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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number: 0-22334
LODGENET ENTERTAINMENT CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 46-0371161
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(State of Incorporation) (IRS Employer
Identification Number)
3900 WEST INNOVATION STREET, SIOUX FALLS, SOUTH DAKOTA 57107
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(Address of Principal Executive Offices) (Zip Code)
(605) 988-1000
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(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 9, 1999, the aggregate market value of the common stock held by
non-affiliates of the Registrant was approximately $87.3 million. The number of
shares of common stock of the Registrant outstanding as of March 9, 1999 was
11,942,387 shares.
DOCUMENTS INCORPORATED BY REFERENCE - Part III of this Form 10-K is incorporated
by reference from Registrant's definitive proxy statement for the 1999 Annual
Meeting of Stockholders, which will be filed within 120 days of the fiscal year
ended December 31, 1998.
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This Report contains a total of 56 pages, excluding exhibits. The Exhibit
index appears on page 27.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Special Note Regarding Forward-Looking Statements ............................ 1
Item 1 - Business ............................................................ 1
Overview ............................................................ 1
Business Strategy ................................................... 2
ResNet Transaction .................................................. 3
Markets and Customers ............................................... 3
Services and Products ............................................... 4
Operations .......................................................... 5
Competition ......................................................... 8
Regulation .......................................................... 9
Employees ........................................................... 10
Item 2 - Properties .......................................................... 10
Item 3 - Legal Proceedings ................................................... 10
Item 4 - Submission of Matters to a Vote of Security Holders ................. 10
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters ............................................................. 11
Dividends ........................................................... 11
Stockholder Rights Plan ............................................. 11
Item 6 - Selected Financial Data ............................................. 15
Special Note Regarding Forward-Looking Statements ............................ 17
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................. 17
Item 8 - Financial Statements and Supplementary Data ......................... 26
Item 9 - Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure ................................. 26
Item 10 - Directors and Officers of the Registrant ........................... 26
Item 11 - Executive Compensation ............................................. 26
Item 12 - Security Ownership of Certain Beneficial Owners and Management ..... 26
Item 13 - Certain Relationships and Related Transactions ..................... 27
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 27
</TABLE>
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As used herein (unless the context otherwise requires) "LodgeNet", the
"Company" and/or the "Registrant" mean LodgeNet Entertainment Corporation and
its consolidated subsidiaries.
LodgeNet Entertainment Corporation i Form 10-K 1998
<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 and statements which are made
in the future tense, 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 is a specialized communications company which provides video
on-demand, network-based Nintendo-Registered Trademark- video games, cable
television programming and other interactive entertainment and information
services to the lodging industry. The Company is the second largest provider of
these services to the lodging industry and currently serves over 4,500 hotel
properties throughout the United States and Canada. From 1992 through 1998, the
number of guest pay rooms the Company serves has grown at a compound annual rate
of 34.0%, from 73,415 to 596,806, and the Company currently serves over 596,000
Guest Pay rooms. During the same period, the Company's revenues and EBITDA
("Earnings Before Interest, Taxes, Depreciation, and Amortization") have grown
at compound annual rates of 38.0% and 55.2%, respectively, to $166.4 million and
$48.6 million in 1998.
The Company provides both Guest Pay and free-to-guest services to its
clients. Guest pay services are purchased by guests on a per-view or hourly
basis and include Guest Scheduled-SM- on-demand movies and network-based
Nintendo video games. Guest pay packages may also include additional services,
such as satellite-delivered basic and premium cable television programming, and
other interactive entertainment and information services that are paid for by
the hotel and provided to guests at no charge. Free-to-guest services typically
involve a customized package of basic and premium cable television programming.
Hotels purchase free-to-guest services from the Company and provide the services
to their guests at no charge. The Company provides its services to various
corporate-managed hotel chains such as Sheraton, Ritz-Carlton, Harrah's Casino
Hotels, Delta Hotels and Resorts, Outrigger, La Quinta Inns, and Red Roof Inns,
as well as many individual properties flying the Marriott, Holiday Inn, Hilton,
Inter-Continental, Prince, Radisson, Westin, Doubletree, Embassy Suites, Wingate
and other flags.
The Company provides its services throughout the United States and
Canada, and in other select countries through licensing arrangements with
strategic partners. The Company's contracts are exclusive and typically have
initial, non-cancelable terms of 5 to 7 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 average remaining
life of the Company's existing guest pay contracts is over four years, with less
than 8% of these contracts due to expire before 2000.
LodgeNet Entertainment Corporation 1 Form 10-K 1998
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The Company offers its interactive services by utilizing the two-way
digital communications design of its proprietary b-LAN-Registered Trademark-
system architecture. The design of this open-architecture, UNIX-based platform
enables the Company to upgrade system software to support the introduction of
new services and integrate new technologies as they become commercially
available and economically viable. The Company believes the flexibility of its
b-LAN system architecture has enabled it to provide innovative and creative
solutions to the lodging industry, including:
- achieving the industry's highest percentage of installed guest
pay rooms offering on-demand movies (as compared to scheduled
movies that can only be watched at predetermined times),
- being the first in its industry to install and widely deploy
network-based video games,
- being the first in its industry to utilize an image-based menu
and purchasing protocol using on-screen graphics to market
movies and video games, rather than using simple text menus
traditionally used by its competitors,
- installing and testing an Internet browser that enables hotel
guests to access and navigate the Internet from their guest room
television, and
- integrating and testing technology that is expected to allow the
Company to cost-effectively provide plug-and-play, high-speed
Internet access (at up to 50 times the speed of conventional
modems) to hotel guest rooms and meeting spaces.
The lodging market in the United States comprises approximately 3.6
million rooms. Due to certain economies of scale, guest pay service providers
have traditionally targeted only large hotels with over 150 rooms, which
represent a total of approximately 1.3 million rooms. In 1995, the Company
redesigned its b-LAN system, enabling it to cost-effectively deliver on-demand
movies and network-based video games to mid-size hotels of 75 to 150 rooms. As
the mid-size hotel market has been historically under-served by guest pay
providers, it represents a large (approximately 1.2 million rooms) and
attractive market for the Company's services that generates financial returns
that meet or exceed those achieved in larger hotels. Since 1995, the Company has
added more than 170,000 rooms to its room base from mid-sized hotels.
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. The Company's
principal executive offices are located at 3900 West Innovation Street, Sioux
Falls, South Dakota 57107, (605) 988-1000.
BUSINESS STRATEGY
CONTINUE TO SELECTIVELY EXPAND THE COMPANY'S ROOM BASE. Within the
Company's target market of hotels with 75 or more rooms, the Company believes
substantial opportunity exists for continued, selective growth in its room base.
The Company estimates that more than 400,000 rooms are presently not served by
any guest pay vendor and fit its target economic profile. The Company also
estimates that its competitors serve another 200,000 rooms under contracts due
to expire before 2001. The Company believes that the cost-effective and flexible
design of its scaleable b-LAN system, together with its expertise in
installation, programming, technical support and customer service, will allow
the Company to continue to expand its room base. Based on these strengths, the
Company has increased its selectivity and is seeking higher rates of return on
new contracts. Internationally, the Company intends to continue to expand into
selected countries in Asia and Latin America and other regions through licensing
agreements with established entities in these countries. Under these agreements,
the Company does not provide any capital investment, it licenses its b-LAN
system architecture and multimedia capabilities, sells equipment at cost plus an
agreed markup and receives a royalty based on gross revenues.
MAXIMIZE REVENUE PER GUEST PAY ROOM. The Company seeks to maximize the
revenue generated by each of its installed guest pay rooms. To achieve this
strategy, the Company intends to continue to install its interactive Guest
Scheduled on-demand movie system and network-based Nintendo video game system in
all new guest pay hotel rooms. From the Company's experience, rooms with these
features 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. In addition, beginning in the second quarter of 1999,
the Company intends to install the Nintendo N64 game platform in all new guest
pay rooms and upgrade selected existing guest pay rooms. The Company believes
that this platform, which will offer guests network-based access to the most
popular and advanced Nintendo video games, will generate more per room revenue
than the current Nintendo system.
LodgeNet Entertainment Corporation 2 Form 10-K 1998
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To take advantage of the growth in the Internet, since mid-1997, the
Company has been developing and testing an Internet browser service that enables
a hotel guest to access and navigate the World Wide Web through the guest room
television over the Company's b-LAN system architecture. During this time, the
Company has been testing hardware platforms available from various vendors,
seeking content relationships with a wide variety of Internet sites and has been
enhancing its proprietary communications software. During the first six months
of 1999, the Company intends to expand the test of the Internet browser service.
The Company believes there may be significant opportunities to generate revenues
from usage fees charged to the guests who utilize the service as well as from
third-party providers of content, merchandise and information services who would
pay the Company for electronic access to its valuable consumer base.
In October 1998, the Company acquired the Connect Group Corporation. As
a result of this acquisition, the Company acquired technology that it is
integrating into its system which will allow hotel guests with laptop computers
to connect to the Internet (without changing their system configurations) at
access speeds up to 50 times faster than conventional modems, while bypassing
the hotel's PBX system. The Company believes that the acquired technology is
superior to and more cost efficient than other systems currently being offered
in the lodging market. The Company further believes that this "managed
connectivity" service may represent a significant opportunity to generate
revenues from usage fees charged to guests who utilize the service or from
hotels which want to provide the service as an amenity to their guests. The
Company believes that high speed Internet services will attractively complement
its existing service offerings.
The Company's current installed guest pay base of over 596,000 rooms
hosts more than 150 million guests each year (based on current average occupancy
and length-of-stay data). The Company believes such guests represent a
demographic profile which a variety of advertisers may find to be highly
desirable. For example, since November 1998, the Company has installed an
interactive in-room shopping service in over 375,000 guest rooms that enables
the guest to browse through a video version of the SkyMall-Registered Trademark-
catalog featuring quality merchandise from some of the country's leading
retailers for which the Company is paid a fixed, monthly access fee. The Company
is seeking other advertising-based arrangements, such as advertiser-supported
visitor information services for specific cities, as well as other advertising
strategies to deliver targeted product or service information directly to the
consumer. The Company will evaluate these and other opportunities as well as
appropriate business models that would enable the Company to increase the
revenue generated per guest pay room.
INCREASE OPERATING MARGINS. Complementing the Company's growth objective
is its ongoing goal of increasing operating margins by reducing direct and
overhead expenses, as measured on a percentage of revenue and on a per-installed
unit basis. The EBITDA margin from the Company's lodging business has increased
from 14.4% in 1992 to 30.5% in 1998. The Company achieved this result through
reduced per-room operating costs as it leveraged its infrastructure over a
larger base of installed rooms.
RESNET TRANSACTION
In January 1996, the Company formed ResNet Communications, Inc. ("ResNet
Inc.") to extend its b-LAN system architecture and operational expertise into
the multi-family dwelling unit ("MDU") market. Through ResNet Inc.'s majority
owned subsidiary, ResNet Communications, LLC ("ResNet LLC"), the Company
provided cable television and other interactive services to the MDU market. In
July 1998, the Company decided to merge the ResNet business into a larger, and,
it believes, more cost-effective operating entity. On November 30, 1998 (the
"Closing Date"), the Company transferred the ResNet business, consisting of net
assets totaling $31.3 million, to Global Interactive Communications Corporation
("GICC") in exchange for (i) a 30% equity interest in GICC, and (ii) notes
receivable totaling $10.8 million. In addition to its ownership of the ResNet
business, GICC holds certain cable and telephone system assets contributed by
Shared Technologies Corporation, a Delaware corporation ("STC"), and Interactive
Cable Systems, Inc., a California corporation ("ICS").
Beginning with the Closing Date, the Company will account for its
investment in GICC on the equity method of accounting for an investment. As a
result of this accounting treatment, and because the Company expects that
there is a high probability that GICC will operate at a loss for the
foreseeable future as it pursues its business plan, the Company expects to
recognize continuing losses in connection with its investment in GICC, which
losses will be reflected as "equity in losses of unconsolidated affiliates"
in the Company's operating statements. As of the date of this Report, there
is no public market for the securities of GICC, and there can be no assurance
as to when any such market may develop. The financial and operating
performance of GICC, the market acceptance for its securities and general
market conditions, among other factors, are not subject to the Company's
control and may each affect the value of the Company's investment in GICC.
On the Closing Date, ResNet Inc., STC and ICS entered into a
Stockholders Agreement providing among other things, for: (i) limitations on the
transfer of the GICC Common Stock; (ii) preemptive rights; (iii) rights of first
offer by other stockholders in the event of a sale of the GICC Common Stock by
any stockholder; (iv) tag-along-rights by other stockholders to participate in
an offer from a third party to any stockholder to purchase the GICC Common
Stock; (v) registration rights; (vi) approval rights for
LodgeNet Entertainment Corporation 3 Form 10-K 1998
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sale of material assets; and (vii) the right to designate one director by a
stockholder as long as a certain level of ownership of GICC is maintained.
The Company has no continuing obligation to make any additional investments
into GICC.
MARKETS AND CUSTOMERS
LARGE HOTEL MARKET. Historically, 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 Sheraton,
Ritz-Carlton, 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 year ended December 31,
1998.
MID-SIZE HOTEL MARKET. 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. Since 1995, the Company has also
been targeting mid-size hotels of 75 to 150 rooms as part of its guest pay
marketing strategy. Since 1995, the Company has added more than 170,000 rooms to
its room base for mid-size hotels. The Company believes that this market
segment, which the Company estimates contains approximately 1.2 million rooms,
has not been broadly served by the guest pay industry because smaller average
property sizes lack economies of scale. The mid-size hotel segment represents a
large and attractive market for the Company's services that generates financial
returns that meet or exceed those achieved in larger hotels.
FREE-TO-GUEST MARKET. Almost all of the approximately 3.6 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.
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 system architecture enables the Company to provide
sophisticated interactive features such as on-demand movies and network-based
Nintendo video games. Guest pay packages also include a variety of other
interactive services, such as satellite-delivered basic and premium cable
television programming, folio review, video checkout, guest satisfaction
survey, advertising and merchandising services that are paid for by the hotel
and provided to guests free of charge.
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 interactive video
on-demand system allows guests to choose from an expanded menu of video
selections and individually start the selected video at their convenience rather
than restricting them 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, 1998, the Company served over 596,000 guest pay rooms, of which
approximately 582,000, or 97.5%, featured the Company's interactive on-demand
system. The Company's original scheduled guest pay service, which is provided in
less than 3% 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.
In May 1993, the Company entered into a non-exclusive license
agreement with Nintendo to provide hotels with a network-based Nintendo video
game playing system. In May 1998, this agreement was revised and extended for
ten years. Pursuant to this extended agreement, Nintendo of America, Inc.
will provide the Company with access to its new Nintendo N64 video games. As
with the Nintendo video game playing system, the Company will use its
proprietary high-speed b-LAN system architecture to allow guests to play the
video games over the hotel's master antenna television system. The Company
anticipates that it will begin deploying the Nintendo N64 video game platform
in the second quarter of 1999. Hotel guests are charged a fee based on the
amount of time they play the video games. Presently, the Company generally
charges $6.95 per hour of play. The Company had over 546,000 rooms installed
with the Nintendo video game systems as of December 31, 1998.
The revenues generated from the guest pay service are 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
LodgeNet Entertainment Corporation 4 Form 10-K 1998
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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 10.5% and an $8.95 movie price will
generate an average of $20.00 of gross movie revenue per installed room per
month, plus additional gross revenues of $3.60 per month from video games,
free-to-guest and other services, resulting in total gross revenue per room
per month of $23.60, assuming an average of 30.4 days in the month. Occupancy
rates vary (a) by property based on the property's competitive position
within its marketplace, (b) over time based on seasonal factors, and (c) as a
result of changes in 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. Movie prices are set by the Company
on a title by title basis, but are generally $7.95, $8.95 or $9.95. Prices
may be higher in some locations and for certain highly popular titles.
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 currently approximately $375 to $385 per room. In addition to
hotel commissions and royalties paid to movie studios, operating costs of the
guest pay systems include in-room movie schedules and information cards, preview
tapes or discs, tape duplication, taxes, freight, insurance, personal property
taxes, maintenance and data line costs.
In exchange for a contract renewal or significant contract extension the
Company typically invests from $75 to $175 per room, depending on the length of
the extended contract period and the upgrade services installed.
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. These channels are then distributed to guest rooms over the hotel's
existing master antenna system.
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. 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.
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 5 to 7 years. During the
four years ended December 31, 1998, the average initial term of new guest pay
contracts exceeded 6 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, 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 the viewing charges from their guests
and retain a commission, which varies depending on the size and profitability of
the system and other factors. 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 8% of these contracts coming up for renewal before
2000.
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 negotiated by that
chain's corporate management,
LodgeNet Entertainment Corporation 5 Form 10-K 1998
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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.
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 scaleable proprietary b-LAN system
architecture with commercially manufactured, readily available components and
hardware such as video cassette players, modulators and computers.
The Company's b-LAN system architecture utilizes the Company's
proprietary, two-way digital communications design to process and respond to
input commands from the viewer very rapidly. This capability enables the Company
to provide sophisticated interactive features such as network-based Nintendo
video games and on-demand movies, and a variety of other interactive services
such as folio review, video checkout, Internet browsing, guest surveying,
advertising and shopping services. The Company has installed an interactive
in-room shopping service in over 375,000 guest rooms that enables the guest to
browse through a video version of the SkyMall catalog featuring quality
merchandise from the country's leading retailers. The Company is currently
testing an Internet browser that enables the hotel guest to access and navigate
the Internet 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 October 1998, the Company acquired Connect Group
Corporation. As a result of this acquisition, the Company is integrating and
testing technology that will allow hotel guests with laptop computers to connect
to the Internet from guest or meeting rooms. Such access can be up to 50 times
faster than the speed of conventional modems and bypasses the hotel's PBX
system.
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 Consumer Electronics Company, 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.
The Company designs its systems through its staff of 68 software and
hardware engineers and support personnel (as of December 31, 1998). 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 Internet, 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 six United States patents, cross-licenses other industry-related
technologies and patent rights, and has other applications for patents pending
in the U.S. Patent and Trademark Office 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.
LodgeNet Entertainment Corporation 6 Form 10-K 1998
<PAGE>
SALES AND MARKETING. The Company focuses its sales and marketing
strategies on acquiring new contracts from hotels, extending and retaining
existing contracts, and marketing the Company's guest pay and other interactive
services to the hotel guest. The Company's sales and marketing organization
consisted of 67 employees as of December 31, 1998, 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 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 an
image-based menu and purchasing protocol using on-screen graphics and a movie
promotional channel which contains movie and video game programming information
and highlights the feature film selections of the month. In-room marketing
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 269 employees in 28 locations in the United States and
Canada, as of December 31, 1998. 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 87% 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,
TechConnection, 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.
PROGRAMMING. 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 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 obtains
its selection of Nintendo video games pursuant to a ten year non-exclusive
license agreement with Nintendo entered into in 1998. Under the terms of the
agreement, the Company pays Nintendo a monthly fee based on the number of rooms
offering Nintendo video game services. 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.
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
LodgeNet Entertainment Corporation 7 Form 10-K 1998
<PAGE>
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 computers, video cassette players,
modulators and amplifiers, that are available from multiple sources. The
Company believes its anticipated growth can be accommodated through existing
suppliers.
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 headend 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.
COMPETITION
The Company is the second largest provider of interactive and cable
television services to the lodging industry, currently serving over 700,000
hotel rooms. The Company's largest competitor is On Command Corporation ("OCC"),
the successor corporation resulting from the 1996 merger of SpectraVision, Inc.
and On Command Video Corporation. Based upon publicly available information, the
Company estimates that OCC currently serves approximately 929,000 hotel rooms.
The Company also competes with Hospitality Networks, SVI, SeaChange, Time
Warner, Cox Cable and TCI.
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,
and it is possible that such competitors may develop a technology that is more
cost effective than the Company's proprietary b-LAN system architecture. To
respond to competition, the Company will need to continue to enhance its in-room
entertainment systems, expand its operations and meet the increasing demands for
competitive pricing, service quality and availability of value-added product
offerings.
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 system architecture that enables the Company to deliver a
broad range of interactive features and services such as on-demand movies and
network-based Nintendo 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 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 over time has redesigned its system to permit the delivery of
on-demand movies and network-based video games to
LodgeNet Entertainment Corporation 8 Form 10-K 1998
<PAGE>
mid-size hotels of 75 to 150 rooms, a market segment the Company believes has
been historically under-served by guest pay providers. There can be no
assurance 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.
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.
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.
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 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 rulemakings and appellate
litigation resulting from Commission decisions in those rulemakings that
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.
As a result of the Act, 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 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.
LodgeNet Entertainment Corporation 9 Form 10-K 1998
<PAGE>
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 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.
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, 1998, the Company had 706 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 National Headquarters and Distribution Center, including
its principal executive offices, is located on an approximately 23 acre site in
Sioux Falls, South Dakota. Construction of the approximately $15 million
facility was completed in December 1997. The National Headquarters and
Distribution Center occupies approximately 228,500 square feet including
approximately 126,500 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 opening
of the National Headquarters and Distribution Center allowed the Company to
consolidate all of its local operations into a single, multipurpose facility
which is designed to enhance operational efficiency and to facilitate any
necessary future expansion 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.
The Company leases 19 facilities, in various locations, from
unaffiliated third parties. These facilities are combination warehouse/office
facilities for installation and service operations and are located throughout
the country. Each of these facilities occupies less than 3,500 square feet.
ITEM 3 - LEGAL PROCEEDINGS
The Company is subject to litigation arising in the ordinary course of
business. As of the date hereof, the Company believes the resolution of such
litigation will not have a material adverse effect upon the Company's financial
condition or results of operations.
LodgeNet Entertainment Corporation 10 Form 10-K 1998
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 30, 1998, the Company solicited the consent of the holders
of the Company's 10.25% Senior Notes Due 2006 (the "Notes") to amend the
indenture governing the Notes to
(1) Permit the Company to (i) cause ResNet Communications, Inc. ("ResNet
Inc."), a subsidiary of the Company, to contribute the operations of
its subsidiary, ResNet Communications, L.L.C. ("ResNet LLC") to a
newly-formed joint venture company, Global Interactive
Communications Corporation ("GICC"), (ii) to make up to $5 million
of additional investments in GICC, and (iii) to enter into
transactions with GICC so long as the transactions are at arm's
length and in the ordinary course of business, and
(2) Authorize the Trustee to execute and deliver a supplemental
indenture and any instrument, agreement or other document, and take
any other action reasonably requested by the Company, to effect the
proposed amendments.
Registered holders of the Notes, of record as of the close of business
on September 30, 1998, who provided their valid consent to the proposed
amendment prior to October 15, 1998, were entitled to an amount equal to $2.50
per $1,000 of principal of such holder's Notes. The holders of 100% of the
Notes, determined as of the record date for the consent solicitation, consented
to the proposed amendments to the indenture.
There were no other matters submitted to a vote of security holders
during the quarter ended December 31, 1998.
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 9, 1999 there were outstanding 11,942,387
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, 1997 $17.38 $10.50
June 30, 1997 12.00 8.00
September 30, 1997 13.25 9.00
December 31, 1997 14.00 10.50
March 31, 1998 12.25 10.38
June 30, 1998 12.50 8.00
September 30, 1998 10.00 6.50
December 31, 1998 7.63 5.13
</TABLE>
On March 9, 1999, the closing price of the Company's Common Stock, as
reported by NASDAQ NMS was $7.3125. Stockholders are urged to obtain current
market quotations for the Company's Common Stock. As of March 9, 1999 there were
164 stockholders of record of the Company with approximately 87% of the shares
held in "street name". The Company estimates that as of March 9, 1999 there were
more than 2,000 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 bank credit
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.
LodgeNet Entertainment Corporation 11 Form 10-K 1998
<PAGE>
STOCKHOLDER 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 prior to its adoption 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 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 incorporated by reference 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 shares 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.
LodgeNet Entertainment Corporation 12 Form 10-K 1998
<PAGE>
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 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 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.
LodgeNet Entertainment Corporation 13 Form 10-K 1998
<PAGE>
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.
LodgeNet Entertainment Corporation 14 Form 10-K 1998
<PAGE>
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,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Guest Pay $ 29,927 $ 50,758 $ 84,504 $116,276 $146,481
Free-to-guest 8,397 8,060 8,645 8,496 7,854
Other 2,070 4,395 4,572 10,938 12,016
-------- -------- -------- -------- --------
Total revenues 40,394 63,213 97,721 135,710 166,351
Direct costs 18,181 28,910 44,379 58,512 74,008
-------- -------- -------- -------- --------
Gross profit 22,213 34,303 53,342 77,198 92,343
Operating expenses 24,573 36,741 58,428 85,262 102,282
-------- -------- -------- -------- --------
Operating loss (2,360) (2,438) (5,086) (8,064) (9,939)
Equity in losses of
unconsolidated affiliates -- -- -- -- 6,550
Interest expense 966 4,522 8,243 17,001 23,048
-------- -------- -------- -------- --------
Loss before income taxes,
extraordinary loss and
cumulative effect of (3,326) (6,960) (13,329) (25,065) (39,537)
accounting change
Provision for income taxes -- 66 28 344 375
-------- -------- -------- -------- --------
Loss before extraordinary loss
and cumulative effect of
accounting change (3,326) (7,026) (13,357) (25,409) (39,912)
Extraordinary loss (1) 1,324 -- 3,253 -- --
Cumulative effect of accounting
change (2) -- -- -- 210 --
-------- -------- -------- -------- --------
Net loss $ (4,650) $ (7,026) $(16,610) $(25,619) $(39,912)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per common share (basic and diluted):
Loss before extraordinary
loss and cumulative
effect of accounting change $ (.45) $ (.96) $ (1.40) $ (2.25) $ (3.45)
Extraordinary loss (.18) -- (.34) -- --
Cumulative effect of
accounting change -- -- -- (.02) --
-------- -------- -------- -------- --------
Net loss $ (.63) $ (.96) $ (1.74) $ (2.27) $ (3.45)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OTHER DATA:
EBITDA (3) $ 9,301 $ 15,898 $ 24,729 $ 35,696 $ 48,576
EBITDA margin (3) 23.0% 25.1% 25.3% 26.3% 29.2%
Capital expenditures $ 43,521 $ 51,497 $ 84,256 $104,377 $ 69,660
Depreciation and amortization 11,661 18,336 29,815 43,760 55,215
Annualized EBITDA (4) 11,250 18,246 27,290 39,090 55,536
Ratio of earnings to fixed
charges (5) -- -- -- -- --
Ratio of long-term debt to
annualized EBITDA (4) 2.49x 3.15x 6.57x 4.67x 4.72x
Ratio of EBITDA to interest
expense (3) 9.63x 3.52x 3.00x 2.10x 2.11x
OPERATING DATA:
Guest Pay rooms served (6)
On-demand 119,680 209,487 358,842 484,070 581,893
Scheduled 65,351 58,720 41,403 27,781 14,913
-------- -------- -------- -------- --------
Total Guest Pay rooms 185,031 268,207 400,245 511,851 596,806
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Rooms with Nintendo-Registered
Trademark- game systems (6) 69,806 163,879 322,903 448,969 546,324
Free-to-guest rooms served (6) 220,534 249,779 294,882 341,030 384,324
Total rooms served (6) (7) 314,184 388,088 516,348 613,407 703,325
Average monthly revenue per
Guest Pay room:
Movie revenue $ 15.03 $ 17.08 $ 18.38 $ 17.86 $ 18.44
Video game/information
services 1.01 2.21 2.93 3.28 3.62
-------- -------- -------- -------- --------
Total $ 16.04 $ 19.29 $ 21.31 $ 21.14 $ 22.06
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
LodgeNet Entertainment Corporation 15 Form 10-K 1998
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 4,302 $ 2,252 $ 86,177 $ 1,021 $ 5,240
Total assets 88,265 125,507 279,768 260,294 306,030
Long-term debt 28,000 57,497 179,233 182,691 262,375
Total stockholders' equity 47,942 42,726 75,552 49,579 11,774
</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) Represents a charge for the effect of adopting EITF Issue 97-13 related
to accounting for certain business reengineering costs.
(3) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
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. EBITDA has been presented excluding equity
in losses of unconsolidated affiliates and the restructuring charge for
the ResNet merger in 1998.
(4) "Annualized EBITDA" represents the sum of the quarterly EBITDA for the
two most recently completed fiscal quarters multiplied by two.
(5) 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:
1994 -- $(3,326); 1995 -- $(6,960); 1996 -- $(13,329); 1997 --
$(25,065); and 1998 -- $(38,799).
(6) At end of year.
(7) Total rooms served include those rooms receiving one or more of the
Company's services, including rooms served by international licensees.
LodgeNet Entertainment Corporation 16 Form 10-K 1998
<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 and statements which are made in the future tense, 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
LodgeNet is a specialized communications company which provides video
on-demand, network-based video games, cable television programming and other
interactive entertainment and information services to the lodging market
utilizing its proprietary b-LAN system architecture.
LODGING SERVICES
GUEST PAY SERVICES. Guest Pay services are purchased by guests on a
per-view or hourly basis and include Guest Scheduled on-demand movies and
network-based Nintendo video games. Guest Pay packages may also include
additional services such as satellite-delivered basic and premium cable
television programming, and other interactive entertainment and information
services that are paid for by the hotel and provided to guests at no charge.
The growth that the Company has experienced has principally resulted from its
rapid expansion of guest pay 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>
1996 1997 1998
----------------- ----------------- -----------------
Rooms % Rooms % Rooms %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Scheduled 41,403 10.3 27,781 5.4 14,913 2.5
On-demand 358,842 89.7 484,070 94.6 581,893 97.5
------- ----- ------- ----- ------- -----
Total 400,245 100.0 511,851 100.0 596,806 100.0
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
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, hotel guest demographics, 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, (ii) nominal
one-time license fees paid for independent films, (iii) license fees for
video games and other services, and (iv) the commission retained by the
hotel. 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.
LodgeNet Entertainment Corporation 17 Form 10-K 1998
<PAGE>
The Company provides video games and interactive multimedia
entertainment and information services including folio review, video
check-out, guest satisfaction survey, advertising, and merchandising services
through its guest pay systems. 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. During 1998, the Company entered into a new ten
year non-exclusive license agreement with Nintendo to become the first
provider of Nintendo 64 ("N64-Registered Trademark-") video games to the
lodging industry. The Company anticipates the rollout of the N64 game
technology to begin during the second quarter of 1999. The following table
sets forth the number of guest pay rooms with game systems installed as of
December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Super Nintendo-Registered Trademark-
game systems rooms 322,903 448,969 546,324
</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. The hotel pays the
Company a fixed monthly charge per room for each programming channel
provided. 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 varies 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 Partners (since succeeded by PRIMESTAR, Inc.
("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 pays a fee to PRIMESTAR for access to the PRIMESTAR
DBS signal, which enables 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>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
At hotels with Guest Pay services 178,779 246,054 288,979
At hotels with only free-to-guest services 116,103 94,976 95,345
------- ------- -------
Total rooms with free-to-guest services 294,882 341,030 384,324
------- ------- -------
------- ------- -------
</TABLE>
RESIDENTIAL SERVICES
In January 1996, the Company formed ResNet for the purpose of
extending the Company's proprietary b-LAN system architecture and operational
expertise into the multi-family dwelling unit ("MDU") market. In October
1996, TCI Satellite Entertainment, Inc. (since succeeded by PRIMESTAR MDU,
Inc. ("PRIMESTAR MDU")), agreed to invest up to $40 million in cash and
satellite receiving equipment in ResNet in exchange for up to a 36.99%
interest in ResNet and agreed to provide ResNet with long-term PRIMESTAR DBS
signals for the MDU market on a nationwide basis.
Effective November 30, 1998, the ResNet business was merged with two
non-affiliated entities to form a new entity, Global Interactive
Communications Corporation ("GICC"). The Company has a 30% equity interest in
GICC, whose business will consist of providing cable television programming
and telecommunications services to the MDU market. The agreement between
ResNet and PRIMESTAR MDU mentioned in the preceding paragraph was terminated
in conjunction with the ResNet merger transaction.
The Company will account for its investment in GICC on the equity
method of accounting for an investment. As a result of this accounting
treatment, and because the Company expects that there is a high probability
that GICC will operate at a loss for the foreseeable future as it pursues its
business plan, the Company expects to recognize continuing losses in
connection with its investment in GICC, which losses will be reflected as
"equity in losses of unconsolidated affiliates" in the Company's operating
statements.
As of the date of this report, there is no public market for the
securities of GICC, and there can be no assurance as to when any such market
may develop. The financial and operating performance of GICC, the market
acceptance for its securities and general market conditions, among other
factors, are not subject to the Company's control and may each affect the
value of the Company's investment in GICC. The Company has no continuing
obligation to make any additional investments into GICC.
LodgeNet Entertainment Corporation 18 Form 10-K 1998
<PAGE>
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE ANALYSIS
The Company's total revenue for 1998 increased 22.6%, or $30.6
million, in comparison to 1997. The following table sets forth the components
of the Company's revenue (in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1997 1998
---------------------- ----------------------
Percent Percent
of Total of Total
Amount Revenues Amount Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Guest Pay $116,276 85.7 $146,481 88.1
Free-to-guest 8,496 6.3 7,854 4.7
Other 10,938 8.0 12,016 7.2
-------- -------- -------- --------
Total $135,710 100.0 $166,351 100.0
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
GUEST PAY SERVICES. Guest Pay revenues increased 26.0%, or $30.2
million, in 1998 as compared to 1997. This increase is attributable to a
20.7% increase in the average number of installed Guest Pay rooms, all of
which were installed with the Company's on-demand technology, and to a 4.4%
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>
1997 1998
------ ------
<S> <C> <C>
Average monthly revenue per room:
Movie revenue $17.86 $18.44
Video game and other service revenue 3.28 3.62
------ ------
Total per Guest Pay room $21.14 $22.06
------ ------
------ ------
</TABLE>
Average movie revenue per room, for all Guest Pay rooms, increased
3.2% from the prior year due to the combination of higher average buy rates
and higher average movie prices, partially offset by a decline in hotel
occupancy rates.
Average video game and other service revenue per room, for all Guest
Pay rooms, increased 10.4% from the prior year, primarily as a result of an
increase in the number of rooms with information and other services
installed, partially offset by a decrease in average monthly video game
revenue per room.
FREE-TO-GUEST SERVICES. Free-to-guest revenues decreased 7.6%, or
$642,000, in 1998 as compared to 1997. The decrease is primarily the result
of a 6.5% decrease in the average number of rooms at hotels receiving only
free-to-guest services during the period (although total rooms receiving
free-to-guest services increased 12.7%).
OTHER. Revenue from other sources includes cable television revenue
generated by the residential services segment (which was $5,376,000 in 1998
compared to $2,700,000 in 1997), revenue from international license
arrangements, and revenue from the sale of televisions, system equipment, and
service parts and labor. The increase in 1998 from the prior year of $1.1
million, or 9.9%, is primarily due to increased cable television revenue
generated by the residential services segment of $2.7 million, partially
offset by decreased television sales of $1.3 million and decreased sales of
system equipment.
LodgeNet Entertainment Corporation 19 Form 10-K 1998
<PAGE>
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>
1997 1998
-------- --------
<S> <C> <C>
Direct costs:
Guest Pay $ 45,632 $ 60,538
Free-to-guest 5,663 6,373
Other 7,217 7,097
-------- --------
$ 58,512 $ 74,008
-------- --------
-------- --------
Gross profit margin:
Guest Pay 60.8% 58.7%
Free-to-guest 33.3% 18.9%
Other 34.0% 40.9%
Composite 56.9% 55.5%
</TABLE>
Guest Pay direct costs increased 32.7% to $60.5 million in 1998 from
$45.6 million in 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 39.2% in 1997 to 41.3% in 1998. The relative increase in Guest
Pay direct costs as a percentage of revenue in 1998 as compared to the prior
year is primarily the result of (i) an increase in the percentage of revenue
from cable television services which generally earns a lower profit margin than
on-demand services and (ii) higher video game costs (which are incurred based on
the number of rooms receiving video game services rather than the number of game
buys).
Free-to-guest direct costs increased 12.5% to $6.4 million in 1998 from
$5.7 million in the prior year. As a percentage of free-to-guest revenue,
free-to-guest direct costs increased to 81.1% in 1998 from 66.7% in the prior
year. The relative increase in free-to-guest direct costs as a percentage of
revenue is due to increased signal carriage fees owed to PRIMESTAR under the
agreement previously described and decreased incentive discounts realized from
programming networks.
Direct costs associated with other revenue decreased 1.7% to $7.1
million from $7.2 million in the prior year. As a percentage of related
revenues, such direct costs decreased to 59.1% in 1998 from 66.0% in 1997,
reflecting the effect of (i) increased cable television revenue generated by the
residential services segment which generally earns a higher profit margin than
the other sources of other revenue, and (ii) decreased sales of televisions
which generally earn a lower profit margin than the other sources of other
revenue.
The Company's overall gross profit increased 19.6% in 1998 to $92.3
million on a 22.6% increase in revenues compared to 1997. The Company's overall
gross profit margin was 55.5% in 1998 and 56.9% 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>
1997 1998
--------------------- ---------------------
Percent Percent
of Total of Total
Amount Revenues Amount Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating expenses:
Guest Pay operations $ 20,785 15.3% $ 25,167 15.1%
Selling, general and 20,717 15.3% 18,600 11.2%
administrative
Restructuring charge -- -- 3,300 2.0%
Depreciation and amortization 43,760 32.2% 55,215 33.2%
-------- -------- -------- --------
Total operating expenses $ 85,262 62.8% $102,282 61.5%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Guest Pay operations expenses consist of costs directly related to
the operation of systems at the hotel sites as well as at residential sites
serviced by the residential services segment. Excluding the expenses incurred
to operate the systems at residential
LodgeNet Entertainment Corporation 20 Form 10-K 1998
<PAGE>
sites, which were $2.9 million in 1998 and $1.4 million in 1997, expenses
related to Guest Pay operations increased 14.8%, or $2.9 million, in 1998
from $19.4 million in the previous year. This increase is primarily
attributable to the 20.7% increase in average installed Guest Pay rooms in
1998 as compared to 1997, partially offset by lower average operating and
service expenses incurred on a per room basis. Per average installed Guest
Pay room, such expenses were $3.35 per month in 1998 as compared to $3.52 per
month in 1997.
Selling, general and administrative expenses (including $2.2 million and
$1.8 million of expenses incurred by the residential services segment in 1998
and 1997, respectively) decreased 10.2%, or $2.1 million, in 1998 from $20.7
million in 1997. This decrease is primarily due to reduced legal expenses of
$1.5 million resulting from the resolution of the Company's patent litigation
matters. As a percentage of revenue, general and administrative expenses
represented 11.2% of total revenue in 1998 as compared to 15.3% in 1997.
The $3.3 million restructuring charge recorded in 1998 represents costs
incurred related to the Company's merger of its ResNet business as previously
described. Such costs include professional services fees, employee costs, and
the write-off of certain capitalized software development costs.
Depreciation and amortization expenses increased 26.2% to $55.2 million
in 1998 from $43.8 million in the prior year. This increase is primarily
attributable to the increase in the number of installed Guest Pay and game
service equipped rooms previously described, 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. Additionally, increases in administrative and facility related assets, as
well as an increase of $2.1 million related to the residential services segment
($3.6 million in 1998 compared to $1.5 million in 1997), have contributed to the
increased depreciation and amortization.
OPERATING LOSS. The Company's operating loss, as a result of the
factors previously described, increased to $9.9 million in 1998 from $8.1
million in 1997. Excluding the results of ResNet, the Company's operating
loss was $807,000 in 1998 and $5.0 million in 1997.
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES. The Company obtained
equity interests in two entities during 1998. First, the Company acquired a
10% interest in Across Media Networks, LLC ("AMN"), a company engaged in the
creation and distribution of digitally produced on-screen content for
television and the Internet. The Company has applied the equity method of
accounting for this investment to reflect the fact that the Company has had
certain financing obligations to AMN. Losses of $5.8 million related to this
investment were recorded in 1998. Second, as previously described, the merger
of ResNet with two other entities effective November 30, 1998 to form GICC
resulted in the Company obtaining a 30% equity interest in GICC. The
Company's portion of GICC's 1998 loss was $738,000.
INTEREST EXPENSE. Interest expense, net of interest income,
increased to $23.0 million in 1998 from $17.0 million in 1997 due to
increases in long-term debt to fund the Company's continuing expansion of its
business. The average principal amount of long-term debt outstanding during
1998 was approximately $236.4 million (at a weighted average interest rate of
approximately 9.9%) as compared to an average principal amount outstanding of
approximately $183.4 million (at a weighted average interest rate of
approximately 10.3%) during 1997.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. As a result of
the issuance of EITF Issue 97-13 related to accounting for certain business
reengineering costs, the Company recorded a charge of $210,000 in 1997 to
write-off previously capitalized costs, in accordance with the new accounting
pronouncement.
NET LOSS. For the reasons previously described, the Company's net
loss increased to $39.9 million in 1998 from a net loss of $25.6 million in
the prior year.
EBITDA. As a result of increasing revenues from guest pay services,
and the other factors previously described, EBITDA ("Earnings Before
Interest, Income Taxes and Depreciation and Amortization") excluding the
restructuring charge related to the ResNet merger and equity in losses of
unconsolidated affiliates increased 36.1% to $48.6 million in 1998 as
compared to $35.7 million in 1997. As a percentage of total revenue, EBITDA
excluding the restructuring charge increased to 29.2% in 1998 as compared to
26.3% in 1997. Excluding the results of ResNet, EBITDA was $50.8 million in
1998 and $37.3 million in 1997. As a percentage of revenue, EBITDA was 31.6%
in 1998 and 28.0% in 1997, excluding the results of ResNet. 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
LodgeNet Entertainment Corporation 21 Form 10-K 1998
<PAGE>
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, 1997 AND 1996
REVENUE ANALYSIS
The Company's total revenue for 1997 increased 38.9%, or $38.0 million,
in comparison to 1996. The following table sets forth the components of the
Company's revenue (in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
Percent Percent
of Total of Total
Amount Revenues Amount Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Guest Pay $ 84,504 86.5 $116,276 85.7
Free-to-guest 8,645 8.8 8,496 6.3
Other 4,572 4.7 10,938 8.0
-------- -------- -------- --------
Total $ 97,721 100.0 $135,710 100.0
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
GUEST PAY SERVICES. Guest Pay revenues increased 37.6%, or
$31.8 million, in 1997 as compared to 1996. This increase is attributable to
a 38.7% increase in the average number of installed Guest Pay rooms, all of
which were installed with the Company's on-demand technology, partially
offset by a .8% decrease 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 1997
------- -------
<S> <C> <C>
Average monthly revenue per room:
Movie revenue $ 18.38 $ 17.86
Video game and other service revenue 2.93 3.28
------- -------
Total per Guest Pay room $ 21.31 $ 21.14
------- -------
------- -------
</TABLE>
Average movie revenue per room, for all Guest Pay rooms, decreased 2.8%
from the prior year due to the combination of lower average buy rates and lower
average hotel occupancy, partially offset by increased average movie prices and
the comparative increase in the proportion of on-demand rooms.
Average video game and other service revenue per room, for all Guest Pay
rooms, increased 11.9% from the prior year, primarily as a result of an increase
in the number of rooms with information and other services installed. Average
monthly video game revenue per room was $2.25 and $2.26 during 1997 and 1996,
respectively.
FREE-TO-GUEST SERVICES. Free-to-guest revenues decreased 1.7%, or
$149,000, in 1997 as compared to 1996. This decrease is the result of the
combination of an 18.2% decrease in the number of rooms receiving only
free-to-guest services from 1996, offset by increasing revenue per room
resulting from additional programming services taken by hotels, as well as
programming price increases.
OTHER. Revenue from other sources includes cable television revenue
generated by the residential services segment, revenue from international
license arrangements, and revenue from the sale of televisions, system
equipment, and service parts and labor. The increase in 1997 from the prior year
of $6.4 million, or 139%, is primarily due to increased cable television revenue
generated by the residential services segment of $2.4 million; increased
television sales of $1.5 million; increased sales of system equipment of
$864,000; increased service parts and labor of $450,000 and increased revenue
earned under international license arrangements of $318,000.
LodgeNet Entertainment Corporation 22 Form 10-K 1998
<PAGE>
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 1997
-------- --------
<S> <C> <C>
Direct costs:
Guest Pay $ 33,981 $ 45,632
Free-to-guest 6,784 5,663
Other 3,614 7,217
-------- --------
$ 44,379 $ 58,512
-------- --------
-------- --------
Gross profit margin:
Guest Pay 59.8% 60.8%
Free-to-guest 21.5% 33.3%
Other 21.0% 34.0%
Composite 54.6% 56.9%
</TABLE>
Guest Pay direct costs increased 34.3% to $45.6 million in 1997 from
$34.0 million in 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
decreased from 40.2% in 1996 to 39.2% in 1997. The relative decrease in Guest
Pay direct costs as a percentage of revenue in 1997 as compared to the prior
year is primarily the result of lower movie-related costs due to proportionately
lower revenue from newly-released motion pictures.
Free-to-guest direct costs decreased 16.5% to $5.7 million in 1997 from
$6.8 million in the prior year. As a percentage of free-to-guest revenue,
free-to-guest direct costs decreased to 66.7% in 1997 from 78.5% in the prior
year. This decrease is due to incentive discounts earned from programming
networks, partially offset by higher costs for both premium and non-premium
programming.
Direct costs associated with other revenue increased 99.7% to $7.2
million from $3.6 million in the prior year. As a percentage of related
revenues, such direct costs decreased to 66.0% in 1997 from 79.0% in 1996,
reflecting the effect of (i) increased cable television revenue generated by the
residential services segment, (ii) increased system equipment sales and revenue
from service parts and labor, both of which have higher margins than the other
sources of other revenue, and (iii) increased revenue generated under
international license arrangements.
The Company's overall gross profit increased 44.7% in 1997 to $77.2
million on a 38.9% increase in revenues compared to 1996. The Company's overall
gross profit margin was 56.9% in 1997 and 54.6% 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 1997
--------------------- ---------------------
Percent Percent
of Total of Total
Amount Revenues Amount Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating expenses:
Guest Pay operations $ 15,032 15.4% $ 20,785 15.3%
Selling, general and 13,581 13.9% 20,717 15.3%
administrative
Depreciation and amortization 29,815 30.5% 43,760 32.2%
-------- -------- -------- --------
Total operating expenses $ 58,428 59.8% $ 85,262 62.8%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Guest Pay operations expenses consist of costs directly related to the
operation of systems at the hotel sites as well as at residential sites serviced
by the residential services segment. Excluding the expenses incurred to operate
the systems at residential sites, which were $1.4 million in 1997 and none in
1996, expenses related to Guest Pay operations increased 28.9%, or $4.3 million,
in 1997 from $15.0 million in the previous year. This increase is primarily
attributable to the 38.7% increase in
LodgeNet Entertainment Corporation 23 Form 10-K 1998
<PAGE>
average installed Guest Pay rooms in 1997 as compared to 1996, partially
offset by lower average operating and service expenses incurred on a per room
basis. Per average installed guest pay room, such expenses were $3.52 per
month in 1997 as compared to $3.79 per month in 1996.
Selling, general and administrative expenses increased 52.5%, or
$7.1 million in 1997 from $13.6 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, increased
facilities-related expenses, and an increase of $1.8 million related to the
residential services segment. As a percentage of revenue, general and
administrative expenses represented 15.3% of total revenue in 1997 as
compared to 13.9% in the year earlier period.
Depreciation and amortization expenses increased 46.8% to $43.8 million
in 1997 from $29.8 million in the prior year. This increase is primarily
attributable to the increase 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. Additionally, increases in administrative and facility related assets, as
well as an increase of $1.0 million related to the residential services segment,
have contributed to the increased depreciation and amortization.
OPERATING LOSS. The Company's operating loss, as a result of the
factors previously discussed, increased to $8.1 million in 1997 from
$5.1 million in 1996.
INTEREST EXPENSE. Interest expense, net of interest income,
increased to $17.0 million in 1997 from $8.2 million in 1996 due to increases
in long-term debt to fund the Company's continuing expansion of its
businesses. The average principal amount of long-term debt outstanding during
1997 was approximately $183.4 million (at a weighted average interest rate of
approximately 10.3%) as compared to an average principal amount outstanding
of approximately $65.4 million (at a weighted average interest rate of
approximately 10.0%) during 1996.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. As a result of
the issuance of EITF Issue 97-13 related to accounting for certain business
reengineering costs, the Company recorded a charge of $210,000 in 1997 to
write-off previously capitalized costs, in accordance with the new accounting
pronouncement.
NET LOSS. For the reasons previously discussed, the Company's net
loss increased to $25.6 million in 1997 from a net loss of $16.6 million in
the prior year.
EBITDA. As a result of increasing revenues from guest pay services,
and the other factors previously discussed, EBITDA increased 44.3% to $35.7
million in 1997 as compared to $24.7 million in 1996. EBITDA as a percentage
of total revenue increased to 26.3% in 1997 as compared to 25.3% in 1996.
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
Historically, the growth of the Company's business has required
substantial amounts of capital. The Company has incurred operating and net
losses due in large part to the depreciation, amortization and interest
expenses related to the capital expenditures required to expand its lodging
and residential businesses. Historically, cash flow from operations has not
been sufficient to fund the cost of expanding the Company's business and to
service existing indebtedness. During 1998, capital expenditures were
$69.7 million (of which $14.2 million was incurred by ResNet) and net cash
provided by operating activities was $13.2 million (after the reduction of
net cash used in operating activities of $5.0 million from ResNet). Capital
expenditures were $104.4 million during 1997 (of which approximately
$16.8 million was incurred by ResNet), and net cash provided by operating
activities was $16.7 million (after the reduction of net cash used in
operating activities of $3.5 million from ResNet).
Depending on the rate of growth of its lodging business and other
factors, the Company expects to incur capital expenditures between approximately
$50 to $60 million in 1999. In addition, the Company's cash requirements during
1999 and 2000 are expected to include (i) payments to OCC in connection with the
settlement of the litigation between the Company and
LodgeNet Entertainment Corporation 24 Form 10-K 1998
<PAGE>
OCC in equal amounts of $5.85 million on each of July 15, 1999 and July 15,
2000 pursuant to the terms of the multiple cross licenses and (ii) deferred
purchase payments of up to $1 million in each of 1999 and 2000 in connection
with the Company's acquisition of Connect Group Corporation. Pursuant to an
agreement reached with PRIMESTAR, the Company may purchase the 5% equity
interest in GICC currently held by PRIMESTAR during 1999, at a cash price of
up to $5.4 million in certain circumstances. The foregoing statements
regarding capital expenditures and cash requirements are forward-looking
statements and there can be no assurance in this regard. 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.
On February 25, 1999, the Company amended and restated its existing
bank credit facility. This amended facility consists of a $150 million secured
bank credit facility which combines a $75 million term loan ("Term Loan") and a
$75 million revolving loan facility ("Revolving Loan"). Proceeds under the Term
Loan were used to repay amounts outstanding under the revolving loan facility
that existed prior to the amendment and restatement. Minimum required repayments
of borrowings under the Term Loan for the respective years are (in thousands of
dollars): 2001 -- $15,000; 2002 -- $18,750; 2003 -- $18,750; 2004 -- $22,500.
As previously described, effective November 30, 1998, the Company
contributed its interest in the ResNet business to GICC. The Company has no
continuing obligation to fund any of GICC's operating and/or investing
activities. During 1998, the Company provided $19.3 million to fund ResNet's
operating and investing activities, all of which funding occurred prior to
November 30, 1998.
The Company believes that its operating cash flows and borrowings
available under the Revolving Loan will be sufficient to fund the Company's
future growth as contemplated under its current business plan, depending on the
rate of the Company's growth and other factors. However, 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.
YEAR 2000 INFORMATION
The Company is engaged in a comprehensive review of internal computer
systems and software and external business relationships in regard to Year 2000
issues.
STATE OF READINESS. The Company has a project team comprised of key
members from cross-organization departments. The team's objectives are to
gather information and facilitate research on Year 2000 issues that could
affect the Company, and to take necessary actions to eliminate or minimize
the impact of such issues. Internally, the Company has nearly completed its
efforts to identify the computer hardware and software that is used both at
its in-house facilities as well as at its hotel properties. Research and
testing of these systems for Year 2000 compliance is underway. The Company
expects to substantially complete its research and testing of internal
computer hardware and software by the end of the second quarter of 1999.
Correction or replacement of hardware and software containing Year 2000
issues is in progress and is estimated for completion by the end of the third
quarter of 1999.
Externally, the Company is working to identify third party business
relationships that are impacted by the Year 2000 issue. Research and review of
these relationships is underway including contacting the third parties to
solicit information and assurances relating to potential Year 2000 issues and
reviewing responses. The Company expects to complete its review of third party
relationships by the end of the second quarter of 1999, although no assurance
can be given as to the Year 2000 remediation of third parties.
COSTS ASSOCIATED WITH YEAR 2000 ISSUES. Incremental costs are
expected to be comprised primarily of costs to purchase software upgrades and
hardware. Additionally, external consulting, programming and training costs
may be incurred. Estimated costs of Year 2000 compliance are not fully
determined at this time. The Company expects to incur less than $500,000 in
aggregate out-of-pocket costs in 1998 and 1999 to complete its Year 2000
compliance program, excluding the cost of internal staffing. As of
December 31, 1998, the Company has incurred out-of-pocket costs totaling
$185,000 toward Year 2000 compliance efforts. Such funds have been provided
from the Company's bank credit facility. Although the Company intends to
develop and implement, if necessary, appropriate contingency plans to
mitigate to the extent possible the effects of any Year 2000 noncompliance,
such plans may not be adequate and the cost of Year 2000 compliance may be
greater than $500,000.
LodgeNet Entertainment Corporation 25 Form 10-K 1998
<PAGE>
RISKS ASSOCIATED WITH YEAR 2000 ISSUES. The Company is highly
dependent upon its own information technology systems and those of its
suppliers and customers. The Company's or a third party's failure to correct
a material Year 2000 problem could result in a failure of or interruption in
the Company's business activities and operations. Such interruptions and
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. The Company's Year 2000
project is expected to reduce significantly the Company's level of
uncertainty and the possibility of significant or long-lasting interruptions
of the Company's business operations; however, the Company believes that it
is impossible to predict all of the areas in which material problems may
arise.
CONTINGENCY PLANS. The Company has not yet completed specific
contingency plans for Year 2000 issues. The Company is in the process of
identifying the most reasonably likely worst-case scenarios, so that it may
attempt to secure alternate vendors and service providers for these functions
as well as to develop alternative systems which could be used to process data.
While the Company anticipates achieving Year 2000 compliance in a timely
manner, there can be no assurance that all processes will be compliant, that
there will be no significant delay or loss of revenues, or that no material
supply sources will be interrupted. However, the Company believes that its
planning and action efforts will help reduce any loss or disruption.
MARKET RISK DISCLOSURES
The Company's bank credit facility described in Note 9 to the financial
statements as well as in Management's Discussion and Analysis of Financial
Condition and Results of Operations carries interest rate risk. Amounts borrowed
under this facility are subject to interest rates based on the lender's base
rate of either the prime interest rate or the eurodollar rate. Should the
lender's base rate change, the Company's interest expense will increase or
decrease accordingly. As of December 31, 1998, the Company had borrowed
approximately $76.5 million subject to interest rate risk. On this amount, a 1%
increase in the lender's base interest rate would cost the Company $765,000 in
additional gross interest expense on an annual basis.
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.
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.
LodgeNet Entertainment Corporation 26 Form 10-K 1998
<PAGE>
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.
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, 1998 included herein.
(b) REPORTS ON FORM 8-K -- During the quarter ended December 31, 1998, the
Company filed one report on Form 8-K, dated December 15, 1998, reporting
on the transfer of the ResNet business to GICC.
(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.
EXHIBIT NO.
3.1 Certificate of Incorporation of the Company (1)
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 (8)
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 (8)
4.3 Form of Senior Notes (included in Exhibit 4.2)
4.4 First Supplemental Indenture dated October 15, 1998, among LodgeNet
Entertainment Corporation and Marine Midland Bank, as trustee, to the
Indenture dated December 19, 1996 (see 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) (8)
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)
LodgeNet Entertainment Corporation 27 Form 10-K 1998
<PAGE>
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)
10.14 Amendment to Securities Purchase Agreement, dated as of December 19,
1996 (8)
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 (8)
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 (8)
10.25 Exchange Agreement, dated November 30, 1998, among Shared Technologies
Communications Corporation, Interactive Cable Systems, Inc., ResNet
Communications, LLC, ResNet Communications, Inc. and Global Interactive
Technologies Corporation (9)
10.26 Stockholders Agreement dated November 30, 1998, by and among Global
Interactive Technologies Corporation, Shared Technologies Communications
Corporation, Interactive Cable Systems, Inc. and ResNet Communications,
LLC (9)
10.27 Consent and Restructuring Agreement dated November 6, 1998, by and among
ResNet Communications, LLC, ResNet Communications, Inc., and PrimeStar
MDU
10.28 Second Amended and Restated Credit Agreement dated as of February 25,
1999, by and among LodgeNet Entertainment Corporation, National
Westminster Bank Plc, BankBoston, N.A., Morgan Stanley Senior Funding,
Inc. and the Lenders Named Therein
LodgeNet Entertainment Corporation 28 Form 10-K 1998
<PAGE>
10.29 Confidential License Agreement for Use of Nintendo Video Game Systems
with Hotel Entertainment System, dated May 12, 1998, between LodgeNet
Entertainment Corporation and Nintendo of America Inc. +
12.1 Statement Regarding Computation of Ratios
21.1 Subsidiaries of the Company (10)
23.1 Consent of Independent Public Accountants
- ---------
+ Confidential Treatment has been requested with respect to certain portions of
these agreements.
(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.
(8) Incorporated by Reference to the Annual Report on Form 10-K for the year
ended December 31, 1996, as filed with the Securities and Exchange
Commission, March 17, 1997.
(9) Incorporated by Reference to the Form 8-K as filed with the Securities
and Exchange Commission, December 15, 1998.
(10) Incorporated by Reference to the Annual Report on Form 10-K for the year
ended December 31, 1997, as filed with the Securities and Exchange
Commission, March 25, 1998.
LodgeNet Entertainment Corporation 29 Form 10-K 1998
<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 25, 1999.
LodgeNet Entertainment Corporation
By: /s/ SCOTT C. PETERSEN
---------------------------------------
Scott C. Petersen, President and
Chief Executive Officer
LodgeNet Entertainment Corporation 30 Form 10-K 1998
<PAGE>
SIGNATURES
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ SCOTT C. PETERSEN President and Chief Executive March 25, 1999
- ------------------------ Officer, Director (Principal
Scott C. Petersen Executive Officer)
/s/ JEFFREY T. WEISNER Senior Vice President March 25, 1999
- ------------------------ Chief Financial Officer
Jeffrey T. Weisner (Principal Financial
Officer)
/s/ RONALD W. PIERCE Vice President and Corporate March 25, 1999
- ------------------------ Controller (Principal
Ronald W. Pierce Accounting Officer)
/s/ TIM C. FLYNN Chairman of the Board March 25, 1999
- ------------------------ and Director
Tim C. Flynn
/s/ DAVID AUSTAD Director March 25, 1999
- ------------------------
David Austad
/s/ LAWRENCE FLINN, JR. Director March 25, 1999
- ------------------------
Lawrence Flinn, Jr.
/s/ RICHARD R. HYLLAND Director March 25, 1999
- ------------------------
Richard R. Hylland
/s/ R. F. LEYENDECKER Director March 25, 1999
- ------------------------
R. F. Leyendecker
LodgeNet Entertainment Corporation 31 Form 10-K 1998
<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, 1997 and 1998 ............ F - 3
Consolidated Statements of Operations --
Three Years Ended December 31, 1998 ..................................... F - 4
Consolidated Statements of Stockholders' Equity --
Three Years Ended December 31, 1998 ..................................... F - 5
Consolidated Statements of Cash Flows --
Three Years Ended December 31, 1998 ..................................... F - 6
Notes to Consolidated Financial Statements .............................. F - 7
INDEX TO FINANCIAL SCHEDULES
Report of Independent Public Accountants on Schedule .................... F - 22
Schedule II -- Valuation and Qualifying Accounts ........................ F - 23
</TABLE>
LodgeNet Entertainment Corporation F - 1 Form 10-K 1998
<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, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. 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, 1997 and 1998,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 12, 1999 (except
for Note 9, as to which the
date is February 25, 1999)
LodgeNet Entertainment Corporation F - 2 Form 10-K 1998
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,021 $ 5,240
Accounts receivable, net of allowance for doubtful accounts 21,835 27,586
Prepaid expenses and other 3,457 6,086
---------- ----------
Total current assets 26,313 38,912
Property and equipment, net of accumulated depreciation 218,948 209,437
Investments in and advances to unconsolidated affiliates -- 32,701
Debt issuance costs, net of accumulated amortization 7,641 6,637
Other assets, net 7,392 18,343
---------- ----------
$ 260,294 $ 306,030
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 16,792 $ 13,705
Current maturities of long-term debt 705 5,718
Accrued expenses 8,148 9,410
Deferred revenue 2,069 2,318
---------- ----------
Total current liabilities 27,714 31,151
Long-term debt 182,691 262,375
Minority interest in consolidated subsidiary 310 730
---------- ----------
Total liabilities 210,715 294,256
---------- ----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares
authorized; 11,322,058 and
11,942,387 shares outstanding at December 31,
1997 and 1998, respectively 113 119
Additional paid-in capital 120,792 123,706
Accumulated other comprehensive loss (699) (1,512)
Accumulated deficit (70,627) (110,539)
---------- ----------
Total stockholders' equity 49,579 11,774
---------- ----------
$ 260,294 $ 306,030
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
LodgeNet Entertainment Corporation F - 3 Form 10-K 1998
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts, except per share amounts, in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Guest Pay $ 84,504 $ 116,276 $ 146,481
Free-to-guest 8,645 8,496 7,854
Other 4,572 10,938 12,016
------------- ------------- -------------
Total revenues 97,721 135,710 166,351
------------- ------------- -------------
Direct costs:
Guest Pay 33,981 45,632 60,538
Free-to-guest 6,784 5,663 6,373
Other 3,614 7,217 7,097
------------- ------------- -------------
Total direct costs 44,379 58,512 74,008
------------- ------------- -------------
Gross profit 53,342 77,198 92,343
------------- ------------- -------------
Operating expenses:
Guest Pay operations 15,032 20,785 25,167
Selling, general and administrative 13,581 20,717 18,600
Restructuring charge (Note 3) -- -- 3,300
Depreciation and amortization 29,815 43,760 55,215
------------- ------------- -------------
Total operating expenses 58,428 85,262 102,282
------------- ------------- -------------
Operating loss (5,086) (8,064) (9,939)
Equity in losses of unconsolidated affiliates -- -- 6,550
Interest expense, net 8,243 17,001 23,048
------------- ------------- -------------
Loss before income taxes, extraordinary loss, and
cumulative effect of change in accounting principle (13,329) (25,065) (39,537)
Provision for income taxes 28 344 375
------------- ------------- -------------
Loss before extraordinary loss and cumulative
effect of change in accounting principle (13,357) (25,409) (39,912)
Extraordinary loss (Note 15) 3,253 -- --
Cumulative effect of change in accounting principle
(Note 16) -- 210 --
------------- ------------- -------------
Net loss $ (16,610) $ (25,619) $ (39,912)
------------- ------------- -------------
------------- ------------- -------------
Per common share (basic and diluted):
Loss before extraordinary loss and cumulative
effect of change in accounting principle $ (1.40) $ (2.25) $ (3.45)
Extraordinary loss (0.34) -- --
Cumulative effect of change in accounting principle -- (0.02) --
------------- ------------- -------------
Net loss $ (1.74) $ (2.27) $ (3.45)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding (basic and diluted) 9,570,779 11,271,064 11,579,457
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
LodgeNet Entertainment Corporation F - 4 Form 10-K 1998
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
----------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
---------- ------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 7,352,113 $ 74 $ 71,234 $ (28,398) $ (184) $ 42,726
Issuance of common stock 3,680,000 36 44,599 -- -- 44,635
Common stock option activity 93,256 1 34 -- -- 35
Comprehensive loss:
Net loss -- -- -- (16,610) -- (16,610)
Foreign currency
translation adjustment -- -- -- -- 94 94
-----------
Comprehensive loss (16,516)
Change of interest in
subsidiary -- -- 4,672 -- -- 4,672
---------- ------ ------------ ------------ ------------- ------------
Balance, December 31, 1996 11,125,369 111 120,539 (45,008) (90) 75,552
Common stock option activity 196,689 2 332 -- -- 334
Comprehensive loss:
Net loss -- -- -- (25,619) -- (25,619)
Foreign currency
translation adjustment -- -- -- -- (609) (609)
-----------
Comprehensive loss (26,228)
Change of interest in
subsidiary -- -- (79) -- -- (79)
---------- ------ ------------ ------------ ------------- ------------
Balance, December 31, 1997 11,322,058 113 120,792 (70,627) (699) 49,579
Issuance of common stock 350,000 3 3,081 -- -- 3,084
Common stock option activity 270,329 3 253 -- -- 256
Comprehensive loss:
Net loss -- -- -- (39,912) -- (39,912)
Foreign currency
translation adjustment -- -- -- -- (813) (813)
-----------
Comprehensive loss (40,725)
Change of interest in
subsidiary -- -- (420) -- -- (420)
---------- ------ ------------ ------------ ------------- ------------
Balance, December 31, 1998 11,942,387 $ 119 $ 123,706 $ (110,539) $ (1,512) $ 11,774
---------- ------ ------------ ------------ ------------- ------------
---------- ------ ------------ ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
LodgeNet Entertainment Corporation F - 5 Form 10-K 1998
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss $ (16,610) $ (25,619) $ (39,912)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 29,815 43,760 55,215
Gain on sale of property and equipment -- -- (309)
Non-cash portion of extraordinary loss 434 -- --
Non-cash portion of restructuring charge -- -- 840
Equity in losses of unconsolidated affiliates -- -- 6,550
Change in operating assets and liabilities:
Accounts receivable (6,278) (3,288) (6,157)
Prepaid expenses and other (473) (1,138) (2,659)
Accounts payable 1,864 1,053 (2,770)
Accrued expenses and deferred revenue 1,433 1,524 1,677
Other (623) 361 768
---------- ---------- ----------
Net cash provided by operating activities 9,562 16,653 13,243
---------- ---------- ----------
Investing activities:
Property and equipment additions (84,256) (96,290) (68,733)
Proceeds from sale of property and equipment -- -- 412
Business acquisitions -- (8,087) (927)
Investment in unconsolidated affiliates -- -- (8,330)
Proceeds from sale of interest in subsidiary 5,396 -- --
---------- ---------- ----------
Net cash used for investing activities (78,860) (104,377) (77,578)
---------- ---------- ----------
Financing activities:
Proceeds from long-term debt 150,000 -- 1,000
Repayments of long-term debt (33,095) (583) (6,148)
Borrowings under revolving credit facility 55,958 3,000 73,500
Repayments of revolving credit facility (55,958) -- --
Debt issuance costs (7,969) (141) --
Proceeds from issuance of common stock 44,635 -- --
Stock issuance costs (477) -- --
Stock option activity 35 334 256
---------- ---------- ----------
Net cash provided by financing activities 153,129 2,610 68,608
---------- ---------- ----------
Effect of exchange rates on cash 94 (42) (54)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 83,925 (85,156) 4,219
Cash and cash equivalents at beginning of period 2,252 86,177 1,021
---------- ---------- ----------
Cash and cash equivalents at end of period $ 86,177 $ 1,021 $ 5,240
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
LodgeNet Entertainment Corporation F - 6 Form 10-K 1998
<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 cable television programming, network-based video games and
other interactive entertainment and information systems to the lodging industry,
primarily in the United States and Canada. ResNet Communications, Inc. ("ResNet
Inc."), a wholly-owned subsidiary of the Company, was the majority owner of
ResNet Communications, LLC ("ResNet LLC") until November 30, 1998, at which time
ResNet LLC was merged with two other entities to form a new entity (see Note 3).
ResNet LLC installed and operated private cable television systems in
multi-family residential properties nationwide.
The Company's operating performance and outlook are strongly influenced
by such factors as overall occupancy levels, guest demographics, and economic
conditions in the lodging industry, the number of lodging rooms equipped with
the Company's systems, the number and type of guest pay product offerings, the
popularity and availability of programming, and competitive factors.
The rapid growth of the Company's business has required 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, the Company may, 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 Inc. Affiliated companies in which LodgeNet does not have a controlling
interest are accounted for using the equity method. All significant
inter-company accounts and transactions have been eliminated in consolidation.
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.
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.
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.
LodgeNet Entertainment Corporation F - 7 Form 10-K 1998
<PAGE>
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost,
including certain payroll costs related to the installation of new systems.
Maintenance costs, which do not significantly extend the useful lives of the
respective assets, and repairs are charged to operations as incurred.
Depreciation of guest pay and free-to-guest systems begins when such systems are
installed and activated. Depreciation of other equipment begins when such
equipment is placed in service. The Company attributes no salvage value to any
equipment. Depreciation and amortization are computed using the straight-line
method over the following useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 30
Guest Pay systems:
System components 5 - 7
In-room equipment 2 - 5
Free-to-guest systems 5 - 7
Other equipment 3 - 10
</TABLE>
SOFTWARE DEVELOPMENT -- The Company has capitalized certain costs of
developing software for its guest pay systems in accordance with AICPA Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". Capitalized costs are reported at the lower of
unamortized cost or net realizable value, and are amortized over the system's
estimated useful life, not to exceed five years. Guest pay system development
costs capitalized were $1,616,000, $2,100,000 and $2,405,000 during the years
ended December 31, 1996, 1997 and 1998, respectively. Amortization of such costs
was $599,000, $797,000 and $1,138,000 for the years ended December 31, 1996,
1997 and 1998, respectively. The Company charged $216,000, $410,000, and
$252,000 to operations during the years ended December 31, 1996, 1997 and 1998,
respectively, related to research and development activities.
REVENUE RECOGNITION -- Revenue and related costs are recognized when
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. During 1997, the Company entered into a new long term
agreement with a major programming source, superseding a previous programming
agreement. As a result, the recognition of approximately $1.2 million of
previously deferred programming cost reductions was accelerated in 1997. At
December 31, 1996, 1997 and 1998 the Company had recorded deferred cost
reductions relating to such agreements of $1,835,000, $450,000 and $85,000,
respectively.
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 10% or more of total revenue in
any period presented in the accompanying consolidated statements of operations.
The allowance for doubtful accounts was $800,000 at December 31, 1997 and 1998.
The provision for doubtful accounts was $922,000 in 1996, $820,000 in 1997, and
$848,000 in 1998.
INCOME TAXES -- The Company accounts for income taxes under the
liability method, in accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") 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.
COMPREHENSIVE INCOME -- During 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income" which requires companies to report all changes
in equity during a period, except those resulting from investments by owners and
distributions to owners, in a financial statement for the period in which they
are recognized. The Company has chosen to disclose comprehensive income, which
is comprised of net income and foreign currency translation adjustments, in the
consolidated statement of stockholders' equity. Comprehensive income amounts in
prior years' financial statements have been restated to conform to the
requirements of SFAS No. 130.
LodgeNet Entertainment Corporation F - 8 Form 10-K 1998
<PAGE>
LOSS PER SHARE COMPUTATION -- During 1997, the Company adopted SFAS No.
128, "Earnings Per Share". SFAS No. 128 changes the manner in which earnings per
share ("EPS") are calculated and presented. The new standard requires the
computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is
computed based only on the weighted average number of common shares actually
outstanding during the period. Diluted EPS is computed based on the weighted
average number of common shares outstanding plus all potentially dilutive common
shares outstanding during the period. Weighted average options on 1,458,839,
1,597,331, and 1,736,333 shares of common stock were not included in computing
diluted EPS because their effects were antidilutive for the years ended December
31, 1996, 1997, and 1998, respectively.
STOCK-BASED COMPENSATION -- The Company measures compensation costs
associated with its stock option plans in accordance with the provisions of
Accounting Principles Board Opinion No. 25, as permitted by SFAS No. 123. The
effect of fair value based measurement of such costs on net loss and net loss
per share, in accordance with SFAS No. 123, is disclosed on a pro forma basis in
Note 12.
STATEMENTS OF CASH FLOWS -- Cash equivalents are comprised of demand
deposits and temporary investments in highly liquid securities having original
maturities of 90 days or less. Cash paid for interest was $7,870,000,
$17,828,000, and $21,633,000 during the years ended December 31, 1996, 1997, and
1998, respectively. Equipment acquired under capital lease arrangements totaled
$1,002,000, $1,106,000, and $885,000 during the years ended December 31, 1996,
1997, and 1998, respectively. During 1998, non-cash activities included the
acquisition of license rights valued at $15,709,000 in exchange for notes
payable issued by the Company (see Note 10) and the issuance of 350,000 common
shares valued at $3,084,000 as part of an acquisition completed during the year
(see Note 4).
RECLASSIFICATIONS -- Certain items in the consolidated financial
statements have been reclassified to conform to 1998 classifications. Such
reclassifications had no effect on previously reported net loss or stockholders'
equity.
NOTE 3 -- RESNET MERGER
Effective November 30, 1998, the operations of the Company's
majority-owned subsidiary, ResNet Communications, LLC ("ResNet LLC"), were
merged with two non-affiliated entities to form a new entity, Global Interactive
Communications Corporation ("GICC"). GICC's business will consist of providing
cable television programming and telecommunications services to the multi-family
dwelling unit market. The Company contributed net assets totaling $31.3 million
in exchange for (i) a 30% equity interest in GICC, and (ii) notes receivable
totaling $10.8 million. In addition, the Company advanced GICC $1.5 million
under the terms of a secured note agreement. The notes receivable consist of
four separate instruments as follows:
SENIOR TERM NOTE - The Company loaned $1.5 million to GICC under this
note. Subject to certain extension and default provisions contained in the
agreement, the note is due May 30, 1999. Interest is charged at a rate of 10%
and is also due May 30, 1999. The note, along with GICC's other senior
indebtedness, is secured by substantially all of the assets of GICC.
JUNIOR TERM NOTE - The Company loaned $2.9 million to GICC under this
note. Subject to certain extension and default provisions contained in the
agreement, the note is due May 30, 1999. Interest is charged at a rate of 10%
and is also due May 30, 1999. The note ranks consistent with GICC's senior
indebtedness in terms of security.
CAPITAL ADVANCE NOTE - The Company loaned $3.0 million to GICC under
this note. Beginning in June 1999, four quarterly installments of $750,000 (plus
accrued interest charged at a rate of 10%) are required. The capital advance
note is subordinate to the senior and junior term notes described above.
LodgeNet Entertainment Corporation F - 9 Form 10-K 1998
<PAGE>
CAPITAL LEASE AGREEMENT - GICC acquired equipment valued at $4.9 million
in exchange for a capital lease note. The note requires GICC to make 60 equal
monthly payments of $106,000. The note is secured by the assets subject to the
capital lease agreement.
In connection with this transaction, the Company incurred $3.3 million
of costs during the fourth quarter including professional services fees,
employee costs, and the write-off of certain capitalized software development
costs. These costs are reported as a restructuring charge in the 1998
consolidated statement of operations. The Company's interest in GICC
approximated its proportionate share of the independently appraised value of
GICC. Accordingly, no gain or loss was recognized as a result of this
transaction. As more fully described in Note 14, the Company may be required to
acquire an additional 5% of GICC in 1999.
NOTE 4 -- ACQUISITION
In October 1998, the Company completed the acquisition of Connect Group
Corporation ("CGC"), in exchange for initial consideration of approximately
$4.0 million, including acquisition costs, consisting of $927,000 and 350,000
shares of LodgeNet common stock. CGC developed technology that the Company
intends to use to provide high speed Internet access to hotel guests and
operators. The acquisition has been accounted for as a purchase and the
excess of the initial consideration over the fair value of CGC's net assets
of approximately $4.0 million has been recorded as an intangible asset and is
being amortized on a straight-line basis over 10 years. The pro forma results
for 1996, 1997 and 1998, assuming the transaction had been made as of the
beginning of those years, would not be materially different from reported
results.
In addition to the approximate $4.0 million of initial consideration,
the purchase agreement contains provisions for additional consideration to be
paid to the selling shareholders contingent on the performance of the acquired
technology in its application to the lodging industry. Depending on the
performance of the technology, as defined in the purchase agreement, the Company
may have to provide additional consideration of up to $1,000,000 on both the
first and second anniversary dates of the transaction.
NOTE 5 -- PROPERTY AND EQUIPMENT, NET
Property and equipment was comprised as follows at (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
---------- ----------
<S> <C> <C>
Land, building and equipment $ 40,051 $ 48,105
Free-to-guest equipment 11,855 16,237
Cable television equipment 13,877 --
Guest pay systems:
Installed 220,778 257,980
System components 30,720 24,933
Software costs 8,053 8,640
---------- ----------
Total 325,334 355,895
Less - depreciation and (106,386) (146,458)
amortization
---------- ----------
Property and equipment, net $ 218,948 $ 209,437
---------- ----------
---------- ----------
</TABLE>
LodgeNet Entertainment Corporation F - 10 Form 10-K 1998
<PAGE>
NOTE 6 -- INVESTMENTS IN AFFILIATES
The Company obtained equity interests in two entities during 1998.
First, in February 1998, the Company acquired a 10% interest in Across Media
Networks, LLC ("AMN"), a company engaged in the creation and distribution of
digitally produced on-screen content for television and the Internet. The
Company has applied the equity method of accounting for this investment to
reflect the fact that the Company has had certain financing obligations to AMN.
Losses of $5.8 million related to this investment were recorded in 1998. Second,
as previously described, the merger of ResNet with two other entities effective
November 30, 1998 to form GICC resulted in the Company owning 30% of GICC. The
Company's portion of GICC's 1998 loss was $738,000.
Summarized unaudited financial information of these affiliates follows
(in thousands of dollars). The results of operations includes full year results
for AMN and results for GICC since inception on November 30, 1998.
<TABLE>
<CAPTION>
1998
(Unaudited)
-----------
<S> <C>
Summary Results of Operations:
Net sales $ 2,400
Gross profit $ (1,452)
Net loss $ (7,919)
Summary Balance Sheet:
Current assets $ 15,037
Non-current assets 85,796
-----------
Total assets $ 100,833
-----------
-----------
Current liabilities $ 24,566
Non-current liabilities 27,715
Stockholders' equity 48,552
-----------
Total liabilities and $ 100,833
stockholders' equity -----------
-----------
</TABLE>
NOTE 7 -- 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 $7,969,000 and $140,000 of debt
issuance costs during the years ended December 31, 1996 and 1997, respectively.
No debt issuance costs were incurred in 1998. Amortization of such costs was
$564,000 in 1996, $1,008,000 in 1997, and $1,004,000 in 1998. The 1996
amortization excludes $434,000 recorded as an extraordinary loss resulting from
the early redemption of the Company's 9.95% and 10.35% Senior Notes (see Note
15). The components of the debt issuance costs recorded in the balance sheets
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
Debt issuance costs $ 8,960 $ 8,960
Accumulated (1,319) (2,323)
amortization -------- --------
$ 7,641 $ 6,637
-------- --------
-------- --------
</TABLE>
LodgeNet Entertainment Corporation F - 11 Form 10-K 1998
<PAGE>
NOTE 8 -- ACCRUED EXPENSES
Accrued expenses were comprised as follows at (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
------- -------
<S> <C> <C>
Accrued taxes $ 1,034 $ 1,345
Accrued compensation 2,567 2,427
Accrued interest 2,274 3,689
Other 2,273 1,949
------- -------
$ 8,148 $ 9,410
------- -------
------- -------
</TABLE>
NOTE 9 -- LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt was comprised as follows at (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revolving Credit Facility $ 3,000 $ 76,500
10.25% Senior Notes 150,000 150,000
11.50% Senior Notes 30,000 30,000
Less - unamortized discount (1,169) (954)
Capital leases 1,565 1,326
Other -- 11,221
---------- ----------
183,396 268,093
Less current maturities (705) (5,718)
---------- ----------
$ 182,691 $ 262,375
---------- ----------
---------- ----------
</TABLE>
REVOLVING CREDIT FACILITY -- On February 25, 1999, the Company amended
and restated its bank credit facility, increasing the size of the facility to
$150 million, comprised of a $75 million term loan and a $75 million revolving
credit facility. The $76.5 million outstanding at December 31, 1998 under the
previous revolving credit facility was repaid with proceeds from the term loan.
In addition to the $75 million term loan, the facility provides a $75 million
revolving credit facility, which may be increased at the Company's request to
$100 million, subject to certain limitations. Quarterly repayments on the term
loan begin in February 2001 and are as follows for the respective fiscal years
(in thousands of dollars): 2001 -- $15,000; 2002 -- $18,750; 2003 -- $18,750;
2004 -- $22,500. The revolving credit facility matures in February 2005. Loans
under the amended and restated facility will bear interest at the Company's
option of (1) the bank's prime rate plus a margin of from 1.00% to 1.75%,
depending on leverage as defined, or (2) the eurodollar rate plus a margin of
from 2.00% to 2.75%, depending on leverage as defined. The margins applicable to
the bank's prime rate and/or the eurodollar rate loans are subject to quarterly
adjustment as defined in the agreement. The loans will be secured by a first
priority security interest in all of the Company's assets.
The facility includes terms and conditions which require the maintenance
of certain financial ratios and place limitations on capital expenditures,
additional indebtedness, liens, investments, guarantees and certain payments or
distributions in respect of the common stock. As of December 31, 1998, the
Company was in compliance with all covenants, terms and conditions of its
previous revolving credit facility. As of the date of closing, the Company was
in compliance with all covenants, terms and conditions of the amended and
restated bank credit facility.
The amended facility provides for the issuance of letters of credit up
to $12 million, subject to customary terms and conditions. As of December 31,
1998, the Company had outstanding letters of credit totaling $6.5 million under
its previous revolving credit facility.
LodgeNet Entertainment Corporation F - 12 Form 10-K 1998
<PAGE>
10.25% SENIOR NOTES -- In December 1996, the Company issued $150 million
of unsecured 10.25% Senior Notes (the "10.25% Notes"), due December 15, 2006.
The 10.25% 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 10.25% Notes require semi-annual
interest payments and contain covenants which, among other matters, 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. As of December 31, 1998, the Company was in
compliance with all covenants, terms, and conditions of the 10.25% Notes.
The 10.25% 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 10.25% Notes with the
proceeds of one or more public equity offerings.
11.50% SENIOR NOTES -- During 1995, the Company issued $30 million
principal amount of unsecured 11.50% Senior Notes (the "11.50% Notes").
Mandatory annual principal payments of $6 million commence in July 2001
continuing through July 2005. Semi-annual interest payments are required. The
Company issued a total of 480,000 warrants (see Note 13) to purchase common
stock of the Company in connection with the issuance of the 11.50% Notes and the
value of the warrants, $1.68 million, was recorded as additional paid-in capital
and shown as a discount on the 11.50% Notes. As part of the refinancing
transaction in which the 10.25% Notes were issued, the holders of the 11.50%
Notes adopted the covenants and ranking of the 10.25% Notes.
Long-term debt has the following scheduled principal maturities for
the years ended December 31 (in thousands of dollars): 1999 -- $5,718;
2000 -- $5,778; 2001 -- $21,190; 2002 -- $24,797; 2003 -- $25,564;
thereafter -- $185,046.
At December 31, 1997 and 1998, the estimated fair value of the Company's
debt was $189.7 million and $268.0 million, respectively, which differs from the
recorded amounts of $183.4 million and $268.1 million, respectively.
NOTE 10 -- 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.
(since succeeded by PRIMESTAR, Inc. ("PRIMESTAR") 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 operating cash flows, as defined
in the agreement, with PRIMESTAR. Under the cash flow sharing arrangement, which
is measured on an annual basis, the Company receives the first $1.8 million of
cash flows, PRIMESTAR receives the next $1.8 million and all amounts thereafter
are shared evenly. The Company paid PRIMESTAR $207,000 under this arrangement
for the year ending December 31, 1997 and has recognized an obligation of
$781,000 for the year ending December 31, 1998. The Agreement has an initial
term of 15 years and includes various restrictions, including default and
termination provisions.
LodgeNet Entertainment Corporation F - 13 Form 10-K 1998
<PAGE>
PURCHASE COMMITMENTS -- The Company has 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, 1998 require future minimum lease payments, as
follows (in thousands of dollars): 1999 -- $324; 2000 -- $299; 2001 -- $271;
2002 -- $163; 2003 and thereafter -- $67.
LITIGATION -- Since the first quarter of 1995, the Company has been
engaged in legal proceedings resulting from a lawsuit filed by On Command Video
Corporation ("On Command") asserting patent infringement by the Company relating
to its on-demand video system. During the third quarter of 1998, the Company
entered into an agreement with On Command to settle all matters of pending
litigation between the companies and enter into cross licensing arrangements
regarding the use of each of the companies' patented technologies. The cross
licensing arrangements, in consideration of the relative fair value of the
patents involved, provides for the Company to make cash payments to On Command
totaling approximately $16 million plus interest, payable in three annual
installments which commenced in September 1998. The Company has capitalized the
present value of the obligation to On Command based on the fair value of the
license rights acquired. The fair value of the license rights acquired will be
amortized over the remaining average lives of the underlying patents.
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.
NOTE 11 -- 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, 1996 and 1997. 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.
STOCKHOLDER RIGHTS PLAN -- 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 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-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 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.
LodgeNet Entertainment Corporation F - 14 Form 10-K 1998
<PAGE>
NOTE 12 -- STOCK OPTION PLANS
The Company has stock options plans which provide for the granting of up
to 2,726,792 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, 1998 and outstanding options expire
beginning in 2001 through 2008. The following is a summary of the stock option
activity for the years ending December 31:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Outstanding Price
----------- --------
<S> <C> <C>
Balance at December 31, 1995 1,318,426 $ 4.21
Options granted 239,000 12.66
Options exercised (93,256) .62
Options forfeited/canceled (12,500) 8.51
----------
Balance at December 31, 1996 1,451,670 5.79
Options granted 257,832 14.99
Options exercised (196,689) 1.08
Options forfeited/canceled (7,000) 9.06
----------
Balance at December 31, 1997 1,505,813 7.91
Options granted 634,656 12.72
Options exercised (270,329) .81
Options forfeited/canceled (107,800) 12.84
----------
Balance at December 31, 1998 1,762,340 $ 10.45
----------
----------
</TABLE>
The following is a summary of stock options outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Term Exercise Exercise
Price Range Number in Years Price Number Price
---------------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.23 to $0.46 84,819 4.8 $0.23 84,819 $0.23
$2.77 to $3.23 237,022 4.6 $2.89 237,022 $2.89
$6.46 to $9.79 300,499 7.1 $8.57 176,499 $8.57
$10.38 to $13.29 724,000 8.2 $11.41 228,750 $11.38
$14.00 to $20.00 416,000 8.6 $16.51 73,875 $15.60
--------- -------
1,762,340 7.4 $10.45 800,965 $7.46
--------- -------
--------- -------
</TABLE>
The weighted average "fair value" of options granted during the year ended
December 31 was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Weighted average fair
value per option granted $ 6.01 $ 7.13 $ 4.36
------- ------- -------
------- ------- -------
</TABLE>
The "fair value" of each option granted was estimated as of the grant
date using the Black-Scholes option valuation model under the following
assumptions: (i) dividend yield - none, (ii) weighted average risk-free interest
rate - 6.40% in 1996, 6.22% in 1997, 5.15% in 1998; (iii) weighted average
expected life - 5.0 years, and (iv) weighted average expected volatility - 44.0%
in 1996, 44.5% in 1997, 45.3% in 1998.
LodgeNet Entertainment Corporation F - 15 Form 10-K 1998
<PAGE>
The Company accounts for its stock option compensation plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
Accordingly, because the Company's stock option plans are fixed plans and
options are issued at market value, no compensation cost has been charged to
operations for any period presented. Had compensation cost been determined in
accordance with SFAS No. 123, net loss and loss per share would have
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>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net loss
As reported $(16,610) $(25,619) $(39,912)
Pro forma (18,047) (27,423) (42,677)
Loss per share
As reported $ (1.74) $ (2.27) $ (3.45)
Pro forma (1.89) (2.43) (3.69)
</TABLE>
NOTE 13 -- WARRANTS
In connection with the 1995 issuance of the 11.5% Senior Notes (see
Note 9), 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.
NOTE 14 -- SALE OF EQUITY INTEREST IN SUBSIDIARY
In October 1996, the Company and ResNet Inc. entered into agreements
with TCI Satellite Entertainment, Inc. (since succeeded by PRIMESTAR MDU,
Inc. ("PRIMESTAR")) to sell a portion of ResNet Inc. to PRIMESTAR. Under the
terms of the agreement, a 4.99% equity interest in ResNet Inc. was sold to
PRIMESTAR 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.
In June 1997, ResNet LLC was formed and the agreements previously
entered into by PRIMESTAR and ResNet Inc. were amended, under substantially
similar terms, to reflect ResNet LLC as the operating entity of the ResNet
business.
Under a convertible note agreement (the "Convertible Note"),
PRIMESTAR had agreed to advance up to $34.6 million to ResNet LLC during the
five year period ending October 21, 2001. Use of the proceeds of the
Convertible Note were limited to the purchase of satellite receiving
equipment from PRIMESTAR. Amounts outstanding under the Convertible Note were
periodically convertible into additional equity interests in ResNet LLC. Such
conversions were mandatory, subject only to regulatory limitations on the
size of the equity interest that PRIMESTAR could hold in ResNet LLC. Under
these conversion features, PRIMESTAR had obtained rights to acquire an
additional 9.81% equity interest (incremental to the 4.99% interest acquired
in 1996) in ResNet LLC as of November 30, 1998, the date of the ResNet merger
transaction (see Note 3). Due to the regulatory limitations described above,
these rights were unable to be exercised. No amounts are due to PRIMESTAR
under this convertible note agreement at December 31, 1998.
In connection with the merger transaction described in Note 3, ResNet
LLC and PRIMESTAR agreed to terminate the convertible note agreement. The
companies further agreed that if GICC and PRIMESTAR were unable to reach
agreement by April 1, 1999 with respect to a new agreement for PRIMESTAR to
furnish GICC with nationwide access to certain satellite programming signals,
that ResNet LLC would acquire PRIMESTAR's 5%
LodgeNet Entertainment Corporation F - 16 Form 10-K 1998
<PAGE>
equity interest in GICC that was obtained as part of the merger transaction
for $5.4 million. Consideration for this 5% interest is payable in part by
satellite receiving equipment held by the Company that was previously
purchased from PRIMESTAR. Such amount will be valued at the price paid for
the equipment by the Company. Remaining amounts to equal the $5.4 million
will be payable in cash by April 9, 1999.
NOTE 15 -- EXTRAORDINARY LOSS
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 16 -- CHANGE IN ACCOUNTING PRINCIPLE
Effective in the fourth quarter of 1997, the Company adopted the
provisions of Issue No. 97-13, "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project That Combines Business
Process Reengineering and Information Technology Transformation" issued by
the Emerging Issues Task Force of the Financial Accounting Standards Board.
This new pronouncement requires that certain costs associated with business
process reengineering activities should be expensed as incurred rather than
capitalized. As a result, the Company recorded a $210,000 charge in the 1997
Consolidated Statement of Operations, reflected as a cumulative effect of a
change in accounting principle, to write-off business process reengineering
costs that had been previously capitalized.
NOTE 17 -- 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, 1998, the Company had net operating loss carry-forwards in
excess of $85 million for federal income tax purposes. Such carry-forwards
expire beginning in 2001 through 2013, 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,
-----------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ (5,207) $ (2,759)
-------- --------
Deferred tax assets:
Net operating loss carry-forwards 25,283 28,900
Reserves and accruals 1,081 1,769
Deferred programming 153 29
-------- --------
26,517 30,698
-------- --------
Net deferred tax assets 21,310 27,939
Valuation allowance (21,310) (27,939)
-------- --------
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 18 -- RELATED PARTY TRANSACTIONS
During 1998, the Company advanced $1.9 million to two officers under
the terms of promissory notes providing for total advances of $2.0 million.
The notes are payable by the officers at the earlier of (i) demand of the
Company or, (ii) November 9, 1999. Interest is payable monthly at the rate
applicable to the Company under its revolving credit facility. The notes are
secured by shares of the Company's stock held by the officers.
LodgeNet Entertainment Corporation F - 18 Form 10-K 1998
<PAGE>
NOTE 19 -- SUBSEQUENT EVENTS
FINANCING ACTIVITIES - Effective February 25, 1999, the Company
amended and restated its bank credit facility. See Note 9 for a description
of the transaction and the terms of the credit facility.
PRIMESTAR TRANSACTION ANNOUNCEMENT - In January 1999, Hughes
Electronics Corporation ("Hughes") announced that it reached an agreement
with PRIMESTAR to acquire PRIMESTAR's digital broadcast satellite (DBS)
business and plans to combine the business with Hughes' DIRECTV unit. It was
further announced that over the next approximately two years, PRIMESTAR
subscribers will be transitioned to DIRECTV service. The Company has
approximately 200,000 lodging rooms which receive cable television
programming via the PRIMESTAR DBS technology. Management is actively pursuing
several options with respect to this matter to ensure that cable television
service to its lodging customers is not disrupted, and believes that a
transition solution will be obtained which will avoid a material adverse
impact to the Company's operations or financial position.
LodgeNet Entertainment Corporation F - 18 Form 10-K 1998
<PAGE>
NOTE 20 -- SEGMENT INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Prior to the ResNet
merger described in Note 3, the Company's operations were classified into two
business segments, lodging and residential. The lodging segment utilizes
interactive systems designed, assembled and operated by the Company to
provide guest room entertainment, information and convenience services to the
lodging industry. The residential segment used systems designed, built and
operated by the Company to provide cable television programming and other
entertainment services to multifamily residences. The Company's operations
will not include the residential segment subsequent to the ResNet merger.
The accounting policies of the reportable segments are the same as
those described in Note 2. The company evaluates performance of its operating
segments based on operating results before depreciation and amortization,
excluding any non recurring charges. There were no intersegment sales and
transfers.
Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands of dollars). The
information for 1997 and 1996 has been restated to conform to the 1998
presentation. The "Other" column includes corporate related items and, as it
relates to segment profit (loss), income and expense not allocated to
reportable segments.
<TABLE>
<CAPTION>
Lodging Residential Other Total
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
1996
Revenues $ 97,389 $ 332 $ - $ 97,721
Segment profit (loss) 24,552 149 (41,311) (16,610)
Total assets 274,219 5,548 - 279,767
Capital expenditures 78,738 5,518 - 84,256
1997
Revenues $133,010 $ 2,700 $ - $135,710
Segment profit (loss) 37,407 (2,055) (60,971) (25,619)
Total assets 238,869 21,425 - 260,294
Capital expenditures 87,615 16,762 - 104,377
1998
Revenues $160,975 $ 5,376 $ - $166,351
Segment profit (loss) 50,438 (2,237) (88,113) (39,912)
Total assets 306,030 - - 306,030
Capital expenditures 55,458 14,202 - 69,660
</TABLE>
The following table presents the details of the "Other" segment profit (loss):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Restructuring charge $ - $ - $ 3,300
Depreciation and amortization 29,815 43,760 55,215
Interest expense, net 8,243 17,001 23,048
Equity in losses of unconsolidated
affiliates - - 6,550
Extraordinary loss 3,253 - -
Cumulative effect of change in
accounting principle - 210 -
Total $41,311 $60,971 $88,113
</TABLE>
LodgeNet Entertainment Corporation F - 19 Form 10-K 1998
<PAGE>
The following table presents revenues by country based on the location of the
customer:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
United States $93,803 $129,484 $157,654
Canada 3,918 5,954 7,420
Other - 272 1,277
------- -------- --------
Total $97,721 $135,710 $166,351
------- -------- --------
------- -------- --------
</TABLE>
The following table presents long-lived assets by country based on the location
of the asset:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
United States $156,235 $209,993 $199,067
Canada 7,922 8,955 10,370
-------- -------- --------
Total $164,157 $218,948 $209,437
-------- -------- --------
-------- -------- --------
</TABLE>
No single customer accounted for 10% or more of the Company's consolidated
revenue in 1996, 1997 or 1998.
LodgeNet Entertainment Corporation F - 20 Form 10-K 1998
<PAGE>
NOTE 21 -- 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 1997:
Total revenue $29,656 $ 33,132 $ 36,692 $ 36,230
Gross profit 16,839 18,794 20,961 20,604
Loss before cumulative effect
of change in accounting principle (6,679) (5,756) (5,050) (7,924)
Net loss (2) (6,679) (5,756) (5,050) (8,134)
Per common share (basic and
diluted (1):
Loss before cumulative effect
of change in accounting principle $ (0.60) $ (0.51) $ (0.45) $ (.70)
Net loss (0.60) (0.51) (0.45) (.71)
For 1998:
Total revenue $36,347 $ 40,898 $ 45,776 $ 43,330
Gross profit 20,267 22,711 25,636 23,729
Net loss (3) (8,635) (7,548) (5,457) (18,272)
Per common share (basic and
diluted) (1):
Net loss $ (0.76) $ (0.65) $ (0.47) $ (1.54)
</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, 1997 include a $210,000
charge for the effect of adopting EITF Issue 97-13 related to accounting
for certain business reengineering costs (see Note 16).
(3) The net loss for the quarter ended December 31, 1998 includes the
recognition of the $3.3 million restructuring charge related to the ResNet
transaction which occurred effective November 30, 1998. Additionally, the
$6.5 million of losses recorded from unconsolidated affiliates were
recorded in the fourth quarter. This loss is due to (i) the ResNet
transaction which resulted in the Company recording its share of GICC's
losses incurred in December, and (ii) a change in circumstances during
the fourth quarter related to the Company's investment in AMN which
resulted in the Company adopting the equity method, rather than the cost
method, of accounting for this investment.
LodgeNet Entertainment Corporation F - 21 Form 10-K 1998
<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 12,
1999. 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 12, 1999 (except for Note 9,
as to which the date is February 25, 1999)
LodgeNet Entertainment Corporation F - 22 Form 10-K 1998
<PAGE>
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------- --------- ---------- ---------- --------
Additions
Balance Charged to Balance
Beginning Costs and Deductions End of
Description of Period Expenses (Note 1) Period
- ---------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Allowances deducted from related
balance sheet accounts:
Year Ended December 31, 1996:
Allowance for Doubtful Accounts $410 $922 $547 $785
Year Ended December 31, 1997:
Allowance for Doubtful Accounts $785 $820 $805 $800
Year Ended December 31, 1998:
Allowance for Doubtful Accounts $800 $848 $848 $800
</TABLE>
- ----------
(1) All deductions from reserves were for the purposes for which such
reserves were created except for the 1998 activity, which includes a
$45,000 reduction to the reserve resulting from the ResNet merger
described in Note 3.
LodgeNet Entertainment Corporation F - 23 Form 10-K 1998
<PAGE>
SUPPLEMENTAL INDENTURE
THIS SUPPLEMENTAL INDENTURE is entered into as of October 15, 1998 by
and between LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (the
"Company") having its principal office at 3900 West Innovation Street, Sioux
Falls, South Dakota 57107 and MARINE MIDLAND BANK, a New York banking
corporation and trust company, as trustee (the "Trustee"), amending and
supplementing the indenture (the "Indenture") dated as of December 19, 1996
pursuant to which the Company issued $150,000,000 10-1/4% Senior Notes due
2006 (the "Notes").
RECITALS:
WHEREAS, the parties wish to make certain amendments to the Indenture
pursuant to Section 9.02 of the Indenture; and
WHEREAS, the Company has duly authorized the execution and delivery of
this Supplemental Indenture, has obtained the consent of at least a majority
of the holders of the Notes, and done all other things necessary to make this
Supplemental Indenture a valid agreement of the Company.
NOW, THEREFORE, in consideration of the premises, mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS. The Indenture is hereby amended as follows:
1A. DEFINITIONS. The definitions of "ASSET SALE" and "PERMITTED
INVESTMENTS" in Section 1.01 of the Indenture are hereby deleted in their
entirety and replaced with the following language:
"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
<PAGE>
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, (c) issuances or sales of Common Stock of ResNet pursuant
to the ResNet Transaction Documents or (d) the contribution to Newco of
(1) the assets of ResNet LLC, (2) the limited liability company
membership interests of ResNet LLC or (3) the equity interests of a
special purpose entity created for the purpose of conveying such assets,
but no other assets.
"PERMITTED INVESTMENTS" 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; (iv) stock,
obligations or securities received in satisfaction of judgments; and
(v) Investments in Newco received in connection with the ResNet
Contribution and (vi) Investments in Newco in connection with or after
the closing of the ResNet Contribution in aggregate amount not to
exceed $5 million.
The following definitions of "NEWCO", "RESNET CONTRIBUTION" and "RESNET LLC" are
hereby added to Section 1.01 of the Indenture:
"Newco" means the joint venture company which will own
substantially all of the operations of Shared Technologies
Communications LLC ("STC"), Interactive Cable Systems, Inc. ("ICS")
and ResNet LLC, to be created pursuant to a nonbinding agreement among
STC, ICS and ResNet LLC dated August 18, 1998.
"ResNet Contribution" means the contribution to Newco of (i) the
assets of ResNet LLC, (ii) the limited liability company membership
interests of ResNet LLC or (iii) the equity interests of a special
purpose entity created for the purpose of conveying such assets, in
exchange for approximately 30% of the equity interest therein and
notes payable in an aggregate amount equal to Investments made by the
Company or any Subsidiary in ResNet LLC to acquire operating assets
between June 1, 1998 and the closing of the ResNet Contribution.
-2-
<PAGE>
"ResNet LLC" means ResNet Communications, L.L.C., a Delaware
limited liability company.
1B. SECTION 4.08, LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND
AFFILIATES. Section 4.08 of the Indenture is hereby deleted in its entirety
and replaced with the following language:
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 or 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; (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; (vi) transactions pursuant to the ResNet Transaction Documents;
or (vii) transactions with Newco in the ordinary course of business on
terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained in a comparable arm's-length transaction.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this Section 4.08 and not covered by clauses (ii) through
(vii) 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.
-3-
<PAGE>
2. RATIFICATION OF INDENTURE. As amended by this Supplemental
Indenture, the Indenture and the Notes are in all respects ratified and
confirmed and the Indenture as so amended by this Supplemental Indenture
shall be read, taken and construed as one and the same instrument.
3. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which are made solely by the Company.
4. EFFECTIVENESS. This Supplemental Indenture shall be effective as
of the date first above written; PROVIDED that (i) Section 1 of this
Supplemental Indenture shall be operative so long as the ResNet Contribution
is consummated on or prior to November 30, 1998 and the Company furnishes an
Officers' Certificate to the Trustee certifying to the same, and (ii) the
conditions specified in Section 9.02 of the Indenture shall have been
satisfied.
5. MISCELLANEOUS.
(a) This Supplemental Indenture may be executed in any number of
counterparts and by each of the parties hereto on separate counterparts, each
of which, once executed and delivered, shall be deemed to be an original and
all of which taken together shall constitute but one and same instrument.
(b) This Supplemental Indenture shall be governed and construed in
accordance with the laws of the State of New York.
[The remainder of the page is intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
LODGENET ENTERTAINMENT CORPORATION
By /s/ Eric R. Jacobsen
---------------------------------------
Name: Eric R. Jacobsen
----------------------------------
Title: Vice President, General Counsel
---------------------------------
MARINE MIDLAND BANK, as Trustee
By /s/ James M. Foley
--------------------------------------
James M. Foley
Assistant Vice President
-5-
<PAGE>
CONSENT AND RESTRUCTURING AGREEMENT
THIS CONSENT AND RESTRUCTURING AGREEMENT (the "Agreement"), dated as of
November _6_, 1998, is entered into by ResNet Communications, LLC, a Delaware
limited liability company (the "Company"), ResNet Communications, Inc., a
Delaware corporation ("ResNet"), and PRIMESTAR MDU, Inc., a Delaware corporation
and successor in interest to TCI Satellite MDU, Inc. ("PRIMESTAR").
A. WHEREAS, ResNet and PRIMESTAR, as the sole members of the Company,
desire, subject to the conditions set forth below, to grant their respective
consents (the "Consent") to a proposed transaction pursuant to a stock
purchase agreement, dated the Closing Date (as defined below), among the
Company, Shared Technologies Communications, Corp., a Delaware limited
liability company ("STC"), and Interactive Cable Systems, Inc., a California
corporation ("ICS"), whereby the constituent companies will each contribute
to a newly formed wholly-owned subsidiary of such company (a "Contribution
Sub" and in the case of the Company, the "ResNet Contribution Sub")
substantially all of the assets of such company, subject to certain specified
liabilities (in the case of the Company, such assets and liabilities being
referred to as the "ResNet Business"), and exchange the capital stock of each
Contribution Sub for capital stock in a newly formed Delaware corporation
("Newco") for designated percentages of Newco's common equity securities
(collectively, the "Transaction;" the date of the consummation of the
Transaction being the "Closing Date").
B. WHEREAS, in connection with the closing of the Transaction, the
parties desire to terminate and/or restructure certain agreements (collectively,
the "Existing Agreements") entered into by the parties as of June 4, 1997,
including, without limitation, (i) the limited liability company agreement of
the Company (the "LLC Agreement"), (ii) an agreement relating to the purchase by
the Company from PRIMESTAR of certain satellite receive equipment (the
"Equipment Sale Agreement"), (iii) the provision by PRIMESTAR to the Company of
a convertible credit facility repayable solely by the issuance of equity
interests in the Company (the "Subordinated Convertible Term Loan Agreement"),
(iv) the grant of certain options (the "Option Agreement") and contingent
warrants (the "Option Warrants") enabling PRIMESTAR to acquire additional equity
interests in the Company, (v) the furnishing by PRIMESTAR to the Company of the
PRIMESTAR-SM- DBS feed on a nationwide basis for multi-family dwelling units
("MDU") properties (the "Signal Availability Agreement"), (vi) a standstill
agreement (the "Standstill Agreement"), (vii) a subscription agreement (the
"Subscription Agreement"), (viii) a redemption agreement (the "Redemption
Agreement"), (ix) a related letter agreement, dated June 4, 1997, from Toby
DeWeese to Tim Flynn (the "Letter Agreement"), and (x) a management and shared
services agreement (the "Management and Shared Services Agreement").
NOW, THEREFORE, in consideration of the foregoing, and for other good
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. CONSENT TO THE TRANSACTION. Subject to the satisfaction of the terms
and conditions set forth herein, the parties hereby consent to the Transaction.
2. RESTRUCTURING OF THE EXISTING AGREEMENTS. Simultaneously with the
closing of the Transaction, the parties agree that:
(a) The LLC Agreement will remain in full force and effect; PROVIDED,
HOWEVER, that if determined by ResNet to be necessary or desirable in connection
with the distribution of the Newco Shares contemplated under Section 4 hereof,
the parties hereby consent to a dissolution of the Company and a liquidating
distribution of its assets in accordance with applicable provisions of Delaware
law.
(b) The following Existing Agreements will be terminated and be of no
further force or effect: (i) the Equipment Sale Agreement, (ii) the Subordinated
Convertible Term Loan Agreement, (iii) the Option Agreement and the Option
Warrants, (iv) the Standstill Agreement, (v) the Subscription Agreement, (vi)
the Redemption Agreement, (vii) the Letter Agreement, and (viii) the Management
and Shared Services Agreement;
1
<PAGE>
(c) The Signal Availability Agreement shall be assigned to, and assumed by
Newco, pursuant to a form of assignment (the "Assignment") substantially in the
form of EXHIBIT A hereto; PROVIDED, HOWEVER, that the Signal Availability
Agreement shall be deemed to apply only to the Company's headend installations
at the sites set forth on SCHEDULE I to the Assignment (all of which sites are
subject to video services agreements of the Company existing on the Closing Date
and contributed to Newco); PROVIDED, FURTHER, that as a condition to such
assignment Newco shall be prohibited from offering digital overlays or digital
tiers of any other DBS provider to any MDU property covered by the Signal
Availability Agreement; and
(d) The inter-company promissory note evidencing advances from ResNet to
the Company shall be canceled and the outstanding amount due thereunder shall be
deemed a capital contribution by ResNet to the Company.
3. NEWCO AGREEMENT. ResNet and PRIMESTAR agree to cooperate in good
faith to explore opportunities for PRIMESTAR, Inc. and Newco to enter into a new
signal carriage services agreement ("New PRIMESTAR Agreement").
4. DISTRIBUTION OF NEWCO SHARES. The parties agree: (i) if PRIMESTAR and
Newco are unable to reach an agreement with respect to the terms of a New
PRIMESTAR Agreement, upon the written request of PRIMESTAR to be made on or
before April 1, 1999, ResNet will purchase the member interest of PRIMESTAR in
the Company for a purchase price of $5.4 million, payable in part by the
exchange of IRD receivers previously purchased by the Company from PRIMESTAR and
valued at the contract price paid by the Company for such equipment, with the
remainder payable in cash on or prior to April 9, 1999; or (ii) if PRIMESTAR and
Newco are able to reach an agreement with respect to the terms of a New
PRIMESTAR Agreement, as soon as practicable following the execution and delivery
of such agreement, the Company shall be dissolved and liquidated and the shares
of Newco capital stock received in the Transaction will be distributed 14.26% to
PRIMESTAR (representing 4.99% of Newco's outstanding equity ownership at the
closing) (free and clear of all claims, liens, security interests and other
encumbrances) and 85.74% to LNET, respectively.
5. REPRESENTATIONS. Each of the parties, severally and not jointly,
hereby represents and warrants to each other party that (a) it is an entity duly
organized and validly existing in good standing under the laws of the state of
its formation; (b) it has all necessary power and authority to execute, deliver
and perform its obligations under this Agreement and consummate the transactions
contemplated hereby; and (c) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of such entity.
6. EFFECTIVENESS. This Agreement shall become effective on the Closing
Date simultaneously with the closing of the Transaction. In the event that the
Closing Date does not occur on or prior to November 30, 1998, then at the
election of any party and upon notice to the other parties, this Agreement shall
terminate.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
of the parties with respect to the subject matter hereof. This Agreement may be
amended, modified or supplemented only by an agreement in writing executed by
each of the parties. Any term of this Agreement may be waived only with the
written consent of the party sought to be bound.
8. SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed from this Agreement, and in either case the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and each such executed counterpart will be an original instrument.
10. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
Nothing herein shall be deemed to alter or amend in any respect the assignment
provisions set forth in Section 13 of the Signal Availability Agreement.
2
<PAGE>
11. NO JOINT VENTURE. Nothing in this Agreement is intended to create
a joint venture or partnership between the parties. None of the parties
undertakes by this Agreement or otherwise to perform any obligation of
another party, whether regulatory or contractual, or to assume any
responsibility for the business of any other party.
12. FURTHER ASSURANCES. From time to time after the date hereof and
without further consideration, the parties will execute and deliver, or arrange
for the execution and delivery of, such other instruments or documents and take
or arrange for such other actions as may reasonably be requested to give full
effect to this Agreement and the transactions contemplated hereby.
13. GOVERNING LAW. This Agreement will be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware, without
giving effect to the conflict of laws principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement as of the
date first indicated above.
RESNET COMMUNICATIONS, INC.
By: /s/ Jeffrey T. Weisner
----------------------------------
Its: Vice President - Finance
----------------------------------
RESNET COMMUNICATIONS, LLC
By: ResNet Communications, Inc.,
as Managing Member
By: /s/ Jeffrey T. Weisner
------------------------------
Its: Vice President, Finance
-----------------------------
PRIMESTAR MDU, INC.
By: /s/ William D. Myers
----------------------------------
Its: Vice President, Finance
----------------------------------
CONSENTED TO AND AGREED:
LODGENET ENTERTAINMENT CORPORATION
By: /s/ Jeffrey T. Weisner
---------------------------------
Its: Vice President, Finanace
---------------------------------
3
<PAGE>
EXHIBIT A
ASSIGNMENT, ASSUMPTION AND AMENDMENT AGREEMENT
1. For good and valuable consideration, receipt of which is hereby
acknowledged, ResNet Communications, LLC, a Delaware limited liability company
("Assignor"), does hereby sell, assign, transfer and set over as of the Closing
Date (as defined below) to GLOBAL INTERACTIVE COMMUNICATIONS CORPORATION, a
Delaware corporation ("Assignee"), all of Assignor's right, title and interest
in and to that certain Signal Availability Agreement (the "Signal Availability
Agreement"), dated as of June 4, 1997, between Assignor and PRIMESTAR MDU, Inc.
("PRIMESTAR"), as successor in interest to TCI Satellite MDU, Inc.; and Assignee
hereby assumes the obligations of Assignor under, and agrees to be bound by the
terms and conditions of, the Signal Availability Agreement as modified by
Paragraph 3 below.
2. This assignment is made pursuant to a Consent and Restructuring
Agreement, dated as of November _6_, 1998, among Assignor, PRIMESTAR and the
parties named therein, and is entered into in connection with a transaction
pursuant to which Assignor and certain other parties will each contribute to
Assignee substantially all of the assets of each such company, subject to
certain specified liabilities, in exchange for capital stock in the parent
corporation of Assignee (collectively, the "Transaction;" the date of the
consummation of the Transaction being the "Closing Date").
3. The terms of the Signal Availability Agreement shall hereby be amended
such that:
(a) The Signal Availability Agreement shall be deemed to apply only to
Assignor's headend installations at the sites set forth on SCHEDULE I hereto
(all of which sites are subject to video services agreements of the Assignor
existing on the Closing Date and contributed to Assignee in connection with the
Transaction);
(b) As a condition to such assignment Assignee shall be prohibited from
offering digital overlays or digital tiers of any direct broadcast satellite
("DBS") provider other than PRIMESTAR, Inc. to any multi-family dwelling unit
property covered by the Signal Availability Agreement; and
(c) Section 11(d) of the Signal Availability Agreement shall be deemed
modified and restated as follows (except that the last unnumbered paragraph
thereof beginning with the words "Subject to the provisions of Section 17" shall
remain unmodified):
"(d) If for any reason other than an event of Force
Majeure, Satellite is unable to provide the signal of the
Programming Services, this Agreement shall terminate upon 90
days prior written notice from Satellite to ResNet. If this
Agreement is terminated pursuant to this Section 11(d),
ResNet shall use its best efforts to enter into an agreement
to receive the signal of the Programming Services at the
Headends from a signal provider (a "Compatible Signal
Provider") that provides digital signals in a format
compatible with the Equipment. If this Agreement is
terminated pursuant to this Section 11(d) prior to December
31, 2003 and ResNet is not able to enter into an agreement
with a Compatible Signal Provider, Satellite will pay to
ResNet an amount equal to the price paid by ResNet for
purchasing equipment that is compatible with the signals
provided by the new signal provider (the "Incompatible
Signal Provider") for all Headends included under this
Agreement as of the date of termination, less the fair
market value of the Equipment that is replaced, up to $200
per IRD for a maximum of 4,000 IRDs. Satellite shall have
no liability to ResNet with respect to any increase in the
transport fees payable by ResNet to the Incompatible Signal
Provider over the amount of the Availability Fees payable by
ResNet hereunder."
(d) Section 3 of the Signal Availability Agreement shall be amended to add
the following provision:
"Satellite will sell to ResNet the integrated receiver-decoders
("IRDs") (limited to no more than 4,000 IRDs), low-noise block
converters and other equipment specified on EXHIBIT A hereto (the
"Equipment"). The price payable by ResNet for the Equipment
shall equal Satellite's actual cost therefor. Payments will be
made by ResNet in cash within 30 days after shipment by Satellite
(which shipment shall be at Satellite's expense, but at ResNet's
risk of loss) and receipt of Satellite's invoice specifying the
purchase price and applicable sales taxes. Late payments shall
bear interest at the rate of 1.5% per month (or the highest
amount permitted by law, if lower). The Equipment sold by
Satellite may be new from the manufacturer or may be previously
authorized. Equipment consisting of previously authorized IRDs
will be reconditioned in accordance with the
4
<PAGE>
standards set forth on EXHIBIT B hereto. For a period of 12 months
from the date of delivery, Satellite or its authorized service
representatives will repair or replace (at its option) the Equipment
free of charge in the event of a defect in materials or workmanship.
ResNet shall bear the cost of shipment to the repair location
designated by Satellite and Satellite shall bear the cost of shipment
of replacement/repaired Equipment to the designated ResNet location.
The foregoing warranty does not apply to any appearance items of the
Equipment that do not adversely affect the performance of the
Equipment. The warranty will not apply if the Equipment is damaged
as a result of (i) improper modification, alteration, maintenance,
repair, connection or disconnection of the Equipment by anyone other
than Satellite's authorized service representatives; (ii) improper
use of the Equipment; (iii) conditions outside the control of
Satellite; or (iv) accident, abuse or neglect. SATELLITE SHALL NOT
BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE
USE OF THE EQUIPMENT OR ARISING OUT OF ANY BREACH OF THIS WARRANTY.
SATELLITE EXCLUDES AND DISCLAIMS ANY AND ALL OTHER EXPRESS OR IMPLIED
WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE."
IN WITNESS WHEREOF, the Assignor, Assignee and PRIMESTAR have caused
this Agreement to be signed as of the Closing Date.
ASSIGNOR:
RESNET COMMUNICATIONS, LLC
By: ResNet Communications, Inc.,
as Managing Member
By: /s/ Jeffrey T. Weisner
---------------------------------
Its: Vice President, Finance
---------------------------------
ASSIGNEE:
GLOBAL INTERACTIVE COMMUNICATIONS CORPORATION
By: /s/ Carl Koenig
---------------------------------------------
Its: Vice President, Secretary & General Counsel
---------------------------------------------
CONSENTED TO AND AGREED:
PRIMESTAR MDU, INC.
By: /s/ William D. Myers
-----------------------------------
Its: Vice President, Finance
-----------------------------------
5
<PAGE>
Exhibit 10.27
[Execution Copy]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of February 25, 1999
among
LODGENET ENTERTAINMENT CORPORATION,
as Borrower,
NATIONAL WESTMINSTER BANK PLC,
as Administrative Agent,
BANKBOSTON, N.A.
and
MORGAN STANLEY SENIOR FUNDING, INC.,
as Syndication Agents
and
THE LENDERS NAMED HEREIN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Arranged By
GLEACHER NATWEST INC., BANCBOSTON ROBERTSON STEPHENS INC. and
MORGAN STANLEY DEAN WITTER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. THE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.1 Amounts and Terms of Commitments. . . . . . . . . . . . . 23
(a) The Term Credit . . . . . . . . . . . . . . . . . . . . . 23
(b) The Revolving Credit. . . . . . . . . . . . . . . . . . . 23
Section 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . 23
Section 2.4 Conversion and Continuation Elections . . . . . . . . . . 25
Section 2.5 Change in Aggregate Revolving Commitment. . . . . . . . . 26
Section 2.6 Optional Prepayments. . . . . . . . . . . . . . . . . . . 27
Section 2.7 Mandatory Prepayments of Loans; Mandatory
Commitment Reductions . . . . . . . . . . . . . . . . . . 27
(a) Asset Dispositions; Events of Loss. . . . . . . . . . . . 27
(b) Excess Cash Flow. . . . . . . . . . . . . . . . . . . . . 27
(c) General . . . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Reduction of Commitment . . . . . . . . . . . . . . . . . 28
(e) Mandatory Prepayment Notice . . . . . . . . . . . . . . . 28
(f) Letters of Credit . . . . . . . . . . . . . . . . . . . . 28
Section 2.8 Repayment . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) The Term Credit . . . . . . . . . . . . . . . . . . . . . 28
(b) The Revolving Credit. . . . . . . . . . . . . . . . . . . 29
Section 2.9 Interest. . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.10 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Arranger Fees . . . . . . . . . . . . . . . . . . . . . . 30
(b) Commitment Fees . . . . . . . . . . . . . . . . . . . . . 31
(c) Agency Fee. . . . . . . . . . . . . . . . . . . . . . . . 31
(d) L/C Fees. . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.11 Computation of Fees and Interest. . . . . . . . . . . . . 31
Section 2.12 Payments by the Borrower. . . . . . . . . . . . . . . . . 32
Section 2.13 Payments by the Lenders to the Administrative Agent . . . 33
Section 2.14 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . 33
Section 2.15 Security and Guaranties . . . . . . . . . . . . . . . . . 34
Section 2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.17 Illegality. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.18 Increased Costs and Reduction of Return . . . . . . . . . 38
Section 2.19 Funding Losses. . . . . . . . . . . . . . . . . . . . . . 38
Section 2.20 Inability to Determine Rates. . . . . . . . . . . . . . . 39
Section 2.21 Certificates of Lenders . . . . . . . . . . . . . . . . . 39
Section 2.22 Survival. . . . . . . . . . . . . . . . . . . . . . . . . 39
i
<PAGE>
Section 2.23 Letters of Credit . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 45
Section 3.1 Organization. . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.2 Power, Authority, Consents. . . . . . . . . . . . . . . . 46
Section 3.3 No Violation of Law or Agreements . . . . . . . . . . . . 46
Section 3.4 Due Execution, Validity, Enforceability . . . . . . . . . 47
Section 3.5 Properties, Liens . . . . . . . . . . . . . . . . . . . . 47
Section 3.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.7 No Defaults, Compliance With Laws . . . . . . . . . . . . 47
Section 3.8 Burdensome Documents. . . . . . . . . . . . . . . . . . . 48
Section 3.9 Financial Statements; Projections . . . . . . . . . . . . 48
Section 3.10 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.11 Intellectual Property . . . . . . . . . . . . . . . . . . 49
Section 3.12 Regulation U. . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.13 Name Changes, Mergers, Acquisitions . . . . . . . . . . . 49
Section 3.14 Full Disclosure . . . . . . . . . . . . . . . . . . . . . 49
Section 3.15 Licenses and Approvals. . . . . . . . . . . . . . . . . . 49
Section 3.16 Labor Disputes; Collective Bargaining Agreements;
Employee Grievances . . . . . . . . . . . . . . . . . . . 50
Section 3.17 Condition of Assets . . . . . . . . . . . . . . . . . . . 50
Section 3.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.19 Material Agreements . . . . . . . . . . . . . . . . . . . 50
Section 3.20 Collateral Documents. . . . . . . . . . . . . . . . . . . 51
Section 3.21 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 3.22 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 4. CONDITIONS TO THE LOANS. . . . . . . . . . . . . . . . . . . . . 52
Section 4.1 Conditions to Initial Loans . . . . . . . . . . . . . . . 52
Section 4.2 Conditions to Subsequent Loans and L/Cs . . . . . . . . . 54
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS AND
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.1 Annual Financial Statements . . . . . . . . . . . . . . . 55
Section 5.2 Quarterly Financial Statements. . . . . . . . . . . . . . 55
Section 5.3 Projections . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.4 Compliance Information. . . . . . . . . . . . . . . . . . 56
Section 5.5 No Default Certificate. . . . . . . . . . . . . . . . . . 56
Section 5.6 Accountants' Reports. . . . . . . . . . . . . . . . . . . 56
Section 5.7 Copies of Documents . . . . . . . . . . . . . . . . . . . 56
Section 5.8 Notices of Defaults . . . . . . . . . . . . . . . . . . . 57
Section 5.9 ERISA Notices and Requests. . . . . . . . . . . . . . . . 57
Section 5.10 Additional Information; Guest-Pay Rooms . . . . . . . . . 58
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ARTICLE 6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 58
Section 6.1 Books and Records . . . . . . . . . . . . . . . . . . . . 58
Section 6.2 Inspections and Audits. . . . . . . . . . . . . . . . . . 59
Section 6.3 Maintenance and Repairs . . . . . . . . . . . . . . . . . 59
Section 6.4 Continuance of Business . . . . . . . . . . . . . . . . . 59
Section 6.5 Copies of Corporate Documents . . . . . . . . . . . . . . 59
Section 6.6 Perform Obligations . . . . . . . . . . . . . . . . . . . 59
Section 6.7 Notice of Litigation. . . . . . . . . . . . . . . . . . . 60
Section 6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.9 Financial Covenants . . . . . . . . . . . . . . . . . . . 60
Section 6.10 Notice of Certain Events. . . . . . . . . . . . . . . . . 62
Section 6.11 Comply with ERISA . . . . . . . . . . . . . . . . . . . . 63
Section 6.12 Environmental Compliance. . . . . . . . . . . . . . . . . 63
Section 6.13 Further Assurances. . . . . . . . . . . . . . . . . . . . 63
ARTICLE 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.3 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.4 Mergers, Acquisitions . . . . . . . . . . . . . . . . . . 67
Section 7.5 Redemptions; Distributions. . . . . . . . . . . . . . . . 67
Section 7.6 Stock Issuances . . . . . . . . . . . . . . . . . . . . . 68
Section 7.7 Changes in Business; Asset Dispositions . . . . . . . . . 69
Section 7.8 Prepayments and Repayments of Indebtedness. . . . . . . . 69
Section 7.9 Investments . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.10 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.11 ERISA Obligations . . . . . . . . . . . . . . . . . . . . 72
Section 7.12 Amendments of Documents . . . . . . . . . . . . . . . . . 73
Section 7.13 Capital Expenditures. . . . . . . . . . . . . . . . . . . 73
Section 7.14 Rental Obligations. . . . . . . . . . . . . . . . . . . . 74
Section 7.15 Management Fees . . . . . . . . . . . . . . . . . . . . . 74
Section 7.16 Transactions with Affiliates. . . . . . . . . . . . . . . 74
Section 7.17 Hazardous Material. . . . . . . . . . . . . . . . . . . . 74
ARTICLE 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.1 Event of Default. . . . . . . . . . . . . . . . . . . . . 75
(a) Payments. . . . . . . . . . . . . . . . . . . . . . . . . 75
(b) Certain Covenants . . . . . . . . . . . . . . . . . . . . 75
(c) Other Covenants . . . . . . . . . . . . . . . . . . . . . 75
(d) Other Defaults. . . . . . . . . . . . . . . . . . . . . . 75
(e) Representations and Warranties. . . . . . . . . . . . . . 76
(f) Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . 76
(g) Judgments . . . . . . . . . . . . . . . . . . . . . . . . 76
(h) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 77
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(i) Change of Control . . . . . . . . . . . . . . . . . . . . 77
(j) Collateral. . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.3 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . 78
Section 8.4 Right of Administrative Agent to Use and Operate
Collateral; Consent to Appointment of Receiver. . . . . . 78
ARTICLE 9. THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . . 79
Section 9.1 Appointment, Powers and Immunities. . . . . . . . . . . . 79
Section 9.2 Reliance by Administrative Agent. . . . . . . . . . . . . 80
Section 9.3 Events of Default . . . . . . . . . . . . . . . . . . . . 80
Section 9.4 Rights as a Lender. . . . . . . . . . . . . . . . . . . . 80
Section 9.5 Indemnification . . . . . . . . . . . . . . . . . . . . . 81
Section 9.6 Non-Reliance on Administrative Agent and other Lenders. . 81
Section 9.7 Failure to Act. . . . . . . . . . . . . . . . . . . . . . 81
Section 9.8 Resignation or Removal of Administrative Agent. . . . . . 82
Section 9.9 Sharing of Payments . . . . . . . . . . . . . . . . . . . 82
Section 9.10 Collateral Matters. . . . . . . . . . . . . . . . . . . . 83
Section 9.11 Syndication Agents. . . . . . . . . . . . . . . . . . . . 84
ARTICLE 10. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . 84
Section 10.1 Fees and Expenses; Indemnity. . . . . . . . . . . . . . . 84
Section 10.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.3 Payments. . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.4 Survival of Agreements and Representations;
Construction. . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.5 Lien on and Set-off of Deposits . . . . . . . . . . . . . 86
Section 10.6 Amendments and Waivers; Entire Agreement. . . . . . . . . 86
Section 10.7 Remedies Cumulative; Counterclaims. . . . . . . . . . . . 87
Section 10.8 Additional Actions. . . . . . . . . . . . . . . . . . . . 87
Section 10.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.11 Severability. . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.12 Successors and Assigns. . . . . . . . . . . . . . . . . . 89
Section 10.13 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . 91
ARTICLE 11. INCREASES IN COMMITMENTS; CHANGES IN LENDERS . . . . . . . . . . 92
Section 11.1 Resignation of Lenders. . . . . . . . . . . . . . . . . . 92
Section 11.2 Addition of New Lenders . . . . . . . . . . . . . . . . . 92
Section 11.3 No Reliance by New Lenders. . . . . . . . . . . . . . . . 92
Section 11.4 New Notes . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.5 Adjustment of Loan Amounts. . . . . . . . . . . . . . . . 93
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SCHEDULES AND EXHIBITS
SCHEDULES
I Term and Revolving Commitments
II Amortization of Term Loans
3.1 Organization and Capitalization
3.5 Properties
3.11 Intellectual Property
3.19 Material Agreements
EXHIBITS
A Form of Term Note
B Form of Revolving Note
C Form of Notice of Borrowing
D Form of Notice of Conversion/Continuation
E Assignment and Assumption Agreement
F Borrower U.S. Legal Opinion
</TABLE>
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SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of February
25, 1999 is among LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation
(the "BORROWER"), the Lenders (as defined in Article 1), NATIONAL WESTMINSTER
BANK PLC, a United Kingdom public limited company, as administrative agent
for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and
BANKBOSTON, N.A. and MORGAN STANLEY SENIOR FUNDING, INC., as Syndication
Agents.
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent and certain of the
Lenders are parties to that certain Amended and Restated Credit Agreement
dated as of December 19, 1996 (the "EXISTING CREDIT AGREEMENT") pursuant to
which certain loans and letter of credit obligations are presently
outstanding;
WHEREAS, the Borrower has requested the Lenders to amend and restate the
Existing Credit Agreement to provide to the Borrower a term loan facility and
a revolving credit facility (including a letter of credit subfacility) upon
the terms and conditions set forth in this Agreement in order to finance
systems upgrades and other capital expenditures and to provide for the
ongoing working capital requirements of the Borrower and its Subsidiaries; and
WHEREAS, this Agreement confirms and evidences (i) the amendment and
restatement hereunder of the indebtedness and other obligations heretofore
existing under the Existing Credit Agreement and (ii) the continuation as
security for the indebtedness and other obligations under this Agreement and
related agreements and instruments, without any release or termination
whatsoever, of all liens and security interests previously securing the
indebtedness and other obligations under the Existing Credit Agreement and
related agreements and instruments.
NOW THEREFORE, the parties hereto, intending to be legally bound hereby,
amend and restate the Existing Credit Agreement in its entirety on and from
the Closing Date and further agree as follows:
ARTICLE 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
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
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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).
AGGREGATE COMMITMENT: at any time, the combined Commitments of the
Lenders.
AGGREGATE REVOLVING COMMITMENT: at any time, the combined Revolving
Commitments of the Lenders, in the initial amount of Seventy-Five Million
Dollars ($75,000,000), as such amount may be reduced or increased from time
to time pursuant to this Agreement.
AGGREGATE TERM COMMITMENT: the combined Term Commitments of the Lenders
in the amount of Seventy-Five Million Dollars ($75,000,000).
AGREEMENT: this Second Amended and Restated Credit Agreement, as amended
or otherwise modified from time to time in accordance with the terms 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 for which the
Administrative 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
Administrative 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
Administrative Agent in its sole judgment based, in the Administrative
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 Administrative 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 Administrative 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
Administrative Agent in its sole judgment based, in the Administrative
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 and
three-quarters percent (1.75%), subject to adjustment in accordance with
subsection 2.9(b) hereof.
APPLICABLE EURODOLLAR RATE MARGIN: with respect to Eurodollar Loans, two
and three-quarters percent (2.75%), subject to adjustment in accordance with
subsection 2.9(b) hereof.
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APPLICABLE LENDING OFFICE: with respect to each Lender, 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
Lender or of an affiliate of such Lender as such Lender may from time to time
specify to the Administrative 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 2.23(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 E hereto.
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 its Payment 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 2.23(d) hereof.
BORROWING: a borrowing hereunder consisting of Loans of a particular
type made to the Borrower on the same day by Lenders having a Commitment to
make such Loans pursuant to Article II.
BUSINESS DAY: any day other than Saturday, Sunday or any other day on
which commercial banks in New York City are authorized or required by law to
close and, if the applicable Business Day relates to a Eurodollar Loan, such
a day on which dealings are carried on in the London interbank market.
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
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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.
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.
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 Agreements, the Mortgage 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
Administrative Agent on behalf of itself, the Lenders and the Issuing Banks,
to secure the Obligations.
COLLATERAL DOCUMENTS: the Security Agreement, the Patent and Trademark
Security Agreement, the Pledge Agreements, the Irrevocable Proxies, the
Mortgage 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: for each Lender, the sum of its Revolving Commitment and
its Term Commitment.
COMMITMENT FEE: as defined in subsection 2.10(b) hereof.
COMMITMENT PERCENTAGE: as to any Lender, (i) with respect to Revolving
Loans and L/C Obligations, such Lender's Revolving Commitment divided by the
Aggregate Revolving Commitment, and (ii) with respect to a Term Loan, such
Lender's Term Commitment divided by the Aggregate Term Commitment.
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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,
including, without limitation, that the covenants set forth in the Senior
Note Documents (including Section 4.03 of the Senior 1996 Note Indenture)
would not be breached after giving effect to such action, together with a
calculation in reasonable detail, and in form satisfactory to the
Administrative Agent, of such compliance; (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 September 30, 1998,
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.
DEBT INSTRUMENT: as defined in subsection 8.4(a) hereof.
DEFAULTING LENDER: any Lender with respect to which a Lender 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.
ELIGIBLE BANK: as defined in subsection 7.9(a)(ii) hereof.
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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.
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 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 Administrative 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) 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 Lenders to which
such Interest Period relates; divided by (b) 1 minus the Reserve Requirement
for such Eurodollar Loan for such Interest Period. The Administrative Agent
shall use its best efforts to advise the Borrower of the Eurodollar Rate as
soon as practicable after each change in the
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Eurodollar Rate; PROVIDED, HOWEVER, that the failure of the Administrative
Agent to so advise the Borrower on any one or more occasions shall not affect
the rights of the Lenders or the Administrative Agent or the obligations of
the Borrower hereunder.
EVENT OF DEFAULT: as defined in Section 8.1 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 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 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 2.7(b)
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) any provision for income taxes, (d) Cash used for
Investments permitted pursuant to and in accordance with subsection 7.9(e)
hereof, and (e) $500,000.
EXISTING CREDIT AGREEMENT: as defined in the first recital to this
Agreement.
FACILITY TERMINATION DATE: the earlier of (i) February 25, 2005 and (ii)
the date on which the Aggregate Revolving Commitment is terminated in full or
reduced to zero and the Term Loans and all other Obligations have been paid
in full.
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 Administrative Agent on such day on
such transactions as reasonably determined by the Administrative Agent).
FEE(S): as defined in subsection 2.10(e) hereof.
FINANCIAL STATEMENTS: with respect to the Borrower, (i) its unaudited
consolidated Balance Sheet as at September 30, 1998, together with the
related unaudited consolidated Statements of Operations and Statements of
Cash Flows for the fiscal period then ended, and (ii) its audited
consolidated Balance Sheet as at December 31, 1997, together with the related
audited consolidated Statements of Operations and Statements of Cash Flows
for the fiscal year then ended.
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GOVERNMENTAL AUTHORITY: any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
GUARANTOR(S): ResNet Inc., LodgeNet Canada, ResNet LLC and any other
Subsidiary of the Borrower designated by the Borrower to execute a Subsidiary
Guaranty pursuant to subsection 6.13(e) hereof.
GUARANTY(IES): (i) the Amended and Restated Guaranty of even date
herewith of ResNet Inc. in favor of the Administrative Agent for the benefit
of itself, the Lenders and the Issuing Banks, (ii) the Amended and Restated
Guaranty of even date herewith of LodgeNet Canada in favor of the
Administrative Agent for the benefit of itself, the Lenders and the Issuing
Banks, and (iii) the Amended and Restated Guaranty of even date herewith of
ResNet LLC in favor of the Administrative Agent for the benefit of itself,
the Lenders and the Issuing Banks, as each such Guaranty may be, from time to
time, further amended, modified or supplemented.
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.
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;
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(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 for which the Administrative Agent has
received financial statements in compliance with Sections 5.1 and 5.2 hereof
(or, if as at any date of determination the Administrative 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 Administrative Agent in its sole judgment based,
in the Administrative 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
Lenders shall have notified the Administrative Agent is available at any
time) as the Borrower may select as provided in Section 2.3 hereof, except
that each such Interest Period that commences on the last 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
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, if such next succeeding
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Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); (ii) no Interest Period for any type of Loan shall
end later than the Facility Termination Date; and (iii) notwithstanding
clause (ii) above, no Interest Period shall have a duration of less than one
(1) month.
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 reasonably satisfactory to the Administrative Agent and, in each
case, with a Lender or such other counterparties satisfactory to the
Administrative 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 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.
IRREVOCABLE PROXIES: (i) the Amended and Restated Irrevocable Proxy of
even date herewith of the Borrower relating to ResNet Inc. shares, (ii) the
Amended and Restated Irrevocable Proxy of even date herewith of the Borrower
relating to LodgeNet Canada shares, (iii) the Amended and Restated
Irrevocable Proxy of even date herewith of ResNet Inc. relating to its ResNet
LLC ownership interest, and (iv) the Amended and Restated Irrevocable Proxy
of even date herewith of ResNet LLC relating to the Newco Common Stock, as
each such Irrevocable Proxy may be, from time to time, further amended,
modified or supplemented.
ISSUING BANK(S): NatWest Plc and BankBoston, N.A. and any other Lender
or any successor appointed with the consent of the Required Lenders and the
Borrower.
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 2.23 hereof and (ii) each
existing letter of credit issued pursuant to the Existing Credit Agreement
outstanding on the date hereof, in each case, as amended, supplemented or
modified from time to time.
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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 2.10(d) hereof.
L/C ISSUANCE REQUEST: as defined in subsection 2.23(b) hereof.
L/C OBLIGATIONS: as of any date of determination, all the existing
liabilities (including all L/C Fees) of the Borrower to the Issuing Banks and
the Lenders and the Administrative 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;
PROVIDED, HOWEVER, that "Leases" shall not be deemed to include video service
leases and similar agreements utilized by the Borrower or its Subsidiaries in
the ordinary course of business for the purpose of obtaining the right to
deliver cable television programming and/or other interactive, multimedia
entertainment and information services to specific customer properties.
LENDER DEFAULT: (i) the refusal (which has not been retracted) of a
Lender to make available its portion of any Borrowing or to fund its portion
of any unreimbursed payment under Section 2.23 hereof or (ii) a Lender having
notified the Administrative Agent and/or the Borrower that it does not intend
to comply with its obligations under Section 2.1 or Section 2.23 hereof, in
the case of either (i) or (ii) as a result of the appointment of a receiver
or conservator with respect to such Lender at the direction or request of any
regulatory agency or authority.
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).
LOAN(S): an extension of credit by a Lender to the Borrower pursuant to
Article 2, and may be a Base Rate Loan or a Eurodollar Loan. 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.
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LOAN DOCUMENTS: this Agreement, the Notes, any Subsidiary Guaranty, the
Collateral Documents, the L/C(s), Interest Rate Contracts to which any Lender
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 INTEREST(S): as defined in Section 2.14 hereof.
LOAN PARTY: the Borrower, each of the Guarantors and any other Person
(other than the Lenders, the Issuing Banks and the Administrative Agent)
which now or hereafter executes and delivers to any Lender or the
Administrative Agent any Loan Document.
LODGENET CANADA: LodgeNet Entertainment (Canada) Corporation, a
Canadian corporation and a Wholly-Owned Subsidiary of the Borrower.
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 2.23(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
Lenders, the Issuing Banks or the Administrative Agent under any Loan
Document.
MAXIMUM L/C AMOUNT: the sum of Twelve Million Dollars ($12,000,000) as
the same shall and/or may be reduced pursuant to Sections 2.5 and 2.7 hereof.
MORTGAGE: that certain mortgage of even date herewith relating to the
Borrower's headquarters property located at 3900 West Innovation Street,
Sioux Falls, South Dakota 57107, by the Borrower for the benefit of the
Administrative Agent, on behalf of itself, the Lenders and the Issuing Banks,
as the same may be, from time to time, amended, modified or supplemented.
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 make, contributions or has made, or been
obligated to make, contributions within the preceding six (6) years.
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NATWEST PLC: National Westminster Bank Plc, New York branch.
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.
NET PROCEEDS: proceeds in Cash, as and when received by the Person
making an Asset Disposition, net of (a) the direct costs relating to such
Asset Disposition excluding amounts payable to the Borrower or any Affiliate
of the Borrower, (b) sale, use or other transaction taxes paid or payable as
a result thereof, and (c) amounts required to be applied to repay principal,
interest and prepayment premiums and penalties on Indebtedness incurred to
acquire the asset which is the subject of such Asset Disposition and secured
by a purchase money lien on such asset. "Net Proceeds" shall also include
proceeds paid on account of any Event of Loss net of (i) all of the costs and
expenses reasonably incurred in connection with the collection of such
proceeds, awards or other payments and (ii) any amounts retained by or paid
to parties having superior rights to such proceeds, awards or other payments.
NEWCO INVESTMENTS: the following investments in Global Interactive
Technologies Corporation, a Delaware corporation ("Newco"): (i) 1,750 shares
of common stock, par value $.01 per share, of Newco representing
approximately 35% of Newco's outstanding capital stock (the "Newco Common
Stock"), (ii) secured promissory notes of Newco and Global Interactive
Communications Corporation, a subsidiary of Newco ("GICC"), in the aggregate
principal amount of $1,500,000 (the "Newco Term Notes") issued to ResNet
Inc., (iii) secured promissory note of GICC in the principal amount of up to
$3,000,000 (the "Newco Junior Term Note") issued to ResNet Inc., (iv)
promissory note of GICC in the principal amount of up to $3,000,000 (the
"Newco Capital Advance Note") issued to ResNet Inc., and (v) capital lease
obligations of GICC, as lessee, to ResNet Inc., as lessor, in the aggregate
amount of approximately $5,000,000 pursuant to a capital lease agreement
between ResNet Inc. and GICC (the "Newco Capital Lease").
NON-DEFAULTING LENDER: each Lender other than a Defaulting Lender.
NOTE: a Revolving Note or a Term Note; NOTES collectively means the
Revolving Notes and the Term Notes.
NOTICE OF BORROWING: a notice given by the Borrower to the
Administrative Agent pursuant to Section 2.3 in substantially the form of
EXHIBIT C.
NOTICE OF CONVERSION/CONTINUATION: a notice given by the Borrower to the
Administrative Agent pursuant to Section 2.4 in substantially the form of
EXHIBIT D.
OBLIGATIONS: collectively, all of the Loans, Indebtedness, liabilities
and obligations of the Borrower to the Lenders, the Issuing Banks and the
Administrative Agent arising out of this Agreement and the Loan Documents,
whether now existing or hereafter arising, whether or not currently
contemplated, including, without limitation, the L/C Obligations
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and, to the extent provided by any Lender 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) any income tax provision and (iv) extraordinary non-operating
losses (including any non-recurring charges incurred in connection with the
transactions associated with the initial Newco Investments) 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 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
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.
OTHER TAXES: as defined in subsection 2.16(b) hereof.
PATENT AND TRADEMARK SECURITY AGREEMENT: the Amended and Restated Patent
and Trademark Security Agreement of even date herewith among the Borrower,
ResNet Inc. and the Administrative Agent, on behalf of itself, the Lenders
and the Issuing Banks, as the same may be, from time to time, further
amended, modified or supplemented.
PAYMENT OFFICE: the principal U.S. office of NatWest Plc presently
located at 65 East 55th Street, New York, New York 10022.
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.
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PERMITTED DEBT: Indebtedness (i) which is not secured by any Lien, (ii)
which contains terms, covenants and conditions satisfactory to the
Administrative Agent and the Required Lenders, 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 Inc. for money
borrowed from the Borrower (i) which is evidenced by a promissory note of
ResNet Inc. to the Borrower, (ii) which represents senior, unsubordinated
Indebtedness of ResNet Inc., and (iii) the repayment of which is not
restricted in any manner by any covenant, agreement or other restriction
binding upon or affecting ResNet Inc.
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; (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; and (vi) Liens created pursuant to the Loan Documents.
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
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Group is then making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions.
PLEDGE AGREEMENT(S): (i) the Amended and Restated Pledge Agreement of
even date herewith between the Borrower and the Administrative Agent, on
behalf of itself, the Lenders and the Issuing Banks, pledging all capital
stock of the Borrower's Subsidiaries owned by the Borrower and all
intercompany notes owing to or held by the Borrower, (ii) the Amended and
Restated Pledge Agreement of even date herewith between ResNet Inc. and the
Administrative Agent, on behalf of itself, the Lenders and the Issuing Banks,
pledging all the capital stock of ResNet Inc.'s Subsidiaries and Affiliates
and all notes of such Persons owing to or held by ResNet Inc., and (iii) the
Amended and Restated Pledge Agreement of even date herewith between ResNet
LLC and the Administrative Agent, on behalf of itself, the Lenders and the
Issuing Banks, pledging the Newco Common Stock, as each such Pledge Agreement
may be, from time to time, further 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 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 for which the Administrative Agent has received financial statements
in compliance with Sections 5.1 and 5.2 hereof (or, if as at any date of
determination the Administrative 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 Administrative Agent in its sole judgment based, in the Administrative
Agent's discretion, on such financial information as it shall have requested
and received from the Borrower).
PROJECTIONS: with respect to the Borrower, its forecasted consolidated
Balance Sheet and related forecasted consolidated Statements of Operations
and Statements of Cash Flows for the period from the date hereof through
December 31, 2005, 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.
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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 Business Day, the
relevant Quarterly Date shall be the next succeeding Business Day (or, if the
next succeeding Business Day falls in the next succeeding calendar month,
then on the next preceding 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, NatWest Plc's Payment Office.
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 Lender, 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 Lender, 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 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 for which the Administrative Agent has received financial statements
in compliance with Sections 5.1 and 5.2 hereof (or, if as at any date of
determination the Administrative 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 Administrative
Agent in its sole judgment based, in the Administrative 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.
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REQUIRED LENDERS: (i) at any time while no Loans are outstanding
hereunder, Non-Defaulting Lenders having more than 50% of the Aggregate
Commitment, and (ii) at any time while Loans are outstanding hereunder,
Non-Defaulting Lenders holding more than 50% of the then aggregate unpaid
principal amount of such Loans and the unused Aggregate Revolving Commitment.
REQUIREMENT OF LAW: as to any Person, any law (statutory or common),
treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property
is subject.
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 INC.: ResNet Communications, Inc., a Delaware corporation and a
Subsidiary of the Borrower.
RESNET LLC: ResNet Communications, LLC, a Delaware limited liability
company and a Subsidiary of the Borrower.
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.
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REVOLVING COMMITMENT: with respect to each Lender, has the meaning
specified in subsection 2.1(b) hereof.
REVOLVING LOAN: as defined in subsection 2.1(b) hereof.
REVOLVING NOTE: a promissory note of the Borrower payable to the order
of a Lender, in substantially the form of Exhibit B, evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from Revolving Loan(s)
made by such Lender.
REVOLVING TERMINATION DATE: the earlier to occur of:
(a) February 25, 2005; and
(b) the date on which the Aggregate Revolving Commitment shall
terminate or be reduced to zero in accordance with the provisions of
this Agreement.
SEC: the Securities and Exchange Commission or any Governmental
Authority succeeding to any of its principal functions.
SECURITY AGREEMENT: the Amended and Restated Security Agreement of even
date herewith among the Borrower, ResNet Inc., LodgeNet Canada and the
Administrative Agent, on behalf of itself, the Lenders and the Issuing Banks,
as the same may be, from time to time, further 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 or otherwise modified as permitted hereby.
SENIOR 1996 NOTES: those certain 10 1/4% 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 dated as of December
19, 1996 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 Inc. and
ResNet LLC shall each be deemed to be a Subsidiary of the Borrower so long as
(i) in the case of ResNet Inc., 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.
SUBSIDIARY GUARANTY(IES): each of the Guaranties and any additional
guaranty substantially in the same form as the Guaranties subsequently
executed by any Person that hereafter becomes a Guarantor in favor of the
Administrative Agent, for the benefit of itself, the Lenders and the Issuing
Banks, as the same may be, from time to time, amended, modified or
supplemented.
SUBSTANTIAL PORTION: assets of the Borrower and its Restricted
Subsidiaries which (a) represent more than fifteen percent (15%) of the
consolidated assets of the Borrower and its Restricted Subsidiaries, as would
be shown in the consolidated financial statements of the Borrower and its
Restricted 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 Restricted Subsidiaries for the
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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.
TAXES: as defined in subsection 2.16(a) hereof.
TCI CONVERTIBLE DEBT: that certain Indebtedness of ResNet LLC 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 Inc. and TCI Digital Satellite Entertainment, Inc.
TERM COMMITMENT: with respect to each Lender, as defined in subsection
2.1(a) hereof.
TERM LOAN: as defined in subsection 2.1(a) hereof.
TERM LOAN PRINCIPAL PAYMENT DATE: as defined in subsection 2.8(a) hereof.
TERM MATURITY DATE: February 25, 2005.
TERM NOTE: each promissory note of the Borrower payable to the order of
a Lender, in substantially the form of Exhibit A, evidencing the respective
Indebtedness of the Borrower to the Lender resulting from the Term Loan made
by such Lender.
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
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(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 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). Total Debt shall be
determined by the Administrative Agent, in its reasonable judgment, based
upon its review of a certificate of the Borrower delivered to the
Administrative Agent which shall set forth, in reasonable detail, such
calculation of Total Debt, along with such financial information as the
Administrative Agent shall have requested and received from the Borrower or,
in the absence of such certificate, such other pertinent financial
information as the Administrative 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: as defined in the Security Agreement.
UNREIMBURSED DRAWINGS: as defined in subsection 2.23(c) hereof.
UNUSED REVOLVING COMMITMENT: as at any date, for each Lender, the
difference, if any, between (i) the amount of such Lender's Revolving
Commitment as in effect on such date, MINUS (ii) the sum of the then
aggregate outstanding principal amount of all Revolving Loans made by such
Lender and such Lender's Commitment Percentage of 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.
"YEAR 2000 ISSUES": anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Borrower and
its Subsidiaries and of the Borrower's and its Subsidiaries' material
customers, suppliers and vendors.
"YEAR 2000 PROGRAM": as defined in SECTION 3.22.
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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. THE CREDITS
Section 2.1 AMOUNTS AND TERMS OF COMMITMENTS.
(a) THE TERM CREDIT. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make a Loan to the Borrower (each
such Loan, a "TERM LOAN") on the Closing Date in the amount set forth
opposite such Lender's name on Schedule I under the heading "Term Commitment"
(such amount, as the same may be reduced pursuant to the provisions of this
Agreement, such Lender's "TERM COMMITMENT"). Amounts borrowed as a Term Loan
which are repaid or prepaid by the Borrower may not be reborrowed.
(b) THE REVOLVING CREDIT. Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Loans to the Borrower
(each such Loan, a "REVOLVING LOAN") from time to time on any Business Day
during the period from the Closing Date to the Revolving Termination Date, in
an aggregate amount not to exceed at any time outstanding (when added to such
Lender's Commitment Percentage of the then outstanding Net L/C Obligations)
the amount set forth opposite such Lender's name on Schedule I under the
heading "Revolving Commitment" (such amount, as the same may be reduced or
increased pursuant to the provisions of this Agreement, such Lender's
"REVOLVING COMMITMENT"); PROVIDED, HOWEVER, that, after giving effect to any
Borrowing of Revolving Loans, the aggregate principal amount of all
outstanding Revolving Loans and Net L/C Obligations shall not exceed the
Aggregate Revolving Commitment. Within the limits of each Lender's Revolving
Commitment, and subject to the other terms and conditions hereof, the
Borrower may borrow under this subsection 2.1(b), prepay pursuant to Section
2.6 and reborrow pursuant to this subsection 2.1(b).
Section 2.2 NOTES.
(a) Each Term Loan made by each Lender shall be evidenced by a Term
Note payable to the order of such Lender in an amount equal to its Term
Commitment.
(b) The Revolving Loans made by each Lender shall be evidenced by a
Revolving Note payable to the order of such Lender in an amount equal to its
Revolving Commitment.
(c) Each Lender shall endorse on schedules annexed to its Notes, or
in its internal records, the date, amount and maturity of each Loan made by
it and the amount of each payment of principal made by the Borrower with
respect thereto. Each Lender is irrevocably authorized by the Borrower to so
endorse its Notes, and each Lender's records shall be conclusive absent
manifest error; PROVIDED, HOWEVER, that the failure of a Lender to make, or
an error in
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making, a notation thereon or in its internal records with respect to any
Loan shall not limit or otherwise affect the obligations of the Borrower
hereunder or under any such Note to such Lender.
Section 2.3 PROCEDURE FOR BORROWING.
(a) Each Borrowing of Term Loans and Revolving Loans shall be made
upon the Borrower's irrevocable written notice delivered to the
Administrative Agent in the form of a Notice of Borrowing, which notice must
be received by the Administrative Agent prior to 11:00 a.m. (New York time)
(i) three Business Days prior to the requested Borrowing date, in the case of
Eurodollar Loans, and (ii) one Business Day prior to the requested Borrowing
date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate minimum principal amount of (x) Five Hundred Thousand
Dollars ($500,000) or any multiple of Five Hundred Thousand Dollars
($500,000) in excess thereof for Base Rate Loans and (y) One
Million Dollars ($1,000,000) or any multiple of One Million Dollars
($1,000,000) in excess thereof for Eurodollar Loans:
(B) the requested Borrowing date, which shall be a
Business Day;
(C) whether the Borrowing is to be comprised of Eurodollar
Loans or Base Rate Loans; and
(D) subject to subsection 2.3(d) hereof, the duration of the
Interest Period applicable to any Eurodollar Loans included in such
notice. If the Notice of Borrowing shall fail to specify the duration
of the Interest Period for any Borrowing comprised of Eurodollar
Loans, such Interest Period shall be one month;
PROVIDED, HOWEVER, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Administrative Agent not
later than 2:00 p.m. (New York time) one Business Day before the Closing Date
and such Borrowing will consist of Base Rate Loans only; and FURTHER PROVIDED,
if the primary syndication of this Agreement is not completed by the Closing
Date, and if so requested by the Administrative Agent, all Borrowings comprised
of Eurodollar Loans during the first 60 days following the Closing Date shall
have the same Interest Period, which shall be one month.
(b) Upon receipt of the Notice of Borrowing, the Administrative
Agent will promptly notify each Lender thereof and of the amount of such
Lender's Commitment Percentage (as applicable) of the Borrowing.
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(c) Each Lender will make the amount of its Commitment Percentage
(as applicable) of the Borrowing available to the Administrative Agent for
the account of the Borrower at the Administrative Agent's Payment Office by
11:00 a.m. (New York time) on the Borrowing date requested by the Borrower in
funds immediately available to the Administrative Agent. The proceeds of all
such Loans will then be made available to the Borrower by the Administrative
Agent by wire transfer in accordance with written instructions provided to
the Administrative Agent by the Borrower of like funds as received by the
Administrative Agent.
(d) Unless the Required Lenders shall otherwise agree, during the
existence of a Default or an Event of Default, the Borrower may not elect to
have a Loan be made as, or converted into or continued as, a Eurodollar Loan.
(e) After giving effect to any Borrowing, there shall not be more
than five (5) different Interest Periods in effect with respect to
outstanding Revolving Loans and Term Loans.
Section 2.4 CONVERSION AND CONTINUATION ELECTIONS.
(a) The Borrower may upon irrevocable written notice to the
Administrative Agent in accordance with subsection 2.4(b):
(i) elect to convert on any Business Day, any Base Rate Loans
(or any part thereof in an amount not less than $1,000,000 or that is in
an integral multiple of $1,000,000 in excess thereof) into Eurodollar
Loans; or
(ii) elect to continue and convert on the last day of the
applicable Interest Period any Eurodollar Loans having Interest Periods
maturing on such day (or any part thereof in an amount not less than
$500,000, or that is in an integral multiple of $500,000 in excess
thereof) into Base Rate Loans; or
(iii) elect to continue and renew on the last day of the
applicable Interest Period any Eurodollar Loans having Interest Periods
maturing on such day (or any part thereof in an amount not less than
$1,000,000, or that is in an integral multiple of $1,000,000 in excess
thereof);
PROVIDED, that if the aggregate amount of Eurodollar Loans in respect of any
Borrowing shall have been reduced, by payment, prepayment, or conversion of part
thereof to be less than $1,000,000, such Eurodollar Loans shall automatically
convert into Base Rate Loans, and on and after such date the right of the
Borrower to continue such Loans as, and convert such Loans into, Eurodollar
Loans shall terminate.
(b) The Borrower shall deliver a Notice of Conversion/Continuation
to be received by the Administrative Agent not later than 11:00 a.m. (New
York time) at least (i) three Business Days in advance of the conversion date
or continuation date, if the Loans are to be converted into or continued as
Eurodollar Loans, and (ii) on the conversion date, if the Loans are to be
converted into Base Rate Loans, specifying:
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(A) the proposed conversion date or continuation date;
(B) the aggregate amount of Loans to be converted or continued;
(C) the nature of the proposed conversion or continuation; and
(D) the duration of the requested Interest Period, if applicable.
(c) If, upon the expiration of any Interest Period applicable to
Eurodollar Loans, the Borrower has failed to select timely a new Interest
Period to be applicable to such Eurodollar Loans or if any Default or Event
of Default shall then exist, the Borrower shall be deemed to have elected to
convert such Eurodollar Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, the
Administrative Agent will promptly notify each Lender thereof, or, if no
timely notice is provided by the Borrower, the Administrative Agent will
promptly notify each Lender of the details of any automatic conversion. All
conversions and continuations shall be made PRO RATA according to the
respective outstanding principal amounts of the Loans (with respect to which
the notice was given) that are held by each Lender.
(e) Unless the Required Lenders shall otherwise agree, during the
existence of a Default or Event of Default, the Borrower may not elect to
have a Loan converted into or continued as a Eurodollar Loan.
(f) Notwithstanding any other provision contained in this Agreement,
after giving effect to any conversion or continuation of any Loans, there
shall not be more than five (5) different Interest Periods in effect with
respect to outstanding Revolving Loans and Term Loans.
Section 2.5 CHANGE IN AGGREGATE REVOLVING COMMITMENT. (a) The Borrower
shall be permitted to make an application at any time on or after December
31, 2000 to increase the Aggregate Revolving Commitment (but not the
Commitment of any Lender without such Lender's agreement) in a principal
amount of not less than $10,000,000 and not more than $25,000,000 (and in an
integral multiple of $5,000,000 within such range), which increase in the
Aggregate Revolving Commitment may be effected, if at all, by an increase in
the Revolving Commitment(s) of NatWest Plc or the then-existing Lenders,
and/or by the addition of new Lenders; PROVIDED that (i) the Borrower shall
give written notice of such application to the Administrative Agent not less
than 45 days (or such shorter period as may be acceptable to the
Administrative Agent) prior to the effective date of such increase and (ii)
the Borrower shall have delivered to the Administrative 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.
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(b) The Borrower may, upon not less than three Business Days' prior
notice to the Administrative Agent, terminate the Aggregate Revolving
Commitment or permanently reduce the Aggregate Revolving Commitment by an
aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in
excess thereof; PROVIDED that no such reduction or termination shall be
permitted if, after giving effect thereto and to any prepayments of the
Revolving Loans made on the effective date thereof, the then outstanding
principal amount of the Revolving Loans and Net L/C Obligations would exceed
the Aggregate Revolving Commitment; and, PROVIDED, FURTHER, that, once
reduced in accordance with this subsection 2.5(b), the Aggregate Revolving
Commitment may not be increased (except pursuant to subsection 2.5(a)). Any
reduction of the Aggregate Revolving Commitment shall be applied to each
Lender's Revolving Commitment in accordance with such Lender's applicable
Commitment Percentage. All accrued Commitment Fees to but not including the
effective date of any termination of Commitments shall be paid on the
effective date of such termination.
Section 2.6 OPTIONAL PREPAYMENTS. Subject to Section 2.19 hereof, the
Borrower may, at any time or from time to time, upon notice given not later
than 11:00 a.m. (New York time) at least three Business Days in advance (in
the case of Eurodollar Loans) and at least one Business Day in advance (in
the case of Base Rate Loans) to the Administrative Agent, ratably prepay
Loans in whole or in part, in amounts of (i) $500,000 or any multiple of
$500,000 in excess thereof for Eurodollar Loans, or (ii) $500,000 or any
multiple of $500,000 in excess thereof for Base Rate Loans. Such notice of
prepayment shall specify the date and amount of such prepayment and whether
such prepayment is of Term Loans or Revolving Loans, or any combination
thereof. The Administrative Agent will promptly notify each Lender thereof
and of such Lender's applicable Commitment Percentage of such prepayment. If
such notice is given by the Borrower, the Borrower shall make such
prepayment, and the payment amount specified in such notice shall be due and
payable on the date specified therein, together with accrued interest to each
such date on the amount prepaid and any amounts required pursuant to Section
2.19 hereof. Partial prepayments of Term Loans shall be applied ratably over
the remaining installments of each such Loan.
Section 2.7 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT
REDUCTIONS.
(a) ASSET DISPOSITIONS; EVENTS OF LOSS. If the Borrower or any of its
Subsidiaries shall at any time or from time to time make or agree to make an
Asset Disposition constituting less than a Substantial Portion or shall
suffer an Event of Loss constituting less than or greater than a Substantial
Portion, then (i) the Borrower shall promptly notify the Administrative Agent
of such proposed Asset Disposition or Event of Loss (including the amount of
the estimated Net Proceeds to be received by the Borrower in respect thereof)
and (ii) promptly upon receipt by the Borrower or its Subsidiary of the Net
Proceeds of such Asset Disposition or on account of such Event of Loss (and
in any event not later than the third Business Day following such receipt),
the Borrower shall prepay Loans in accordance with subsection 2.7(c) hereof
in each case in an aggregate amount equal to the amount of such Net Proceeds;
PROVIDED, HOWEVER, that the Borrower shall not be required to prepay Loans
upon receipt of such Net Proceeds of any Asset Disposition or Event of Loss
constituting less than a
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Substantial Portion to the extent that such Net Proceeds are reinvested by
the Borrower in substantially similar assets within 180 days from the receipt
thereof.
(b) EXCESS CASH FLOW. As soon as the required financial information is
available to determine the amount, if any, of Excess Cash Flow generated by
the Borrower and its Subsidiaries during the then-preceding fiscal year, but
not later than the 120th day following the last day of such fiscal year
commencing with the fiscal year ending on December 31, 1998, the Borrower
shall prepay Loans in accordance with subsection 2.7(c) hereof in an amount
equal to fifty percent (50%) of such Excess Cash Flow, if any, for the
then-preceding fiscal year of the Borrower.
(c) GENERAL. Any prepayments pursuant to this Section 2.7 shall be
applied (i) first, to the prepayment of the outstanding amount of Term Loans,
ratably over the remaining installments of each such Loan until all Term
Loans have been repaid in full; then to the outstanding amount of any
Revolving Loans; and then to prepay or cash collateralize the outstanding
amount of any L/C Obligations; and (ii) subject to the foregoing priorities,
first to any Base Rate Loans then outstanding and then to Eurodollar Loans
with the shortest Interest Periods remaining; PROVIDED, HOWEVER, that if the
amount of Base Rate Loans then outstanding is not sufficient to satisfy the
entire prepayment requirement, the Borrower may, at its option, place any
amounts which it would otherwise be required to use to prepay Eurodollar
Loans on a day other than the last day of the Interest Period therefor in an
interest-bearing account pledged to the Administrative Agent for the benefit
of the Lenders until the end of such Interest Period, at which time such
pledged amounts will be applied to prepay such Eurodollar Loans. The
Borrower shall pay, together with each prepayment under this Section 2.7,
accrued interest on the amount prepaid and any amounts required pursuant to
Section 2.19.
(d) REDUCTION OF COMMITMENT. Upon the making of any mandatory
prepayment under this Section 2.7, the applicable Commitments of each Lender
shall automatically be reduced by an amount equal to such Lender's ratable
share of the aggregate of principal repaid, effective as of the earlier of
the date that such prepayment is made or the date by which such prepayment is
due and payable hereunder. All accrued Commitment Fees to, but not including
the effective date of any termination of Commitments, shall be paid on the
effective date of such termination.
(e) MANDATORY PREPAYMENT NOTICE. The Borrower shall deliver to the
Administrative Agent (i) at the time of each prepayment required under
subsections 2.7(a) and (b) above, a certificate signed by the chief financial
officer of the Borrower setting forth in reasonable detail the calculation of
the amount of such prepayment, and (ii) to the extent reasonably practicable,
at least three Business Days prior to the time of each such prepayment, a
notice of such prepayment which shall specify the prepayment date and the
principal amount of the Loans (or portion thereof) to be prepaid pursuant to
subsection 2.7(c) hereof.
(f) LETTERS OF CREDIT. If on any date the effective amount of L/C
Obligations exceeds the Maximum L/C Amount, the Borrower shall cash
collateralize on such date the outstanding L/Cs in an amount equal to the
excess of the maximum amount then available to be
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drawn under the L/Cs over the Maximum L/C Amount. Subject to Section 2.19,
if on any date after giving effect to any cash collateralization made on such
date pursuant to the preceding sentence, the effective amount of all
Revolving Loans then outstanding plus the effective amount of Net L/C
Obligations exceeds the Aggregate Revolving Commitment, the Borrower shall
immediately, and without notice or demand, prepay the outstanding principal
amount of Revolving Loans by an amount equal to the applicable excess.
Section 2.8 REPAYMENT.
(a) THE TERM CREDIT. The Borrower shall repay the Term Loans in
installments on each quarterly date (or on the next Business Day if such date
is not a Business Day) indicated on Schedule II hereto (each a "TERM LOAN
PRINCIPAL PAYMENT DATE") in the amount indicated opposite each such Term Loan
Principal Payment Date (net of any optional or mandatory prepayments
previously applied in accordance with Section 2.6 or subsection 2.7(c)).
(b) THE REVOLVING CREDIT. The Borrower shall repay to the Lenders in
full on the Revolving Termination Date the aggregate principal amount of the
Revolving Loans outstanding on such date.
Section 2.9 INTEREST. (a) The Borrower shall pay to the Administrative
Agent for the account of each Lender interest on the unpaid principal amount
of each Loan made by such Lender 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) The initial Applicable Base Rate Margin shall be 1.75% and the
initial Applicable Eurodollar Rate Margin shall be 2.75%. 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
September 30, 1999, 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, shall be automatically
changed, if necessary, to reflect the percentages indicated for such category
in the table below, with any such change to be effective on and after the
date of delivery to the Administrative Agent of the certificate described in
Section 5.5 hereof relating to such fiscal quarter:
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Applicable Applicable
Base Rate Eurodollar
Total Leverage Margin Rate Margin
-------------- ------ -----------
5.0 to 1 or higher 1.75% 2.75%
Lower than 5.0 to 1 1.50% 2.50%
Lower than 4.5 to 1 1.25% 2.25%
Lower than 4.0 to 1 1.00% 2.00%
In the event that the condition that gives rise to any change in a Total
Leverage category pursuant to the first sentence of this subsection 2.9(b) is
no longer satisfied as of the end of any subsequent fiscal quarter, on and
after the date of delivery to the Administrative Agent of the certificate
described in Section 5.5 hereof relating to such subsequent fiscal quarter,
the Applicable Base Rate Margin and the Applicable Eurodollar Rate Margin
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 and the
Applicable Eurodollar Rate Margin shall be determined by reference to the
definition of such terms, without any adjustment pursuant to this subsection
2.9(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 Administrative 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 Administrative Agent or any
Lender. Promptly after the establishment of any interest rate provided for
herein or any change therein, the Administrative Agent will notify the
Lenders and the Borrower thereof, PROVIDED THAT the failure of the
Administrative Agent to so notify the Borrower or the Lenders 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 Lender to the
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extent that such Lender's receipt thereof would not be permissible under the
law or laws applicable to such Lender limiting rates of interest that may be
charged or collected by such Lender. 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 Lender on the earliest interest payment
date or dates on which the receipt thereof would be permissible under the
laws applicable to such Lender limiting rates of interest that may be charged
or collected by such Lender. Such deferred interest shall not bear interest.
Section 2.10 FEES.
(a) ARRANGER FEES.The Borrower shall pay to Gleacher NatWest Inc.,
BankBoston, N.A. and Morgan Stanley Dean Witter, for the respective accounts
of each, fees in such amounts and at such times as are agreed upon between or
among such parties.
(b) COMMITMENT FEES.The Borrower shall pay to the Administrative Agent
for the account of each Lender a commitment fee (the "COMMITMENT FEE") equal
to 0.5% per annum on the average daily amount of such Lender's Unused
Revolving Commitment, for the period from the date hereof to and including
the earlier of the date such Lender's Revolving Commitment is terminated or
the Revolving Termination Date. The accrued Commitment Fee shall be payable
quarterly on the Quarterly Dates and on the earlier of the date the Revolving
Commitments are terminated or the Revolving Termination Date, and, in the
event the Borrower reduces the Aggregate Revolving Commitment as provided in
Section 2.5 hereof, on the effective date of such reduction.
(c) AGENCY FEE.The Borrower shall pay to the Administrative Agent, for
the Administrative Agent's own account, an annual agency fee in the amount
and at the times agreed upon by the Borrower and the Administrative Agent in
that certain letter agreement between such parties dated January 12, 1999.
(d) L/C FEES.(i) The Borrower shall pay to the Administrative Agent
for the benefit of the Lenders, PRO RATA according to their respective
Commitment 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 2.9(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
clause (i), the Borrower shall pay on demand to the Issuing Bank, 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 of one 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
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connection with the issuance, amendment, transfer, administration,
cancellation or payment under any or all L/Cs. The fees referred to in
subsections 2.10(d)(i) and (ii) are hereinafter sometimes referred to
individually as an "L/C FEE" and collectively as the "L/C FEES".
(e) The Commitment Fee, the arranger and agency fees, and the L/C Fees
are hereinafter sometimes referred to individually as a "FEE" and
collectively as the "FEES".
Section 2.11 COMPUTATION OF FEES AND INTEREST.
(a) All computations of interest payable in respect of Base Rate Loans
shall be made on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed. All other computations of Fees and interest under
this Agreement shall be made on the basis of a 360-day year and actual days
elapsed. Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last day
thereof.
(b) The Administrative Agent will, with reasonable promptness, notify
the Borrower and the Lenders of each determination of the Base Rate or of the
Eurodollar Rate; PROVIDED that any failure to do so shall not relieve the
Borrower of any liability hereunder or provide the basis for any claim
against the Administrative Agent. Any change in the interest rate on a Loan
resulting from a change in the Applicable Base Rate Margin or Applicable
Eurodollar Rate Margin shall become effective as of the opening of business
on the day on which such change in such Applicable Margin becomes effective.
The Administrative Agent will with reasonable promptness notify the Borrower
and the Lenders of the effective date and the amount of each such change,
PROVIDED that any failure to do so shall not relieve the Borrower of any
liability hereunder or provide the basis for any claim against the
Administrative Agent.
(c) Each determination of an interest rate by the Administrative Agent
shall be conclusive and binding on the Borrower and the Lenders in the
absence of manifest error.
(d) If the Reference Bank's Commitment shall terminate (otherwise than
on termination of all the Commitments), or for any reason whatsoever the
Reference Bank shall cease to be a Lender hereunder, that Lender shall
thereupon cease to be the Reference Bank, and the Base Rate and the
Eurodollar Rate shall be determined on the basis of the rates as notified by
a successor Reference Bank appointed by the Administrative Agent.
Section 2.12 PAYMENTS BY THE BORROWER.
(a) All payments (including prepayments) to be made by the Borrower on
account of principal, interest, Fees and other amounts required hereunder
shall be made without set-off, recoupment or counterclaim; shall, except as
otherwise expressly provided herein, be made to the Administrative Agent for
the ratable account of the Lenders at the Administrative Agent's Payment
Office, and shall be made in dollars and in immediately available funds, no
later than 2:00 p.m. (New York time) on the date specified herein. The
Administrative Agent will promptly distribute to each Lender its Commitment
Percentage (or other applicable share as expressly provided herein) of such
principal, interest, Fees or other amounts, in like funds as received. Any
payment which is received by the Administrative Agent later than 2:00 p.m.
(New
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York time) shall be deemed to have been received on the immediately
succeeding Business Day and any applicable interest or Fee shall continue to
accrue.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of interest or Fees, as the case may be; subject to the
provisions set forth in the definition of "Interest Period" herein.
(c) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full as and when
required hereunder, the Administrative Agent may assume that the Borrower has
made such payment in full to the Administrative Agent on such date in
immediately available funds and the Administrative Agent may (but shall not
be so required), in reliance upon such assumption, cause to be distributed to
each Lender on such due date an amount equal to the amount then due such
Lender. If and to the extent the Borrower shall not have made such payment
in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent on demand such amount distributed to such Lender,
together with interest thereon for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to
the Administrative Agent, at the Federal Funds Rate as in effect for each
such day.
Section 2.13 PAYMENTS BY THE LENDERS TO THE ADMINISTRATIVE AGENT.
(a) Unless the Administrative Agent shall have received notice from a
Lender on the Closing Date or, with respect to each Borrowing after the
Closing Date, at least one Business Day prior to the date of any proposed
Borrowing, that such Lender will not make available to the Administrative
Agent as and when required hereunder for the account of the Borrower the
amount of that Lender's Commitment Percentage of the Borrowing, the
Administrative Agent may assume that each Lender has made such amount
available to the Administrative Agent in immediately available funds on the
Borrowing date and the Administrative Agent may (but shall not be so
required), in reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent any Lender shall
not have made its full amount available to the Administrative Agent in
immediately available funds and the Administrative Agent in such
circumstances has made available to the Borrower such amount, that Lender
shall on the next Business Day following the date of such Borrowing make such
amount available to the Administrative Agent, together with interest at the
Federal Funds Rate for and determined as of each day during such period. A
notice of the Administrative Agent submitted to any Lender with respect to
amounts owing under this subsection 2.13(a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the
Administrative Agent shall constitute such Lender's Loan on the date of
Borrowing for all purposes of this Agreement. If such amount is not made
available to the Administrative Agent on the next Business Day following the
date of such Borrowing, the Administrative Agent shall notify the Borrower of
such failure to fund and, upon demand by the Administrative Agent, the
Borrower shall pay such amount to the Administrative Agent for the
Administrative Agent's account, together with interest thereon for each day
elapsed since the date
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of such Borrowing, at a rate per annum equal to the intrest rate applicable
at the time to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any date of Borrowing
shall not relieve any other Lender of any obligation hereunder to make a Loan
on the date of such Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make the Loan to be made by such other Lender
on the date of any Borrowing.
Section 2.14 SHARING OF PAYMENTS, ETC. If, other than as expressly
provided elsewhere herein, any Lender shall obtain on account of the Loans
made by it any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) in excess of its Commitment Percentage
of payments on account of the Loans obtained by all the Lenders, such Lender
shall forthwith (a) notify the Administrative Agent of such fact, and (b)
purchase from the other Lenders such participations, assignments or other
interests in the Loans made by them ("LOAN INTEREST(S)") as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; PROVIDED, HOWEVER, that if all or any portion of such
excess payment is thereafter recovered from the purchasing Lender, such
purchase shall to that extent be rescinded and each other Lender shall repay
to the purchasing Lender the purchase price paid therefor, together with an
amount equal to such paying Lender's Commitment Percentage (according to the
proportion of (i) the amount of such paying Lender's required repayment to
(ii) the total amount so recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a Loan Interest from another Lender pursuant to this Section 2.14
may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off, but subject to Section 10.5) with
respect to such Loan Interest as fully as if such Lender were the direct
creditor of the Borrower in the amount of such Loan Interest. The
Administrative Agent will keep records (which shall be conclusive and binding
in the absence of manifest error) of Loan Interests purchased pursuant to
this Section 2.14 and will in each case notify the Lenders following any such
purchases or repayments.
Section 2.15 SECURITY AND GUARANTIES.
(a) All Obligations of the Borrower under this Agreement, each of the
Notes and all other Loan Documents shall be secured in accordance with the
Collateral Documents.
(b) All Obligations of the Borrower under this Agreement, each of the
Notes and all other Loan Documents shall be unconditionally guaranteed by the
Guarantors pursuant to the Subsidiary Guaranties.
Section 2.16 TAXES.
(a) Subject to subsection 2.16(g), any and all payments by the Borrower
to each Lender or the Administrative Agent under this Agreement shall be made
free and clear of, and without deduction or withholding for, any and all
present or future taxes, levies, deductions or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and
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the Administrative Agent, such taxes (including income taxes or franchise
taxes) as are imposed on or measured by each Lender's or the Administrative
Agent's net income by the jurisdiction under the laws of which such Lender or
the Administrative Agent, as the case may be, is organized or maintains a
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "TAXES").
(b) In addition, the Borrower shall pay any present or future stamp 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 or
any other Loan Documents (hereinafter referred to as "OTHER TAXES").
(c) Subject to subsection 2.16(g), the Borrower shall indemnify and
hold harmless each Lender and the Administrative Agent for the full amount of
Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.16) paid by the Lender
or the Administrative Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto.
Payment under this indemnification shall be made within 30 days from the date
the Lender or the Administrative Agent makes written demand therefor.
(d) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Administrative Agent, then, subject to subsection 2.16(g):
(i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 2.16) such Lender or the
Administrative Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions been made;
(ii) the Borrower shall make such deductions, and
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(e) Within 30 days after the date of any payment by the Borrower of
Taxes or Other Taxes, the Borrower shall furnish to the Administrative Agent
the original or a certified copy of a receipt evidencing payment thereof, or
other evidence of payment satisfactory to the Administrative Agent.
(f) Each Lender which is a foreign person (I.E., a person other than a
United States person for United States Federal income tax purposes) agrees
that:
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(i) it shall, no later than the Closing Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 10.12 after the
Closing Date, the date upon which the Lender becomes a party hereto)
deliver to the Borrower through the Administrative Agent two accurate
and complete signed originals (one of which shall be retained by the
Administrative Agent) of Internal Revenue Service Form 4224 or any
successor thereto ("FORM 4224"), or two accurate and complete signed
originals of Internal Revenue Service Form 1001 or any successor thereto
("FORM 1001"), as appropriate, in each case indicating that the Lender
is on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from withholding
of United States Federal income tax;
(ii) if at any time the Lender makes any changes necessitating a
new Form 4224 or Form 1001, it shall with reasonable promptness deliver
to the Borrower through the Administrative Agent in replacement for, or
in addition to, the forms previously delivered by it hereunder, two
accurate and complete signed originals (one of which shall be retained
by the Administrative Agent) of Form 4224; or two accurate and complete
signed originals (one of which shall be retained by the Administrative
Agent) of Form 1001, as appropriate, in each case indicating that the
Lender is on the date of delivery thereof entitled to receive payments
of principal, interest and fees under this Agreement free from
withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in (ii)
above) requiring a change in or renewal of the most recent Form 4224 or
Form 1001 previously delivered by such Lender and deliver to the
Borrower through the Administrative Agent two accurate and complete
original signed copies (one of which shall be retained by the
Administrative Agent) of Form 4224 or Form 1001 in replacement for the
forms previously delivered by the Lender; and
(iv) it shall, promptly upon the Borrower's or the Administrative
Agent's reasonable request to that effect, deliver to the Borrower or
the Administrative Agent (as the case may be) such other forms or
similar documentation as may be required from time to time by any
applicable law, treaty, rule or regulation in order to establish such
Lender's tax status for withholding purposes.
(g) The Borrower will not be required to pay any additional amounts in
respect of United States Federal income tax pursuant to subsection 2.16(d) to
any Lender for the account of any Applicable Lending Office of such Lender:
(i) if the obligation to pay such additional amounts would not have
arisen but for a failure by such Lender to comply with its obligations
under subsection 2.16(f) in respect of such Applicable Lending Office;
(ii) if such Lender shall have delivered to the Borrower a Form 4224 in
respect of such Applicable Lending Office pursuant to subsection 2.16(f),
and such
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Lender shall not at any time be entitled to exemption from deduction or
withholding of United States Federal income tax in respect of payments
by the Borrower hereunder for the account of such Applicable Lending
Office for any reason other than a change in United States law or
regulations or in the official interpretation of such law or regulations
by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) after
the date of delivery of such Form 4224; or
(iii) if the Lender shall have delivered to the Borrower a Form
1001 in respect of such Applicable Lending Office pursuant to subsection
2.16(f), and such Lender shall not at any time be entitled to exemption
from deduction or withholding of United States Federal income tax in
respect of payments by the Borrower hereunder for the account of such
Applicable Lending Office for any reason other than a change in United
States law or regulations or any applicable tax treaty or regulations or
in the official interpretation of any such law, treaty or regulations by
any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) after
the date of delivery of such Form 1001.
(h) If, at any time, the Borrower requests any Lender to deliver any
forms or other documentation pursuant to subsection 2.16(f)(iv), then the
Borrower shall, on demand of such Lender through the Administrative Agent,
reimburse such Lender for any costs and expenses (including attorney costs)
reasonably incurred by such Lender in the preparation or delivery of such
forms or other documentation.
(i) If the Borrower is required to pay additional amounts to any Lender
or the Administrative Agent pursuant to subsection 2.16(d), then such Lender
shall use its reasonable best efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Applicable Lending Office so
as to eliminate any such additional payment by the Borrower which may
thereafter accrue if such change in the judgment of such Lender is not
otherwise disadvantageous to such Lender.
Section 2.17 ILLEGALITY.
(a) If any Lender shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is
unlawful, for any Lender or its Applicable Lending Office to make Eurodollar
Loans, then, on notice thereof by the Lender to the Borrower through the
Administrative Agent, the obligation of that Lender to make Eurodollar Loans
shall be suspended until the Lender shall have notified the Administrative
Agent and the Borrower that the circumstances giving rise to such
determination no longer exists.
(b) If a Lender shall determine that it is unlawful to maintain any
Eurodollar Loan, all Eurodollar Loans of that Lender then outstanding shall
be converted into Base Rate Loans either on the last day of the Interest
Period thereof if the Lender may lawfully continue to maintain such
Eurodollar Loans to such day, or immediately, if the Lender may not lawfully
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continue to maintain such Eurodollar Loans, and the Borrower shall prepay
accrued interest thereon to the date of conversion, together with any amounts
required to be paid in connection therewith pursuant to Section 2.19.
(c) If the obligation of any Lender to make or maintain Eurodollar
Loans has been terminated, the Borrower may elect, by giving notice to the
Lender through the Administrative Agent that all Loans which would otherwise
be made by the Lender as Eurodollar Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Administrative Agent pursuant to
this Section 2.17, the affected Lender shall designate a different Applicable
Lending Office with respect to its Eurodollar Loans if such designation will
avoid the need for giving such notice or making such demand and will not, in
the judgment of the Lender, be illegal or otherwise disadvantageous to the
Lender.
Section 2.18 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If, on or after the date of this Agreement, any Lender shall in
good faith determine that, due to either (i) the introduction of or any
change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall
be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any Eurodollar Loans, then the Borrower shall be
liable for, and shall from time to time, upon demand therefor by such Lender
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender, additional amounts as
are sufficient to compensate such Lender for such increased costs.
(b) If, on or after the date of this Agreement, any Lender shall have
in good faith determined that (i) the introduction of any capital adequacy
regulation, (ii) any change in any capital adequacy regulation, or (iii) any
change in the interpretation or administration of any capital adequacy
regulation by any central bank or other Governmental Authority charged with
the interpretation or administration thereof, affects or would affect the
amount of capital required or expected to be maintained by the Lender or any
corporation controlling the Lender and (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy and
such Lender's anticipated return on capital) determines that the amount of
such capital is increased as a consequence of its Commitment, loans, credits
or obligations under this Agreement, then, upon demand of such Lender (with a
copy to the Administrative Agent), the Borrower shall upon demand pay to the
Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
Section 2.19 FUNDING LOSSES. The Borrower agrees to reimburse each
Lender and to hold each Lender harmless from any loss or expense which the
Lender may sustain or incur as a consequence of:
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(a) the failure of the Borrower to make any payment or mandatory
prepayment of principal of any Eurodollar Loan (including payments made after
any acceleration thereof);
(b) the failure of the Borrower to borrow, continue or convert a Loan
after the Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Borrower to make any prepayment after the
Borrower has given a notice in accordance with Section 2.6 hereof;
(d) the prepayment (including pursuant to Section 2.7 hereof) of a
Eurodollar Loan on a day which is not the last day of the Interest Period
with respect thereto; or
(e) the conversion pursuant to Section 2.4 or 2.17 hereof of any
Eurodollar Loan to a Base Rate Loan on a day that is not the last day of the
respective Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Eurodollar Loans hereunder or from fees
payable to terminate the deposits from which such funds were obtained.
Section 2.20 INABILITY TO DETERMINE RATES. If the Administrative Agent
shall have determined that for any reason adequate and reasonable means do
not exist for ascertaining the Eurodollar reference rate for any requested
Interest Period with respect to a proposed Eurodollar Loan or that the
Eurodollar reference rate applicable pursuant to subsection 2.9(a)(ii) for
any requested Interest Period with respect to a proposed Eurodollar Loan does
not adequately and fairly reflect the cost to the Lenders of funding such
Loan, the Administrative Agent will forthwith give notice of such
determination to the Borrower and each Lender. Thereafter, the obligation of
the Lenders to make or maintain Eurodollar Loans, as the case may be,
hereunder shall be suspended until the Administrative Agent revokes such
notice in writing. Upon receipt of such notice, the Borrower may revoke any
Notice of Borrowing or Notice of Conversion/Continuation then submitted by
it. If the Borrower does not revoke such notice, the Lenders shall make,
convert or continue the Loans, as proposed by the Borrower, in the amount
specified in the applicable notice submitted by the Borrower, but such Loans
shall be made, converted or continued as Base Rate Loans instead of
Eurodollar Loans.
Section 2.21 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement
or compensation pursuant to this Article II shall deliver to the Borrower
(with a copy to the Administrative Agent) a certificate setting forth in
reasonable detail the amount payable to the Lender hereunder and such
certificate shall be conclusive and binding on the Borrower in the absence of
manifest error.
Section 2.22 SURVIVAL. The agreements and obligations of the Borrower
in Sections 2.16 through 2.22 hereof shall survive the payment of all other
Obligations.
Section 2.23 LETTERS OF CREDIT.
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(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 BankBoston, N.A. in its individual capacity (in the case
of Standby L/Cs and Documentary L/Cs) issue one or more L/Cs (in such
capacity, each of NatWest Plc and BankBoston, N.A. is herein referred to as
the "ISSUING 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 Revolving Loans then
outstanding would exceed the Aggregate Revolving 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 2.23, repay any drawings
thereunder and request the issuance of additional L/Cs under this Section
2.23. 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 Revolving Termination
Date. No L/C may by its terms be automatically renewable, unless consented
to in writing by the Administrative 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 Dollars.
(b) NOTICE AND ISSUANCE.
(i) The Borrower shall give notice to the Issuing Bank and to the
Administrative 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 Administrative
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 Administrative
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 2.23(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.
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(ii) Upon acceptance of the form of the proposed L/C by the Issuing
Bank and the Administrative Agent and upon fulfillment of the conditions set
forth above in this subsection 2.23(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 Administrative 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:
(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
Lender prior to the issuance of such L/C that one or more of the applicable
conditions specified in this Section 2.23 or 4.2 are not then satisfied, or
that the issuance of such L/C would violate subsection 2.23(a) above.
(iv) The Issuing Bank shall promptly give written notice to each of
the other Lenders of the information specified in subsections 2.23(b)(i)(A)
through (E) above.
(c) REIMBURSEMENT OBLIGATIONS.
(i) The Borrower shall be obligated to reimburse the Administrative
Agent, for the account of the Issuing Bank, in immediately available funds at
its Payment 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 Lenders PRO RATA based on each Lender's
Commitment Percentage. The Issuing Bank shall promptly notify the
Administrative Agent of the amount of any Unreimbursed Drawings and the
Administrative Agent shall promptly notify the Lenders 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
Lender hereby irrevocably agrees to make Revolving Loans
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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 Aggregate Revolving
Commitment after any such L/C was issued. In the event that the
Administrative Agent delivers the above-described notice to any Lender later
than 12:00 noon (New York City time) on the date of the required Mandatory
L/C Borrowing, then such Lender 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)).
(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 Administrative
Agent for the account of the Issuing Bank) or sufficient availability to
permit creation of Revolving Loans sufficient to fund payment of the drafts,
any funds advanced by the Issuing Bank (or by the Administrative Agent on
behalf of the Issuing Bank) and the other Lenders 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 Lenders in respect of any funds so advanced or to be
advanced by the Issuing Bank (or by the Administrative Agent on behalf of the
Issuing Bank) under this subsection (c) shall be as more particularly
described in subsections 2.23(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
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Issuing Bank, any other Lender, the Administrative 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;
(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 LENDERS.
(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
Lender without recourse or warranty, and each Lender 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 Lender's PRO
RATA share of the Aggregate Revolving 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 Lender, upon request, copies of any L/C and
any Application Documents as may be requested by such Lender.
(ii) In the event that any reimbursement obligation under subsection
2.23(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 Lenders PRO
RATA pursuant to paragraph 2.23(c)(i), the Issuing Bank shall promptly notify
the Administrative Agent to that effect, and the Administrative Agent shall
promptly notify the Lenders of the amount of such reimbursement obligation
and each such Lender shall immediately pay to the Administrative 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 Lender's ratable
portion of the amount of such unpaid reimbursement obligation.
(iii) The obligation of each Lender to make Loans in respect of each
Mandatory L/C Borrowing and to make payments under the preceding clause (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
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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 any Lender; (D) any set-off, counterclaim,
recoupment, defense or other right which such Lender or the Borrower may have
at any time against the Issuing Bank, any other Lender, 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 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 Lender 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 Lender were the direct creditor of such Borrower in the
amount of such participation.
(iv) Promptly after the Issuing Bank (or the Administrative 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 Lender
has funded its participation pursuant to subsection 2.23(e)(ii) above, the
Issuing Bank (or the Administrative Agent acting on behalf of the Issuing
Bank) shall promptly pay to the Administrative Agent, and the Administrative
Agent shall promptly pay to each Lender 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 Lender'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 Lender as a
participant under subsection 2.23(e)(iv) is thereafter recovered from the
Issuing Bank in connection with any bankruptcy or insolvency proceeding
relating to the Borrower or otherwise, each Lender which received such
distribution shall, upon demand by the Administrative Agent, repay to the
Issuing Bank such Lender's ratable share of the amount so recovered together
with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender'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 Administrative Agent, the Issuing Bank nor any other Lender, 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
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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 in order to make a drawing
under any such L/C 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 2.23 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 Administrative Agent and each Lender 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 Administrative Agent or
Lender 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 Administrative 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 Revolving Termination Date.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Lenders and the
Administrative Agent that:
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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, no waiver
of any Lien or right of distraint or other similar right and no consent,
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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,
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. There are no outstanding judgments, actions or
proceedings, including, without limitation, any Environmental Proceeding,
pending before any court or Governmental Authority with respect to or, to the
best of the Borrower's knowledge,
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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.
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(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 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 its 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 its
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 to finance systems upgrades and other
capital expenditures and to provide for the ongoing working capital
requirements of the Borrower and its Subsidiaries, 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. 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
Borrower's Annual Report on Form 10-K dated March 25, 1998 relating to the
fiscal year ended December 31, 1997 filed by the Borrower with the SEC and
previously delivered to the Lenders (the "1998
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10-K Report"), Borrower's Quarterly Report on Form 10-Q dated November 11,
1998 relating to the period ending September 30, 1998 filed by the Borrower
with the SEC and previously delivered to the Lenders (the "Third Quarter 10-Q
Report"), the Projections, nor any certificate, opinion, or any other
statement made or furnished in writing to the Administrative Agent or any
Lender by or on 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 its
Subsidiaries or any other Loan Party, which fact has not been set forth
herein, in the Financial Statements, the 1998 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 Administrative Agent or the Lenders.
Section 3.15 LICENSES AND APPROVALS. The Borrower and each of its
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 its 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 its 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
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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.
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 and other
customers relating to the provision of the Borrower's video and video-related
services (guest-pay, free-to-guest 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 Administrative 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 Administrative Agent, for the benefit of
itself, the Lenders 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
Administrative 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
Administrative Agent, for the benefit of itself, the Lenders 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
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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 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.
Section 3.22 YEAR 2000. The Borrower has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program, the
Borrower does not reasonably anticipate that Year 2000 Issues will have a
Material Adverse Effect.
ARTICLE 4. CONDITIONS TO THE LOANS.
Section 4.1 CONDITIONS TO INITIAL LOANS. The obligation of each
Lender to make the initial Loan to be made by it hereunder shall be subject
to the fulfillment (to the satisfaction of the Administrative Agent and the
Lenders) 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 Administrative Agent, the Issuing Banks and each of the
Lenders; the Term Notes and the Revolving Notes shall have been executed by
the Borrower; the Guaranties shall have been executed by ResNet Inc.,
LodgeNet Canada and ResNet LLC; and each other Loan Document shall have been
executed by the parties thereto.
(b) COLLATERAL. The Borrower and its 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
(or any assignments thereof) filed, registered or recorded to perfect the
security interests of the Administrative Agent for the benefit of the
Lenders, or other evidence satisfactory to the Administrative 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 Administrative Agent for the benefit of the Lenders
in accordance with applicable law;
(ii) written advice relating to such Lien and judgment searches
as the Administrative 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
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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 Administrative 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 Administrative Agent's ability to
preserve and protect its interest in and access to the Collateral, have been
taken;
(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) CORPORATE ORGANIZATION, AUTHORIZATION, GOOD STANDING. The
Administrative Agent shall have received copies of the following:
(i) Any consents, approvals and waivers referred to in Section 3.2
hereof;
(ii) The certificate of incorporation of the Borrower and of ResNet
Inc., 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 Inc. and LodgeNet Canada
certified by their respective corporate secretaries;
(iv) All corporate action taken by the Borrower, ResNet Inc. 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 ten (10)
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; and
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(vi) Incumbency certificates (with specimen signatures) with respect
to officers of the Borrower, ResNet Inc. and LodgeNet Canada.
(d) 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 and the Senior Note Documents (including Section 4.03 of
the Senior 1996 Note Indenture);
(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 September 30, 1998, 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 Administrative Agent shall have received a certificate of the Borrower's
chief financial officer dated the Closing Date certifying, INTER ALIA, that the
conditions set forth in this subsection 4.1(d) are satisfied on such date.
(e) LEGAL OPINIONS. Daniel P. Johnson, Esq., Director of Corporate and
Legal Affairs of the Borrower, and Pillsbury Madison & Sutro LLP, counsel to
the Borrower and ResNet Inc., shall have delivered their opinions to the
Administrative Agent substantially in the composite form of Exhibit F hereto.
(f) FINANCIALS AND SENIOR NOTE DOCUMENTS. The Administrative 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) Notice delivered by the Borrower to the Trustee pursuant to the
definition of "New Credit Facility" under the Senior 1996 Note Indenture;
(ii) The Financial Statements and the Projections; and
(iii) The Senior Note Documents, each as amended and in effect on the
date hereof.
(g) EXCHANGE OF NOTES. The loans represented by the notes outstanding
under the Existing Loan Agreement shall be repaid, and such notes shall be
surrendered and replaced by the Term Notes and the Revolving Notes hereunder.
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(h) PAYMENT OF FEES.The Borrower shall have paid on the Closing Date the
arranger and agency fees payable pursuant to Section 2.10 hereof and the fees
of counsel to the Administrative Agent and other expenses payable pursuant to
Section 10.1 hereof.
(i) OTHER DOCUMENTS. The Administrative 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
Administrative Agent and its counsel may request.
Section 4.2 CONDITIONS TO SUBSEQUENT LOANS AND L/CS. The obligation of
each Lender to make any Revolving Loan subsequent to the Closing Date and the
obligation of the Issuing Bank to issue any L/C shall be subject to the
fulfillment (to the satisfaction of the Administrative Agent) of the
following conditions precedent:
(a) In respect of each Revolving Loan, the Administrative Agent shall
have received a Notice of Borrowing in accordance with Section 2.3 hereof.
(b) In respect of each requested L/C, the Issuing Bank and the
Administrative Agent shall have received an L/C Issuance Request in
accordance with subsection 2.23(b)(i) hereof, together with all other
documents required to be delivered in connection with an L/C Issuance Request
and all Application Documents, and the Issuing Bank shall have been paid any
and all fees then due in accordance with the terms of Sections 2.10 and 2.23
hereof.
(c) The Administrative Agent shall have received a Compliance
Certificate dated the date of such Revolving 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 Administrative Agent nor any Lender nor the 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 Revolving Loan or L/C (as the
case may be) shall be satisfactory to counsel for the Administrative Agent.
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS AND OTHER INFORMATION.
While any 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 Lenders or the Administrative 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 Lender:
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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 its 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 without
qualification by Arthur Andersen & Co. or another firm of independent
certified public accountants satisfactory to the Administrative 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 its 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 its
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 its 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, 2005, 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 Lender 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
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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.
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
Lenders; (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;
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(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;
(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 Administrative Agent or the Required Lenders may from
time to time reasonably request, including, without limitation, as soon as
available, but in any event not later than forty-five (45)
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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 the number of Guest-Pay Rooms served by the Borrower and its
Subsidiaries (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 Administrative
Agent or the Required Lenders may reasonably request from time to time.
ARTICLE 6. AFFIRMATIVE COVENANTS.
While any 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 Lenders or the Administrative 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 Administrative 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 Lenders 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 Lender 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 Lenders' investment in the then outstanding Notes. The Administrative
Agent and each Lender 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 Administrative Agent and the Lenders 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 Administrative Agent or the Lenders under the Loan
Documents, (d) in connection with assignments or participations and the
solicitation thereof pursuant to Section 10.12 hereof, provided that each
such actual or prospective assignee 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 Administrative Agent, the
Lenders or such participant or assignee, or by any applicable law, rule,
regulation or judicial process.
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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.
Section 6.5 COPIES OF CORPORATE DOCUMENTS. Subject to the
prohibitions set forth in Section 7.12 hereof, promptly deliver to the
Administrative 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 Administrative
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 Administrative 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-
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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 Administrative Agent as loss payee and
as additional insured (in the case of general liability), for the benefit of
itself, the Lenders and the Issuing Banks, as their interests may appear.
Upon request of the Administrative Agent or any Lender, the Borrower shall
furnish the Administrative Agent, with sufficient copies for each Lender, at
reasonable intervals (but not more than once per policy year), a certificate
of an officer of the Borrower (and, if requested by the Administrative 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:
(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:
<TABLE>
<CAPTION>
During each Fiscal Quarter
Ending in Each of the
Following Periods Maximum Total Leverage
-------------------------- ----------------------
<S> <C>
from the Closing Date through
March 31, 1999 5.85 to 1
from April 1, 1999 through
June 30, 1999 5.75 to 1
from July 1, 1999 through
December 31, 1999 5.25 to 1
from January 1, 2000 through
March 31, 2000 5.85 to 1
from April 1, 2000 through
June 30, 2000 5.25 to 1
from July 1, 2000 through
December 31, 2000 4.75 to 1
from January 1, 2001
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through March 31, 2001 5.25 to 1
from April 1, 2001 through
June 30, 2001 4.75 to 1
from July 1, 2001 through
December 31, 2001 4.25 to 1
from January 1, 2002 through
March 31, 2002 4.75 to 1
from April 1, 2002 through
Facility Termination Date 4.25 to 1
</TABLE>
(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:
<TABLE>
<CAPTION>
FISCAL PERIOD MINIMUM INTEREST COVERAGE
------------- -------------------------
<S> <C>
from the Closing Date through
December 31, 1999 1.75 to 1
from January 1, 2000 through
June 30, 2000 1.88 to 1
from July 1, 2000 through
June 30, 2001 2.00 to 1
from July 1, 2001 through
June 30, 2002 2.25 to 1
from July 1, 2002 through
June 30, 2003 2.50 to 1
from July 1, 2003 through
December 31, 2003 2.75 to 1
from January 1, 2004 through
Facility Termination Date 3.00 to 1
</TABLE>
(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)
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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.
Section 6.10 NOTICE OF CERTAIN EVENTS. (a) Promptly notify the
Administrative 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 Administrative 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 Administrative 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 Administrative 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 Administrative Agent, set aside reserves in an amount
satisfactory to the Administrative 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 Administrative Agent or
the Lenders do not and will not
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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 Administrative Agent and the Lenders
and correct any defect or error that may be discovered therein or in any Loan
Document or in the execution, acknowledgment or recordation thereof.
(b) PROTECTION OF EXISTING INTERESTS. Promptly upon request by the
Administrative Agent or the Required Lenders, 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 Administrative Agent or such
Lenders, 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 Administrative Agent
and the Lenders the rights granted or now or hereafter intended to be granted
to the Lenders under any Loan Document or under any other document executed
in connection therewith.
(c) SECURITY INTEREST IN ADDITIONAL COLLATERAL. Promptly, and in any
event within 30 days after the acquisition or construction by the Borrower or
any other Guarantor 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 Administrative Agent does not have a perfected security interest
under the Collateral Documents (other than (x) property of the type covered
by a Pledge Agreement which is provided for in subsection 6.13(d) hereof, (y)
property subject to Liens permitted under subsection 7.2(b) 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 Administrative Agent with respect to any other property of the
Borrower or its Restricted Subsidiaries deemed material by the Administrative
Agent or the Required Lenders (the "ADDITIONAL COLLATERAL"), the Borrower
will, and will cause each of the Guarantors 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 Administrative 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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(d) ADDITIONAL PLEDGE. The Borrower shall, and shall cause each
Guarantor to, pursuant to and in accordance with the appropriate Pledge
Agreement, pledge and deliver to the Administrative Agent for the benefit of
itself, the Lenders and the Issuing Banks, all shares of stock, intercompany
promissory notes and other property that would have constituted Collateral
under such Pledge Agreement on the date hereof that are acquired by the
Borrower or any Guarantor after the date hereof.
(e) ADDITIONAL GUARANTORS. The Borrower will cause each Subsidiary of
the Borrower established or created after the Closing Date which the Borrower
determines in its sole discretion to designate as a Guarantor and Restricted
Subsidiary hereunder to execute a Subsidiary Guaranty and thereby become a
Guarantor and Restricted Subsidiary for all purposes hereunder.
(f) GRANT OF SECURITY BY NEW GUARANTORS. The Borrower will cause each
Guarantor established or created after the Closing Date to grant to the
Administrative 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 Guarantor by executing and delivering an
appropriate Security Agreement and Pledge Agreement, or on other terms
satisfactory in form and substance to the Administrative Agent. The Borrower
shall cause each such Guarantor, 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 Administrative Agent to
be necessary or desirable for the creation and perfection of the foregoing
Liens. The Borrower will cause each of the Guarantors to take all actions
requested by the Administrative Agent (including, without limitation, the
filing of UCC-1s) in connection with the granting of such security interests.
ARTICLE 7. NEGATIVE COVENANTS.
So long as any Lender shall have any Commitment hereunder, or any
Loan or any other Obligation shall remain outstanding, unpaid or unsatisfied
to the Lenders, the Issuing Banks or the Administrative 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 Lenders, the
Issuing Banks and the Administrative Agent under this Agreement and the Notes;
(b) Indebtedness of the Borrower outstanding under the Senior 1995 Notes
and the Senior 1996 Notes;
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(c) Permitted Debt and the TCI Convertible Debt;
(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
$15,000,000, 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) Permitted Intercompany Debt outstanding on the date of this
Agreement, 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 Inc. 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 Inc.; PROVIDED, HOWEVER, that ResNet LLC
may make such distributions as are permitted by subsection 7.5(c) hereof;
(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 $1,000,000 in the aggregate incurred by
the Borrower in connection with its purchase and construction of improvements
on real property constituting the Borrower's headquarters 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; and
(i) Refinancings of Indebtedness permitted pursuant hereto in
accordance with Section 7.8 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;
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(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 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) 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; and
(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.
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.
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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 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) (i) 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
(ii) at any time when Total Leverage (as shown in the most recent certificate
delivered pursuant to Section 5.5) is 4.50 to 1.0 or less (before and after
giving effect thereto) and no Default or Event of Default has occurred and
continuing (before and after giving effect thereto), in an aggregate
cumulative amount of $5,000,000 during the term of this Agreement (cumulated
with any dividends or distributions made pursuant to subsection 7.5(b)); 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,
(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 (on terms, convenants and conditions satisfactory to the
Administrative Agent and the Required
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Lenders) 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") and (iii) at any time when Total Leverage (as
shown in the most recent certificate delivered pursuant to Section 5.5) is
4.50 to 1.0 or less (before and after giving effect thereto) and no Default
or Event of Default has occurred and continuing (before and after giving
effect thereto), pay such dividends or make such distributions in an
aggregate cumulative amount of $5,000,000 during the term of this Agreement
(cumulated with any purchases, redemptions or acquisitions made pursuant to
subsection 7.5(a)); 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 (i) pay PRO RATA dividends or distributions
on its outstanding membership interests, including the interests of its
minority member, for the purpose of enabling its members to meet their
federal, state and local estimated tax obligations or (ii) make a PRO RATA
distribution of the Newco Common Stock to its minority member.
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,
and (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; PROVIDED, HOWEVER, that all issuances of securities
or other ownership interests permitted under clause (c) above shall not
exceed a Substantial Portion in regard to Restricted Subsidiaries other than
ResNet Inc.
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
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thereof and (6) the aggregate net proceeds thereof are applied as required by
subsection 2.7(a) 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 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 Administrative Agent's determination, the Lenders,
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;
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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 (i) loans or advances to directors,
officers or employees of the Borrower or any Subsidiary, or guarantees or
assumptions of the payment obligations of such Persons with respect to such
loans or advances, made for the purpose of financing the exercise of stock
options or similar instruments issued by the Borrower to such Persons (and
the payment of taxes related thereto in an aggregate amount not exceeding
$3,000,000), which loans or advances are secured by, and repayable out of the
proceeds of any sale of, the stock issued upon exercise of such options;
PROVIDED that the terms of any such loan, advance, guarantee or assumption
have been approved by the Compensation Committee of the Borrower, and (ii)
other loans to employees of the Borrower or any Subsidiary not exceeding
$60,000 to any one employee, or $250,000 in the aggregate to all employees,
in principal amount at any time outstanding.
(c) Investments by the Borrower in any Restricted Subsidiary and
by any Restricted Subsidiary in the Borrower or another Restricted 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 by the Borrower or any Restricted Subsidiary
consisting of Permitted Intercompany Debt; and
(e) (A) Investments in ResNet Inc. consisting of the Newco
Investments; PROVIDED, HOWEVER, that up to an additional $5,000,000 of
Investments (which shall include the cash portion of any buy-out of PrimeStar
Inc.'s interest in ResNet LLC or the Newco Common Stock) may be made in Newco
to the extent that any such amount is included within, and subject to the
overall limitation, on aggregate Investments permitted under Section
7.9(e)(C); (B) Investments in Restricted Subsidiaries other than ResNet
Inc.; (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 term of this Agreement 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:
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(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) no such Investment shall be of a nature which would subject the
Administrative Agent or any Lender to regulatory or third party approval in
connection with the exercise of their rights and remedies under this
Agreement, the Subsidiaries Guaranty, the Collateral Documents or any other
Loan Document; and
(v) 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
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(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 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 Administrative 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 Administrative
Agent's determination, to the Lenders, 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
Administrative Agent's determination, would be adverse to the Lenders, or,
together with all other amendments,
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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 Administrative Agent's determination, the Lenders.
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, 1999 of capital stock
and/or Permitted Debt:
<TABLE>
<CAPTION>
Fiscal Year
Ending Base Maximum Capital
December 31, Expenditures Amount
------------ -------------------
<S> <C>
1999 $57,500,000
2000 $55,500,000
2001 $54,000,000
2002 $50,000,000
2003 $45,000,000
2004 $40,000,000
2005 $40,000,000
</TABLE>
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 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 7.16 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
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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 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 Inc. to the Borrower shall be deemed to be a
permitted transaction hereunder).
Section 7.17 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 Administrative Agent and the Lenders 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.
Section 8.1 EVENT OF DEFAULT. Any of the following shall constitute
an "EVENT OF DEFAULT":
(a) 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
(b) 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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(c) OTHER COVENANTS. (i) 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 Administrative Agent; or
(ii) 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 Administrative Agent; or
(d) OTHER DEFAULTS. (i) 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
(ii) 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
(iii) 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 8.1(d) shall not be
applicable to (y) any Debt Instrument other than a guarantee (as defined in
Section 7.3 hereof) that, on the date this Section 8.1(d) would otherwise be
applicable thereto, relates to or evidences Indebtedness in a principal
amount of less than $2,500,000 or (z) Debt Instruments which constitute
guaranties (as defined in Section 7.3 hereof) that, on the date this Section
8.1(d) 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
(e) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made in writing to the Lenders or the Administrative 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
(f) BANKRUPTCY.
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(i) 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
(ii) The Borrower or any Subsidiary shall generally not pay its
debts as such debts become due; or
(iii) 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
(g) 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
(h) ERISA.
(i) 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
(ii) 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
(i) 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 forty percent (40%) 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 fifty percent (50%) of the Persons constituting the Borrower's
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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.
(j) COLLATERAL.
(i) 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
(ii) 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.
Section 8.2 REMEDIES. If any Event of Default occurs, the
Administrative Agent shall, at the request of, or may, with the consent of,
the Required Lenders,
(a) declare the Commitment of each Lender to make Loans, and of any
Issuing Bank to issue L/Cs, to be terminated, whereupon such Commitments
shall forthwith be terminated;
(b) declare the unpaid principal amount of all outstanding Loans
and all outstanding Unreimbursed Drawings, together with all interest accrued
and unpaid thereon, and all other amounts owing or payable hereunder or under
any other Loan Document, to be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself, the Lenders and the Issuing Banks
all rights and remedies available to it and the Lenders under the Loan
Documents or applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in
paragraph (f) of Section 8.1 above (in the case of clause (i) of paragraph
(f) upon the expiration of the 60-day period mentioned therein), the
obligation of each Lender to make Loans shall automatically terminate and the
unpaid principal amount of all outstanding Loans and all interest and other
amounts as aforesaid shall automatically become due and payable without
further act of the Administrative Agent or any Lender.
Section 8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive
of any other rights, powers, privileges or remedies provided by law or in
equity, or under any other instrument, document or agreement now existing or
hereafter arising.
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Section 8.4 RIGHT OF ADMINISTRATIVE AGENT TO USE AND OPERATE
COLLATERAL; CONSENT TO APPOINTMENT OF RECEIVER.
(a) Upon the occurrence and during the continuance of any Event of
Default, but subject to the provisions of the UCC or other applicable law,
the Administrative Agent, on behalf of itself, the Lenders and the Issuing
Banks, shall have the right and power to take possession of all or any part
of the Collateral, and to exclude the Borrower and all persons claiming under
the Borrower wholly or partly therefrom, and thereafter to hold, store,
and/or use, operate, manage and control the same. Upon any such taking of
possession, the Administrative Agent may, from time to time, at the expense
of the Borrower, make all such repairs, replacements, alterations, additions
and improvements to and of the Collateral as the Administrative Agent may
reasonably deem proper. In any such case the Administrative Agent shall have
the right to manage and control the Collateral and to carry on the business
and to exercise all rights and powers of the Borrower in respect thereto as
the Administrative Agent shall deem best, including the right to enter into
any and all such agreements with respect to the operation of the Collateral
or any part thereof as the Administrative Agent may see fit, and the
Administrative Agent shall be entitled to collect and receive all rents,
issues, profits, fees, revenues and other income of the same and every part
thereof. The reasonable costs and expenses of the collection, including
without limitation, attorneys' fees, shall be borne by the Borrower. Such
rents, issues, profits, fees, revenues and other income shall be applied to
pay the expenses of holding and operating the Collateral and of conducting
the business thereof, and of all maintenance, repairs, replacements,
alterations, additions and improvements, and to make all payments which the
Administrative Agent may be required or may elect to make, if any, for taxes,
assessments, insurance and other charges upon the Collateral or any part
thereof, and all other payments which the Administrative Agent may be
required or authorized to make under the povision of this Agreement
(including legal costs and reasonable attorneys' fees). The remainder of such
rents, issues, profits, fees, revenues and other income shall be applied to
the payment of the Obligations in such order of priority as provided in the
Collateral Documents and, unless otherwise provided by law or by a court of
competent jurisdiction, any surplus shall be returned to the Borrower or to
any person or party lawfully entitled thereto (including, if applicable, any
subordinated creditors of the Borrower).
(b) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT
DEROGATING FROM ANY RIGHT, REMEDY OR OTHER PROVISION CONTAINED IN THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, AT ANY TIME FROM AND AFTER THIRTY (30)
DAYS AFTER THE OCCURRENCE OF A PAYMENT DEFAULT, THE ADMINISTRATIVE AGENT
SHALL HAVE THE RIGHT TO APPLY FOR AND HAVE A RECEIVER APPOINTED BY A COURT OF
COMPETENT JURISDICTION IN ANY ACTION TAKEN BY THE ADMINISTRATIVE AGENT TO
ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER IN ORDER TO MANAGE, PROTECT AND
PRESERVE THE COLLATERAL AND CONTINUE THE OPERATION OF THE BUSINESS OF THE
BORROWER, OR TO SELL OR DISPOSE OF THE COLLATERAL, AND TO COLLECT ALL
REVENUES AND PROFITS THEREOF AND APPLY THE SAME TO THE PAYMENT OF ALL
EXPENSES AND OTHER CHARGES OF SUCH RECEIVERSHIP, INCLUDING THE COMPENSATION
OF THE RECEIVER, SAID
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EXPENSES TO CONSTITUTE PART OF THE OBLIGATIONS, AND TO THE PAYMENT OF THE
OBLIGATIONS AS AFORESAID. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,
THE BORROWER HEREBY IRREVOCABLY CONSENTS TO AND WAIVES ANY RIGHT TO OBJECT TO
OR OTHERWISE CONTEST THE APPOINTMENT OF A RECEIVER AS PROVIDED ABOVE. THE
BORROWER (I) GRANTS SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED
THE IMPLICATIONS THEREOF WITH COUNSEL, (II) ACKNOWLEDGES THAT (A) THAT
UNCONTESTED RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS
CONSIDERED ESSENTIAL BY THE LENDERS IN CONNECTION WITH THE ENFORCEMENT OF
THEIR RIGHTS AND REMEDIES HEREUNDER AND UNDER THE LOAN DOCUMENTS, AND (B) THE
AVAILABILITY OF SUCH APPOINTMENT AS A REMEDY UNDER THE FOREGOING
CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING THE LENDERS TO MAKE THE LOANS
TO THE BORROWER; AND (III) TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,
AGREES TO ENTER INTO ANY AND ALL STIPULATIONS IN ANY LEGAL ACTIONS, OR
AGREEMENTS OR OTHER INSTRUMENTS IN CONNECTION WITH THE FOREGOING AND TO
COOPERATE FULLY WITH THE ADMINISTRATIVE AGENT AND THE LENDERS IN CONNECTION
WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER OVER ALL OR ANY
PORTION OF THE COLLATERAL.
ARTICLE 9. THE ADMINISTRATIVE AGENT.
Section 9.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its
agent hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents together with such other powers as are
reasonably incidental thereto. The Administrative 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 Lender. The
Administrative Agent shall not be responsible to the Lenders 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 Administrative
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 Administrative 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.
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Section 9.2 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
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 the proper person or persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Administrative Agent. As to any matters not expressly provided for by this
Agreement or the other Loan Documents, the Administrative 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 Required Lenders, and such instructions of the Required Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of
the Lenders.
Section 9.3 EVENTS OF DEFAULT. The Administrative 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 Administrative
Agent has received notice from a Lender or the Borrower specifying such
Default and stating that such notice is a "Notice of Default". In the event
that the Administrative Agent receives such a notice of the occurrence of a
Default, the Administrative Agent shall give notice thereof to the Lenders
(and shall give each Lender notice of each such non-payment). The
Administrative Agent shall (subject to Section 9.7 hereof) take such action
with respect to such Default as shall be directed by the Required Lenders.
Section 9.4 RIGHTS AS A LENDER. With respect to its Commitment and
the Loans made by it, the Administrative Agent in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Administrative
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include the Administrative Agent in its individual capacity. The
Administrative Agent and its Affiliates may (without having to account
therefor to any Lender) 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 Administrative Agent, and the
Administrative 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 Lenders.
Section 9.5 INDEMNIFICATION. The Lenders shall indemnify the
Administrative 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 Lenders (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
Administrative 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
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the enforcement of any of the terms hereof or of any such other documents,
PROVIDED THAT no Lender 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 ADMINISTRATIVE AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Borrower and decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, 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 Administrative 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 Lenders by the Administrative Agent hereunder or under the
other Loan Documents, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower, that
may come into the possession of the Administrative Agent or any of its
Affiliates.
Section 9.7 FAILURE TO ACT. Except for action expressly required of
the Administrative Agent hereunder, the Administrative 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 Lenders
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 ADMINISTRATIVE AGENT. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving not
less than thirty (30) days' prior written notice thereof to the Lenders and
the Borrower, and the Administrative Agent may be removed at any time with or
without cause by the Required Lenders. Upon any such resignation or removal,
the Required Lenders shall have the right to appoint a successor
Administrative Agent from among the Lenders. If no successor Administrative
Agent shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent's giving of notice of resignation or the Required Lenders' removal of
the retiring Administrative Agent, then the retiring Administrative Agent
may, on behalf of the Lenders, after consultation with the Borrower, appoint
a successor Administrative Agent from among the Lenders which shall be a bank
with a combined capital and surplus of at least $100,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article 9 shall
continue in effect for its
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benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Administrative Agent.
Section 9.9 SHARING OF PAYMENTS.
(a) Prior to any acceleration by the Administrative Agent and the
Lenders of the Obligations:
(i) in the event that any Lender 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 Lender in
respect of the corresponding Note held by it, then the Lender so receiving
such greater proportionate payment shall purchase for cash a participation
from the other Lender or Lenders such portion of each such other Lender's or
Lenders' Loan as shall be necessary to cause such Lender receiving the
proportionate overpayment to share the excess payment with each Lender; and
(ii) in the event that any Lender shall obtain payment in respect
of any Interest Rate Contract to which such Lender 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 Lender shall be permitted to retain the full amount
of such payment and shall not be required to share such payment with any
other Lender.
(b) Upon or following any acceleration by the Administrative Agent
and the Lenders of the Obligations, in the event that any Lender shall obtain
payment in respect of a Note, or interest thereon, or in respect of an
Interest Rate Contract to which such Lender 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 Lender in
respect of the aggregate amount of the corresponding Note held by such Lender
and any Interest Rate Contract to which such Lender is a party, then the
Lender so receiving such greater proportionate payment or such greater
proportionate amount of collateral, shall purchase for cash from the other
Lender or Lenders such portion of each such other Lender's or Lenders' Loan,
or shall provide the other Lenders with the benefits of any such collateral,
or the proceeds thereof, as shall be necessary to cause such Lender receiving
the proportionate overpayment to share the excess payment or benefits of such
collateral or proceeds ratably with each Lender. For the purposes of this
subsection 9.9(b), payments on Notes received by each Lender and receipt of
collateral by each Lender shall be in the same proportion as the proportion
of: (A) the sum of: (x) the Obligations owing to such Lender in respect of
the Notes held by such Lender, plus (y) the Obligations owing to such Lender
in respect of Interest Rate Contracts to which such Lender is party, if any,
to (B) the sum of: (x) the Obligations owing to all of the Lenders in
respect of all
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of the Notes, plus (y) the Obligations owing to all of the Lenders in respect
of all Interest Rate Contracts to which any Lender 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 Lender 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 Administrative Agent is authorized on behalf of all the
Lenders, without the necessity of any notice to or further consent from the
Lenders, 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.
(b) The Lenders irrevocably authorize the Administrative Agent, at
its option and in its discretion, to release any Lien granted to or held by
the Administrative 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 Required Lenders or all the Lenders, as the case may be, as provided
in Section 10.6 hereof. Upon request by the Administrative Agent at any
time, the Lenders will confirm in writing the Administrative Agent's
authority to release particular types or items of Collateral pursuant to this
subsection 9.10(b).
Section 9.11 SYNDICATION AGENTS. None of the Lenders identified on the
cover page, introduction or signature pages of this Agreement as a
Syndication Agent or Arranger shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Lenders as such. Each Lender acknowledges that it has not
relied, and will not rely, on any of the Lenders identified as a Syndication
Agent or Arranger in deciding to enter into this Agreement or in taking or
refraining from taking any action hereunder or pursuant hereto.
ARTICLE 10. MISCELLANEOUS PROVISIONS.
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Section 10.1 FEES AND EXPENSES; INDEMNITY. The Borrower will
promptly pay all costs of the Administrative 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 Administrative 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
Lenders and the Administrative 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 Lenders or the Administrative
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 Administrative Agent and/or the Lenders).
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 Lender 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
heeunder or thereunder. In addition to the foregoing, the Borrower shall
indemnify each Lender and the Administrative Agent, their Affiliates, 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 connection with the
Loans (other than as a result of the gross negligence, willful misconduct or
intentional violation of law by the Administrative Agent and/or the Lenders),
including, without limitation, losses, liabilities, damages, claims, costs
and expenses suffered or incurred by any Lender or the Administrative 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 Administrative Agent, the Lenders 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
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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
Administrative Agent and the Lenders 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
Lenders and the Administrative 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 Lender or any other holder of a Note, such Lender, 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 be made to the Administrative Agent
at its Payment Office, in lawful money of the United States of America in
immediately available funds, by wire transfer or otherwise, not later than
2:00 p.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 Lender to which any such payment is due pursuant to applicable
federal,
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state and local income tax laws, and (ii) deduction of amounts equal to the
taxes on or measured by the net income of such Lender payable by such Lender
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 Lender
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 Administrative Agent for the ratable benefit of the Lenders
a Lien on any and all deposits or other sums at any time credited by or due
from the Administrative Agent or any Lender 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 Lender or the
Administrative 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 Lender or the Administrative Agent
against any of the Obligations, whether or not any of such Obligations is
then due or is secured by any Collateral.
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 Required Lenders (and, if the rights or duties of the
Administrative Agent are affected thereby, by the Administrative Agent);
PROVIDED THAT no such amendment or waiver shall, unless signed by all the
Non-Defaulting Lenders, (i) increase the Commitment of any Lender or subject
any Lender to any additional obligation (it being understood that a waiver of
any Default or Event of Default or of a non-scheduled reduction in the
Aggregate Commitment shall not constitute a change in the terms of any
Commitment of any Lender), (ii) reduce the principal of or rate of interest
on any Loan or Fees or Unreimbursed Drawing hereunder (other than as a result
of waiving the applicability of any Post-Default Rate), (iii) 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 or Unreimbursed Drawing 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 (other than ResNet LLC, which shall be
automatically released as a Guarantor upon termination of its existence so
long as the Newco Common Stock is thereafter held by ResNet Inc. or the
Borrower) 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 Required
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Lenders or the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans and Aggregate Revolving Commitment which shall
be required for the Lenders 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 agreements referred to herein embody
the entire agreement and understanding among the Lenders, the Administrative
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 Administrative Agent and the Lenders 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 Administrative Agent or any Lender 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 Lender or the
Administrative Agent and without regard to any other obligation of any nature
whatsoever that any Lender or the Administrative 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 Lender or the
Administrative 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 Administrative 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 Administrative 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:
(a) If to the Borrower:
LodgeNet Entertainment Corporation
3900 West Innovation Street
Sioux Falls, South Dakota 57107
Attention: Mr. Jeffrey T. Weisner
Senior Vice President and Chief Financial
Officer
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Telecopier No.: (605) 330-1323
with a copy to:
Daniel P. Johnson, Esq.
Director of Corporate and Legal Affairs
LodgeNet Entertainment Corporation
3900 West Innovation Street
Sioux Falls, South Dakota 57107
Telecopier No.: (605) 330-1323
(b) If to any Lender:
To its address set forth below its
name on the signature pages hereof,
with a copy to the Administrative Agent; and
(c) If to the Administrative Agent:
National Westminster Bank Plc, as Administrative Agent
65 East 55th Street
New York, New York 10022
Attention: Mr. Andrew S. Weinberg
Telecopier No.: (212) 418-4599
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 (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
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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 Lenders.
(b) Any Lender 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 Lender of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Lender shall remain responsible
for the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement pursuant to which any Lender may grant such a
participating interest shall provide that such Lender 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 Lender 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 2.16,
2.18 and 2.19 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 effect for purposes of this Agreement only to the extent
of a participating interest granted in accordance with this subsection (b).
90
<PAGE>
(c) Any Lender may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part (comprising
equal or unequal percentages of such Lender's Term Loan, on the one hand, and
such Lender's Revolving Loans and Revolving Commitment, on the other hand) 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 E hereto executed by such Assignee and such transferor Lender,
with (and subject to) the subscribed consent of the Borrower, which shall not
be unreasonably withheld, and the Administrative Agent; PROVIDED that if (i)
an Assignee is an affiliate of such transferor Lender or was a Lender
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 Lenders hereunder, be in an aggregate amount less than
$5,000,000 unless the entire Commitment of the assigning Lender is so
assigned. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Lender of an amount equal to the purchase price
agreed between such transferor Lender and such Assignee, such Assignee shall
be a Lender party to this Agreement and shall have all the rights and
obligations of a Lender with a Commitment as set forth in such instrument of
assumption, and the transferor Lender 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 Lender, the Administrative Agent and the
Borrower shall make appropriate arrangements so that, if required, a new Note
or Notes are issued to the Assignee. In connection with any such assignment,
the transferor Lender shall pay to the Administrative 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 Administrative Agent
certification as to exemption from deduction or withholding of any United
States federal income taxes in accordance with subsection 2.16(f) hereof.
(d) Any Lender 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 Lender from its
obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under Sections 2.16,
2.18 or 10.3 hereof than such Lender 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
2.16 or 2.18 hereof requiring such Lender 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
91
<PAGE>
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, 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 10.3 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 10.13 SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT
OF ANY LENDER 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 LENDERS AND THE ADMINISTRATIVE 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.
ARTICLE 11. INCREASES IN COMMITMENTS; CHANGES IN LENDERS
Section 11.1 RESIGNATION OF LENDERS. The parties hereto hereby
acknowledge and confirm that immediately upon the Closing Date the Loans
owing to First Union National Bank and First Hawaiian Bank (collectively, the
"Resigning Lenders") together with all accrued interest thereon shall be
repaid in full and each of the Resigning Lenders shall thereupon cease to be
Lenders and shall cease to have any rights or obligations under this
Agreement or under any
92
<PAGE>
other Loan Documents. Upon each of the Resigning Lender's receipt of an
amount equal to its outstanding Loans and accrued interest, such Resigning
Lender shall return to the Borrower the promissory note made payable by the
Borrower to each such Lender marked "Paid in Full".
Section 11.2 ADDITION OF NEW LENDERS. The parties hereto hereby
acknowledge and confirm that immediately upon the Closing Date (i) each of
Fleet Bank, N.A., Morgan Stanley Senior Funding, Inc., State Street Bank and
Trust Company and Sun Trust Bank, Central Florida, N.A. (each, a "New Lender"
and collectively, the "New Lenders") shall become a party to this Agreement
and shall have the rights and obligations of a Lender hereunder, and (ii)
Commitments of all or some of the Lenders may or shall change and,
accordingly, the Aggregate Commitment and the amount of each Lender's
respective Commitments shall be as reflected on Schedule I hereto.
Section 11.3 NO RELIANCE BY NEW LENDERS. Each of the New Lenders (i)
confirms that it has received a copy of this 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 become
a Lender under this Agreement, (ii) agrees that it will independently and
without reliance upon the Administrative Agent or any Lender other than
itself, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decision in taking
or not taking action under this Agreement, (iii) acknowledges that neither
the Administrative Agent nor any Lender makes any representation or warranty
nor does the Administrative Agent or any Lender assume any responsibility
with respect to (a) any statements, warranties or representations made in or
in connection with this Agreement or any other instrument or document
furnished pursuant thereto or (b) 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 their Obligations under this Agreement or any
other instrument or document furnished pursuant thereto, (iv) appoints and
authorizes the Administrative Agent to take such action as its agent on its
behalf and to exercise such powers under this Agreement as are delegated to
the Administrative Agent by the terms hereof, together with such powers as
are reasonably incidental thereto, and (v) agrees that it will perform in
accordance with their terms all of the obligations which, by the terms of
this Agreement, are required to be performed by it as a Lender.
Section 11.4 NEW NOTES. The Borrower shall, simultaneously with the
execution and delivery of this Agreement, execute and deliver in favor of (i)
each of the New Lenders a Term Note and a Revolving Note in respective
principal amounts equal to the Term Commitment and Revolving Commitment of
such Lender as shown on Schedule I hereto, and (b) each of the other Lenders
a Term Note and new Revolving Note in respective principal amounts equal to
the Term Commitment and Revolving Commitment of such Lender as shown on
Schedule I hereto (collectively, all of the above-described promissory notes
are defined as the "New Notes"), whereupon such Lenders shall return the
existing promissory notes to the Borrower marked "Refinanced by New Notes".
Section 11.5 ADJUSTMENT OF LOAN AMOUNTS. In order to effect the
foregoing, the Lenders shall, on the Closing Date, make appropriate
adjustments among themselves in order
93
<PAGE>
that the amount of Loans outstanding to the Borrower from any Lender under
this Agreement is, in principal amount (as of the Closing Date), in the same
proportion to the outstanding aggregate principal amount of all Loans that
such Lender's Commitment bears to the Aggregate Commitment, after giving
effect to the resignation of the Resigning Lenders from the Lender group, the
addition of the New Lenders to the Lender group, and the increase in the
Aggregate Commitment. All references in this Agreement, the Loan Documents
and all other instruments, documents and agreements executed and delivered
pursuant to any of the foregoing, to "Commitment Percentage", "the ratable
benefit of the Lenders", "pro rata", or terms of similar effect shall be
deemed to refer to the ratable interests of the Lenders, as their respective
pro rata interests shall be adjusted to reflect the changes in the
Commitments of each of the Lenders as set forth on Schedule I hereto. The
Borrower and each of the other Loan Parties agrees and consents to the terms
of this Article 11.
[signature page follows]
94
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
LODGENET ENTERTAINMENT
CORPORATION
By
--------------------------------
Title
-----------------------------
NATIONAL WESTMINSTER BANK PLC,
AS ADMINISTRATIVE AGENT, ISSUING
BANK AND AS A LENDER
By
--------------------------------
Title
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
National Westminster Bank Plc
65 East 55th Street, 24th Floor
New York, New York 10022
Attention: Ian Tarachand
Telephone: (212) 401-1419
Telecopier: (212) 401-1494
Address for Notices:
National Westminster Bank Plc
65 East 55th Street
New York, New York 10022
Attention: Andrew S. Weinberg
Telephone: (212) 418-4567
Telecopier: (212) 418-4599
95
<PAGE>
BANKBOSTON, N.A.,
AS SYNDICATION AGENT, ISSUING BANK
AND LENDER
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attention: Ms. Margie Hery
Telephone: (617) 434-9725
Telecopier: (617) 434-9820
Address for Notices:
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attention: Mr. Daniel M. Kortick
Telephone: (617) 434-6757
Telecopier: (617) 434-3401
<PAGE>
MORGAN STANLEY SENIOR FUNDING, INC.
AS SYNDICATION AGENT AND LENDER
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
Morgan Stanley Dean Witter
1585 Broadway
New York, NY 10036
Attention: Mr. Richard Biggica
Telephone: (212) 761-4838
Telecopier: (212) 761-0592
Address for Notices:
Morgan Stanley Dean Witter
1585 Broadway
New York, NY 10036
Attention: Mr. Henry F.
D'Alessandro
Telephone: (212) 761-1051
Telecopier: (212) 761-0322
<PAGE>
MERCANTILE BANK NATIONAL
ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
Mercantile Bank National
Association
7th and Washington, 12th Floor
St. Louis, Missouri 63101
Attention:
-----------------------
Telephone:
-----------------------
Telecopier:
----------------------
Address for Notices:
Mercantile Bank National
Association
7th and Washington, 12th Floor
St. Louis, MO 63101
Attention: Mr. Alec Blanc
Telephone: (314) 418-3922
Telecopier: (314) 418-8292
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402
Attention: Ms. Denise Seidl
Telephone: (612) 973-0619
Telecopier: (612) 973-0823
Address for Notices:
U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402
Attention: Mr. Josh Pirozzolo
Telephone: (612) 973-0520
Telecopier: (612) 973-0823
<PAGE>
FLEET BANK, N.A.
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
Fleet Bank
1185 Avenue of the Americas
New York, NY 10036
Attention:
-----------------------
Telephone:
-----------------------
Telecopier:
----------------------
Address for Notices:
Fleet Bank
1185 Avenue of the Americas
New York, NY 10036
Attention: Mr. Russ Lopinto
Telephone: (212) 819-6045
Telecopier: (212) 816-6202
<PAGE>
STATE STREET BANK AND TRUST
COMPANY
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention:
-----------------------
Telephone:
-----------------------
Telecopier:
----------------------
Address for Notices:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Ms. Diane Rooney
Telephone: (617) 664-4963
Telecopier: (617) 664-3708
<PAGE>
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
Sun Trust Bank
200 South Orange Avenue
Orlando, Florida 32801
Attention: Ms. Sarah Grenzer
Telephone: (407) 237-5280
Telecopier: (407) 237-4253
Address for Notices:
Sun Trust Bank
200 South Orange Avenue
Orlando, Florida 32801
Attention: Mr. David Miller
Telephone: (407) 237-4299
Telecopier: (407) 237-5126
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:
--------------------------------
Title:
-----------------------------
Lending Office for Base Rate and
Eurodollar Loans:
Union Bank of California, N.A.
455 South Figueroa Street
Los Angeles, California 90071
Attention:
-----------------------
Telephone:
-----------------------
Telecopier:
----------------------
Address for Notices:
Union Bank of California, N.A.
455 South Figueroa Street
Los Angeles, California 90071
Attention: Mr. James Opdyke
Telephone: (213) 236-7881
Telecopier: (213) 236-5747
<PAGE>
SCHEDULE I
TERM AND REVOLVING COMMITMENTS
<TABLE>
<CAPTION>
Term Revolving
Bank Commitment Commitment Percentage
<S> <C> <C> <C>
National Westminster Bank Plc 8,333,333.34 8,333,333.34 11.2%
BankBoston, N.A. 8,333,333.33 8,333,333.33 11.1%
Morgan Stanley Senior Funding, Inc. 8,333,333.33 8,333,333.33 11.1%
Mercantile Bank National Association 10,000,000.00 10,000,000.00 13.3%
U.S. Bank National Association 10,000,000.00 10,000,000.00 13.3%
Fleet Bank, N.A. 7,500,000.00 7,500,000.00 10%
State Street Bank and Trust Company 7,500,000.00 7,500,000.00 10%
Sun Trust Bank, Central Florida, N.A. 7,500,000.00 7,500,000.00 10%
Union Bank of California 7,500,000.00 7,500,000.00 10%
-------------- -------------- -----
Total $75,000,000.00 $75,000,000.00 100%
</TABLE>
<PAGE>
SCHEDULE II
AMORTIZATION OF TERM LOANS
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Term Loan Principal Payment Date Amount
- -----------------------------------------------------------
<S> <C>
March 31, 2001 $3,750,000
- -----------------------------------------------------------
June 30, 2001 $3,750,000
- -----------------------------------------------------------
September 30, 2001 $3,750,000
- -----------------------------------------------------------
December 31, 2001 $3,750,000
- -----------------------------------------------------------
March 31, 2002 $4,687,500
- -----------------------------------------------------------
June 30, 2002 $4,687,500
- -----------------------------------------------------------
September 30, 2002 $4,687,500
- -----------------------------------------------------------
December 31, 2002 $4,687,500
- -----------------------------------------------------------
March 31, 2003 $4,687,500
- -----------------------------------------------------------
June 30, 2003 $4,687,500
- -----------------------------------------------------------
September 30, 2003 $4,687,500
- -----------------------------------------------------------
December 31, 2003 $4,687,500
- -----------------------------------------------------------
March 31, 2004 $5,625,000
- -----------------------------------------------------------
June 30, 2004 $5,625,000
- -----------------------------------------------------------
September 30, 2004 $5,625,000
- -----------------------------------------------------------
December 31, 2004 $5,625,000
- -----------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
FORM OF TERM NOTE
$________________ New York, New York
February ___, 1999
FOR VALUE RECEIVED, the undersigned LODGENET ENTERTAINMENT CORPORATION,
a Delaware corporation (the "Borrower"), hereby unconditionally promises to
pay to the order of _________________________________ ("Lender"), at the
address of NATIONAL WESTMINSTER BANK PLC, as administrative agent (the
"Administrative Agent") for Lender, at 65 East 55th Street, New York, New
York 10022, or at such other place as the Administrative Agent may from time
to time designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum of
_______________________ DOLLARS AND NO CENTS ($____________), payable on the
dates and in the amounts set forth in the Credit Agreement defined below.
This Term Note is one of the Notes referred to in, was executed and
delivered pursuant to, and evidences the obligation of the Borrower under,
that certain Second Amended and Restated Credit Agreement dated as of
February 25, 1999 by and among the Borrower, the Administrative Agent, Bank
Boston, N.A. and Morgan Stanley Dean Witter, as Syndication Agents, and the
other financial institutions from time to time party thereto (as the same may
be amended, restated, modified or supplemented and in effect from time to
time, 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 repaid and for a statement of the Administrative Agent's
and Lender's remedies upon the occurrence of an Event of Default.
Capitalized terms used but not otherwise defined herein have the meanings set
forth in the Credit Agreement. The Term Loan made by Lender to the Borrower
pursuant to the Credit Agreement evidenced hereby and all payments on account
of principal hereof shall be recorded by Lender and prior to any transfer
thereof, endorsed on SCHEDULE A attached hereto which is part of this Term
Note or otherwise in accordance with its usual practices, PROVIDED, HOWEVER,
that the failure to so record or any error in any such record shall not
affect the Borrower's obligations under this Term Note.
The Borrower further promises to pay interest on the outstanding unpaid
principal amount hereof from the date hereof until payment in full hereof at
the rate from time to time applicable to the Term Loan evidenced hereby as
determined in accordance with the Credit Agreement.
This Term Note is secured pursuant to the Credit Agreement and the Loan
Documents referred to therein, and reference is made thereto for a statement
of the terms and conditions of such security.
A-1
<PAGE>
The Administrative Agent shall have the continuing exclusive right to
apply and to reapply any and all payments hereunder against the Obligations
in the manner set forth in the Credit Agreement.
The Borrower hereby waives demand, presentment and protest and notice of
demand, presentment, protest and nonpayment.
The Borrower further agrees, subject only to any limitation imposed by
applicable law, to pay all reasonable expenses, including attorneys' fees and
legal expenses, incurred by the holder of this Term Note in endeavoring to
collect any amounts payable hereunder which are not paid when due, whether by
acceleration or otherwise in accordance with the provisions of the Credit
Agreement.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE AGENT AND
LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
Whenever possible each provision of this Term Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Term Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Term Note. Whenever in this
Term Note reference is made to the Administrative Agent, Lender or the
Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective permitted successors and assigns and, in the
case of Lender, any financial institutions to which it has sold or assigned
all or any part of its commitment to make the Term Loan evidenced hereby as
permitted under the Credit Agreement. The provisions of this Term Note shall
be binding upon and shall inure to the benefit of such permitted successors
and assigns. The Borrower's successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for the
Borrower.
LODGENET ENTERTAINMENT CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
A-2
<PAGE>
SCHEDULE A
Term Note
dated February ___, 1999
PRINCIPAL PAYMENTS
- -----------------------------------------------------------------------------
Amount of Amount of Unpaid
Principal Principal Principal Notation
Date Borrowed Repaid Balance Made by
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A-3
<PAGE>
EXHIBIT B
FORM OF REVOLVING NOTE
$________________ New York, New York
February ___, 1999
FOR VALUE RECEIVED, the undersigned LODGENET ENTERTAINMENT CORPORATION,
a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of _________________________________ ("Lender"), at the address of NATIONAL
WESTMINSTER BANK PLC, as administrative agent (the "Administrative Agent")
for Lender, at 65 East 55th Street, New York, New York 10022, or at such
other place as the Administrative Agent may designate from time to time in
writing, in lawful money of the United States of America and in immediately
available funds, the principal sum of _______________________ DOLLARS AND NO
CENTS ($____________) or, if less, the aggregate unpaid amount of Lender's
Commitment Percentage (as defined in the Credit Agreement (as hereunder
defined)) under the Credit Agreement. The principal amount of this Revolving
Note shall be payable in the amounts and at such times as set forth in the
Credit Agreement with any then outstanding principal amount of this Revolving
Note being payable in full on the Facility Termination Date (as defined in
the Credit Agreement).
This Revolving Note is one of the Notes referred to in, was executed and
delivered pursuant to, and evidences the obligation of the Borrower under,
that certain Second Amended and Restated Credit Agreement dated as of
February 25, 1999 by and among the Borrower, the Administrative Agent,
BankBoston, N.A. and Morgan Stanley Dean Witter, as Syndication Agents, and
the other financial institutions from time to time party thereto (as the same
may be amended, restated, modified or supplemented and in effect from time to
time, the "Credit Agreement"), to which reference is hereby made for a
statement of the terms and conditions under which the loans evidenced hereby
are made and are to be repaid and for a statement of the Administrative
Agent's and Lender's remedies upon the occurrence of an Event of Default.
Capitalized terms used but not otherwise defined herein have the meanings set
forth in the Credit Agreement. The Revolving Loans made by Lender to the
Borrower pursuant to the Credit Agreement and all payments on account of
principal hereof shall be recorded by Lender, and prior to any transfer
thereof, endorsed on SCHEDULE A attached hereto which is part of this
Revolving Note or otherwise in accordance with its usual practices; PROVIDED,
HOWEVER, that the failure to so record or any error in any such record shall
not affect the Borrower's obligations under this Revolving Note.
The Borrower further promises to pay interest on the outstanding unpaid
principal amount hereof from the date hereof until payment in full hereof at
the rate from time to time applicable to the Revolving Loans as determined in
accordance with the Credit Agreement.
B-1
<PAGE>
This Revolving Note is secured pursuant to the Credit Agreement and the
Loan Documents referred to therein, and reference is made thereto for a
statement of the terms and conditions of such security.
The Administrative Agent shall have the continuing exclusive right to
apply and to reapply any and all payments hereunder against the Obligations
in the manner set forth in the Credit Agreement.
The Borrower hereby waives demand, presentment and protest and notice of
demand, presentment, protest and nonpayment.
The Borrower further agrees, subject only to any limitation imposed by
applicable law, to pay all reasonable expenses, including attorneys' fees and
legal expenses, incurred by the holder of this Revolving Note in endeavoring
to collect any amounts payable hereunder which are not paid when due, whether
by acceleration or otherwise in accordance with the provisions of the Credit
Agreement.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE
AGENT AND LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
Whenever possible each provision of this Revolving Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Revolving Note shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Revolving Note. Whenever in
this Revolving Note reference is made to the Administrative Agent, Lender or
the Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective permitted successors and assigns and, in the
case of Lender, any financial institutions to which it has sold or assigned
all or any part of its commitment to make the Revolving Loans as permitted
under the Credit Agreement. The provisions of this Revolving Note shall be
binding upon and shall inure to the benefit of such permitted successors and
assigns. The Borrower's successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for the
Borrower.
LODGENET ENTERTAINMENT CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
B-2
<PAGE>
SCHEDULE A
Revolving Note
dated February ___, 1999
PRINCIPAL PAYMENTS
- --------------------------------------------------------------------------------
Amount of Amount of Unpaid
Principal Principal Principal Notation
Date Borrowed Repaid Balance Made by
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-3
<PAGE>
EXHIBIT C
FORM OF NOTICE OF BORROWING
______________, ___
National Westminster Bank Plc,
as Administrative Agent
65 East 55th Street, 21st Floor
New York, New York 10022
Attention: Ian Tarachand
Re: NOTICE OF BORROWING
Gentlemen:
The undersigned, LODGENET ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Borrower"), hereby refers to that certain Second Amended
and Restated Credit Agreement dated as of February 25, 1999 (as from time to
time amended, restated, supplemented or otherwise modified, the "Credit
Agreement", the terms defined therein being used herein as therein defined),
among the Borrower, National Westminster Bank Plc, as Administrative Agent,
BankBoston, N.A. and Morgan Stanley Dean Witter, as Syndication Agents, and
the other financial institutions from time to time party thereto, and hereby
gives you notice, pursuant to Section 2.3 of the Credit Agreement, that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in
that connection sets forth below the information relating to such Borrowing
as required by Section 2.3 of the Credit Agreement:
(i) The aggregate amount of the requested Borrowing is $____________
[minimum of $500,000 or any multiple of $500,000 in excess thereof
for Base Rate Loans; $1,000,000 or any multiple of $1,000,000 in
excess thereof for Eurodollar Loans].
(ii) The requested date for the Borrowing is ___________, ___
[must be a Business Day].
(iii) The Borrowing shall be comprised of [Eurodollar/Base Rate Loans].
(iv) For Eurodollar Loans requested herein, the duration of the Interest
Period is ___________. [Failure to specify shall result in Interest
Period of one (1) month.]
C-1
<PAGE>
The undersigned hereby certifies that all conditions precedent set forth
in Section 4.2 of the Credit Agreement have been fulfilled.
Very truly yours,
LODGENET ENTERTAINMENT
CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
C-2
<PAGE>
EXHIBIT D
FORM OF NOTICE OF CONVERSION/CONTINUATION
______________, ___
National Westminster Bank Plc,
as Administrative Agent
65 East 55th Street, 21st Floor
New York, New York 10022
Attention: Ian Tarachand
Re: NOTICE OF CONVERSION/CONTINUATION
Gentlemen:
The undersigned, LODGENET ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Borrower"), hereby refers to that certain Second Amended
and Restated Credit Agreement dated as of February 25, 1999 (as from time to
time amended, restated, supplemented or otherwise modified, the "Credit
Agreement", the terms defined therein being used herein as therein defined),
among the Borrower, National Westminster Bank Plc, as Administrative Agent,
BankBoston, N.A. and Morgan Stanley Dean Witter, as Syndication Agents, and
the other financial institutions from time to time party thereto, and hereby
gives you notice, pursuant to Section 2.4 (b) of the Credit Agreement, that
the undersigned hereby requests a conversion or continuation of Loans under
the Credit Agreement, and in that connection sets forth below the information
relating to such conversion or continuation as required by Section 2.4(b) of
the Credit Agreement:
(i) The proposed conversion date or continuation date is ____________.
(ii) The aggregate amount of Loans to be converted or continued
is $___________.
(iii) The nature of the proposed conversion or continuation is as follows:
--------------------------
--------------------------
--------------------------
D-1
<PAGE>
(iv) For conversion into or continuations involving Eurodollar Loans
herein, the duration of the requested Interest Period is _________.
[Failure to specify shall result in Interest Period of one (1)
month.]
The undersigned hereby certifies that all conditions precedent set forth in
Section 4.2 of the Credit Agreement have been fulfilled.
Very truly yours,
LODGENET ENTERTAINMENT
CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
D-2
<PAGE>
EXHIBIT E
ASSIGNMENT AND ASSUMPTION AGREEMENT
Dated ___________
Reference is hereby made to that certain Second Amended and Restated
Credit Agreement dated as of February 25, 1999 (the "CREDIT AGREEMENT") by
and among LodgeNet Entertainment Corporation, a Delaware corporation (the
"BORROWER"), National Westminster Bank Plc, as Administrative Agent,
BankBoston, N.A. and Morgan Stanley Dean Witter, as Syndication Agents, and
the other financial institutions from time to time party thereto.
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 Term Commitment and Revolving Commitment as in effect on the
Effective Date, the Term and Revolving Loans owing to the Assignor on the
Effective Date, and the Term and Revolving Notes held by the Assignor).
2. The Assignor: (i) represents and warrants that as of the date
hereof its Term and Revolving Commitment (without giving effect to
assignments thereof that have not yet become effective) are $__________ and
$__________, respectively, and the aggregate outstanding principal amount of
Term and Revolving Loans owing to it (without giving effect to assignments
thereof that have not yet become effective) are $__________ and $__________,
respectively; (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
Term and Revolving Notes referred to in paragraph 1 above and requests that
the Administrative Agent exchange such Notes for new Notes as follows: (y) a
Term 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
Term Note dated
E-1
<PAGE>
the Effective Date in the principal amount of $ __________ payable to the
order of the Assignor, and (z) a Revolving Note dated the Effective Date in
the principal amount of $_________ payable to the order of the Assignee and a
Revolving 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 this Assignment and Assumption
Agreement; (ii) agrees that it will, independently and without reliance upon
the Administrative Agent, the Assignor or any other Lender 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 Administrative 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 Administrative 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 Lender; 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 page 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
Administrative Agent for acceptance by the Administrative 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
Lender 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
Administrative Agent shall make all payments under the Credit Agreement and
the Notes 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 Notes
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.
E-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 and
Eurodollar Loans:
Address for Notices:
Accepted this ___ day Accepted this ___ day
of ______________, ___ of ______________, ___
NATIONAL WESTMINSTER BANK PLC, LODGENET ENTERTAINMENT
as Administrative Agent CORPORATION
By By
---------------------------- ------------------------------
Title Title
------------------------- ---------------------------
E-3
<PAGE>
EXHIBIT F
BORROWER U.S. LEGAL OPINION
1. Each of the Borrower and ResNet Inc. 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 Inc. 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 Inc. 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 Inc.
2. The execution, delivery and performance of each of the Loan
Documents to which the Borrower or ResNet Inc. is a party have been duly
authorized by the Borrower and ResNet Inc. (as applicable), and each of the
Loan Documents constitutes the legal, valid and binding obligation of the
Borrower and ResNet Inc. (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 Inc. of the Loan Documents to
which it is a party, nor the consummation by each of the Borrower and ResNet
Inc. of the transactions contemplated thereby: (i) violates any provision of
the Borrower's or ResNet Inc.'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 Inc.; (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 Inc. 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 Inc. 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.
4. To our knowledge, there are no judgments outstanding against the
Company or ResNet Inc. 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 Inc. is in
default with respect to any agreement, resolution, decree, bond, note,
indenture, order or judgment to which it is a
F-2
<PAGE>
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.
6. Neither the Borrower nor ResNet Inc. 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 Inc. 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 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.
F-3
<PAGE>
CONFIDENTIAL TREATMENT REQUEST. CONFIDENTIAL
PORTIONS OF THIS AGREEMENT HAVE BEEN REDACTED AND HAVE
BEEN SEPARATELY FILED WITH THE COMMISSION
CONFIDENTIAL
LICENSE AGREEMENT FOR
USE OF NINTENDO VIDEO GAME SYSTEMS
WITH HOTEL GUEST ENTERTAINMENT SYSTEM
THIS AGREEMENT is entered into by and between NINTENDO OF AMERICA INC.,
a corporation of Washington, having an address for notice purposes of 4820 -
150th Avenue N.E., P.O. Box 957, Redmond, Washington 98052, Attn: General
Counsel (Fax: 425-882-3585) ("NINTENDO"), and LODGENET ENTERTAINMENT
CORPORATION, a corporation of Delaware, having an address for notice purposes
of 3900 West Innovation Street, Sioux Falls, South Dakota 57107-7200 Attn:
President (Fax: 605-988-1323) ("LODGENET").
1. RECITALS
1.1 NINTENDO distributes and sells high-quality video game systems,
including the SUPER NINTENDO ENTERTAINMENT SYSTEM-Registered Trademark- or
SUPER NES-Registered Trademark- and the NINTENDO 64-Registered Trademark- or
N64-TM-
1.2 NINTENDO or its parent corporation, Nintendo Co., Ltd. ("NCL"), is
the holder of various patents, trademarks, copyrights, mask works and other
proprietary rights and information which relate to NINTENDO's video game
systems.
1.3 LODGENET is engaged in the business of owning, operating and
providing in-room hotel guest entertainment systems for the lodging industry.
1.4 LODGENET owns certain intellectual property rights which relate to
in-room hotel guest entertainment for the lodging industry.
1.5 NINTENDO and LODGENET previously entered into an agreement pursuant
to which LODGENET has placed a modified version of NINTENDO's SUPER NES in
various hotels as part of LODGENET's hotel guest entertainment system.
1.6 The parties desire to terminate their prior agreement (but not the
continuing obligations set forth under Paragraph 12.5 of the prior agreement)
and enter into a new agreement pursuant to which LODGENET would acquire a
non-exclusive license under NINTENDO or NCL's intellectual property rights to
use, license and sell modified versions of NINTENDO's N64 as part of
LODGENET's hotel guest entertainment system.
NOW, THEREFORE, the parties agree as follows:
2. DEFINITIONS
2.1 "Actual Cost(s)" shall mean NINTENDO's actual cost to provide the
product to LODGENET, including order processing, materials, production,
shipping, warranty and administration, as determined by NINTENDO on an order
by order basis.
2.2 "Approved Subdistributor(s)" shall mean the subdistributors of
LODGENET set forth at SCHEDULE 1, together with any other subdistributors
that the parties may mutually agree upon in writing in the future.
2.3 "Approved Subdistributor Acknowledgment" shall mean a written
acknowledgment in the form set forth at SCHEDULE 4.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 1
MAY 12, 1998 (FINAL)
<PAGE>
2.4 "Approved Subdistributor Request" shall mean a written request in
the form set forth at SCHEDULE 3.
2.5 "Delivery" shall mean F.O.B. NINTENDO, Redmond, Washington, USA.
2.6 "Effective Date" shall mean the last date of signature below.
2.7 "Game Media" shall mean floppy disks, CDS or other medium containing
the Licensed Games in a format which can be downloaded for use on the
applicable Nintendo System.
2.8 "Game List" shall mean a listing of the then-current Licensed Game
titles available for license to LODGENET under this Agreement.
2.9 "Gross Revenue" shall mean 100% of all revenue generated from the
Nintendo Systems and/or Licensed Games by a Licensed Hotel, without deduction
for any costs, fees or bad debt, but not including any Licensed Hotel guest
adjustments or applicable sales taxes which a Licensed Hotel is required to
pay on such revenue.
2.10 "Guest Information Record" shall mean a written report from a
Licensed Hotel to LODGENET or an Approved Subdistributor in the form set
forth at SCHEDULE 6.
2.11 "Hotel Guest System(s)" shall mean interactive hotel guest
entertainment systems.
2.12 "Licensed Game(s)" shall mean video games approved by NINTENDO for
play on the Nintendo Systems.
2.13 "Licensed Hotel(s)" shall mean any hotel property in which a Hotel
Guest System from LODGENET that incorporates a Nintendo System has been
installed.
2.14 "Licensed Hotel Acknowledgment" shall mean a written acknowledgment
in the form set forth at SCHEDULE 2.
2.15 "Licensed Intellectual Proper(ties)" shall mean the Licensed
Patents and the Licensed Proprietary Information, together with the
trademarks, copyrights, mask works and trade secrets owned by or licensed to
NINTENDO or NCL and associated with the Licensed Products.
2.16 "Licensed Patent(s)" shall mean the patents and patent applications
owned or used under license by NINTENDO or NCL and associated with Hotel
Guest Systems for video game play and/or to the Licensed Products,
specifically including US Patent No. 5,581,270 and any divisionals,
continuations, reissues or reexaminations thereof, and also including any
patent applications owned or used under license by NINTENDO or NCL which are
filed during the Term that cover or relate to Hotel Guest Systems for video
game play.
2.17 "Licensed Product(s)" shall mean collectively or individually the
Super NES, Super NES Controller, N64, N64 Controller, Licensed Games and Game
Media. The Licensed Products shall not include the communication protocols
developed by LODGENET and incorporated into the Super NES, Super NES
Controller, N64 or N64 Controller.
2.18 "Licensed Proprietary Information" shall mean collectively or
individually, technical and proprietary information, know-how, techniques,
methods, information and trade secrets owned by or licensed to NINTENDO or
NCL, relating to the development, design, operation, manufacture and sale of
the Licensed Products.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 2
MAY 12, 1998 (FINAL)
<PAGE>
2.19 "Licensee Monthly Royalty Report" shall mean a written report from
LODGENET or an Approved Subdistributor in the form set forth at SCHEDULE 5.
2.20 "Monthly Board Reconciliation Report" shall mean a written report
from LODGENET to NINTENDO in the form set forth at SCHEDULE 7.
2.21 "N64" shall mean NINTENDO's N64 video game system modified for use
with LODGENET's Hotel Guest System.
2.22 "N64 Controller(s)" shall mean NINTENDO's standard hand controller
for use with the N64, as adapted for use with LODGENET's Hotel Guest System.
2.23 "NDA(s)" shall mean, individually or collectively, those certain
agreements between the parties entitled: (a) "Nintendo of America Inc.
Non-Disclosure Agreement" dated March 11, 1992; and, (b) "Product Developer
Non-Disclosure Agreement For "Nintendo 64" Home System" dated October 16,
1996.
2.24 "Nintendo System(s)" shall mean, individually or collectively, the
Super NES and the N64, adapted for use with LODGENET's Hotel Guest System.
2.25 "Notice(s)" shall mean all notices, reports, and statements under
this Agreement, which shall be sufficiently given when placed in writing and:
(a) personally served or delivered to the party entitled to such Notice; (b)
deposited, postage prepaid, with an overnight air courier service, addressed
to the person and address stated herein, or to such other person or address
as may be provided in a Notice by one party to the other, or, (c) transmitted
by facsimile with an original sent concurrently by overnight air courier,
addressed to the person, facsimile number, and address stated above, or to
such other person, address or facsimile number as may be provided in a Notice
by one party to the other. Notice shall be deemed effective upon the earlier
of actual receipt or five (5) business days after mailing or transmittal.
2.26 "Prior Agreement" shall mean the agreement between the parties
entitled "Confidential License Agreement for Use of Super Nintendo
Entertainment System With Integrated Hotel Entertainment and Hotel Guest
Related Communications System", as amended, with an effective date of May 12,
1993 and an expiration date of May 12, 2000.
2.27 "Product Specification(s)" shall mean the technical and operating
specifications for the Nintendo Systems and the N64 Controller, as mutually
agreed upon by the parties.
2.28 "Room(s)" shall mean hotel guest rooms, and shall include each
location in which a Nintendo System is available for use or which has the
capability of accessing the use of a Nintendo System by means of a
communication link or other system, including, but not limited to a Hotel
Guest System. A suite within a Licensed Hotel shall be considered as one
"Room" for purposes of this Agreement. Rooms shall not include public areas
within a Licensed Hotel or any other location.
2.29 "Super NES" shall mean NINTENDO's Super NES modified for use with
LODGENET's Hotel Guest System
2.30 "Super NES Controller(s)" shall mean a hand controller designed by
or for LODGENET for use with the Super NES.
2.31 "Term" shall mean ten (10) years from the Effective Date, together
with any extension of the Term under Paragraph 13.6 herein.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 3
MAY 12, 1998 (FINAL)
<PAGE>
2.32 "Territory" shall mean those countries set forth at SCHEDULE 1,
together with any other countries that the parties may mutually agree upon in
writing in the future.
2.33 "Test Game(s)" shall mean up to five (5) N64 video games selected
by NINTENDO and provided on Game Media for use during an approved beta test.
3. PRODUCT SPECIFICATIONS; DEVELOPMENT OF PROTOTYPE N64; BETA TEST
3.1 PROTOTYPE N64 AND N64 CONTROLLER DELIVERY. NINTENDO agrees to
develop prototypes of the N64 and the N64 Controller to operate in connection
with LODGENET's Hotel Guest System, in accordance with the schedule mutually
to be agreed upon by the parties. NINTENDO and LODGENET shall confer on an
ongoing basis to discuss specifications for the prototype N64 and N64
Controller. To the extent necessary during the testing process, NINTENDO
shall provide to LODGENET prototypes of the N64 or N64 Controller for use in
the testing process.
3.2 BETA TEST: TEST GAMES. LODGENET agrees to undertake beta testing at
two operational hotel properties (each of which shall also be a Licensed
Hotel) to ascertain the technical, operational and marketing compatibility of
the N64 and the N64 Controller prototypes with LODGENET's Hotel Guest System.
NINTENDO agrees to supply to LODGENET a sufficient number of prototypes for
use during the beta test only. LODGENET is authorized to install and utilize
the Test Games during the beta test in Rooms of the Licensed Hotels for a
period of not more than sixty (60) days. In the event LODGENET or the
Licensed Hotels elect to charge for use of the Test Games during the beta
test, LODGENET shall pay royalties to NINTENDO with respect to the use of the
Test Games as specified at Section 8 herein.
3.3 BETA TEST COMPLETION; N64 AND N64 CONTROLLER PRODUCT
SPECIFICATIONS. Following completion of the beta test, the parties shall
mutually agree in writing on the Product Specifications for the N64 and N64
Controllers to be provided under this Agreement.
3.4 PROVISION OF APPROVED PRODUCT. NINTENDO agrees to sell to LODGENET
the N64 and N64 Controllers meeting the Product Specifications. NINTENDO may,
at its option, utilize remanufactured parts or components in the N64 and the
N64 Controllers, provided all Product Specifications are met.
3.5 CHANGE IN PRODUCT SPECIFICATIONS. Changes in the Product
Specifications shall be made only upon the mutual agreement of the parties.
In the event it is necessary to change Product Specifications for the PAL
television standard, the parties shall mutually agree upon a development
schedule and a beta test program.
4. GRANT OF RIGHTS; SALE: LICENSE BY NINTENDO
4.1 GRANT. NINTENDO hereby grants to LODGENET and LODGENET hereby
accepts under the terms and conditions provided herein, a nonexclusive right
and license to the Licensed Intellectual Properties to: (a) use (but, with
the exception of the Super NES Controller, not make) the Licensed Products;
and, (b) make, use or sell Hotel Guest Systems incorporating the Licensed
Products for video game play. All such rights and licenses shall be exercised
solely in connection with the placement of LODGENET's Hotel Guest System for
video game play in Rooms of Licensed Hotels in the Territory.
4.2 SALE AND LICENSE OF LICENSED PRODUCTS TO LODGENET. To carry out the
grant in Paragraph 4.1, NINTENDO agrees sell to LODGENET the N64 and the N64
Controllers and to license and provide to LODGENET the Licensed Games for
play on the Super NES and the N64.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 4
MAY 12, 1998 (FINAL)
<PAGE>
4.3 RIGHT TO UTILIZE THE LICENSED PRODUCTS IN THE LICENSED HOTELS.
LODGENET shall have the right to utilize the Licensed Products in the
Licensed Hotels. Prior to the commencement of services incorporating the
Licensed Products, each Licensed Hotel shall have either: (a) signed a
Licensed Hotel Acknowledgment; or, (b) signed an agreement with LODGENET or
an Approved Subdistributor which includes all provisions contained in the
Licensed Hotel Acknowledgment. LODGENET agrees to enforce such acknowledgment
or agreement, in addition to all applicable restrictions, conditions and
limitations of this Agreement with respect to each Licensed Hotel. If
LODGENET does not undertake such enforcement efforts, NINTENDO may, without
prejudice to any rights or claim of indemnity it may have for breach of this
Agreement, upon twenty (20) days' Notice to LODGENET, undertake such
enforcement efforts, recovering from LODGENET all reasonable costs and
expenses associated with such enforcement efforts. LODGENET shall provide
reasonable assistance as may be requested by NINTENDO.
4.4 EXCEPTION TO REQUIREMENT TO OBTAIN LICENSED HOTEL ACKNOWLEDGMENT OR
AGREEMENT. With respect to Licensed Hotels of LODGENET continuing from the
Prior Agreement, LODGENET or an Approved Subdistributor shall not be required
to obtain a Licensed Hotel Acknowledgment or an agreement containing those
provisions if the following conditions apply: (a) the Licensed Hotel has not
purchased or otherwise acquired title to or an ownership interest of any kind
whatsoever to all or any part of the Licensed Products; (b) LODGENET
continuously maintains the ability to immediately render the Licensed
Products inoperable by the Licensed Hotel; and, (c) LODGENET shall
immediately render the Licensed Products inoperable by the Licensed Hotel in
the event LODGENET becomes aware of a default by the Licensed Hotel with
respect to any representation, warranty or agreement relating to the use of
the Licensed Products or in the event of any termination of the Agreement
between NINTENDO and LODGENET or the business relationship between LODGENET
and the Licensed Hotel. Notwithstanding this exception, LODGENET shall obtain
a Licensed Hotel Acknowledgment or agreement containing those provisions for
any new Licensed Hotel hereunder and for any renewal or restatement of its
agreements with Licensed Hotels continuing from the Prior Agreement.
4.5 RIGHT TO APPOINT APPROVED SUBDISTRIBUTORS. LODGENET shall have the
right to appoint Approved Subdistributors of the Licensed Products in the
Territory, following submission to and approval by NINTENDO of an Approved
Subdistributor Request. Prior to receiving the Licensed Products, each
Approved Subdistributor shall have either: (a) signed an Approved
Subdistributor Acknowledgment; or, (b) signed a written agreement with
LODGENET which includes all provisions contained in the Approved
Subdistributor Acknowledgment. LODGENET agrees to enforce such acknowledgment
or agreement, in addition to all applicable restrictions, conditions and
limitations of this Agreement with respect to each Approved Subdistributor.
If LODGENET does not undertake such enforcement efforts, NINTENDO may, upon
twenty (20) days' Notice to LODGENET, undertake such enforcement efforts,
recovering from LODGENET all reasonable costs and expenses associated with
such enforcement efforts. LODGENET shall provide reasonable assistance as may
be requested by NINTENDO.
4.6 LICENSED GAME TITLES: GAME LIST. The license of the Licensed Games
to LODGENET shall include the right to utilize a minimum of Five (5) Licensed
Game titles from the current Game List in each Licensed Hotel. Upon execution
of this Agreement, NINTENDO shall provide LODGENET with the current Game List
and expiration date for use of each game title. Thereafter, NINTENDO may add
or delete game titles from the Game List by providing a new Game List to
LODGENET. LODGENET represents and warrants that on or before the expiration
date for each game title, it shall remove, disable or destroy all copies of
the game title, whether in the possession of LODGENET, an Approved
Subdistributor or a Licensed Hotel, including copies installed on any
Licensed Hotel's host computer.
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4.7 DELIVERY; AUTHORIZATION TO COPY. NINTENDO has previously provided
LODGENET with Game Media for Licensed Game titles on the current Game List.
In the future, NINTENDO shall provide LODGENET with Game Media for any game
titles on the then-current Game List that may be requested by LODGENET. Upon
delivery to NINTENDO of a signed Approved Subdistributor Acknowledgment,
LODGENET is authorized to copy the Game Media for any titles on the
then-current Game List and to provide them to an Approved Subdistributor.
LODGENET or an Approved Subdistributor may load the Licensed Games onto the
Hotel Guest System of the Licensed Hotels. In the event Licensed Games are
copied or delivered electronically hereunder, LODGENET and/or an Approved
Subdistributor shall use a secure network line or such state-of-the-art
encryption technology in making the transfer as is commercially available at
the time. LODGENET shall remain liable for the security of the Licensed Games
at all times during and after such transfers as set forth in Paragraphs 4.4
and 5.7.
4.8 CONTROLLER FOR SUPER NES. LODGENET shall have the right to develop
or purchase third party game controllers for use only with the Super NES,
subject to NINTENDO's prior approval with respect to its quality and
operation of such Super NES Controller. Such approval shall not be
unreasonably withheld or delayed.
4.9 CONTROLLER FOR N64. LODGENET and NINTENDO shall cooperate in the
adaptation of the N64 Controller for use in LODGENET's Hotel Guest System. As
between NINTENDO and LODGENET, all adaptations and inventions associated with
or derived from such adaptations, including all design patents and industrial
design rights, but excluding LODGENET's copyrights in communication
protocols, shall be owned solely by NINTENDO and/or NCL. During the Term and
any extension thereof, NINTENDO shall not sell or license any N64 Controller
for use in Hotel Guest Systems that bears the LODGENET logo or the same
button color configuration as the N64 Controller adapted for use with the
LODGENET Hotel Guest System.
5. OBLIGATIONS AND UNDERTAKINGS OF LODGENET
5.1 GOOD FAITH OBLIGATION TO MARKET AND PROMOTE. LODGENET undertakes and
agrees to use good faith efforts to market and promote the Licensed Products
throughout the Territory.
5.2 MINIMUM INSTALLATION REQUIREMENTS FOR N64. LODGENET agrees to
install the N64 as a part of LODGENET's Hotel Guest System in not less than
*** Rooms during each of the first seven (7) calendar years during the
Term commencing in 1999. Installations may consist of new Rooms and/or
existing Rooms converted from the Super NES to the N64. Installations in
excess of the required minimum installation in any year may be counted toward
the minimum installation for the following year.
5.3 DISPOSITION OF REMOVED OR RETIRED SUPER NES. As LODGENET replaces
the existing Super NES units in Hotel Guest Systems with the N64, the removed
or retired Super NES units shall be destroyed or secured by LODGENET for
reuse only in Rooms of a Licensed Hotel as set forth in the Monthly Board
Reconciliation Report at SCHEDULE 7.
5.4 DISPOSITION OF LICENSED GAMES FOR REMOVED OR RETIRED SUPER NES. As
LODGENET replaces the existing Super NES units in Hotel Guest Systems with
the N64, all copies of the removed Super NES Licensed Games shall be
destroyed or returned to NINTENDO.
5.5 MINIMUM PLACEMENT LEVEL WITHIN EACH LICENSED HOTEL. Except with
NINTENDO's prior consent, which shall not be unreasonably withheld or
delayed, the Licensed Products shall not be placed at or in a Licensed Hotel
unless the Licensed Products are accessible to or operating within at least
75% of the Rooms in a particular hotel.
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5.6 LIMITATIONS ON SALE AND LICENSE. With regard to all aspects of the
Licensed Products, LODGENET may only sell to, license to, or permit
utilization by: (a) Approved Subdistributors who have signed an Approved
Subdistributor Acknowledgment; or, (b) Licensed Hotels who have signed a
Licensed Hotel Acknowledgment or who have otherwise met the conditions of
paragraph 4.4 herein. During the Term and continuing after the expiration or
termination hereof, the Nintendo Systems shall be used by LODGENET, the
Approved Subdistributors and the Licensed Hotels only in combination with
Licensed Games authorized and supplied by NINTENDO under a then current
license agreement.
5.7 SECURITY OF LICENSED GAMES AND GAME MEDIA. LODGENET shall take all
reasonable measures to insure that the Licensed Games, Test Games, Game Media
and any backup copies thereof are maintained in a secure location and/or
transmitted or copied only as permitted herein by a secure means, whether by
LODGENET, the Approved Subdistributors and/or the Licensed Hotels.
6. PROTECTION, OWNERSHIP AND ASSIGNMENT OF INTELLECTUAL PROPERTIES
6.1 RIGHTS IN THE LICENSED INTELLECTUAL PROPERTIES. LODGENET agrees
that, as between LODGENET and NINTENDO, all right, title, and interest in the
Licensed Intellectual Properties are solely the property of NINTENDO and/or
NCL.
6.2 LIMITATION ON USE OF LICENSED INTELLECTUAL PROPERTIES. LODGENET, the
Approved Subdistributors and the Licensed Hotels shall not in any manner
represent that they have any ownership in the Licensed Intellectual
Properties. Use of the Licensed Intellectual Properties shall not create any
right, title or interest in or to the Licensed Intellectual Properties in
favor of LODGENET, an Approved Subdistributor or a Licensed Hotel. LODGENET,
the Approved Subdistributors and the Licensed Hotels are not authorized to
use the Licensed Intellectual Properties in any manner not specifically
authorized under this Agreement.
6.3 MODIFICATIONS TO THE LICENSED PRODUCTS. LODGENET shall not make any
modifications to the Licensed Products nor shall LODGENET permit, instruct or
encourage an Approved Subdistributor or a Licensed Hotel to make such
modifications.
6.4 ASSIGNMENT AND CROSS LICENSE OF PATENTS.
6.4.1 ASSIGNMENT TO NINTENDO. LODGENET assigns to NINTENDO all
right, title and interest to: (a) any inventions, modifications, improvements
or alterations which relate to Hotel Guest Systems incorporating video game
play that LODGENET may jointly develop with NINTENDO during the Term; and,
(b) any inventions, modifications, improvements or alterations which
incorporate, use, or enhance the Licensed Products or the Licensed
Intellectual Properties or any other proprietary information, trade secrets
or know-how owned, developed or acquired by NINTENDO and/or NCL that LODGENET
may individually or jointly develop with NINTENDO during the Term. Upon
request of NINTENDO, LODGENET will assist in, testify and/or execute any
documents, statements, affidavits or assignments relating to such inventions,
modifications, improvements or alterations that NINTENDO deems appropriate to
establish and protect its rights hereunder, at no out-of-pocket cost to
LODGENET.
6.4.2 LICENSE TO LODGENET. NINTENDO grants back to LODGENET and its
customers a non-exclusive, royalty free license to make, use and sell any of
the inventions, modifications, improvements or alterations which have been
assigned to NINTENDO by LODGENET under paragraph 6.4.1 for use in connection
with LODGENET's Hotel Guest Systems, for the Term.
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6.4.3 LICENSE TO NINTENDO. If during the Term, without the
assistance of NINTENDO and without the violation of the Non-Disclosure
Agreements, LODGENET files or obtains any patents incorporating, enhancing,
or using video game play in Hotel Guest Systems, LODGENET grants to NINTENDO
and its customers a non-exclusive, royalty-free license to make, use and sell
such patented technology solely for the purpose of providing: (a) NINTENDO's
video game products; or, (b) aspects of systems which are necessary to
deliver video game products sold or licensed by NINTENDO, and for no other
purpose, for the respective terms of the patents.
6.5 PATENT MARKINGS. LODGENET will place in a conspicuous location on
any product made or sold under any Licensed Patent, a patent notice in
accordance with 35 USC Section 287, as may be specified by NINTENDO. LODGENET
shall not be responsible for any such markings on any Licensed Products
purchased from or supplied by NINTENDO (it being understood that the
responsibility for any such markings shall be NINTENDO's). LODGENET shall not
mark the Licensed Products with any patent marking other than with markings
of NINTENDO's patents as specified by NINTENDO.
7. PRODUCT WARRANTY; SERVICE TRAINING
7.1 NINTENDO SYSTEMS WARRANTY. NINTENDO hereby warrants to LODGENET
that the Nintendo Systems: (a) are free from material defects in material and
workmanship; and, (b) will operate in accordance with the Product
Specifications for a period of fourteen (14) months from the date of
manufacture. If a covered defect occurs within the warranty period, upon
return of the defective Nintendo System to NINTENDO, NINTENDO agrees to
repair or replace (at NINTENDO's option) the Nintendo System, in conformance
with the Product Specifications, within fourteen (14) business days from the
date of receipt by NINTENDO. NINTENDO shall pay shipping charges on the
return shipment to LODGENET. All other shipping, freight, duty and tax
charges as may be incurred for warranty service shall be for LODGENET's
account.
7.2 LICENSED GAME WARRANTY. NINTENDO hereby warrants to LODGENET that,
during the Term, the Licensed Games: (a) shall be free from material defects
in operation; and, (b) will operate on the Nintendo Systems in accordance the
game play instructions provided by NINTENDO. If a defect covered under this
warranty occurs within the warranty period, upon Notice from LODGENET to
NINTENDO designating the Licensed Game title and the nature of the defect,
NINTENDO will either replace the Licensed Game title with a new copy of the
Licensed Game title or, if NINTENDO elects not to replace the Licensed Game
Title, allow LODGENET to select an alternate Licensed Game title from the
Game List provided by NINTENDO, at no additional charge. NINTENDO shall
fulfill its warranty obligation hereunder within fourteen (14) business days
from the date Notice is received by NINTENDO.
7.3 OUT-OF-WARRANTY SERVICE. During the Term, NINTENDO agrees to make
available to LODGENET out-of-warranty service for the Nintendo Systems within
fourteen (14) business days from the date of receipt by NINTENDO. The charge
for each out-of-warranty repair shall be *** for each Super NES and *** for
each N64, or such other amounts as the parties may agree on, in writing, from
time to time. Service pricing shall be subject to reasonable adjustment by
NINTENDO. LODGENET shall contact NINTENDO in advance of submitting an
out-of-warranty service request to obtain a return authorization number,
NINTENDO shall pay shipping charges on the return shipment to LODGENET. All
other shipping, freight, duty and tax charges as may be incurred for
out-of-warranty service shall be for LODGENET's account. Payment for
out-of-warranty service shall be made by LODGENET to NINTENDO net thirty (30)
days from the date of the return shipment.
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7.4 QUALITY CONTROL FOR N64 CONTROLLERS. In lieu of warranty coverage,
NINTENDO agrees to inspect and conduct random tests prior to shipment of all
N64 Controllers purchased by LODGENET under this Agreement, using customary
and reasonable industry standards.
8. ORDER PURCHASE AND PAYMENTS
8.1 PURCHASE PRICE AND PAYMENT FOR THE NINTENDO SYSTEMS AND N64
CONTROLLERS. The purchase price for each N64 Controller and each Nintendo
System shall be ***. Following receipt of a price request from LODGENET,
NINTENDO shall provide LODGENET with an estimate of cost for use on the
written purchase order and the standby letter of credit. The purchase price
shall be subject to adjustment by NINTENDO within a reasonable period after
Delivery (provided that such price shall not exceed ***. Payment shall be
made net thirty (30) days from Delivery and shall be secured by an
irrevocable standby letter of credit for the amount of the order, issued by a
bank approved by NINTENDO or confirmed, at LODGENET's expense, if requested
by NINTENDO. Concurrently with the payment hereunder, LODGENET shall transmit
to NINTENDO (Attn: Gateway Program Manager, Facsimile: 425-558-7100) the date
and number of the purchase order to which the payment is to be applied.
8.2 DELIVERY OF N64 AND N64 CONTROLLERS. NINTENDO agrees to make
Delivery of the N64 and N64 Controllers conforming to the Product
Specifications within one hundred and twenty (120) days from the date
NINTENDO receives LODGENET's written purchase order.
8.3 LICENSED GAME ROYALTY. LODGENET shall pay NINTENDO a royalty for
the Licensed Games utilized in a Hotel Guest System. Royalty payments to
NINTENDO shall commence when the Licensed Games are available for use in a
Licensed Hotel Room. The royalty payable by LODGENET to NINTENDO shall be as
follows:
8.3.1 ROYALTY PAYABLE UPON EFFECTIVE DATE. Upon the Effective Date,
and continuing until LODGENET shall have: (i) placed orders for the N64 with
NINTENDO for cumulative amounts in excess of ***; and, (ii) installed and
commenced payment of royalties for Licensed Games on the N64 as a part of the
Hotel Guest System in at least *** Rooms in Licensed Hotels, LODGENET shall
pay a royalty for any Licensed Games utilized in a Hotel Guest System of ***
per calendar month, per Room.
8.3.2 ROYALTY PAYABLE AFTER N64 CONDITIONS ARE MET. From and after
the first day of the month following the month in which LODGENET shall have:
(i) placed orders for the N64 with NINTENDO for cumulative amounts in excess
of ***; and, (ii) installed and commenced payment of royalties for Licensed
Games on the N64 as a part of the Hotel Guest System in at least *** Rooms in
Licensed Hotels, LODGENET shall pay a revised royalty for any Licensed Games
utilized in a Hotel Guest System as follows:
(a) For the first *** Rooms, a royalty shall be paid of *** per
calendar month, per Room for use of the Licensed Games; and,
(b) For each additional Room thereafter, a royalty shall be paid of
*** of the Gross Revenue for all such additional Rooms per calendar month,
but in no event less than *** per Room per calendar month or any portion
thereof. The calculation of Rooms covered under this Agreement and royalties
payable thereon shall be made monthly as set forth in the Licensee Monthly
Royalty Report at Schedule 5.
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8.3.3 *** IF N64 CONDITIONS ARE MET. Within forty-five (45) days
after meeting the conditions set forth at Paragraph 8.3.2, *** equal to the
difference between the royalties paid under Paragraph 8.3.1 and the royalties
that would have been payable under Paragraph 8.3.2 for the time period
commencing with the first month after LODGENET has placed in excess of *** in
orders for the N64 and ending with the month in which LODGENET shall have
installed and commenced payment of royalties for Licensed Games on the N64 as
a part of the Hotel Guest System in at least *** Rooms in Licensed Hotels. No
interest shall be payable by NINTENDO on the *** royalties.
8.4 MINIMUM ROYALTY TERM FOR EACH LICENSED HOTEL. Each Licensed Hotel
shall agree to use the Licensed Games for a minimum initial term of twelve
(12) months for each Room able to access a Nintendo System. LODGENET shall
not be obligated to enforce this requirement with respect to any Licensed
Hotel that is in bankruptcy or otherwise ceases to do business.
8.5 TERMS OF PAYMENT FOR LICENSED GAME ROYALTY. Royalties shall be
payable monthly by LODGENET to NINTENDO on or before the 20th day of the
month for the prior month's use. Payments shall be made either by wire
transfer to a bank designated by NINTENDO in the United States or by a check
drawn on a US Bank, in either case to be received by NINTENDO on or before
the due date. Royalties shall be payable only in US Dollars. Concurrently
with the payment hereunder, LODGENET shall transmit to NINTENDO (Attn:
Gateway Program Manager, Facsimile: 425-558-7100) a copy of the Licensee
Monthly Royalty Report, in the form set forth at SCHEDULE 5, compiled by
LODGENET for the time period covered by the payment.
8.6 LATE PAYMENT INTEREST. Any payment due under this Agreement which is
overdue by more than ten (10) calendar days, shall be assessed interest at
the rate of one and one-half percent (1 1/2%) per month. In the event that
during any twelve (12) month period during the Term, late payments occur
during more than two (2) consecutive months or any four (4) months,
regardless of whether consecutive, NINTENDO, at its option, may require
LODGENET to place a standby letter of credit, at LODGENET's expense, to
secure timely payment of estimated royalty amounts owing or to become owing.
8.7 WITHHOLDING; TAXES. Any withholding by an Approved Subdistributor or
a Licensed Hotel on payments to LODGENET shall be for LODGENET's account and
shall not reduce the royalty payment due to NINTENDO by LODGENET.
9. ADVERTISING AND PROMOTION OF THE LICENSED PRODUCTS
9.1 QUALITY. LODGENET agrees that any promotional materials or items or
any advertisements, in whatever medium, for the Licensed Products shall be of
a high-quality, comparable to that currently employed by NINTENDO for its
video game products.
9.2 ARTWORK AND GAME PLAY INFORMATION SUBMISSIONS AND APPROVALS. For
each Licensed Game title, NINTENDO shall provide to LODGENET, in the form of
digital files or hard copy, as NINTENDO may elect,: (a) a short summary of
each game title and general operating information; (b) camera ready art work
featuring screen shots, package art or advertising graphics; and, (c)
trademark and copyright marking notices. LODGENET shall, in turn, incorporate
such materials into the Hotel Guest Systems and/or copy and provide such
materials to each Approved Subdistributor and each Licensed Hotel. LODGENET,
the Approved Subdistributors and the Licensed Hotels are authorized to
utilize such materials solely in connection with the advertising and
promotion of the Licensed Games.
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9.3 ART WORK APPROVALS; SUBMISSION OF SAMPLES. LODGENET, the Approved
Subdistributors and the Licensed Hotels may create advertising and
promotional materials featuring the Licensed Games to be used in connection
with the advertising and promotion of the Licensed Products and/or LODGENET's
Hotel Guest System. The Approved Subdistributors and the Licensed Hotels
shall submit such materials to LODGENET and LODGENET, in turn, shall submit
such materials to NINTENDO for review and evaluation. NINTENDO shall within
fifteen (15) business days of receipt of such samples, in writing, approve or
disapprove such samples. If any of the samples are disapproved as to quality,
NINTENDO shall specify the reasons for such disapproval and state what
corrections and/or improvements are necessary. After making any necessary
corrections and/or any necessary improvements to the disapproved samples, the
Approved Subdistributor or the Licensed Hotel shall resubmit new samples to
LODGENET who shall, in turn, submit such samples to NINTENDO for approval by
NINTENDO. Submitted materials may be forwarded by LODGENET to NINTENDO by
facsimile transmission, provided they remain legible. No promotional items or
advertisements, in whatever medium, for the Licensed Games shall be
distributed or utilized by LODGENET, the Approved Subdistributors or the
Licensed Hotels without obtaining prior written approval by NINTENDO.
9.4 PRESS RELEASES OR OTHER MATERIALS USING NINTENDO'S NAME OR
TRADEMARKS. LODGENET, the Approved Subdistributors and the Licensed Hotels
may prepare press releases, press remarks or other materials using NINTENDO's
name, trademarks and/or logos. All such materials shall be submitted in
advance to NINTENDO for review and evaluation. NINTENDO shall within fifteen
(15) business days of receipt, in writing, approve or disapprove such
materials. If any of the materials are disapproved, NINTENDO shall specify
the reasons and state what changes are necessary. After making any changes,
LODGENET shall submit revised materials to NINTENDO for approval by NINTENDO.
Submitted materials may be forwarded to NINTENDO by facsimile transmission.
No press releases, press remarks or other materials using NINTENDO's name,
trademarks or logos shall be made, released or distributed by LODGENET, the
Approved Subdistributors or the Licensed Hotels without obtaining prior
written approval by NINTENDO.
10. RECORDS AND AUDIT
10.1 RECORDS. LODGENET shall keep accurate and complete records with
respect to the sale or use of the Nintendo Systems and the license or use of
the Licensed Games to Approved Subdistributors and the Licensed Hotels in
sufficient detail to enable the royalties to be determined and to also enable
NINTENDO to monitor placement of the Licensed Products.
10.2 REPORT. On or before the 20th day of each month, LODGENET shall
furnish to NINTENDO (Attn: Gateway Program Manager, Facsimile 425-882-3585) a
Licensee Monthly Royalty Report, in the form set forth at SCHEDULE 5,
detailing the prior month's usage of the Licensed Games by LODGENET, the
Approved Subdistributors and the Licensed Hotels. To the extent the Territory
includes more than one country, LODGENET may provide such reports on a
country by country basis.
10.3 FAILURE TO REPORT LICENSED GAME USAGE; PENALTY. If at any time
NINTENDO reasonably determines that LODGENET has failed to pay royalties and
report commencement of a Licensed Hotel's use of Licensed Games in a given
hotel location or Room as a part of the Licensee Monthly Royalty Report and
royalty payment to NINTENDO and if such first royalty payment is not made
within forty-five (45) days from the date it would have been due, then, upon
NINTENDO's Notice to LODGENET, royalty payments calculated at the rate of
***, per calendar month, together with interest from the initial due date,
shall be due and payable retroactive to the date of LODGENET's installation
of the Nintendo Systems in such Licensed Hotel, without regard to actual use
or availability of Licensed Games in a Room.
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10.4 TRACKING OF NINTENDO SYSTEMS. Within thirty (30) days following the
end of each month, LODGENET shall provide NINTENDO (Attn: Gateway Program
Manager, Facsimile 425-882-3585) with the Monthly Board Reconciliation
Report, in the form set forth at SCHEDULE 7, certified in writing by an
authorized officer of LODGENET, detailing the disposition of all Nintendo
Systems purchased under this Agreement and under the Prior Agreement.
10.5 CERTIFICATION; AUDIT. Upon the written request of NINTENDO, but no
more frequently than once per year, LODGENET shall submit to NINTENDO a
written certification from LODGENET's president or chief financial officer,
and/or from the President or chief financial officer of each Approved
Subdistributor, certifying that such individual has examined the records with
respect to the transactions contemplated by this Agreement for the period
(not to exceed 24 months) specified in NINTENDO's request and that the
royalty payments and reports submitted by LODGENET to NINTENDO during that
period are accurate and correct. In addition, NINTENDO may, at it's option,
arrange for a licensed accountant to examine the records of LODGENET or any
Approved Subdistributor to confirm the accuracy of records and royalty
payments submitted under this Agreement. NINTENDO shall conduct the audit
during normal business hours, upon not less than thirty (30) days Notice to
LODGENET. NINTENDO shall bear the expense of the audit unless the audit shows
an error in NINTENDO's favor amounting to a loss to NINTENDO in excess of
five percent (5%) of the actual royalty payable to NINTENDO for the period
examined, in which event LODGENET shall bear the expense of the audit.
10.6 CONFIDENTIALITY OF LODGENET RECORDS. Nintendo agrees to maintain as
confidential all records and royalty reports supplied by LODGENET to NINTENDO
under this Section 10. Notwithstanding this limitation, NINTENDO may use
information regarding use of the Licensed Games which has been included in
such records and reports in statistical reporting and general analysis or any
other manner which does not disclose the identity of LODGENET, the Approved
Subdistributors or the Licensed Hotels.
11. CONFIDENTIAL INFORMATION
11.1 NINTENDO'S CONFIDENTIAL INFORMATION. LODGENET agrees to hold all
Licensed Proprietary Information in confidence and will use such Licensed
Proprietary Information only in accordance with this Agreement. LODGENET
agrees, however, this obligation of confidentiality shall not apply to: (a)
information which was actually known by the receiving party (and not subject
to any limitation or restriction, including any other license,
confidentiality or nondisclosure agreement with the disclosing party) prior
to the disclosure thereof by the disclosing party; (b) information which
hereafter becomes publicly known and otherwise a part of the public domain
through no action or fault on the part of the receiving party and without
violation of any limitation or restriction by any third party; or, (c)
information of a general business nature that does not identify the
information source or constitute competitive information.
11.2 LODGENET'S CONFIDENTIAL INFORMATION. NINTENDO agrees that it will
hold all confidential information received from LODGENET in confidence and
will use such information only in accordance with this Agreement. LODGENET's
Confidential Information shall include the communication protocols and other
proprietary technical information relating to LODGENET's Hotel Guest System.
However, this obligation of confidentiality shall not apply to: (a)
information which was actually known by NINTENDO (and not subject to any
limitation or restriction, including any other license, confidentiality or
non-disclosure agreement with LODGENET) prior to the disclosure thereof by
LODGENET, (b) information which hereafter becomes publicly known and
otherwise a part of the public domain through no action or fault on the part
of NINTENDO and without violation of any limitation or restriction by any
third party; or, (c) information of a general business nature that does not
identify the information source or constitute competitive information.
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11.3 AGREEMENT CONFIDENTIALITY. Both parties are to maintain the terms
of this Agreement in confidence. However, either party may disclose the
existence, date and general subject matter of this Agreement, but shall not
disclose to any third party any other terms of the Agreement.
12. WARRANTY; LIMITATION OF LIABILITY
12.1 CORPORATE AUTHORITY. NINTENDO represents and warrants that it has
the right to enter into this Agreement and to grant the rights and licenses
herein.
12.2 INTELLECTUAL PROPERTIES WARRANTY. NINTENDO warrants that it (or
NCL) is and will remain throughout the Term, the owner or authorized licensee
of the Licensed Intellectual Properties. NINTENDO agrees to defend, indemnify
and hold harmless LODGENET and the Licensed Hotels from all damages arising
out of any infringement or claim of infringement by the Licensed Products or
the Licensed Intellectual Properties. NINTENDO's obligations shall be
contingent upon: (a) the absence of any claim of infringement based upon a
Licensed Hotel, Approved Subdistributor or LODGENET's modification or
combination of the Licensed Products with other elements, if the infringement
would not have occurred but for such combined use or modification; (b)
LODGENET giving NINTENDO prompt written notice of any claim; (c) NINTENDO
being granted control of the defense, compromise or settlement of such claim;
and, (d) NINTENDO being given an immediate right to provide a substitution
for any allegedly infringing Licensed Game title with another Licensed Game
title. LODGENET shall assist NINTENDO to the extent reasonably required to
effect a removal or substitution of a Licensed Game or to defend against any
infringement claim, at no out-of-pocket expense to LODGENET. LODGENET shall
be entitled to extend this warranty to the Approved Subdistributors and the
Licensed Hotels; provided, however, that in the event of a claim for
indemnity by an Approved Subdistributor or a Licensed Hotel, LODGENET, the
Approved Subdistributor (if applicable) and the Licensed Hotel must each meet
the requirements set forth in this paragraph 12.2 (a) through (d). Subject to
the terms of a protective order specified by NINTENDO, LODGENET may at its
expense, monitor any defense or proceeding in connection with any such claim.
12.3 HOLD HARMLESS; LIMITS OF INDEMNIFICATION. NINTENDO agrees to
indemnify and hold harmless LODGENET from any act or omission, whether
negligent or otherwise, in the performance of the obligations,
representations or warranties as are specifically set forth in this
Agreement. LODGENET agrees to indemnify and hold harmless NINTENDO from any
act or omission, whether negligent or otherwise, by LODGENET, its Approved
Subdistributors or its Licensed Hotels, in the performance of the
obligations, representations or warranties as are specifically set forth in
this Agreement. In no circumstance shall either party be liable in contract,
tort (including negligence or breach of statutory duty) or otherwise for loss
(whether direct or indirect) of profits, business, or anticipated savings or
for any indirect or consequential loss.
13. TERM AND TERMINATION
13.1 TERM. This Agreement shall not be binding until it has been signed
by or on behalf of each party, in which event it shall be effective as of the
Effective Date. Unless otherwise terminated as provided in this Section, this
Agreement is to continue in full force and effect for the Term.
13.2 DEFAULT OR BREACH. In the event that either party is in default or
commits a breach of this Agreement, and if such default or breach shall not
be cured within thirty (30) days after Notice of such default or breach is
given by the non-defaulting party to the defaulting party, then at any time
after the expiration of such thirty (30) days, the non-defaulting party may
give Notice to the defaulted party of its election to terminate this
Agreement. Thereupon the Agreement shall
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 13
MAY 12, 1998 (FINAL)
<PAGE>
terminate on the date specified in such Notice, which shall not be less than
fifteen (15) days following the receipt of such Notice. Such right of
termination shall not be exclusive of any other remedies or means of redress
to which the non-defaulting party may be lawfully entitled.
13.3 BANKRUPTCY/INSOLVENCY. At NINTENDO's option, this Agreement can be
terminated immediately and without notice in the event that LODGENET: (a)
makes an assignment for the benefit of creditors; (b) becomes insolvent; (c)
files a voluntary petition for bankruptcy; (d) acquiesces to any involuntary
bankruptcy petition; (e) is adjudicated as a bankrupt; or, (f) ceases to do
business.
13.4 SURVIVAL OF TERMINATION. The following rights and obligations
survive any expiration and/or termination of this Agreement to the degree
necessary to permit their complete fulfillment or discharge: (a) NINTENDO's
right to receive, and LODGENET's obligation to make payment for any order of
the Licensed Products or for any royalties for the Licensed Games accrued on
the date of termination; (b) the confidentiality obligations specified
herein; (c) any cause of action or claim of either party, accrued or to
accrue, because of any breach or default by the other party; (d) the
indemnity obligations as specified herein; (e) NINTENDO's warranty
obligations under paragraph 7.1 with respect to Nintendo Systems purchased
during the Term; and, (f) LODGENET's software royalty obligations under any
period of continued software use that may be elected by LODGENET under
paragraph 13.6 herein.
13.5 TERMINATION OF USE OF LICENSED INTELLECTUAL PROPERTIES. Upon
expiration and/or termination of this Agreement, LODGENET, the Approved
Subdistributors and the Licensed Hotels will cease all use of the Licensed
Products and the Licensed Intellectual Properties for any purpose, and will
not disclose to third parties any Licensed Proprietary Information. LODGENET
shall also return to NINTENDO all writings, drawings, models, data and other
materials and things, without making any copies, in LODGENET's possession or
in the possession of any employee, agent or contractor receiving the
information through LODGENET, which constitute or relate to or disclose any
Licensed Proprietary Information. LODGENET shall also obtain and destroy all
copies of the Licensed Games and the Test Games, including copies installed
on the computers of the Licensed Hotels or backup copies thereof, whether in
the possession of LODGENET, an Approved Subdistributor, the Licensed Hotel or
any past or present employee, agent or contractor of LODGENET, an Approved
Subdistributor or the Licensed Hotels. LODGENET shall provide a written
certification signed by an authorized corporate officer, confirming the
destruction of all such copies within twenty (20) days after the date of
expiration or termination of this Agreement.
13.6 OPTION TO EXTEND USE OF LICENSED GAMES ONLY. Provided this
Agreement has not been terminated due to breach or default by LODGENET, upon
Notice to NINTENDO within 90 days prior to the expiration of the Term,
LODGENET (and its Approved Subdistributors and Licensed Hotels) may extend
this Agreement and continue use of the Licensed Games on the Nintendo Systems
as a part of the Hotel Guest System for up to two (2) years after the
expiration of the Term, provided that NINTENDO shall have no continuing
obligation to sell or provide warranties regarding the Nintendo Systems or
the N64 Controllers, and, provided further, that neither party shall be bound
by any obligation under paragraph 14.2 herein.
14. COVENANT NOT TO SUE
14.1 COVENANT NOT TO SUE. Each party agrees and covenants not to
directly or indirectly bring any legal action against the other party, or
against the licensed customers, purchasers and/or users of the products made,
sold or used by the other party, for patent infringement of US Patent No.
5,581,270 owned by NINTENDO and US Patent Nos. 5,675,828 and
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 14
MAY 12, 1998 (FINAL)
<PAGE>
5,641,319 owned by LODGENET. This covenant shall be binding upon the parties
and their assigns and successors for the term of the patents.
14.2 EXCEPTION TO RELEASE. The foregoing covenant shall not apply to any
claim against the entities identified at SCHEDULE 8, or their assignees or
successors in interest, until the earlier of: (a) the expiration or
termination of this Agreement; or (b) the conclusion of the legal actions
identified at SCHEDULE 9.
15. GENERAL PROVISIONS
15.1 RECITALS. The recitals herein constitute an integral part of the
agreement reached and are to be considered as such.
15.2 CAPTIONS. The captions contained in this Agreement have been
inserted for reference and convenience only and do not define, limit or
describe the scope of this Agreement or the intent of any provision.
15.3 NON-ASSIGNABILITY/SUBLICENSING. Neither party may assign, delegate,
sublicense or otherwise transfer this Agreement, including by operation of
law or by the sale or transfer of more than fifty percent (50%) of the stock,
assets or ownership interest or control of one party, without the prior
written consent of the other party. Such consent shall not be unreasonably
withheld or delayed.
15.4 FORCE MAJEURE. Neither party shall be liable for any breach of this
Agreement occasioned by any cause beyond the reasonable control of such
party, which, for purposes of this Agreement shall include governmental
action, war, riot or civil commotion, fire, floods, labor disputes,
restraints affecting shipping or credit, delay of carriers, inadequate supply
of suitable materials, or any other cause which could not with reasonable
diligence be controlled or prevented by the parties.
15.5 WAIVER. The waiver by any party of a breach or default of any
provision of this Agreement or any right hereunder by the other party shall
not constitute a waiver by such party of any succeeding breach of the same or
other provision; nor shall any delay or omission on the part of either party
to exercise or avail itself of any right, power or privilege that it has or
may have hereunder, operate as a waiver of any such right, power or privilege
by such party.
15.6 COMPLIANCE WITH APPLICABLE LAWS. 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. LODGENET, at its own
expense, shall negotiate and obtain any approval, license or permit required
for its provision of the Licensed Products to the Approved Subdistributors or
the Licensed Hotels in the Territory, including but not limited to, any
necessary safety, electronic emissions or electrical approvals.
15.7 GOVERNING LAW; VENUE. This Agreement shall be governed by, subject
to and construed under the laws of the State of Washington.
15.8 UNENFORCEABILITY. In the event that any term, clause or provision
of this Agreement shall be construed to be or adjudged invalid, void or
unenforceable, such term, clause or provision shall be construed as severed
from this Agreement, and the remaining terms, clauses and provisions shall
remain in effect.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 15
MAY 12, 1998 (FINAL)
<PAGE>
15.9 ASSOCIATION: The parties, by this Agreement, do not intend to
create a partnership, principal/agent, master/servant, or joint venture
relationship, and nothing in this Agreement shall be construed as creating
such a relationship between the parties.
15.10 INTEGRATION. This Agreement, together with the NDAs, constitute
the entire agreement between the parties relating to the subject matter
hereof. All prior negotiations, representations, agreements and
understandings are merged into, extinguished by and completely expressed by
it. Neither party shall be bound by any definition, condition, warranty,
representation, modification, consent or waiver other than as expressly
stated herein unless set forth in a writing executed by the party to be bound.
15.11 EQUITABLE RELIEF. Both parties acknowledge that in the event of a
breach of this Agreement, no adequate remedy at law will be available to
either party and that either party will be entitled to injunctive or other
equitable relief in addition to any relief available at law.
15.12 ATTORNEYS' FEES. In the event that it is necessary for either
party to this Agreement to undertake legal action to enforce any of the
terms, conditions or rights contained herein, or to defend any such action,
the prevailing party in any such action shall be entitled to recover from the
other party all reasonable attorneys' fees, costs and expenses relating to
such legal action.
15.13 SIGNATURE AUTHORITY WARRANTY. Each party represents and warrants
that the party signing this Agreement on behalf of their respective company
is empowered with full authority and authorization to so act.
15.14 SIGNATURE BY FAX; COUNTERPARTS. This Agreement may be signed in
counterparts. A signature transmitted by facsimile shall be considered an
original for purposes of this Agreement.
IN WITNESS WHEREOF, NINTENDO and LODGENET have signed this Agreement on
the dates set forth below, to be effective as of the Effective Date.
NINTENDO: LODGENET:
NINTENDO OF AMERICA INC. LODGENET ENTERTAINMENT CORPORATION
By: /s/ Phil Rogers By: /s/ Steve Truckenmiller
--------------------------- --------------------------
Title: Executive Vice President, Title: Vice President,
Operations Guest Pay
-------------------- ----------------------
Date: 5/12/98 Date: 5/18/98
-------------------- ----------------------
Schedule 1: Territory and Approved Subdistributors
Schedule 2: Licensed Hotel Acknowledgment
Schedule 3: Approved Subdistributor Request
Schedule 4: Approved Subdistributor Acknowledgment
Schedule 5: Licensee Monthly Royalty Report
Schedule 6: Guest Information Record
Schedule 7: Monthly Board Reconciliation Report
Schedule 8: List of Entities Under Paragraph 14.2
Schedule 9: List of Actions Under Paragraph 14.2
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 16
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 1
TERRITORY
<TABLE>
<CAPTION>
TERRITORY SUBDISTRIBUTOR
<S> <C>
United States N/A
Canada N/A
Brazil Sistema de Televisao
Rua do Ruocia, 313
Sao Paulo, Brazil
Attn: Ms. Katia Murgell
Dominican Republic Roombar, SA
Aristides Fiallo Cabral, No. 2, Ste. 301
Santo Domingo, Dominican Republic
Panama, Costa Rica, Belize, C.C. Video
Guatemala, El Salvador, a/k/a Five Star Entertainment
Honduras, Nicaragua Apartado 5007, Balboa
Panama, Panama
Peru Ditel, SA
Calle S. Juan 705
Urbanizacion las Gardenias-Surco
Lima 33, Peru
Venezuela TCI Netvision
Edificio Galipan, Torre B
Planta Baja, Locales 8 y 9
El Rosal, Venezuela
</TABLE>
*This Schedule 1 may be revised from time to time by the parties to add or
delete Territories and/or Approved Subdistributors by signature of both
parties below.
Revised Schedule 1 With an Effective Date of: 5/12/98
-------------------
Signed by NINTENDO: /s/ Phil Rogers Date: 5/12/98
---------------------- -------------------
Signed by LODGENET:/s/ Steve Truckenmiller Date: 5/18/98
----------------------- -------------------
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 17
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 2
LICENSED HOTEL ACKNOWLEDGMENT
LODGENET ENTERTAINMENT CORP. ("LodgeNet") is an authorized licensee of
Nintendo of America Inc. ("Nintendo") for use of select NINTENDO video game
products in authorized hotel guest rooms. As a customer of LODGENET, you are
subject to limitations on the use of NINTENDO products and Nintendo's
intellectual properties as part of the LodgeNet System, and agree as follows:
1. NONEXCLUSIVE RIGHTS: LICENSED INTELLECTUAL PROPERTIES. You agree that all
right, title and interest in the intellectual properties associated with the
NINTENDO video game system and game software belong to Nintendo. You shall
not represent that you have any ownership in Nintendo's intellectual
properties.
2. MODIFICATION AND USE OF THE NINTENDO GAME SYSTEM. You agree not to modify
the NINTENDO game system or game software provided with your LodgeNet System.
You agree to use only the licensed NINTENDO games. You may not operate any
games or other software on the NINTENDO game system.
3. SECURITY OF NINTENDO GAME MEDIA. You agree to keep the NINTENDO games in a
secure location and not to permit any copying of any NINTENDO games.
4. TERMINATION; NO CONTINUING USE. Upon termination of your agreement with
LodgeNet or upon written notice from LodgeNet or Nintendo of the termination
of the license agreement between Nintendo and LodgeNet, you acknowledge that
all use of the NINTENDO game systems and NINTENDO games at your hotel shall
terminate.
5. ADVERTISING AND PROMOTION OF NINTENDO GAMES. You agree to use Nintendo's
trademarks and copyrights only as authorized by LodgeNet or Nintendo and in
connection with the advertising and promotion of the authorized NINTENDO
games on the LodgeNet System. 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 agents must be approved in advance
of use.
Such materials must be transmitted to LodgeNet prior to use (Fax:__________
Attn:__________ who, in turn, will provide them to Nintendo. Nintendo will
promptly review and provide approval and/or corrections for such materials.
You may also obtain preapproved Nintendo art from LodgeNet, which, if not
modified, may be used without additional approval, solely in connection with
the advertising and promotion of the licensed NINTENDO products. You must
properly identify ownership of all trademarks and copyrights of Nintendo in
all advertising and promotional materials.
6. LIMITATION ON LIABILITY. Nintendo makes no representations or warranties
to you or your customers regarding the NINTENDO products. Nintendo disc!aims
all implied representations and warranties, including warranties of
merchantability and fitness for a particular purpose. Nintendo does not
warrant to you that use of Nintendo's products or intellectual property
rights will not infringe upon the rights of others.
7. REPRESENTATIONS. You represent and warrant to Nintendo that you are not
engaged in any illegal activities; there are no criminal proceedings pending
against you; you respect the intellectual property rights of others; and, you
are not engaged in the manufacture, sale or distribution of products which
infringe the intellectual property rights of others.
Please acknowledge your acceptance by signing and returning an original of
this Acknowledgment to LodgeNet.
Accepted this __ day of __________, 19__.
- ------------------------------------------
Printed Name of Licensed Hotel
By:
---------------------------------------
Printed Name:
Title:
------------------------------------
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 18
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 3
APPROVED SUBDISTRIBUTOR REQUEST
TO: Nintendo of America Inc.
ATTN: Nintendo Gateway Manager
FAX: (425) 882-3585
LODGENET ENTERTAINMENT CORP. ("LodgeNet") desires to appoint the following
SUBDISTRIBUTOR ("Subdistributor") under our agreement with Nintendo of
America Inc. ("Nintendo") for use of select NINTENDO products in authorized
hotel guest rooms:
- ------------------------------------------
(Subdistributor's Name)
- ------------------------------------------
(Subdistributor's Street Address)
- ------------------------------------------
(Subdistributor's City/Province/Country)
- ------------------------------------------
(Subdistributor's Phone &, Fax Numbers)
- ------------------------------------------
(Subdistributor's Contact Person)
- ------------------------------------------
(Territory to be Served by Subdistributor)
LodgeNet represents and warrants to Nintendo that we have conducted a
reasonable investigation of the Subdistributor's financial condition and
business activities; and based on that investigation, we believe that:
1. Subdistributor will be able to fulfill its financial obligations to us;
2. Subdistributor respects the intellectual property rights of third parties,
is not engaged in any illegal or illicit activities and is not a party to any
criminal proceedings; and,
3. Subdistributor is not, directly or indirectly, owned in any part by Sony
or Sega.
These representations are an integral part of the agreement between LodgeNet
and Nintendo and any breach of these representations by LodgeNet to Nintendo
would constitute a material breach of the agreement between LodgeNet and
Nintendo.
With regard to the subdistributor agreement between LodgeNet and
Subdistributor:
1. We have enclosed a copy of the signed Approved Subdistributor
Acknowledgment; or,
2. We represent and warrant to Nintendo that LodgeNet has entered into a
written agreement with Subdistributor which contains all provisions of the
Approved Subdistributor Acknowledgment specified by Nintendo, including a
representation by Subdistributor that Subdistributor is not engaged in any
illegal or illicit activities, that there are no criminal proceedings pending
against the Subdistributor; and Subdistributor is not, directly or
indirectly, owned in any part by Sony or Sega.
LODGENET ENTERTAINMENT CORP.
By:
---------------------------------------
Printed Name:
Title:
------------------------------------
Date:
-------------------------------------
NINTENDO's RETURN APPROVAL:
NINTENDO OF AMERICA INC.
By:
---------------------------------------
Printed Name:
Title:
------------------------------------
Date:
-------------------------------------
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 19
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 4
APPROVED SUBDISTRIBUTOR ACKNOWLEDGMENT
LODGENET ENTERTAINMENT CORP. ("LodgeNet") is an authorized licensee of select
NINTENDO brand video game products for 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 subdistributor for the territory of __________ and to your use of
proprietary information and intellectual property rights associated with the
NINTENDO products. In order to induce Nintendo to approve your appointment,
you must agree as follows:
1. LODGENET AGREEMENT. You are a subdistributor 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 and Nintendo has reserved the right to enforce its rights
directly.
2. APPROVED SUBDISTRIBUTOR RESPONSIBILITIES. Your hotel customers must also
acknowledge Nintendo's rights. It is your responsibility to obtain a Licensed
Hotel Acknowledgment, in the form attached as SCHEDULE 2, from each 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 belong to
Nintendo and are licensed to LodgeNet on a nonexclusive basis and granted to
you, as an Approved Subdistributor of LodgeNet. 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
technical and proprietary 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 agree not to modify the
NINTENDO products. You acknowledge and agree that the NINTENDO video game
systems may only be used with the NINTENDO game software licensed for hotel
use and provided to LodgeNet by Nintendo.
5. SECURITY OF NINTENDO GAME SOFTWARE. You agree to keep the licensed
NINTENDO game software in a secure location and shall not copy or permit
copying thereof; provided, however, that you may make 1 backup copy.
6. TERMINATION; NO CONTINUING USE. Upon termination of your agreement with
LodgeNet or upon written notice that the agreement between Nintendo and
LodgeNet has terminated, you shall terminate all use of the NINTENDO products
and return or destroy all copies of the licensed NINTENDO game software
disks, backup copies thereof, and all documents materials containing
Nintendo's proprietary information or intellectual properties, including all
copies of game software in the possession of or on the host computer of any
hotel customer, agent or technician.
7. GUEST INFORMATION. You agree to provide Nintendo (through LodgeNet) with
information on the use of the NINTENDO products by your hotel customers. The
information shall be presented in a form substantially similar to the Guest
Information Record set forth at SCHEDULE 6.
8. RECORDS; AUDIT. For Nintendo's benefit, you shall retain and 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 6 and shall include: (a) total
number of NINTENDO video game engines installed and the total number of guest
rooms serviced by each LodgeNet System, by hotel; (b) the date of installation
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 20
MAY 12, 1998 (FINAL)
<PAGE>
and use of each LodgeNet System incorporating NINTENDO products, by hotel;
and, (c) the licensed NINTENDO game software titles offered by 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, your agents, or
your hotel customers must be approved in advance of use. Such materials must
be transmitted to LodgeNet prior to use (Fax:___________ Attn:_____________),
who, in turn, will provide them to Nintendo. Nintendo will promptly review
and provide approval and/or corrections for such materials. You may also
obtain preapproved NINTENDO art from LodgeNet, which, if not modified, may be
used without additional approval, solely in connection with the advertising
and promotion of the licensed NINTENDO products. You must properly identify
ownership of all trademarks and copyrights of Nintendo in all advertising and
promotional materials.
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 to you that use of Nintendo's products or its intellectual property
rights will not infringe upon the rights of others.
11. HOLD HARMLESS. You agree to 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 not authorized by Nintendo.
12. SUBDISTRIBUTOR REPRESENTATIONS. You represent and warrant to Nintendo
that you are not engaged in any illegal activities; there are no criminal
proceedings pending against you; you respect the intellectual property rights
of others; you are not engaged in the manufacture, sale or distribution of
products which infringe the intellectual property rights of others; and, you
are not, directly or indirectly, owned by Nintendo's competitors, Sony or
Sega.
13. OTHER AGREEMENTS. This agreement is signed by you for the benefit of
Nintendo and LodgeNet. This agreement does not supersede or amend any other
obligations you may have to LodgeNet, except where a conflict may exist, in
which event the terms of this agreement shall prevail.
14. COUNTERPARTS; FACSIMILE. This agreement may be signed in counterparts
with signatures submitted by facsimile.
Please acknowledge your understanding and acceptance of the provisions set
forth above by countersigning and returning two (2) copies of this letter to
LodgeNet.
LODGENET ENTERTAINMENT CORP.
By:
--------------------------------------
Printed Name:
Its:
--------------------------------------
Accepted this __ day of _____________, 19__.
APPROVED SUBDISTRIBUTOR
- -------------------------------------------
(Printed Name of Approved Subdistributor)
By:
--------------------------------------
Printed Name:
Its:
--------------------------------------
SCHEDULE 2: Licensed Hotel Acknowledgment
SCHEDULE 6: Guest Information Record
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 21
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 5
LICENSEE MONTHLY ROYALTY REPORT
FOR MONTH:
# OF GAMES AVAILABLE: TOTAL GROSS REVENUE FOR THIS MONTH ***
# OF DAYS IN MONTH AVAILABLE:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Boards CURRENT
(New Installations) # OF # OF # OF # OF DAYS MONTH
HOTEL/NAME ROOMS SNES N64 AVAILABLE BUYS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance 443,500 9540
Sleepy Time Inn 205 6 31 95
Dreamland Lodge 125 3 31 50
ZZZZ's 500 11 31 150
(Include any monthly adjustments in this section. Should an existing hotel
increase or decrease room count)
- -------------------------------------------------------------------------------
Monthly Totals 660 9 11
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cumulative Totals 444,360 9,649 11 295
- -------------------------------------------------------------------------------
(Beginning Balance + Monthly Totals)
</TABLE>
<TABLE>
<CAPTION>
# OF TOTAL AVG. MIN. PLAYED
SNES GAME TIDES BUYS MINUTES PLAYED (TOTAL MIN/# BUYS)
--------------- ---- -------------- ------------------
<S> <C> <C> <C>
Vegas Stake's 25 1,100 44
Super Punch Out 40 1,200 30
F-Zero 30 1,000 33
Super Play Action Football 25 1,200 48
Ken Griffey Major Leag Baseball 20 900 45
Super Mario World 35 800 23
Tetris & Dr. Mario 35 1,200 34
The Legend of Zelda 20 1,200 60
Donkey Kong Country 35 1,200 34
Super Soccer 30 1,200 40
Totals 295 11,000
</TABLE>
ALL AMOUNTS SHOULD BE REFLECTED IN U.S. DOLLARS.
- -------------------------------------------------------------------------------
ROYALTY PAYMENT DETAILS
*** ***
*** ***
*** ***
TOTAL ROYALTY DUE NOA: ***
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
# OF TOTAL AVG. MIN. PLAYED
N64 GAME TITLES BUYS MINUTES PLAYED (TOTAL MIN/# BUYS)
--------------- ----- -------------- ------------------
<S> <C> <C> <C>
Game #1
Game #2
Game #3
Game #4
Game #5
Totals
</TABLE>
- ----------------------
*** - Confidential treatment requested.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 22
MAY 12 1998 (FINAL)
<PAGE>
SCHEDULE 6
GUEST INFORMATION RECORD
FOR MONTH:
# OF GAMES AVAILABLE:
# OF DAYS IN MONTH AVAILABLE:
<TABLE>
<CAPTION>
------------------------------
Total Gross Revenues
- --------------------------------------------------------------------------
Boards CURRENT
# OF # OF # OF # OF DAYS MONTH
HOTEL/NAME ROOMS SNES N64 AVAILABLE BUYS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 150 4 31 60
(New Installations)
- ---------------------------------------------------------------------------------------------
Monthly Totals 150 4
- ---------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Cumulative Totals 150 4 60
- --------------------------------------------------------------------------
</TABLE>
(BEGINNING BALANCE + MONTHLY TOTALS)
(Include any monthly adjustments in this section. Should an existing hotel
increase or decrease room count.)
<TABLE>
<CAPTION>
# OF TOTAL AVG. MIN. PLAYED
GAME TITLES BUYS MINUTES PLAYED (TOTAL MIN/# BUYS)
- ----------- ---- -------------- ------------------
<S> <C> <C> <C>
Vegas Stakes 20 1100 55
Super Punch Out 20 1200 60
F-Zero 12 1000 83
Super Play Action Football 10 1200 120
Ken Griffey Major Leag. 20 900 45
Baseball
Super Mario World 30 800 27
Tetris & Dr. Mario 30 1200 40
The Legend of Zelda 10 1200 120
Donkey Kong Country 35 1200 34
Super Soccer 18 1200 67
Totals 205 11000
</TABLE>
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 23
MAY 12 1998 (FINAL)
<PAGE>
SCHEDULE 7
MONTHLY BOARD RECONClLIATION REPORT
Total Boards Shipped to Date: 34
<TABLE>
<CAPTION>
Cat. Total
<S> <C> <C>
- ---------------------------------------------------------------------------------
Installations: Active 30
- ---------------------------------------------------------------------------------
Hotel #1 Yes 24
Hotel #2 No 6
- ---------------------------------------------------------------------------------
Installations: In Transit 2
- ---------------------------------------------------------------------------------
Hotel #3 2
- ---------------------------------------------------------------------------------
Engineering 2
Samples:
- ---------------------------------------------------------------------------------
Mfg. Test. 2
- ---------------------------------------------------------------------------------
Spares: 0
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Demonstration Systems: 0
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Inventory 0
- ---------------------------------------------------------------------------------
(Within this category reflect any boards
that are obsolete, no longer in use, or boards that have been destroyed or
replaced with newer technology by using a separate line item for each sub
category. )
- ---------------------------------------------------------------------------------
R&D 0
- ---------------------------------------------------------------------------------
Category Combined Grand Total 34 34
</TABLE>
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 24
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 8
LIST OF ENTITIES UNDER PARAGRAPH 14.2
Paragraph 14.2 of the Agreement shall apply to the following entities:
On Command Corporation ("OCC")
On Command Video Corporation
On Command Development Corporation
SpectraVision, Inc.
On Command Canada, Inc.
Spectravision Barbados
Kalevision Systems, Inc.
Spectradyne of Bahamas
Spectradyne of Bermuda
Spectradyne of Texas
Spectradyne of GMBH
Spectradyne International, Inc.
On Command Hong Kong, Limited
On Command Australia Pty Limited
Spectradyne Singapore Pte Limited
On Command (Thailand) Limited
In addition, this Schedule 8 shall apply to any entity which is more than 30%
owned, directly or indirectly, by OCC, but excluding any entity not listed
above that as of the Effective Date is a party to a license agreement with
NINTENDO. LODGENET shall provide NINTENDO at least annually with an updated
list of entities known or believed by LODGENET to be owned, directly or
indirectly, by OCC.
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 25
MAY 12, 1998 (FINAL)
<PAGE>
SCHEDULE 9
LIST OF ACTlONS UNDER PARAGRAPH 14.2
Paragraph 14.2(b) of the Agreement shall apply to the following legal
actions, including any appeals thereof:
<TABLE>
<CAPTION>
CAUSE NUMBER COURT
- ------------------------------------------------------------------------------------------------
<S> <C>
Civil Action 95-0546 MJJ US District Court for the N. District of California
Civil Action 96-4295-DLJ US District Court for the N. District of California
Civil Action 974135 US District Court for the District of S. Dakota, Southern Division
Civil Action 97-4136 US District Court for the District of S. Dakota, Southern Division
</TABLE>
NINTENDO-LODGENET HOTEL LICENSE AGREEMENT
PAGE 26
MAY 12, 1998 (FINAL)
<PAGE>
EXHIBIT 12.1
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Ratios (Unaudited)
(Dollar amounts in thousands)
Computation of Coverage of Fixed Charges
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss $ (4,650) $ (7,026) $(16,610) $(25,619) $(39,912)
Add:
Equity in losses of
unconsolidated affiliate -- -- -- -- 738
Extraordinary loss (1) 1,324 -- 3,253 -- --
Cumulative effect of change
in accounting principle (2) -- -- -- 210 --
Provision for income taxes -- 66 28 344 375
Add fixed charges (3):
Interest 966 4,522 8,243 17,895 23,064
Amortization of debt costs 203 260 564 1,008 1,004
Interest portion of rentals 74 106 159 210 174
--------- --------- --------- --------- ---------
Earnings available to cover
fixed charges (2,083) (2,072) (4,363) (5,952) (14,557)
Less fixed charges 1,243 4,888 8,966 19,113 24,242
--------- --------- --------- --------- ---------
Deficiency in the coverage of
fixed charges $ (3,326) $ (6,960) $ (13,329) $ (25,065) $ (38,799)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------
(1) In 1994--loss on early termination of the Company's then bank credit
facility. In 1996--loss on early redemption of the Company's 9.95%
and 10.35% Senior Notes.
(2) In 1997--charge for the effect of adopting EITF Issue 97-13 related
to accounting for certain business reengineering costs.
(3) Fixed charges consist of interest on all indebtedness, including
amortization of debt issuance expense and capitalized interest, and
one-third of rental expense (which is estimated to represent the
interest portion thereof).
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K into the Company's previously filed
Registration Statement File No. 33-67676.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,240
<SECURITIES> 0
<RECEIVABLES> 28,386
<ALLOWANCES> (800)
<INVENTORY> 0
<CURRENT-ASSETS> 38,912
<PP&E> 355,895
<DEPRECIATION> (146,458)
<TOTAL-ASSETS> 306,030
<CURRENT-LIABILITIES> 31,151
<BONDS> 262,375
0
0
<COMMON> 119
<OTHER-SE> 11,655
<TOTAL-LIABILITY-AND-EQUITY> 306,030
<SALES> 166,351
<TOTAL-REVENUES> 166,351
<CGS> 74,008
<TOTAL-COSTS> 74,008
<OTHER-EXPENSES> 101,434
<LOSS-PROVISION> 848
<INTEREST-EXPENSE> 23,048
<INCOME-PRETAX> (39,537)
<INCOME-TAX> 375
<INCOME-CONTINUING> (39,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,912)
<EPS-PRIMARY> (3.45)
<EPS-DILUTED> (3.45)
</TABLE>
