other than depositories holding shares of common stock in "street name"),
by each director and nominee for director, each executive officer named in the
Summary Compensation Table, and by all directors and executive officers, as a
group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER(1)(2) OWNERSHIP(3) OF CLASS(3)
- ---------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
Tim C. Flynn, Chairman, President and Chief Executive
Officer(4).............................................. 550,205 4.8%
Scott C. Petersen, Executive Vice President and Chief
Operating Officer(4).................................... 399,447 3.4%
John M. O'Haugherty, Senior Vice President and Chief
Operating Officer, Lodging Division(4).................. 70,811 *
Douglas D. Truckenmiller, Vice President, Chief Operating
Officer, ResNet Communications, L.L.C.(4)(5)............ 187,333 1.6%
David M. Bankers, Vice President, Corporate
Technologies(4)......................................... 47,353 *
Eric R. Jacobsen, Vice President, General Counsel and
Secretary(4)............................................ 77,125 *
David Austad, Director(6)................................. 18,833 *
Lawrence Flinn, Jr.(6).................................... 118,833 *
Richard R. Hylland(7)(8).................................. 488,966 4.2%
R. F. Leyendecker(7)(8)................................... 498,966 4.3%
Dimensional Fund Advisors, Inc.(9)........................ 650,900 5.7%
Investment Advisers, Inc.(10)............................. 871,300 7.6%
Longwood Investment Advisors, Inc.(11).................... 633,300 5.5%
Northwestern Networks, Inc.(7)(8)......................... 471,966 4.1%
Wellington Management Company LLP(12)..................... 1,416,100 12.3%
Woodland Partners LLC(13)................................. 645,100 5.6%
Directors and Executive Officers(4)
(A group of 13 persons)................................. 2,634,687 21.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address of such person is 3900 West
Innovation Street, Sioux Falls, South Dakota 57107.
(2) Each named person has sole voting and investment power with respect to the
shares listed, except as noted below.
3
<PAGE>
(3) Shares which the person (or group) has the right to acquire within 60 days
after the Record Date are deemed to be outstanding in calculating the
percentage ownership of the person (or group) but are not deemed to be
outstanding as to any other person (or group).
(4) Includes shares issuable upon the exercise of options to purchase Common
Stock which the person (or group) has the right to acquire within 60 days
after the Record Date as follows: Mr. Flynn, 41,666 shares; Mr. Petersen,
225,065 shares; Mr. D. Truckenmiller, 43,333 (including 25,000 of 75,000
shares subject to vesting upon ResNet's achieving certain performance
benchmarks); Mr. O'Haugherty, 65,811 shares; Mr. Bankers, 47,353 shares;
and Mr. Jacobsen, 73,125 shares; and all directors and executive officers
as a group, 648,936 shares. Does not include 8,884 shares held in the
Company's 401(k) Plan of which Mr. Flynn and Mr. Petersen are Trustees; and
for Mr. Flynn, includes 600 shares owned by Mr. Flynn's minor children, and
for Mr. Petersen includes 150 shares owned by Mr. Petersen's minor
children.
(5) ResNet Communications, L.L.C. ("ResNet") is a majority-owned subsidiary of
ResNet Communications, Inc., which is a wholly-owned subsidiary of the
Company.
(6) Includes 17,000 shares of Common Stock which each of Messrs. Austad and
Flinn have the right to acquire by the exercise of vested stock options.
(7) Messrs. Hylland and Leyendecker are directors of Northwestern Networks,
Inc. ("NNI"), which is a subsidiary of Northwestern Public Service Company
("NPSC"). The shares attributable to Messrs. Hylland and Leyendecker
include 17,000 and 27,000 shares, respectively, which they have the right
to acquire by the exercise of vested stock options, and 471,966 shares held
by NNI as a result of their being directors of NNI. Messrs. Hylland and
Leyendecker disclaim beneficial ownership of all such shares.
(8) The address of NNI and Mr. Leyendecker is 33 Third Street, S.E., Huron,
South Dakota 57350-1318; the address of Mr. Hylland is 125 S. Dakota
Avenue, Suite 1100, Sioux Falls, South Dakota 57104-6403; share ownership
information based on information provided by NNI.
(9) The address of Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California, 90401; address and share ownership
information based on Schedule 13G filed for the year ended December 31,
1997.
(10) The address of Investment Advisers, Inc. is 3700 First Bank Place, Box 357,
Minneapolis, Minnesota 55440; address and share ownership information based
on Schedule 13G filed for the year ended December 31, 1997.
(11) The address of Longwood Investment Advisors, Inc. is Three Radnor Corporate
Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19807; address
and share ownership information based on Schedule 13G filed for the year
ended December 31, 1997.
(12) The address of Wellington Management Company LLP is 75 State Street,
Boston, Massachusetts 02109; address and share ownership information based
on Schedule 13G filed for the year ended December 31, 1997.
(13) The address of Woodland Partners LLC is 60 South Sixth Street, Suite 3750,
Minneapolis, Minnesota 55402; address and share ownership information based
on Schedule 13G filed for the year ended December 31, 1997.
4
<PAGE>
ELECTION OF DIRECTORS
BOARD OF DIRECTORS AND NOMINEES
The Company's Certificate of Incorporation and Bylaws provide that the
number of directors shall be determined from time to time by the Board of
Directors but may not be less than three nor more than nine. The Board of
Directors is currently composed of six members. The Bylaws further provide for
the division of the directors into three classes of approximately equal size,
with directors in each class elected for a three-year term and approximately
one-third of the directors elected each year.
The directors nominated for reelection are Lawrence Flinn, Jr. and Scott C.
Petersen. Messrs. Flinn and Petersen are completing the terms to which they were
elected by the stockholders in 1995. Each nominee has indicated his willingness
to serve and, unless otherwise instructed, Proxies will be voted in favor of
such nominees. In the event that either Mr. Flinn or Mr. Petersen should be
unable to serve as a director, it is intended that the Proxies will be voted for
the election of such substitute nominee(s), if any, as shall be designated by
the Board of Directors. Management has no reason to believe that the nominees
will be unavailable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
The following table sets forth certain information, as of the Record Date,
with respect to the nominees for director and the continuing directors of the
Company. The number of shares of common stock beneficially owned by the nominees
for director and the continuing directors is set forth above under "Beneficial
Ownership of Principal Stockholders and Management."
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
DIRECTOR
(1)/ TERM
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT FOR THE PAST FIVE YEARS EXPIRES
- -------------------------- --- ----------------------------------------------------------------- ------------
<S> <C> <C> <C>
NOMINEES FOR DIRECTOR:
Lawrence Flinn, Jr........ 62 Chairman Emeritus of United Video Satellite Group, Inc.*, since 1994/1998
1997; previously was Chairman, Chief Executive Officer and
director of United Video Satellite Group, Inc.
Scott C. Petersen......... 42 Executive Vice President and Chief Operating Officer of the 1993/1998
Company. Mr. Petersen joined the Company in 1987 as Senior Vice
President for Corporate and Legal Affairs and was appointed
Executive Vice President and Chief Operating Officer in 1991.
OTHER DIRECTORS:
Tim C. Flynn.............. 48 Chairman, President and Chief Executive Officer of the Company. 1983/1999
Mr. Flynn founded the Company in 1980 and has been its
President and Chief Executive Officer since its incorporation
in 1983.
R.F. Leyendecker.......... 52 Vice President--Market Development, Northwestern Public Service 1986/1999
Company* (NPSC), 1996-present; Vice President--Energy Services,
NPSC from 1994-1996; Vice President--Rates and Regulation, NPSC
from 1987-1994; elected Assistant Corporate Secretary, 1993;
director of NNI, a wholly owned subsidiary of NPSC.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
DIRECTOR
(1)/ TERM
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT FOR THE PAST FIVE YEARS EXPIRES
- -------------------------- --- ----------------------------------------------------------------- ------------
<S> <C> <C> <C>
David Austad.............. 37 President and Chief Executive Officer of AGS, Inc. from 1987 to 1994/1999
present; President and Chief Executive Officer, The Austad
Company, Inc., from 1988-1996.
Richard R. Hylland........ 37 Executive Vice President and Director of NPSC* from 1995-present; 1990/2000
Chief Executive Officer and Vice Chairman of Northwestern
Growth Corporation from 1994-present; Vice Chairman of
Cornerstone Propane GP, Inc.; the Managing General Partner of
Cornerstone Propane Partners, L.P.*; Vice Chairman of
ServiCenter USA; Vice Chairman of Communication Systems USA;
Director of Lucht Inc., Franklin Industries, Northwestern
Energy Corporation, Northwestern Services Corporation and NNI.
</TABLE>
- ------------------------
* Denotes public company.
(1) For purposes of this table, the year in which an individual first became a
director of the Company shall be the year in which such individual was
appointed to the Board of Directors of the Company or its South Dakota
predecessor.
PROCEDURES FOR NOMINATING DIRECTORS
The procedures for nominating directors, other than by the Board of
Directors, are set forth in the Bylaws. Nominations for the election of
directors, other than by the Board of Directors, must be made by a stockholder
entitled to vote for the election of directors by giving timely written notice
to the Secretary of the Company at the Company's principal office. Such notice
must be received at least 90 days prior to the date on which, in the immediately
preceding calendar year, the Company's Annual Meeting of Stockholders for such
year was held; PROVIDED, HOWEVER, that in the event the date of the Annual
Meeting is changed by more than 30 days from such anniversary date, such
stockholder's notice must be received by the Secretary of the Company no later
than 10 days after notice or prior public disclosure of the meeting is first
given or made to stockholders. The stockholder's notice must be in writing and
must set forth as to each proposed nominee all information relating to such
person that is required to be disclosed in solicitations of proxies pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, but not limited to, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director, if
elected. The stockholder notice must also set forth the name and address of the
nominating stockholder. If the stockholder fails to comply with the above
provisions, then the Chairman of the meeting may declare that the nomination was
not made in accordance with the procedures prescribed by the Bylaws and the
defective nomination may be disregarded.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is composed of Messers.
Hylland, Austad and Flinn, each of whom is a disinterested director. The Audit
Committee provides assistance to the Board in satisfying its responsibilities
relating to accounting, auditing, operating and reporting practices of the
Company. The Audit Committee met four times during 1997.
The Compensation Committee of the Board of Directors is composed of Messrs.
Austad, Flinn and Leyendecker, each of whom is a disinterested director. The
Compensation Committee is responsible for
6
<PAGE>
establishing compensation policies, for setting compensation levels for the
Company's executive officers and serves as disinterested administrators of the
Plan. The Compensation Committee met three times during 1997. For a description
of the functions of the Compensation Committee, see "ELECTION OF
DIRECTORS--Executive Compensation--REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION."
The Board of Directors met twelve times during 1997. All of the persons who
were directors of the Company during 1997 attended at least 75% of the total
number of meetings of the Board of Directors and the committees of the Board of
Directors on which he served.
DIRECTOR COMPENSATION
The compensation to be paid to each non-employee director is set at $20,000
per year, $300 for each committee meeting attended, and reimbursement for travel
and related expenses for attendance at Board and Committee meetings. The
non-employee directors can elect to receive their annual retainer and meeting
fees in the form of cash, options, shares of the Company's Common Stock or a
combination thereof in accordance with such rules as established by the
Compensation Committee. Non-employee directors automatically receive upon their
initial election or appointment to the Board a nonqualified stock option to
purchase 6,000 shares of Common Stock under the Plan plus an additional 6,000
options to be granted on each anniversary of such election during the term of
service.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16 OF THE EXCHANGE ACT
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any persons holding ten percent or more of the common stock are
required to report their ownership of common stock and any changes in that
ownership to the Securities and Exchange Commission (the "SEC") and to furnish
the Company with copies of such reports. Specific due dates for these reports
have been established and the Company is required to report in this Proxy
Statement any failure to file on a timely basis by such persons. To the
Company's knowledge, based solely upon a review of copies of such reports
received by the Company which were filed with the SEC from January 1, 1997
through the Record Date, and upon written representations from such persons that
no other reports were required, the Company has been advised that all reports
required to be filed under Section 16(a) have been timely filed with the SEC
except for one Form 5 report for Richard R. Hylland with respect to the issuance
in August 1996 of the Company's Common Stock as Director's compensation which
form was filed with the SEC on February 18, 1997.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer ("CEO") and the five most highly compensated executive
officers other than the CEO (determined as of the end of the last fiscal year)
(the "Named Executives") whose total annual salary and bonus exceeded $100,000
for the fiscal year ended December 31, 1997.
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- -------------
OTHER ANNUAL STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) (#)
- ------------------------------------------------ --------- --------- --------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Tim C. Flynn.................................... 1997 260,000 55,765 21,793 20,000
President and Chief Executive 1996 250,000 92,404 28,614 --
Officer 1995 250,000 103,306 20,196 40,000
Scott C. Petersen............................... 1997 250,000 53,620 21,003 20,000
Executive Vice President and Chief 1996 240,000 88,708 27,386 --
Operating Officer 1995 240,000 99,174 20,165 40,000
John M. O'Haugherty............................. 1997 160,000 59,782 14,293 15,000
Senior Vice President, Chief Operating 1996 125,400 37,073 11,216 --
Officer, Lodging Division 1995 115,000 37,510 10,408 20,000
Douglas D. Truckenmiller........................ 1997 160,000 18,669 14,293 --
Vice President, Chief Operating Officer, 1996 156,200(2) 24,000 13,801 75,000
ResNet Communications, L.L.C. 1995 105,000 34,248 10,041 20,000
David M. Bankers................................ 1997 125,000 16,600 11,668 12,500
Vice President, Corporate Technologies 1996 114,500 33,850 10,754 --
1995 105,000 34,248 10,041 20,000
Eric R. Jacobsen................................ 1997 125,000 16,600 11,668 12,500
Vice President, General Counsel 1996 114,500 33,850 10,754 --
1995 70,000(3) 22,832 6,875 80,000
</TABLE>
- ------------------------
(1) Reflects compensation paid to the Named Executives by the Company in order
for them to purchase individual supplemental insurance coverage and other
benefits.
(2) In February 1996 Mr. Truckenmiller was appointed Vice President, Chief
Operating Officer of ResNet. Prior to such appointment, Mr. Truckenmiller
was Vice President, Technical Operations of the Company. Compensation for
1996 was based on an annual salary of $114,500 for the month of January and
an annual salary of $160,000 thereafter.
(3) Mr. Jacobsen joined the Company as Vice President, General Counsel in May
1995. Compensation for 1995 was based on an annual salary of $105,000.
EMPLOYMENT AGREEMENTS
In connection with the Company's initial public offering in October 1993,
the Company entered into an employment agreement with Mr. Flynn, dated August
16, 1993, retaining his services as the Company's President and Chief Executive
Officer. The initial term of this agreement was extended for an additional year
on January 1, 1996 and will be automatically extended each January 1 thereafter
unless prior to any such date either Mr. Flynn or the Company notifies the other
of an election not to extend. The agreement may also be earlier terminated as
discussed below. Under the agreement, Mr. Flynn's salary is currently set at
$260,000 per year. In addition to his salary, Mr. Flynn is entitled to
participate in any bonus program, insurance program, stock benefit plan and
other employment benefits that may be provided by the Company from time to time
to its executive officers.
Mr. Flynn's employment may be terminated prior to the expiration of the term
of the agreement (i) automatically upon Mr. Flynn's death, disability or
retirement at age 65; (ii) by the Company at any time, with or without cause, by
action of its Board of Directors; or (iii) by Mr. Flynn or the Company within
three months after a change of control of the Company. In the event of any such
termination of employment, the following termination benefits apply: (x) for any
termination, other than for cause (including a termination due to death,
disability or retirement at age 65), the Company will pay a pro rata
8
<PAGE>
portion of the maximum bonus for the then current year under any bonus program
in which Mr. Flynn may be participating at the time, unless such payment is not
permitted by the terms of the plan; and (y) for any termination by the Board of
Directors without cause, the Company will continue to pay Mr. Flynn's salary at
the rate last in effect prior to termination for the balance of the term of his
employment agreement or until his earlier death or reaching age 65, and the
Company will continue at its expense any health, disability and life insurance
coverage in effect immediately prior to his termination. In the event of a
termination after a change in control involving the Company, the terms of Mr.
Flynn's agreement will be superseded by the terms and conditions of the
Severance Agreements described below. The employment agreement contains a
covenant by Mr. Flynn not to compete with the Company, or to work for a
competing business, for the term of his employment and six months thereafter,
provided that employment with a cable television vendor will not be considered
to be a competing business.
The Company entered into an employment agreement with Mr. Petersen, dated
August 16, 1993, retaining his services as the Company's Executive Vice
President and Chief Operating Officer. The terms of his employment agreement are
the same as those in Mr. Flynn's agreement summarized above, except that Mr.
Petersen's salary is currently set at $250,000 per year.
In July 1995, the Compensation Committee authorized the Company to enter
into agreements (the "Severance Agreements") with the Company's President and
its other executive officers, including the officers named in the Summary
Compensation Table, providing for the payment of certain compensation and other
benefits in the event of a covered termination of the executive's employment
within two years following a "change in control" involving the Company. No
compensation is payable to any executive under the Severance Agreements unless
(i) there has been a change in control and (ii) the executive's employment with
the Company shall have been terminated (including a substantial reduction in
duties or compensation, but excluding termination as a result of the death or
permanent disability of the executive or for cause or voluntary retirement). A
"change in control" is generally defined as the occurrence of any of the
following: (i) any person or group becomes the beneficial owner of securities
representing 30% or more of the voting power of the Company's outstanding
capital stock having the right to vote in the election of directors (excluding
any such transaction that is effected at an actual or implied average valuation
of less than $6.75 per share of common stock); (ii) a majority of the members of
the Board shall not for any reason be the individuals who at the beginning of
such period constitute the Board or persons nominated by such members; (iii) any
merger, consolidation or sale of all or substantially all of the assets of the
Company (meaning assets representing 30% or more of the net tangible assets of
the Company or generating 30% or more of the Company's operating cash flow),
excluding a business combination or transaction in which: (a) the stockholders
of the Company prior to such transaction continue to represent more than 70% of
the voting power of the Company immediately after giving effect to such
transaction; (b) no person or group becomes the beneficial owner of 30% or more
of the Company's voting stock; or (c) the purchase price results in an actual or
implied average valuation of less than $6.75 per share of common stock; (iv) the
adoption of any plan or proposal for the liquidation or dissolution of the
Company; or (v) the occurrence of any other event that would be required to be
reported as a change in control in response to Item 6(e) of Schedule 14A of
Regulation 14A of the Exchange Act.
Upon a covered termination, the executive is entitled to receive a lump sum
payment equal to the compensation the executive would have received over a
30-month period, a pro rata portion of any bonus the executive would have
received for the year in which such termination occurs, any stock options
previously granted to the executive will become fully vested, and the executive
will be entitled to the continuation of the insurance and other welfare benefits
then being received by such executive for a 30-month period. The Severance
Agreements contain a covenant not to compete with the Company for a period of
six months following a covered termination, and executives are not required to
mitigate any termination benefits (nor will such benefits be reduced by
compensation received from other employment). The Severance Agreements terminate
upon the earlier of: (i) five years (subject to automatic one-year extensions
unless the Board otherwise notifies the executive); (ii) the termination of the
executive's employment other than pursuant to a covered termination described
above; (iii) two years from the date of
9
<PAGE>
a change in control of the Company if there has not been a covered termination;
and (iv) prior to a change in control upon the executive's ceasing to be an
executive officer of the Company.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during the fiscal year ended December 31, 1997 to the Named Executives.
OPTION(1) GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------ POTENTIAL REALIZABLE
NUMBER OF AT ASSUMED ANNUAL
SECURITIES RATES OF STOCK PRICE
UNDERLYING PERCENT OF TOTAL APPRECIATION FOR
OPTIONS/SARS OPTIONS/SARS GRANTED OPTION TERM (3)
GRANTED TO EMPLOYEES IN 1997 EXERCISE OR BASE EXPIRATION --------------------
NAME (#)(2) (%) PRICE ($/SH) DATE 5% ($) 10% ($)
- ---------------------------- ------------- --------------------- ----------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tim C. Flynn................ 20,000 8.6 16.71 1/13/2007 72,022 155,102
Scott C. Petersen........... 20,000 8.6 16.71 1/13/2007 72,022 155,102
John M. O'Haugherty......... 15,000 6.4 16.71 1/13/2007 54,017 116,327
David M. Bankers............ 12,500 5.4 16.71 1/13/2007 45,014 96,939
Eric R. Jacobsen............ 12,500 5.4 16.71 1/13/2007 45,014 96,939
</TABLE>
- ------------------------
(1) The Company has no plans pursuant to which stock appreciation rights may be
granted.
(2) The options were granted pursuant to the Plan. The options become
exercisable in four equal annual installments beginning one year after the
date of the grant.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on a variety of
factors, including market conditions and the price performance of the Common
Stock. There can be no assurance that the rates of appreciation presented in
this table can be achieved.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executives concerning the exercise of options during the fiscal year ended
December 31, 1997 and unexercised options held by the Named Executives as of
December 31, 1997:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING OPTIONS AT IN-THE- MONEY OPTIONS AT
ACQUIRED ON VALUE 12/31/97 (#) 12/31/97 ($)(1)
EXERCISE REALIZED -------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ---------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tim C. Flynn.................... N/A N/A 36,666 45,556 27,166 11,056
Scott C. Petersen............... 172,232 1,556,977 210,065 45,278 1,462,946 10,653
John M. O'Haugherty............. N/A N/A 57,062 48,055 14,791 5,931
Douglas D. Truckenmiller........ N/A N/A 18,333 87,778 13,583 5,528
David M. Bankers................ 7,500 65,775 44,228 25,278 97,224 5,528
Eric R. Jacobsen................ N/A N/A 55,000 37,500 181,500 61,500
</TABLE>
- ------------------------
(1) Value of unexercised "in-the-money" options is the difference between the
market price of the Common Stock on December 31, 1997 ($11.00 per share) and
the exercise price of the option, multiplied by the number of shares subject
to the option.
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for developing and making recommendations to the Board with respect
to the Company's executive compensation policies. In addition, the Committee,
pursuant to authority delegated by the Board, determines on an annual basis the
compensation to be paid to the Company's chief executive officer and each of the
other executive officers of the Company. The Committee consists exclusively of
disinterested directors. Set forth below is the Report of the Committee
addressing the Company's policies regarding executive compensation for 1997.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS
THE REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION SHALL NOT
BE INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE
THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), OR UNDER THE EXCHANGE ACT, EXCEPT TO THE EXTENT THAT THE
COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
COMPENSATION PHILOSOPHY AND OBJECTIVES. The Company's success is dependent
upon its ability to attract and retain highly qualified and motivated
executives. The Company endorses the philosophy that executive compensation
should reflect Company performance and the contribution of such officers to that
performance. The Company's compensation policies are designed by the Committee
to achieve three fundamental objectives: (i) attract and retain qualified
executives, (ii) motivate performance to achieve specific strategic objectives
of the Company, and (iii) align the interests of senior management with the
long-term interests of the Company's shareholders. The three key interests of
senior management with the long-term interests of the Company's shareholders.
The three key elements of the Company's compensation program are base salary, an
annual performance-based cash bonus, and long-term stock options.
The Company's executive officers are also permitted to participate in the
Company's broad based employee benefit plans and receive supplementary payments
to enable such executives to purchase additional insurance coverage and other
benefits. The incremental cost to the Company of the benefits provided under
these plans to the Named Executives averaged approximately 10% of their base
salaries in 1997.
BASE SALARIES. The Company's approach to compensating executive officers
has been to pay base salaries which are competitive with the salaries paid to
executives of other companies in the media and communications industries, and
based upon the Committee's judgment of the particular individual's experience,
performance and potential contributions to the Company. The Company believes
executive compensation levels must be competitive with those provided to other
executives in the media and communications industries in order to attract and
retain qualified executives crucial to the Company's long-term success. The
group of companies considered by the Committee is broader than the group shown
in the performance graph included below because the Company believes that it
competes with a broader group of companies for executive talent.
The Company's Chief Executive Officer, Mr. Flynn, and Chief Operating
Officer, Mr. Petersen, are employed pursuant to employment contracts (the
"Employment Contracts") entered into in 1993 between the Company and such
executive officers in connection with and prior to the Company's initial public
offering (the "Offering"). The Employment Contracts had an initial term which
expired on December 31, 1995, and are automatically extended each year unless
either the Company or such executive elects not to extend. In originally
approving the Employment Contracts, the Board made a subjective assessment of
management performance relating to the achievement of financial targets and
strategic milestones and considered the salary levels of executive officers of
its competitors and other public companies of comparable size, and the advice
and recommendations of its financial advisers (who acted as the managing
underwriters in the Offering). In addition, a specific objective of the Board in
approving the Employment
11
<PAGE>
Contracts was to provide compensation to the Company's executive officers
sufficient to ensure the continuity and stability of senior management following
the Offering and to recognize the additional significant demands associated with
the management of a public company. The base salaries paid to Messrs. Flynn and
Petersen for 1997 were increased $10,000 (or 4.0% and 4.2%, respectively) from
1995. See "Executive Compensation--Employment Agreements." With respect to the
Company's other executive officers, based on the policies and factors described
above, including the performance of the Company and peer group compensation, the
Committee approved base salary adjustments for 1997 averaging 8.6% for such
executive officers.
BONUS COMPENSATION. The Company's officers are eligible to receive annual
cash incentive compensation based on achieving specific goals and objectives
established by the Committee. In February 1997 the Committee established an
executive bonus program for 1997 based on the achievement by the executive of a
combination of target goals relating to earnings before interest, expense,
income taxes, depreciation, and amortization ("EBITDA") for the Company, the
lodging division or ResNet, as appropriate; the effective management of selling,
general and administrative expenses; growth in guest pay rooms, cable
subscribers or cable passings, as appropriate; and the achievement of strategic
goals, the particular combination of targets and their respective weighting
being dependent upon the nature of the participating executive's areas of
responsibility. Projected bonuses under the program could range from 0% to
approximately 40% of base salary depending upon the executive's position. The
Committee met in February 1998 to evaluate the Company's performance and
determine the 1997 bonuses for executive officers. The Committee considered
whether the target goals for 1997 were attained and reviewed strategic events
that occurred during the year. In light of the foregoing, the Committee approved
the cash bonus payments to the Named Executives reflected in the Summary
Compensation Table.
LONG-TERM STOCK OPTIONS. The Company believes that stock ownership by
executive officers and key employees aligns their interests with those of
stockholders. Stock options granted to such persons are intended to provide such
employees with an incentive to achieve superior performance that will be
reflected in the appreciation of the Company's common stock. The terms and
conditions of such options are determined and administered by the Committee.
Generally, stock options are granted annually with an exercise price equal to
the prevailing market value of the Company's common stock at the time of grant,
have ten year terms and vest over a four year period. The nature of the
long-term stock option compensation means that participating executives will not
realize compensation unless the value of the Company's common stock increases.
Each executive officer is considered for stock options based on his or her
responsibilities in the Company and existing stock option position, as well as
stock option award levels of comparable media and communications companies.
SEVERANCE AGREEMENTS. The Board believes that it is in the interest of the
Company and its stockholders to reinforce and encourage the continued dedication
of the Company's executive officers without the distractions occasioned by the
possibility of an abrupt change in control of the Company. In July 1995, the
Committee authorized the Company to enter into severance agreements with the
Company's president and its other executive officers, including the Named
Executives, providing for the payment of certain compensation and other benefits
in the event of a covered termination of the executive's employment within two
years following a "change in control" involving the Company. See "Executive
Compensation-- Employment Agreements."
IRC SECTION 162(M). Section 162(m) of the Internal Revenue Code disallows
the deductibility by the Company of any compensation over $1 million per year
paid to each of the chief executive officers and the four most highly
compensated executive officers (other than the chief executive officer), unless
certain criteria are satisfied. During 1997, the Board discussed the adoption of
an amendment of the Company's stock option plan to, among other things, qualify
for an exemption from the limitation on deductibility with
12
<PAGE>
respect to stock options granted under the plan. No officer of the Company
receives compensation in excess of such amount and, accordingly, such action was
not taken in 1997.
THE COMPENSATION COMMITTEE
David Austad
Lawrence Flinn, Jr.
R.F. Leyendecker
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee has ever served as an officer of the
Company, other than Mr. Leyendecker, who served as the Company's Treasurer from
1988 though 1992. Certain compensation matters were reviewed by the entire Board
of Directors, which includes Mr. Flynn, the President and Chief Executive
Officer, and Mr. Petersen, Executive Vice President and Chief Operating Officer
of the Company. Mr. Leyendecker, a director and member of the Compensation
Committee, is a director of NNI and an executive officer of NPSC. Mr. Hylland, a
director, is a director of NNI and a director and executive officer of NPSC.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
None of the directors or executive officers of the Company or any subsidiary
thereof, or any associates or affiliates of any of them, is or has been indebted
to the Company at any time since the beginning of the last completed fiscal year
in excess of $60,000. None of the directors or executive officers of the Company
or any associate or affiliate of such person, had any material financial
interest, direct or indirect, in any transaction or any proposed transaction
with the Company during the past fiscal year.
PERFORMANCE GRAPH
Prior to October 14, 1993, the date on which the Company's Initial Public
Offering was completed, the Company's common stock was privately held. The
following graph compares the percentage change in the Company's cumulative total
shareholder return on its common stock with (i) the cumulative total return of
the NASDAQ Market Index and (ii) the cumulative total return of all companies
(the "Peer Group") with the same four-digit standard industrial code (SIC) as
the Company (SIC Code 4841--Cable and Other Pay Television Services) over the
period from October 14, 1993 through December 31, 1997. The graph assumes an
initial investment of $100 in each of the Company, the NASDAQ Market Index and
the Peer Group and reinvestment of dividends. The Company did not declare or pay
any dividends in 1997. The graph is not necessarily indicative of future price
performance. THIS GRAPH SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY
GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY
FILING UNDER THE SECURITIES ACT OR UNDER THE EXCHANGE ACT, EXCEPT TO THE EXTENT
THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND
SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
13
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, NASDAQ MARKET INDEX AND PEER GROUP*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LODGENET ENTERTAINMENT CORP. PEER GROUP NASDAQ MARKET INDEX
<S> <C> <C> <C>
10/14/93 $100.00 $100.00 $100.00
12/31/93 $108.33 $112.13 $100.23
12/31/94 $56.02 $81.29 $105.23
12/31/95 $70.37 $93.85 $136.50
12/31/96 $131.48 $76.29 $169.62
12/31/97 $81.48 $127.77 $207.48
</TABLE>
ASSUMES $100 INVESTED ON OCT. 14, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31
OCTOBER 14, -----------------------------------------------------
1993 1993 1994 1995 1996 1997
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
LodgeNet...................................... $ 100.00 $ 108.33 $ 56.02 $ 70.37 $ 131.48 $ 81.48
Peer Group.................................... 100.00 112.13 81.29 93.85 76.29 127.77
NASDAQ Market Index........................... 100.00 100.23 105.23 136.50 169.62 207.48
</TABLE>
- ------------------------
* Source: Media General Financial Services, Inc.
14
<PAGE>
AMENDMENT OF THE COMPANY'S 1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan was adopted by action of the Board of
Directors and stockholders effective as of August 16, 1993 and was amended and
restated effective August 15, 1996, as so amended and restated (the "Plan"). The
amendment and restatement of the Plan incorporated amendments adopted in 1995
and 1996 as well as amendments that conformed the Plan to revisions in Rule
16b-3 promulgated under the Exchange Act and to permit Non-Employee Directors to
elect to receive their fees in nonqualified stock options ("NSOs") and/or shares
of Common Stock.
The purpose of the Plan is to advance the interests of the Company and its
stockholders by enabling the Company and its subsidiaries to attract and retain
qualified management and to provide added incentive to officers, directors,
consultants and other key employees of the Company and its affiliates for high
levels of performance and to encourage stock ownership in the Company.
Currently, the Plan provides for the issuance of a maximum 1,000,000 shares. As
of March 25, 1998, options to purchase 982,500 shares were outstanding, and 419
shares were available for grant under the Plan.
The Board believes that the number of shares presently available for grant
under the Plan is insufficient to enable the Company to retain or attract high
caliber individuals in today's competitive market. Therefore, the Board has
adopted, subject to stockholder approval, an amendment to Section 4 of the Plan
to authorize up to an additional 800,000 shares (for a total of 1,800,000)
reserved for issuance under the Plan (the "Plan Amendment"). Any such options
granted in the future will be subject to the same terms and provisions as
provided in the Plan or as otherwise determined by the Compensation Committee
pursuant to discretionary authority granted under the Plan.
The Board of Directors believes that the Company's policy of encouraging
stock ownership by its directors, officers and key employees has been a positive
factor in its growth and success by enabling the Company to attract and retain
quality directors and key employees, to stimulate the efforts of such
individuals towards achievement of the Company's objectives and to align the
interests of such individuals with those of the Company's stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE APPROVAL OF THE PLAN AMENDMENT
A general description of the basic features of the Plan is set forth below.
This summary is qualified in its entirety by the actual text of the Plan, a copy
of which may be obtained from the Company.
GENERAL. The purpose of the Plan is to enable the Company and its
subsidiaries to attract, retain and reward key managerial employees ("Key
Employees") and non-employee directors ("Non-Employee Directors") of the Company
by offering them the opportunity to have a greater proprietary interest in and
closer identity with the Company and its financial success. Shares of common
stock subject to Options which expire or are terminated or cancelled may be
re-added to the remaining number of shares of common stock available for grant.
ADMINISTRATION. The Plan is administered by the Committee. The Committee
may interpret the Plan, prescribe, amend and rescind rules and regulations
relating to it, determine the terms and provisions of Options granted under the
Plan, including the number of option grants, exercise price, duration and method
of exercise as set forth in the Plan, and make such other determinations as it
deems necessary or advisable for the administration of the Plan.
TYPE OF OPTIONS GRANTED. An option granted under the Plan to a Key Employee
to purchase shares of the Company's common stock may be an incentive stock
option ("ISO"), as defined in Section 422 of the Internal Revenue Code of 1986
(the "Code"), or a nonqualified stock option ("NSO") (collectively, the
"Options"). Each individual who becomes a Non-Employee Director automatically is
granted an NSO to purchase 6,000 shares of common stock upon initial election to
the Company's Board of Directors and an
15
<PAGE>
additional grant of 6,000 options on each anniversary of such election during
the term of service. The per share exercise price of each NSO granted to a
Non-Employee Director must be 100% of the fair market value of a share of Common
Stock on the date of grant. Subject to the provisions regarding termination of
service, 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. Additionally, Non-Employee Directors may elect to
receive all or a portion of their annual retainer payments and meeting fees in
NSOs and/or shares of Common Stock.
REQUIRED TERMS AND CONDITIONS OF OPTIONS. 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, consistent
with the requirements of the Code and subject to the general provisions of the
Plan and the following specific rules. Except as otherwise provided, the per
share exercise price of each ISO shall be at least 100% of the fair market value
of the common stock at the time of grant, 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 Company or its parent or subsidiaries
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price shall be at least 110% of the fair
market value of the common stock at the time of grant and the ISO by its terms
shall not be exercisable after the expiration of five years from the date of
grant. Subject to earlier termination, each ISO shall expire on the date
determined in the applicable Option Agreement at the time the ISO is granted,
provided that such date shall not be more than 10 years from the date of grant,
except as otherwise provided above. The terms and conditions applicable to the
NSOs granted to Key Employees and Non-Employee Directors pursuant to the Plan
(which need not be identical) and the Option Agreements relating thereto are
determined by the Committee and the Committee may make such other determinations
as it deems necessary or advisable for the administration of NSOs granted under
the Plan.
TERMINATION OF EMPLOYMENT OR SERVICE. Except as set forth below or
otherwise determined by the Committee, each Option granted to a Key Employee
shall expire on the expiration date or dates set forth in the applicable Option
Agreement. Unless the Committee determines to extend the option exercise period
for a period of up to ninety days and/or permits the Key Employee to exercise an
Option that becomes exercisable during that 90-day period, an Option granted to
a Key Employee shall expire on the first to occur of (i) the applicable date or
dates determined by the Option Agreement or (ii) the date that the employment of
the Key Employee with the Company or its subsidiaries terminates for any reason
other than death or disability, retirement, or upon the occurrence of specified
events. In no event, however, may the Committee permit such Key Employee to
exercise an Option under this section after the expiration date or dates set
forth in the applicable Option Agreement. If the employment of a Key Employee
with the Company 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 her 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 appropriate beneficiary. If the employment of a Key Employee
with the Company and its subsidiaries terminates due to retirement under any
qualified retirement plan maintained by the Company and/or any of its
subsidiaries, his Option shall expire on the earlier to occur of (i) the
applicable expiration date or dates set forth in the applicable Option
Agreement(s) or (ii) the third anniversary of the date of such termination of
employment. If 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.
TERMINATION UPON OCCURRENCE OF SPECIFIED EVENTS. If, within two years after
the occurrence of any event described in the paragraph below on adjustments, the
employment of a Key Employee with the Company and its subsidiaries terminates
voluntarily for good reason, or involuntarily for any reason other
16
<PAGE>
than for cause, or due to the death, disability or retirement of a Key Employee,
and if such event does not have the prior written approval of a majority of the
Continuing Directors (as defined in the Plan), the dates upon which his
outstanding Options may be exercised shall be advanced to the date of
termination. In such event, not later than 90 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 notwithstanding any restrictions and conditions that may be
contained in his Option Agreement.
ADJUSTMENTS. In the event that: (i) any person (as such term is used in
Section 13 of the Exchange Act and the rules and regulations thereunder and
including any Affiliate or Associate of such person, as defined in Rule 12b-2
under the Exchange Act, and any person acting in concert with such person)
directly or indirectly acquires or otherwise becomes entitled to vote more than
50% of the voting power entitled to be cast at elections for directors ("Voting
Power") of the Company; or (ii) there occurs any merger or consolidation of the
Company, or any sale, lease or exchange of all or any substantial part of the
consolidated assets of the Company and its subsidiaries to any other person and
(A) in the case of a merger or consolidation, the holders of outstanding stock
of the Company 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% or more of the Voting Power of the Company) hold less than 80% 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 Company does not own at
least 50% of the Voting Power of the other person; or (iii) one or more new
directors of the Company 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; 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) 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.
TERMINATION AND AMENDMENT OF THE PLAN. 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 Company. The Board may at any time terminate, suspend or modify the Plan
without authorization of stockholders to the extent allowed by applicable law,
regulation or rule. No termination, suspension, or modification of the Plan may
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. Any member of the Board who is an officer or employee
of the Company may not vote on any proposed amendment to the Plan, or on any
other matter which might affect that member's individual interest under the
Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion is only a summary
of the principal federal income tax consequences of the options to be granted
under the Plan, and is based on existing federal law (including administrative
regulations and rulings) which is subject to change, in some cases
retroactively. This discussion is also qualified by the particular circumstances
of individual optionees, which may substantially alter or modify the federal
income tax consequences herein discussed.
INCENTIVE STOCK OPTIONS. Generally under present law, when an option
qualifies as an ISO under Section 422 of the Code: (i) an optionee will not
realize taxable income either upon the grant or the exercise of the option, (ii)
any gain or loss upon a qualifying disposition of the shares acquired by the
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exercise of the option will be treated as capital gain or loss, and (iii) no
deduction will be allowed to the Company for federal income tax purposes in
connection with the grant or exercise of an ISO or a qualifying disposition of
the shares. A disposition by an optionee of stock acquired upon exercise of an
ISO will constitute a qualifying disposition if it occurs more than two years
after the grant of the option, and one year after the transfer of the shares to
the optionee. If such stock is disposed of by the optionee before the expiration
of those time limits, the transfer would be a "disqualifying disposition" and
the optionee, in general, will recognize ordinary income equal to the lesser of
(i) the aggregate fair market value of the shares as of the date of exercise
less the option price, or (ii) the amount realized on the disqualifying
disposition less the option price. The Company would become entitled to a
corresponding deduction. Ordinary income from a disqualifying disposition will
constitute ordinary compensation income. Any gain in addition to the amount
reportable as ordinary income on a "disqualifying disposition" generally will be
capital gain. Upon the exercise of an ISO, the difference between the fair
market value of stock on the date of exercise and the option price generally is
treated as an adjustment to taxable income in that taxable year for alternative
minimum tax purposes, as are a number of other items specified by the Code. Such
adjustments (along with tax preference items) form the basis for the alternative
minimum tax (presently at a graduated rate for individuals), which may apply
depending on the amount of the computed "regular tax" of the employee for that
year. The Company does not obtain a deduction as a result of an optionee
incurring the alternative minimum tax.
NON-QUALIFIED STOCK OPTIONS. In the case of NSOs, no income generally is
recognized by the optionee at the time of grant. Under present law the optionee
generally will recognize ordinary income at the time the NSO is exercised equal
to the aggregate fair market value of the shares acquired less the option price.
Ordinary income from an NSO will constitute compensation for services. Subject
to special rules applicable when an optionee uses stock of the Company to
exercise an option, shares acquired upon exercise of an NSO will have a tax
basis equal to their fair market value on the exercise date or other relevant
date on which ordinary income is recognized and the holding period for the
shares generally will begin on the date of exercise or such other relevant date.
Upon subsequent disposition of the shares, the optionee generally will recognize
capital gain or loss. Provided the shares are held by the optionee for more than
one year prior to disposition, such gain or loss will be long-term capital gain
or loss. The Company will generally be entitled to a deduction equal to the
ordinary income (i.e., compensation) recognized by the optionee in connection
with the exercise of an NSO provided the Company complies with any withholding
requirements of federal and state law.
RESTRICTIONS ON DEDUCTIONS. Not every amount paid as compensation for
services is currently deductible. For example, depending upon the services
rendered, some compensation payments must be capitalized or added to inventory
costs. Two other restrictions under the Code potentially applicable to
deductions for executive compensation payments are the restriction on the
deduction of so-called "excess parachute payments" (and the imposition of a 20%
excise tax on the recipient thereof) and the deduction limit of $1,000,000 per
year for certain executive compensation. Whether any such restrictions will
apply to specific payments of compensation by the Company cannot be predicted at
this time.
EFFECT OF AMENDMENT. The Plan Amendment will have no effect upon the tax
consequences to Key Employees or the Company.
PLAN BENEFITS
The benefits and amounts that will be received by each of the Named
Executives, the executive officers as a group and all other key management
employees under the Plan are not presently determinable. Details on stock
options recently granted to the Named Executives are presented in the tables
entitled "Summary Compensation Table" and "Option Grants in Fiscal Year 1997."
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RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The accountants of the Company are Arthur Andersen LLP, 45 South Seventh
Street, Minneapolis, MN 55402-1611. Arthur Andersen LLP has performed accounting
services for the Company and its predecessors since its appointment in the
fourth quarter of 1991, which services have consisted of the examination of the
consolidated financial statements of the Company and its affiliates and
predecessors and limited assistance and consultation in connection with filings
with the SEC. All professional services rendered by Arthur Andersen LLP during
1997 were furnished at customary rates and terms.
It is anticipated that representatives of Arthur Andersen LLP will be
present at the Meeting to respond to appropriate questions and to comment on the
Company's consolidated financial statements.
The Board of Directors has appointed Arthur Andersen LLP as the Company's
independent public accountants for the current fiscal year and the stockholders
are being asked to ratify such appointment. The affirmative vote of the holders
of at least a majority of the outstanding shares of the Company's Common Stock
represented and voting at the Meeting will be required for passage of this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1998.
ANNUAL REPORT
The Company's Annual Report to Shareholders, incorporating its Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 accompanies this Proxy
Statement. The Form 10-K contains consolidated financial statements of the
Company and its subsidiaries and the report thereon of Arthur Andersen LLP, the
Company's independent public accountants.
PROPOSALS OF STOCKHOLDERS
Under certain circumstances, stockholders are entitled to present proposals
at stockholder meetings. The 1999 Annual Meeting of Stockholders will be held on
or about May 12, 1999. Proposals of stockholders intended to be included in the
proxy materials for the 1999 Annual Meeting of Stockholders must be received by
the Secretary of the Company, 3900 West Innovation Street, Sioux Falls, South
Dakota 57107, by December 11, 1998, in a form that complies with the Company's
Bylaws and applicable requirements.
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the Notice of Meeting. If,
however, other matters are properly brought before the Meeting, it is the
intention of the Proxyholders to vote the shares represented thereby on such
matters in accordance with the recommendations of the Board of Directors and
authority to do so is included in the Proxy.
DATED: April 8, 1998
By Order of the Board of Directors,
/s/ Eric R. Jacobsen
Eric R. Jacobsen
SECRETARY
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PROXY PROXY
LODGENET ENTERTAINMENT CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 13, 1998
The undersigned hereby appoints Mr. Tim C. Flynn and Mr. Scott C. Petersen,
and each of them, the attorneys, agents and proxies of the undersigned, with
full powers of substitution to each (the "Proxies"), to attend and act as
proxy or proxies of the undersigned at the Annual Meeting of Stockholders
(the "Annual Meeting") of LodgeNet Entertainment Corporation (the "Company")
to be held at the Company's National Headquarters and Distribution Center,
3900 W. Innovation Street, Sioux Falls, South Dakota 57107 on Wednesday,
May 13, 1998 at 9:00 a.m. Central Daylight Time or any adjournment thereof,
and to vote as specified herein the number of shares which the undersigned,
if personally present, would be entitled to vote.
This Proxy when properly executed will be voted as specified. If no
instruction is specified with respect to a matter to be acted upon, the
shares represented by the Proxy will be voted "FOR" the election of Mr.
Lawrence Flinn, Jr. and Mr. Scott C. Petersen; "FOR" approval of the Plan
Amendment; and "FOR" the ratification of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1998.
If any other business is presented at the Annual Meeting, this Proxy confers
authority to and shall be voted in accordance with the recommendation of the
Board of Directors. This Proxy is solicited on behalf of the Board of
Directors and may be revoked prior to its exercise by filing with the
Corporate Secretary of the Company a duly executed proxy bearing a later date
or an instrument revoking this Proxy, or by attending and electing to vote in
person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
For all
1. ELECTION OF DIRECTORS FOR A (Except Nominee(s)
TERM OF 3 YEARS-- For Withheld written below)
NOMINEES: Lawrence Flinn, Jr.,
Scott C. Petersen / / / / / /
-----------------------------------
For Against Abstain
2. To approve the Plan Amendment. / / / / / /
No Voting Authority
/ /
For Against Abstain
3 . To ratify the appointment of Arthur / / / / / /
Andersen LLP as the Company's Independent
public accountants for the fiscal year ending
December 31, 1998.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any and all
adjournments thereof. The Board of Directors at present knows of no other
business to be presented by or on behalf of the Company or the Board of
Directors at the Annual Meeting.
Dated , 1998
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Signature(s)
------------------------
Signature(s)
------------------------
- ---------------------------------- Please sign exactly as name appears
PLEASE MARK, SIGN, DATE AND MAIL hereon. Joint owners should each sign.
THIS PROXY CARD PROMPTLY USING Where applicable, indicate official
THE ENCLOSED ENVELOPE position or representative capacity.
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FOLD AND DETACH HERE
