10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2006

or

o 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

(Exact name of Registrant as specified in its charter)

Delaware	46-0371161
(State of Incorporation)	(IRS Employer Identification Number)

3900 West Innovation Street, Sioux Falls, South Dakota 57107
(Address of Principal Executive Offices)   (Zip Code)

(605) 988 — 1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:     Common Stock, $.01 par value.

Securities registered pursuant to Section 12(g) of the Act:     None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large Accelerated Filer o       Accelerated Filer þ       Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $253,727,000

The number of shares of common stock of the Registrant outstanding as of March 6, 2007, was 19,251,294 shares.

DOCUMENTS INCORPORATED BY REFERENCE — Portions of the Registrant’s definitive proxy statement for the 2007 Annual Meeting of Stockholders, which will be filed within 120 days of the fiscal year ended December 31, 2006, are incorporated by reference in Part III of this Form 10-K.

This Report contains a total of 85 pages, excluding exhibits. The exhibit index appears on page 49

Table of Contents

Item 1 - Business	1
Overview	1
Overview of Markets Served	2
Pending Acquisition of Ascent Entertainment Group, Inc.	3
Hotel Market and Customers	4
Hotel Market Services and Products	4
Healthcare and Adjacent Markets	8
Corporate Operations Utilized Across Multiple Markets	8
Competition	10
Business Strategy	11
Regulation	12
Employees	13
Corporate Information and Web Site Access to SEC Filings	13
Item 1A - Risk Factors	14
Item 1B - Unresolved Staff Comments	20
Item 2 - Properties	20
Item 3 - Legal Proceedings	20
Item 4 - Submission of Matters to a Vote of Security Holders	20
Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Dividends	21
Stockholder Rights Plan	21
Item 6 - Selected Financial Data	23
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Executive Overview	25
Liquidity and Capital Resources	33
Seasonality	35
Results of Operations - Years Ended December 31, 2006 and 2005	36
Results of Operations - Years Ended December 31, 2005 and 2004	39
Critical Accounting Policies	42
Recent Accounting Developments	45
Item 7A - Quantitative and Qualitative Disclosures About Market Risk	46
Item 8 - Financial Statements and Supplementary Data	46
Item 9 - Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	46
Item 9A - Controls and Procedures	46
Item 9B - Other Information	47
Item 10 - Directors and Executive Officers of the Registrant	48
Item 11 - Executive Compensation	48
Item 12 - Security Ownership of Certain Beneficial Owners and Management	48
Item 13 - Certain Relationships and Related Transactions	48
Item 14 - Principal Accountant Fees and Services	48
Item 15 - Exhibits and Financial Statement Schedules	49
Amended and Restated Rights Plan
Second Supplemental Indenture
Seventh Amendment to Credit Agreement
Eighth Amendment to Credit Agreement
Asset Purchase Agreement
Stock Purchase Agreement
Shareholders Agreement
Stock Purchase Agreement
Statement of Computation of Ratios
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Section 1350 Certifications

As used herein (unless the context otherwise requires) “LodgeNet” and/or the “Registrant,” as well as the terms “we,” “us” and “our” refer to LodgeNet Entertainment Corporation and its consolidated subsidiaries.

“LodgeNet ”, “LodgeNetRx”, the LodgeNet logo, “SigNETure TV”, “SigNETure PC”, “SigNETure HDTV, “Hotel SportsNET” and “Entertainment2GO” are service marks or registered trademarks of LodgeNet Entertainment Corporation; all other trademarks or service marks used herein are the property of their respective owners.

PART I

Item 1 — Business

Overview

We are one of the world’s largest providers of interactive television and broadband solutions to hotels throughout the United States and Canada, as well as to select international markets. As of December 31, 2006, we provided interactive television services to approximately 6,000 hotel properties serving over one million hotel rooms. In addition, LodgeNet delivers on-demand patient education, information and entertainment to healthcare facilities in the United States. As of December 31, 2006, our systems were installed in twelve healthcare facilities and we had six additional hospitals under contract.

As part of our service to the hotel industry, we provide a wide range of interactive television services, including on-demand movies, on-demand games, music and music videos, subscription sports programming and television on-demand programming. We generally refer to these products as guest pay interactive services and guests typically purchase these services on a per-view, hourly, or daily basis. Our service package may also include satellite-delivered basic and premium television programming and other interactive entertainment and information services that are paid for by the hotel and provided to guests at no charge, which we generally refer to as free-to-guest services. In addition, we provide high-speed Internet access, or “HSIA” services to some of our hotel customers. Our ability to provide high-speed Internet access was enhanced by our acquisition of substantially all the assets of StayOnline, Inc., in a transaction that was completed on February 1, 2007. With the close of this acquisition, we now provide HSIA services to approximately 175,000 rooms.

With regard to the healthcare industry, we sell our interactive systems and license our software to individual healthcare facilities. We generate revenue from the initial sale of the system hardware, software license and installation services. Additionally, we earn recurring revenues from the provision of on-demand and television entertainment content, software maintenance and technical services.

Our focus is on the execution of our long-term business strategy, which is summarized as follows:

Ø	expand our interactive television and broadband networks within the lodging industry;
Ø	increase hotel guest room revenue and gross profit;
Ø	diversify our business into healthcare and other adjacent markets; and
Ø	generate increasing levels of cash flow.

As shown in the table below, revenue and operating income have been increasing over the past five years. In 2006, we reported net income for the first time in our history. Dollar amounts are shown in thousands, except for room data.

LodgeNet Entertainment Corporation 1 Form 10-K 2006

	Year Ended December 31,
	2006			2005			2004			2003			2002
Selected Operations Data:
Total rooms served (1) (4)		1,052,025			1,053,806			1,034,605			994,127			952,673
Total Guest Pay interactive rooms (2) (4)		1,004,937			1,001,929			974,798			924,643			876,348
Total Digital rooms (3)		733,362			629,085			508,979			385,426			265,097
Total revenues	$	288,213		$	275,771		$	266,441		$	250,149		$	234,990
Operating income		26,932			22,693			12,970			6,500			5,975
Depreciation and amortization		66,311			69,862			77,045			78,459			75,918
Share-based compensation		1,677			288			198			—			—
Interest expense		25,730			29,351			31,891			34,239			33,037
Net income (loss)	$	1,841		$	(6,959	)	$	(20,781	)	$	(35,052	)	$	(29,126	)
Cash provided by operating activities	$	72,301		$	64,285		$	60,614		$	48,563		$	43,769
Cash used for investing activities		(50,604	)		(51,455	)		(54,350	)		(53,618	)		(70,708	)
Difference	$	21,697		$	12,830		$	6,264		$	(5,055	)	$	(26,939	)

(1)	Total rooms served include Guest Pay interactive rooms, rooms served by international licensees, and properties receiving only basic and premium television services.
(2)	Guest Pay interactive rooms are equipped with our interactive television systems.
(3)	Digital rooms are equipped with an interactive digital system where on-demand movies, television on-demand programming, and music content are stored in a digital format and are updated and delivered via satellite to our systems within respective hotels. Digital rooms are included in total Guest Pay interactive rooms and represent 73% of the Guest Pay interactive rooms served as of December 31, 2006.
(4)	As a result of Hurricane Katrina, room count as of December 31 was reduced by 4,053 rooms in 2006 and 8,195 rooms in 2005.

Overview of Markets Served

We provide our services directly to hotel customers and their guests throughout the United States and Canada, and through licensing arrangements with companies in other select countries. Typically, our contracts with hotels are exclusive and have initial, non-cancelable terms of five to seven years. As of December 31, 2006, the average remaining contract term was approximately 39 months and equated to approximately 39.2 million room months under contract. The exclusive nature of these contracts allows us to estimate (based on historical information and certain operating assumptions) future revenues, cash flows and rates of return related to the contracts prior to making a capital investment decision.

We design, develop, and operate the interactive television systems that are installed at hotel properties. The vast majority of these systems are owned by us, although in some cases hotels purchase the systems from us. The interactive system connects each individual hotel room to a server, referred to as the “headend,” located in the hotel. Because of the flexible and modular design of the system architecture, we can typically upgrade our software and hardware to support the introduction of new interactive services and integrate new technologies as they become commercially available and economically viable.

We also provide high-speed Internet access services through the sale and installation of equipment to subscribing hotels. We receive monthly service fees from such hotels for technical maintenance and call center support services following the initial installation.

LodgeNet Entertainment Corporation 2 Form 10-K 2006

In 2001, we began deploying a digital system, which has allowed us to expand the array of features and content available through our systems. As of December 31, 2006, we had installed our digital system in approximately 733,400 rooms, or 73% of our installed Guest Pay interactive base. In addition to the on-demand movies, video games, and other services provided by our tape-based systems, the digital system offers the following:

Ø	increased variety and availability of on-demand movies;
Ø	television on-demand programming;
Ø	on-demand digital music programming;
Ø	subscription sports programming;
Ø	Internet on television;
Ø	access to Internet-sourced content;
Ø	on-screen controls that allow the guest more viewing control and flexibility;
Ø	improved guest marketing and merchandising capabilities; and
Ø	system architecture that receives video and music content via a satellite distribution network, resulting in operating cost reductions.

We plan to continue to install the interactive digital system in all newly installed hotel properties and in selected existing sites as current service contracts are successfully renewed and extended.

We provide our services to various hotel chains, ownership groups, and management companies, including Hilton Hotels Corporation (Hilton, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn, Homewood Suites, Conrad), Starwood Hotels and Resorts (Westin, W Hotels, Sheraton, Four Points), Marriott (The Ritz Carlton, Marriott, Courtyard by Marriott), Global Hyatt Corporation (Hyatt Place), Carlson Hospitality (Radisson, Park Plaza, Country Inn & Suites, Park Inn), Felcor (Hampton Inn, Homewood Suites, Marriott, Courtyard by Marriott, Westin, Sheraton, Crown Plaza, Fairfield, Holiday Inn), Interstate (Wyndham, Courtyard by Marriott, Radisson, Comfort Inn, Four Points, Amerisuites), Kimpton, LaQuinta, Omni Hotels, Outrigger, Grand Casinos, and Wingate Inn, as well as many independent properties.

In 2004, we began to offer our interactive television system to healthcare facilities in the United States. As of December 31, 2006, twelve hospitals had installed our system and we had an additional six facilities under contract. In this market, we sell our interactive systems to healthcare facilities or licensed resellers. Revenue is earned from the initial sale of system hardware, software licensing, and installation services. We additionally earn recurring revenues, under long-term contracts, by providing entertainment content, software maintenance and technical field service. We plan to continue to pursue opportunities in the healthcare market and expect to contract and install additional hospitals in 2007.

Pending Acquisition of Ascent Entertainment Group, Inc.

On December 13, 2006, we entered into a definitive agreement with Liberty Satellite Technology, Inc., a wholly- owned subsidiary of Liberty Media Corporation, to purchase 100% of the outstanding stock of Ascent Entertainment Group, Inc. and its subsidiaries (“Ascent”). On Command Corporation, a competitor of the Company, is a wholly- owned subsidiary of Ascent. On Command also owns 80% of The Hotel Network, Inc., a provider of advertising supported television services to hotels. On Command currently serves approximately 832,000 hotel rooms in the United States, Canada and Mexico. The purchase price of Ascent is $380.0 million, of which $332.0 million will be paid in cash and the balance of which will be paid by the issuance of 2,050,000 shares of common stock of the Company. Following the completion of the proposed transaction, Liberty Satellite will own approximately 9.9% of our total shares outstanding. The transaction is awaiting antitrust clearance by the U.S. government, and is subject to the satisfaction or waiver of certain other standard conditions. In a related transaction, PAR Capital Advisors has agreed to purchase an additional 1,000,000 shares of the Company’s common stock, the proceeds of which will be used to pay a portion of the cash consideration for the Ascent transaction. Both the Liberty Satellite stock and the Par Capital Advisors stock will be sold at $23.65 per share, a purchase price equal to the average closing price of the common stock of the Company on the NASDAQ stock market for a period of ten trading days prior to the execution of these agreements.

LodgeNet Entertainment Corporation 3 Form 10-K 2006

Hotel Market and Customers

U.S. and Canadian Market. The primary market for our interactive television network is the mid-size and large hotel segments within the United States and Canada. Based on industry sources, we estimate that these segments account for approximately 74%, or 3.6 million of the lodging industry’s estimated 4.9 million rooms. In addition, we believe that growth opportunities are available through (i) supply growth within the lodging industry, (ii) rooms currently served by other service providers when their contracts expire, and (iii) economically-viable rooms not yet served by any provider.

Diversified Customer Base. We believe that our interactive hotel base is well diversified in terms of (i) location; (ii) demographics; and (iii) customer contracts. As of December 31, 2006, no single state or province accounted for more than 13% of the hotel properties served by us. We provide our services to various hotel chains, ownership groups, and management companies, including Hilton Hotels Corporation (Hilton, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn, Homewood Suites, Conrad), Starwood Hotels and Resorts (Westin, W Hotels, Sheraton, Four Points), Marriott (The Ritz Carlton, Marriott, Courtyard by Marriott), Global Hyatt Corporation (Hyatt Place), Carlson Hospitality (Radisson, Park Plaza, Country Inn & Suites, Park Inn), Felcor (Hampton Inn, Homewood Suites, Marriott, Courtyard by Marriott, Westin, Sheraton, Crown Plaza, Fairfield, Holiday Inn), Interstate (Wyndham, Courtyard by Marriott, Radisson, Comfort Inn, Four Points by Sheraton, Amerisuites), Kimpton, LaQuinta, Omni Hotels, Outrigger, Grand Casinos, and Wingate Inn, as well as many independent properties. During 2006, hotels covered by the master services agreement with Hilton Hotels Corporation, which was signed in 2000, represented approximately 20.8% of our consolidated revenue, of which, the Hilton owned properties accounted for less than 5% of consolidated revenue. Each property is subject to an individual seven-year property level agreement. No other master service agreement accounted for more than 10% of our consolidated revenue.

International Hotel Markets. We also provide services in select international markets — primarily countries located in Central and South America — through licensing arrangements with companies in these areas. Under these arrangements, we do not make any capital investment. Instead, we sell equipment and license our interactive television system and technologies to the licensee and receive a royalty based on gross revenue. Financial information related to our operating segments and international operations is included in Note 17 of our consolidated financial statements. In 2007, we plan to continue to expand our business in various international markets.

Hotel Market Services and Products

Guest Pay Interactive Services. Our primary source of revenue is providing interactive television services to the lodging industry, for which the hotel guest pays on a per-view, hourly or daily basis. The high-speed, two-way digital communications design of our system architecture enables us to provide interactive features, such as on-demand movies, network-based video games, music and music videos, television on-demand programming, daily sports programming and Internet on television (which does not require a laptop). Guest Pay interactive revenue packages may also include satellite-delivered basic and premium television programming, video review of room charges, video checkout, guest surveying, and merchandising services that are paid for by the hotel and provided to guests at no charge. Television programming is delivered via satellite through DIRECTV pursuant to a long-term agreement and distributed to approximately 51% of our guest rooms over the internal hotel network, and typically includes premium channels, such as HBO, Showtime and The Disney Channel, which broadcast major motion pictures and specialty programming, as well as non-premium channels, such as CNN and ESPN.

In 2001, we began wide-scale deployment of our digital system. In addition to the movies and games already offered on our tape-based systems, the digital system allows guests to choose from an expanded menu of video on an on-demand basis as well as other forms of programming, including digital music services, television on-demand programming and access to Internet content through the television. The range of services offered is greater in those rooms equipped with a digital system versus those with a tape-based system and, therefore, rooms equipped with our digital system generate greater revenue than rooms equipped with a tape-based system. Additionally, the interactive digital systems are equipped so that content such as on-demand movies and music content are updated and delivered via satellite to our system within each hotel. This not only eliminates videotapes and shipping costs and reduces the need for technician visits to update the

LodgeNet Entertainment Corporation 4 Form 10-K 2006

content, but also ensures that all of the hotels we serve with a digital system can offer the content as of the first date available for exhibition.

In 2003, we launched the SigNETure TV^SM configuration of our digital system. This system, coupled with our LodgeNet Media Management System (LMMS), gives us the ability to better market and merchandise our content to hotel guests, and gives our hotel customers many benefits, including allowing hotels to:

Ø	customize the “look and feel” of the user interface;
Ø	use the system for the hotel’s internal branding or marketing campaigns; and
Ø	use the system to provide information regarding other hotel services.

We believe that SigNETure TV^SM offers us a competitive advantage and will increase our hotel customers’ loyalty. As a result, we expect that the continued deployment of the SigNETure TV^SM system will facilitate revenue growth by enhancing our competitive advantage when signing new hotel contracts and through marketing of our services and products to hotel guests.

In 2005, we introduced our new Hotel SportsNET^SM service, which provides guests the ability to purchase daily subscriptions to certain professional and college sports television packages. During 2006, our Hotel SportsNET^SM line up included NFL SUNDAY TICKET, NHL CENTER ICE, NBA LEAGUE PASS, MLB EXTRA INNINGS and college sports programming including ESPN’s GamePlan, ESPN’s Full Court and College Sports TV (CSTV). As of December 31, 2006, Hotel SportsNET^SM was installed in approximately 76,000 rooms.

In 2005, we launched our SigNETure HDTV^SM offering. This digital system configuration enables us to deliver high-definition entertainment content to guests in the hotels we serve that are equipped to receive and display HDTV. As of December 31, 2006, we had more than 17,000 rooms equipped with high-definition capabilities. We have programming agreements with DIRECTV to deliver HBO HD, ESPN HD, ESPN 2 HD, Discovery HD and HD NET television programming. We also have agreements or other arrangements with DIRECTV, ESPN, Paramount, Universal, MGM, DreamWorks, Lion’s Gate, Magnolia and First Independent Pictures to provide high-definition guest room entertainment content to the hotels we serve that are equipped to receive and display HDTV. We plan to pursue agreements with additional providers of HD television and movie content, and we are actively working with a number of major television manufacturers to integrate their television displays with our HDTV platform solution. As part of the integration effort, several manufacturers have adopted Pro:Idiom^TM premium content copy protection technology to enable LodgeNet-served hotels to display HD premium satellite and video-on-demand entertainment licensed by satellite programmers and movie studios. During 2006, we believe our SigNETure HDTV^SM solution combined with our LMMS helped us to secure Global Hyatt Corporation as a customer. We were selected as the exclusive provider of interactive TV and HDTV services for Global Hyatt’s new upscale select service brand, Hyatt Place. During 2005, we believe key contracts with Starwood Hotels & Resorts Worldwide, Inc., and The Ritz-Carlton Hotel Company, L.L.C., a wholly-owned subsidiary of Marriott International, Inc., were secured as a result of our SigNETure HDTV^SM solution leadership.

The revenues generated from Guest Pay interactive services are dependent upon a number of factors, including:

Ø	the number of rooms equipped with our interactive television system;
Ø	the range of interactive television and broadband services offered at each hotel;
Ø	the popularity, amount and timeliness of content offered, as well as the popularity and availability of other entertainment alternatives;
Ø	the profile of the guest at each property;
Ø	the price of the service purchased by the hotel guest; and
Ø	the occupancy rate at the property.

Our ability to increase the number of rooms served by our network is dependent on a number of factors, including the desirability of our technology, new hotel construction, and our ability to market our services to hotels upon expiration of competitors’ contracts with those hotels. Revenues vary with the number, availability and popularity of major motion pictures and the guests’ other entertainment alternatives. The price charged for each programming option is established by us and is segmented according to the guest mix profile at each property and overall economic conditions. Movie prices are set on a title-by-title basis and may be higher in some locations and for more popular titles. In addition, our

LodgeNet Entertainment Corporation 5 Form 10-K 2006

LMMS allows us to refresh interactive menus, promote different products and different titles to different demographics, change pricing of our products, selection and promotions based on time-of-day or day-of week, among other marketing efforts to the guest. Our systems allow us to measure guests’ entertainment selections and adjust our programming and the pricing of the programming to respond to viewing patterns. Occupancy rates vary by property based on the property’s competitive position within its marketplace, seasonality factors, and as a result of changes in general economic conditions. Typically, occupancy rates are higher during the second and third quarters due to seasonal travel patterns, and these quarters typically generate our strongest financial results.

High Speed Internet Access System Sales, Service and Support. During 2006, we continued to promote the sale and installation of high-speed Internet equipment and services. We generate revenue through the sale and installation of the equipment and we provide ongoing maintenance, service and call center support services to hotel properties that have been installed by us and also to hotel properties that have been installed by other providers. We provide, in some cases, the hotel property with the portal to access the Internet. While this is a highly competitive area, we believe we have important advantages as a result of our existing hotel customer relationships, our nationwide field service network, and our 24-hour call center which provides services 7 days a week. In November 2006, we signed an agreement to acquire substantially all of the assets of StayOnline, Inc., a provider of HSIA services to hotels. This transaction was completed on February 1, 2007. With the close of this acquisition, we serve approximately 175,000 rooms with HSIA services.

Other Services. In addition to the sale of equipment to our international markets, we also generate revenue from the sale of content and services directly to our hotel customers, which are generally provided free to hotel guests. Included in these services is satellite-delivered basic and premium television programming for which the hotel pays us a fixed monthly charge per room. We provide this service to approximately 18,000 rooms in hotels which choose not to offer VOD services, and we compete with local cable television operators for providing such services by tailoring different programming packages to provide specific channels desired by the hotel subscriber, which typically reduces the overall cost to the hotel for the services provided.

Contracts. We provide Guest Pay interactive television services under contracts with lodging properties that generally run for a term of five to seven years. Over the five-year period ended December 31, 2006, the average initial term of new contracts was approximately six and a half years. Our contracts typically provide that we will be the exclusive provider of in-room, on-demand television entertainment services to the hotels, permit us to set prices for Guest Pay interactive services, and allow us to terminate the contract and remove our system if the results of operations do not meet our return on investment criteria. Under these contracts, we generally install our interactive television network in the hotel free of charge and retain ownership of all equipment utilized in providing our services (except for the television sets, which are owned by the hotels). The terms contained in the contracts with corporate-managed hotels are generally negotiated by that hotel’s corporate management, and the hotels subscribe at the direction of corporate management. In the case of franchised hotels, the contracts are generally negotiated separately with each hotel. We also offer to certain hotel customers who would not otherwise qualify for installation of our systems, the opportunity to purchase our systems combined with long-term service maintenance and content agreements with us.

For Guest Pay interactive services which are paid for by the hotel guest, the hotel collects such charges on our behalf, along with the collection of room and other charges made by the hotel guest, and the hotel remits funds to us on a monthly basis. The hotel retains a commission for such services, which varies depending on the size and profitability of the system and other factors. We generally seek to extend and renew hotel contracts in advance of their expiration on substantially similar terms. As of December 31, 2006, the average remaining life of our current Guest Pay interactive contracts was approximately 39 months and equated to approximately 39.2 million room months under contract. Approximately 19% of current Guest Pay rooms are subject to renewal prior to 2008. Over the last five years, we have de-installed an average of approximately 3% of our installed base per year. During 2006, we de-installed approximately 65,000 rooms. In addition to certain sites switching to their local cable provider, we have chosen not to renew contracts at select properties, primarily limited service and extended stay properties, as the revenue generated at these properties does not meet our minimum payback criteria. We believe it is a sound business decision as we intend to deploy our capital for renewals and for new rooms where we believe we can generate the highest return on our investment. Internationally, we intend to continue to expand in selected countries in Asia, Latin America, South America, Europe and other regions through long-term licensing agreements or other arrangements with entities in those areas.

LodgeNet Entertainment Corporation 6 Form 10-K 2006

Programming. We obtain non-exclusive rights to show recently released major motion pictures from motion picture studios pursuant to an agreement with each studio that is typically two to three years in length. The royalty rate for each movie is pre-determined, with the studio receiving a percentage of the gross revenue from the movie. For recently released motion pictures, we typically obtain rights to exhibit the picture while it is still in theatrical release, but prior to its release to the home video market or for exhibition on cable television. For our television on-demand programming, we obtain the rights to exhibit television on-demand content for which we pay a predetermined percentage of gross revenue or a one-time fixed fee. In addition, we obtain non-exclusive rights to cable or premium television programming, including HD format programming, through a long-term agreement with DIRECTV, which expires in January 2010, whereby we pay a fixed monthly fee per property served. We also have agreements with certain other select television programming providers. We pay our television programming providers a fixed, monthly fee for each room or subscriber receiving the service. We believe that our relationships with the television programming suppliers are good and expect to renew these contracts as necessary on competitive terms. We obtain independent films, most of which are non-rated and intended for mature audiences, for a one-time fixed fee. We also obtain non-exclusive rights to digital music content through an agreement with a third party vendor, whereby we pay a predetermined percentage of the gross revenue from the music service. We obtain our selection of Nintendo video games pursuant to a non-exclusive license agreement with Nintendo, which expires in May 2013. Under the terms of the agreement, we pay a monthly fee equal to a percent of revenue generated from the sale of Nintendo video game services, subject to a monthly minimum. For our Hotel SportsNET^SM programming we obtained the rights to exhibit sporting event content from the NFL, NHL, NBA, MLB, ESPN and College Sports TV (CSTV), for which we pay a predetermined percentage of gross revenue.

Technology, Product Development, and Patents. We design and develop our own interactive television systems. Because such systems utilize an open architecture design incorporating industry standard interfaces, historically we have generally been able to upgrade system software to support the introduction of new services or integrate new technologies as they become economically viable. Our interactive television system incorporates our scaleable broadband system architecture with commercially manufactured, off-the-shelf electronic and computer components and hardware.

Our system architecture utilizes a proprietary, two-way digital communications design to process and respond in real time to input commands from guests. This capability combined with our menus and guest interface screens enables us to provide guests with sophisticated interactive television services that include: on-demand movies with pause, skip, forward, back and save functionality, network-based video games, music services, Internet viewing and a variety of other interactive services. Our system also interfaces with the hotel systems allowing guests to review room charges, checkout, take guest surveys and view interactive information about the hotel and its services.

Our interactive television systems consist of equipment located within the guest room and associated equipment required for the generation, reception, storage, amplification and modulation of signals located elsewhere in the hotel. Typical in-room equipment includes a terminal unit and a hand-held television remote control. For those properties equipped with the digital systems, in-room equipment may also include an infrared computer keyboard or a video game controller. Video and music programming originates from the system headend and is transmitted to individual rooms over the hotel’s coax network. Video game programs are downloaded into dedicated video game processors also located within the headend. Keystrokes and other system commands and communications are transmitted from the room using our proprietary communications infrastructure and the video and other signals are transmitted to the guest room over the network. The system computer controls the delivery of the Guest Pay interactive services to the guest room and also records purchase transactions and billing data to the hotel’s accounting system, which posts the charge to the guest’s bill.

In addition, we are continuing to develop and integrate technologies that enable us to deliver high-definition television (HDTV) and other digital content to our hotels and their guests. These developments extend our digital platform with new technology including “boxless” digital televisions and set-top or set-back boxes that are able to decrypt and decode this digital content in the guestroom. These HD systems are contrasted with our existing systems that deliver an analog signal to the room from either an analog tape-based or digital storage device. The digital content is encrypted to protect the rights of content owners, who consider this protection when granting us distribution rights.

LodgeNet Entertainment Corporation 7 Form 10-K 2006

Our LMMS allows us to refresh interactive menus, promote different products and different titles to different demographics and change pricing of our products, selection and promotions based on time-of-day or day-of week, among other marketing efforts to the guest.

At those properties where we have sold HSIA systems, the systems consist of commercial off-the-shelf networking equipment used to provide wired and wireless connections to guests’ computers. We license Visitor Based Network (VBN) software that manages connections between the guest and the Internet. The connection to the Internet is provided by either the hotel or an Internet Service Provider contracted by us.

Our policy is to apply for patents on those product designs which management believes may be of significance to our business. We currently hold 10 United States patents, and have other applications for patents pending, which pertain to various aspects of our interactive systems. We also license industry-related technology from third parties.

Healthcare and Adjacent Markets

During 2006, we continued to develop our product offering and presence in the healthcare industry and, as of December 31, 2006, had twelve facilities installed with our interactive system and six additional facilities under contract. In this market, we sell our interactive systems to healthcare facilities or licensed resellers. Revenue is earned from the initial sale of system hardware, software licensing, and installation services. We additionally earn recurring revenues, under long-term contracts, by providing entertainment content, software maintenance and technical field service. We plan to continue to pursue opportunities in the healthcare market and expect to contract and install additional hospitals in 2007.

In the second quarter of 2006, we began selling our digital system combined with a multi-year maintenance contract to IdleAire Technologies Corp., which produces and markets technology for installation at truck stops that provide various services for sleeper cabs in long-haul trucks. IdleAire purchases our interactive television platform, licenses our software, and contracts with us for a variety of entertainment and service options as part of its overall service offering. We are also investigating other adjacent markets into which we can sell our interactive television system including timeshare developments.

Programming. Our healthcare programming is provided by various third party distributors. We obtain the non-exclusive rights to show major motion pictures as well as patient education content pursuant to programming agreements. These agreements are typically three to five years in length with programming royalties based on the number of beds at each healthcare facility receiving services. In addition, we also utilize our existing relationships with DIRECTV for our cable and premium television programming and Nintendo for video game services.

The programming provided in the travel center market is comparable with the programming in the hotel market; accordingly, we utilize our existing vendor relationships and programming arrangements.

Technology, Product Development: We have been able to leverage the technology and product development utilized in the hotel market to the healthcare and travel center markets with limited modifications.

Corporate Operations Utilized Across Multiple Markets

Trademarks. We use a number of registered and unregistered trademarks for our products and services. We have pending applications for registration of certain unregistered trademarks, and those trademarks for which we have not sought registration are governed by common law and state unfair competition laws. Because we believe that these trademarks are significant to our business, we have taken legal steps to protect our trademarks in the past and intend to actively protect these trademarks in the future. We believe that our trademarks are generally well recognized by consumers of our products and are associated with a high level of quality and value.

Sales and Marketing. For the lodging market, we focus our sales and marketing strategies on acquiring new contracts from hotels, extending and retaining existing contracts, and marketing our Guest Pay interactive services to hotel guests. Our sales and marketing organization includes national account representatives who develop relationships with national hotel franchise organizations and management groups, and regional sales representatives who maintain relationships

LodgeNet Entertainment Corporation 8 Form 10-K 2006

primarily with regional hotel management and ownership organizations. We market our services and products to hotels by advertising in industry trade publications, attending industry trade shows and direct marketing. Sales activities are coordinated from our headquarters. Given our long operating history and reputation for service and innovation, we believe we are well recognized in the market among our existing and potential customers.

We market our services to hotel guests through a variety of means, including an interactive, image-based menu and purchasing protocol using on-screen graphics, promotions and programming information. Our 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 our system. Our systems also generally have a promotion channel located within the cable television line-up that presents movie-trailers and other information about the services available on the system.

For the healthcare market, we sell our interactive systems to healthcare facilities and earn recurring revenues under long-term contracts, by providing entertainment content, software maintenance and technical field service. In this market, we sell our interactive systems to healthcare facilities or licensed resellers. Revenue is earned from the initial sale of system hardware, software licensing, and installation services. We additionally earn recurring revenues, under long-term contracts, by providing entertainment content, software maintenance and technical field service. We plan to continue to pursue opportunities in the healthcare market and expect to contract and install additional hospitals in 2007. Our business model for the healthcare market differs from the business model for the hotel market. For healthcare we do not deploy a system using our capital but rather sell the system to the hospitals.

Installation Operations. Once a contract has been signed with a hotel or healthcare facility, our installation personnel prepare engineering surveys for each site, install our systems, train the site staff to operate the systems and perform quality control tests. Due to our geographically diversified customer base, we have determined that it is usually more cost effective to utilize subcontracted installation teams. In 2006, subcontractors completed approximately 90% of our new room and conversion of tape-to-digital installations. We work closely with our company-trained subcontractors and have a separate quality control department to regularly monitor quality standards. In our healthcare business, we utilize both internal installation personnel and subcontractors to install the interactive systems we sell to individual healthcare facilities.

Service Operations. We believe that high quality and consistent systems support and maintenance are essential to our continued competitive success. We emphasize the use of company-employed service personnel operating from 27 locations throughout the United States and Canada, but also use 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-employed service organization has responsibility for approximately 90% of our Guest Pay interactive hotel rooms. Service personnel are responsible for all preventive and corrective systems maintenance. Our service organization is also utilized to support our HSIA systems and interactive systems sold to healthcare facilities.

We maintain a toll-free customer support hot line, TechConnection, which is staffed 24 hours a day, 365 days a year by company trained and employed support technicians. The on-line diagnostic capability of our systems enables us to identify and resolve approximately 70% of reported system service issues from our service control center without visiting the hotel or healthcare facility. When a service visit is required, the modular design of our systems permits service personnel to replace only those components that are defective at the site.

Component Suppliers. We contract directly with various electronics firms for the manufacturing and assembly of certain system hardware, the design of which is controlled by us. We have found these suppliers to be dependable and generally able to meet delivery schedules on time. We believe that, in the event of a termination of any of our sources, with proper notification from the supplier, alternate suppliers could be located without incurring significant costs or delays. Certain electronic component parts used within our 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 we were to experience a shortage of any given electronic part, we believe that alternative parts could be obtained or system design changes implemented. In such event, we could experience a temporary reduction in the rate of new installations or tape-to-digital conversions and/or an increase in the cost of such installations. All other components of our systems are standard commercial products, such as computers, hard drives, modulators and amplifiers that are available from multiple sources. We believe our anticipated growth can be accommodated through existing suppliers.

LodgeNet Entertainment Corporation 9 Form 10-K 2006

Competition

Based on the number of hotels and rooms served, we are one of the world’s largest providers of interactive television and broadband solutions to hotels serving approximately 6,000 hotel properties and over one million hotel rooms. Competition in this industry is very active. In our competition for the time and attention of the hotel guest we compete against virtually all aspects of the entertainment and communications industry. Competitors for pay-per view services include, but are not limited to:

Ø	other interactive television service providers such as On Command Corporation (a wholly-owned subsidiary of Liberty Media Corporation), Hospitality Networks, Inc. (a wholly-owned subsidiary of Cox Communications, Inc.), NXTV, Kool Connect, Oxford SVI, SeaChange, TotalVision and other international providers, such as Quadriga, GalaVu Entertainment, Guest-Tek, MagiNet and Acentic;
Ø	cable, television and broadband service providers, such as Charter Communications, Comcast, Cox Cable and Time Warner;
Ø	direct broadcast satellite companies such as DIRECTV and EchoStar Communications;
Ø	television networks and programmers such as ABC, NBC, CBS, FOX, HBO, and Showtime;
Ø	Internet service providers and high-speed portals such as but not limited to iBahn, Wayport, Guest-Tek, Time Warner, Yahoo, Google and T-Mobile;
Ø	companies offering web sites that provide on-demand movies;
Ø	rental companies that provide videocassettes and DVDs that can be viewed in properly equipped hotel rooms and on other portable viewing devices; and
Ø	hotels that offer in-room laptops with Internet access or other types of Internet access systems.

Other indirect competition for guest attention and revenue include free-to-guest programming, portable media devises such as MP3 players, iPods, and DVD players, other devices such as laptop computers and cell phones, and other forms of entertainment and information such as newspapers, magazines and books, concerts, sporting events, and movie theaters. Given the high level of innovation in communications technology, we expect to continue to confront new sources of competition.

A number of potential competitors, including those identified above, could use their existing infrastructure to provide in-room entertainment services to the lodging industry. Some of these potential competitors are already providing guest pay, free-to-guest or Internet-related services to the lodging industry. Some of these companies have substantially greater financial and other resources than we do, and it is possible that such competitors may develop a technology that is more cost effective than ours. To respond to competition, we will need to continue to enhance our interactive systems, expand our operations and meet the increasing demands for competitive pricing, service quality and availability of value-added product offerings.

Competition with respect to hotel contracts centers on a variety of factors, depending upon the features important to a particular hotel. Among the more important factors are:

Ø	the features and benefits of the service offering and Internet systems;
Ø	the quality of the vendor’s technical support and maintenance services;
Ø	the financial terms and conditions of the proposed contract, including commissions to the hotel; and
Ø	the ability to complete system installation in a timely and efficient manner.

In addition, with respect to hotel properties already receiving in-room entertainment or high-speed Internet services, the incumbent provider may have certain informational and installation cost advantages as compared to outside competitors. We believe that our competitive advantages include:

Ø	our history of innovation;
Ø	our diverse client base;
Ø	our proven ability to retain existing customers and secure new ones;
Ø	our technically-innovative digital platform;
Ø	our high definition platform;
Ø	our flexible SigNETure TVSM system; and
Ø	our content management system.

LodgeNet Entertainment Corporation 10 Form 10-K 2006

We believe that our past success in securing contracts reflects the strong competitive position of our products and services.

While we believe that our system architecture is comparable or superior to the systems currently being used by our competitors in the lodging industry, our competitors may develop cost-effective systems that are comparable or superior to ours. Also, we may not be able to continue our current level of success in obtaining new contracts from hotels currently served by other providers or previously un-served, and we may not be able to retain contracts with hotels we serve when our contracts expire.

In the free-to-guest market, the local franchised cable operator in a hotel’s market may have a substantial market presence, such operators generally offer the hotel owner only standard packages of programming typically developed for the residential market rather than the lodging market, and at a fixed price per room based on all the channels provided. We compete 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 to the hotel operator.

Competitive pressures in the Guest Pay, free-to-guest and high-speed Internet access segments could result in reduced market share for us, higher hotel commissions, lower margins and increased expenditures for marketing, product development and systems installation, each of which could adversely affect our financial condition and operating results.

As we pursue further opportunities within the healthcare market, competitive pressures could result in lower margins and increased expenditures for marketing and product development, each of which could adversely affect our operating results and our ability to expand market share. Our main competitors in this market include, but are not limited to video on demand entertainment and education providers such as GetWell Network, Allen Technologies and Skylight as well as television and equipment rental companies such as TeleHealth and TVRC.

Competition to provide HSIA services to hotels is also intense. Market participants include, but are not limited to hotel-specific providers such as Guest-Tek, I-bahn and Wayport, as well as telecom providers such as Verizon, AT&T, MCI, Sprint and many others.

Business Strategy

Expand our interactive television and broadband networks. Within the lodging market, we believe opportunity exists for the continued growth of our interactive television and broadband networks. We believe that growth opportunities are available from (i) supply growth within the lodging market, (ii) rooms currently served by other service providers when their contracts expire, and (iii) economically-viable rooms not yet served by any provider. We also believe that the features and benefits of our digital and high-definition SigNETure TV^SM platforms and our LodgeNet StayOnline HSIA system software, the capabilities of our proprietary content management system, plus the quality of our nationwide service network provide us with a competitive product and service offering that will enable us to continue to secure long-term contracts within the US and Canadian lodging markets. Internationally, we intend to continue to expand into selected countries in Asia, Latin America, South America, Europe and other regions through licensing agreements with entities in those areas. We may also consider select acquisitions to further our network expansion objectives.

Increase guest room revenue and gross profit. We plan to increase the revenue and gross profit we realize per average installed interactive television room by (i) increasing the penetration of our digital television platform and HSIA services within our Guest Pay interactive room base, (ii) expanding the scope of the programming and broadband services available through our networks, (iii) enhancing our guest marketing activities, (iv) eliminating unprofitable content services and (v) creating new, advertising-based revenues. We intend to continue installing our interactive digital system in all newly contracted properties, and in select currently-served properties in exchange for long-term contract extensions for our services as our interactive digital system generates more revenue per average installed room than our traditional tape-based rooms. We believe that the digital system generates greater revenue per room because of (a) the increased variety and breadth of content available through the digital system, (b) its enhanced marketing capabilities, (c) its ability for the guest to pause, rewind or save a purchased selection, and (d) the quality of the rooms into which we are installing our digital system. We also believe the recent acquisition of StayOnline,

LodgeNet Entertainment Corporation 11 Form 10-K 2006

Inc. will increase our ability to expand the number of properties and rooms that contract with us for HSIA services. During 2006, we installed Hotel SportsNet^SM, our pay-per-day subscription sports service that features games from the NFL, NBA, NHL, MLB, ESPN and CSTV, into approximately 72,000 rooms on our interactive television network, and removed approximately 88,000 TV-based Internet rooms from service where the cost of providing the service approximately equaled or exceeded the revenue we generated from the service. Lastly, we continue to seek creating a new revenue stream based on the value of presenting advertising or marketing messages to the guests viewing our interactive television network. We believe this revenue source represents new long-term revenue opportunity.

Diversify our business into healthcare and other adjacent markets. In 2004, we began offering our interactive television systems into the healthcare facilities in the United States. In this market, we sell our interactive system and license our software, and earn recurring revenues from the provision of hardware and software service and maintenance activities and the sale of entertainment content. During 2006, we continued to develop our product offering and presence in the healthcare industry and as of December 31, 2006 had twelve facilities installed with our interactive system and six additional facilities under contract. We plan to continue to pursue opportunities in the healthcare market and expect to contract and install additional hospitals in 2007.

In 2006, we began selling our digital system combined with a multi-year maintenance contract to IdleAire Technologies Corp., which produces and markets technology for installation at truck stops that provide various services for sleeper cabs in long-haul trucks. IdleAire purchases our interactive television platform, licenses our software, and contracts with us for a variety of entertainment and service options as part of its overall service offering.

Additionally, we may explore other adjacent markets in which to sell our interactive television systems or corporate core competencies, including international expansion or other niche markets such as the education and timeshare markets. In these markets, we intend to sell our system and license our software, and earn recurring revenue from the provision of hardware and software maintenance and sale of entertainment or other content.

Generate increasing levels of cash flow. We are also focused on increasing the level of cash flow we generate from our business. During 2006, we generated $72.3 million of cash from operations, an increase of 12.4% over 2005, and $21.7 million of net free cash flow, a non-GAAP measure, which we define as cash provided by operating activities less cash used for investing activities. This represented an $8.9 million increase over 2005. On a pre-expansion basis, cash flow from operations minus general corporate and contract extension-related capital investments equaled $47.0 million in 2006. This result was 26.7% greater than that generated in 2005. Further, we intend to manage our cash flow and our capital investment activities to generally increase our net free cash flow and decrease our leverage ratios over time.

Regulation

Cable Television Regulation. The Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992, and the Telecommunications Act of 1996, (collectively, the “Communications 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. We construct and operate separate headend systems at each hotel and those systems do not use public rights-of-way. Consequently, we are not required to comply with many of the Federal Communication Commission’s (“FCC”) 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.

The FCC rules define multi-channel video programming distributor as “a person such as, but not limited to, a cable operator, a multi-channel multipoint distribution service, a direct broadcast satellite service, or a television receive-only satellite program distributor, who make available for purchase, multiple channels of video programming.” We may be considered to be a multi-channel multipoint distribution service. As such, we may be subject to various provisions of the Communications Act. The Communications Act includes laws and regulations that would benefit

LodgeNet Entertainment Corporation 12 Form 10-K 2006

our operations, such as provisions that ensure our access to programming on fair, reasonable and nondiscriminatory terms, as well as provisions that subject us to additional requirements, such as the requirement to obtain consent from broadcasters in order to retransmit their signal over our systems.

Healthcare Regulation. The Health Insurance Portability and Accountability Act (“HIPAA”) addresses the security and privacy of health data. The privacy and security rules promulgated under HIPAA apply only to “covered entities” – health plans, healthcare clearinghouses and healthcare providers. If LodgeNet enters into a contract with a healthcare facility that makes it a business associate, or a company which performs functions or activities involving the use or disclosure of protected health information on behalf of a covered entity, LodgeNet must comply with the terms and conditions of such contract, which will require LodgeNet to appropriately safeguard the confidentiality, integrity and availability of the protected health information that it receives or transmits on behalf of the covered entity.

High-Speed Internet Access. The FCC has classified high-speed Internet access as an interstate information service as defined by the Communications Act. To date, the FCC has not imposed any regulations on information service providers, although it may do so in the future.

The foregoing does not purport to describe all present and proposed federal, state and local regulations and legislation relating to our business. 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, other video programming distributors, and Internet service providers operate. We cannot predict the outcome of these proceedings or their impact upon our operations at this time.

Employees

As of December 31, 2006, we had 803 employees in the United States and Canada, none of which are covered by a collective bargaining agreement. We have not experienced any significant labor problems and believe that our relationships with our employees are good.

Corporate Information and Web Site Access to SEC Filings

We are a Delaware corporation with our principal executive offices located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107. Our telephone number is (605) 988-1000.

Our web site address is http://www.lodgenet.com. We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including all amendments to those reports, available free of charge on our web site as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

LodgeNet Entertainment Corporation 13 Form 10-K 2006

Item 1A — Risk Factors

We have experienced substantial net losses. If we do not remain profitable or generate sustained levels of net free cash flow, a non-GAAP measure, which we define as cash provided by operating activities less cash used for investing activities, it could have a harmful effect on our results of operations, business and the value of our common stock. We experienced net losses of $7.0 million, $20.8 million and $35.1 million for the years ended December 31, 2005, 2004, and 2003, respectively. As of December 31, 2006, we had an accumulated deficit of $302.5 million. While we generated net income of $1.8 million for the fiscal year ended December 31, 2006, and expect to generate net income from our current operations for fiscal year 2007, we may report a net loss due to expenses incurred with respect to the acquisition of the assets of StayOnline, Inc. and pending acquisition of the stock of Ascent Entertainment Group, expenses related to the integration of the operations of StayOnline Inc. and On Command and increased interest and amortization expenses related thereto.

Acquisitions of companies or technologies may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention, and could result in significant incremental expenses. During the last year, we entered into definitive agreements to acquire substantially all of the assets of StayOnline, Inc., an HSIA provider to hotels, and to acquire 100% of the capital stock of Ascent Entertainment Group, Inc. which owns 100% of the capital stock of On Command Corporation, a provider of in-room entertainment systems to hotels. In addition, we may seek to acquire or invest in businesses, products or technologies that we believe could, among other things, complement or expand our business or otherwise offer growth opportunities. However, current or future acquisitions could create risk for us, including difficulties in assimilation of acquired personnel, operations, technologies or products, which may adversely affect our ability to develop new products and services and to compete in our rapidly changing marketplace. Any acquisition may not generate any additional revenue or provide any benefit to our business. In addition, we do not have significant experience in acquiring and integrating companies, which could impair our ability to make successful acquisitions. Moreover, the acquisitions of companies or technologies require that we incur significant expenses related to these transactions, such as incremental legal fees, accounting fees, and investment banking fees. While these expenses are capitalized as part of the acquisition cost, if a transaction is not completed, the fees we incur must be expensed. In addition, if the acquisition of On Command is not approved through the Hart-Scott-Rodino process, we will incur a $5.0 million break-up fee, which will also be expensed. These fees, if expensed, are likely to exceed the net income we generate from our ongoing business operations.

We operate in a very competitive business environment and competition could reduce our revenue and our cash flow. Our business is primarily reliant on the hotel in-room entertainment business, which is highly competitive. If we are unable to compete effectively with large diversified entertainment service providers that have substantially greater resources than we have, our operating margins and market share could be reduced, and the growth of our business inhibited. In particular, we compete directly for customers with a variety of other interactive service providers, including other interactive television service providers, cable television companies, direct broadcast satellite companies, television networks and programmers, Internet service providers and portals, companies offering web sites that provide on-demand movies, rental companies that provide videocassettes and DVDs that can be viewed in properly equipped hotel rooms or on other portable viewing devices, and hotels that offer in-room laptops with Internet access or other types of Internet access systems. We also compete, in varying degrees, with other leisure-time activities such as movie theaters, the Internet, radio, print media, personal computers and other alternative sources of entertainment and information. In addition, future technological developments may affect competition within this business. A continuing trend toward business combinations and alliances in both domestic and foreign entertainment service industry may create significant new competitors for us. Many of these combined entities could have resources far greater than ours. These combined entities may provide bundled packages of programming, delivery and other services that compete directly with the products we offer. Our competitors may also offer services sooner and at more competitive rates than we do. We may need to reduce our prices or license additional programming to remain competitive, and we may be unable to sustain future price levels as competition increases. Our failure to achieve or sustain market acceptance of our offered services at desired pricing levels could impair our ability to achieve net free cash flow, which would harm our business.

Due to the capital commitment required to install our system equipment, it generally has not been cost-effective for us to install our system at hotels with fewer than 75 guest rooms or low occupancy rates or low average room rates. Our competitors who may have substantially greater financial and other resources than we do may develop a

LodgeNet Entertainment Corporation 14 Form 10-K 2006

technology that is more cost effective than ours. As a result, our competitors may be in a better position than we are to increase market share in the lodging industry and could adversely affect our ability to attract and retain customers.

Our business could be adversely impacted by conditions affecting the lodging industry’s performance. Our results are closely connected to the performance of the lodging industry, where occupancy rates may fluctuate resulting from various factors. Reduction in hotel occupancy resulting from business, economic, or other events, such as significant international crises, acts of terrorism, war or public health issues, could adversely impact our business, financial condition and results of operations. The overall travel industry can be, and has been in the past, adversely affected by weaker general economic climates, geopolitical instability and concerns about public health.

Any future terrorist attack or credible threat of an attack is also likely to adversely affect the travel industry, including lodging occupancy rates. For example, lodging occupancy rates fell significantly after the events of September 11, 2001. Any reduction in occupancy rates, particularly if extended over a long period of time, will reduce our revenue opportunities, which would have an adverse impact on our financial condition and results of operations.

New technologies, including the expansion of digital distribution of content in our markets, may increase competition and result in a decrease in our revenue. Our success can depend on new product development. The entertainment and communications industry is ever-changing as new technologies are introduced. Advances in technology such as new video formats, downloading or alternative methods of product delivery and distribution channels such as the Internet or certain changes in consumer behavior driven by these or other technologies and methods of delivery could have a negative effect on our business. While we mitigate risks by continually designing, engineering, and developing products and systems that can be upgraded to support new services or integrated with new technologies as they become economically viable, there can be no assurance that we will continue to be successful in these efforts. The advent of Digital Television (DTV) and Internet Protocol television (IPTV), including the introduction of high-definition television (HDTV), is likely to accelerate the convergence of broadcast, telecommunications, Internet and other media and could result in material changes in the economics, regulations, intellectual property usage and technical platforms on which our business relies. Video-on-demand has been introduced over the Internet, as high-speed broadband access has greatly increased the speed and quality of viewing content, including feature-length movies on personal computers. These changes could lower cost barriers for our competitors desiring to enter into, or expand their presence in, the television-based interactive services business. Increased competition may adversely affect the scale, source and volatility of our revenue streams, cost structures and cash flow, and may require us to significantly change our operations. There is a risk that our business and prospects will be harmed by these changes or that we will not identify or adapt to them as quickly as our competitors. In addition, we may experience difficulties and delays in developing new products and systems or in integrating our system with new technologies. We may have to incur significant capital expenditures in order to adapt to technological changes. If other technologies become affordable and viable alternative methods of content delivery that are widely supported by studios and adopted by consumers emerge, our business could be adversely affected.

If we fail to develop new products and product enhancements, our business and prospects could be harmed. We have a continuing product development program designed to develop new products and to enhance and improve existing products. The successful development of products and product enhancements is subject to numerous risks, both known and unknown, including:

Ø	unanticipated delays;
Ø	access to capital;
Ø	budget overruns; and
Ø	technical problems.

These difficulties could result in the abandonment or substantial change in the design, development and commercialization of these new products or product enhancements.

LodgeNet Entertainment Corporation 15 Form 10-K 2006

Given the uncertainties inherent with product development and introduction, we cannot assure that any given product development efforts will be successful on a timely basis, within budget, or at all. Our failure to develop new products and product enhancements on a timely basis or within budget could harm our business and prospects.

We may have to incur significant capital expenditures in order to adapt to technological change. The television-based interactive service industry has been, and is likely to continue to be subject to:

Ø	rapid and significant technological change, including continuing developments in technology that do not presently have widely accepted standards; and
Ø	frequent introductions of new services and alternative technologies, including new technologies for providing high-definition television and providing Internet content.

New technologies may emerge that may be superior to, or may not be compatible with some of our current technologies, which may require us to make significant capital expenditures to remain competitive. In particular, we may have to incur capital expenditures to support digital or high-definition television platforms in our hotel properties. Many of our competitors, including cable and Internet service providers, may have greater financial and technical resources to adapt to and capitalize on any such technological changes more effectively than we can. Our future success will depend, in part, on our ability to anticipate and adapt to technological changes and to offer, on a timely basis, services that meet customer demands and evolving industry standards. In part, we rely on third parties for the development of, and access to, communications and network technology. As a result, we may be unable to obtain access to new technology on a timely basis or on satisfactory terms. If we fail to adapt successfully to any technological change or obsolescence, or fail to obtain access to important technologies, our revenues and business could be harmed.

Our business could be harmed if we are unable to protect our proprietary technology. We rely primarily on a combination of trade secrets, patents, copyright and trademark laws and confidentiality procedures to protect our technology. Despite these precautions, unauthorized third parties may infringe, copy, or reverse engineer portions of our technology. We do not know if current or future patent applications will be issued within the scope of claims sought, if at all or whether any patent issued will be challenged or invalidated. In addition, we have applied or plan to apply for corresponding patents and patent applications in several foreign countries for some of our existing patents and patent applications. There is a risk that these patent applications will not provide significant protection for our products and technology. Our competitors may independently develop similar technology that our patents do not cover. In addition, because patent applications in the United States can provide patent protection from the date of filing but are not publicly disclosed until approximately 18 months after the patent application has been filed, other patent applications may have been filed in those previous 18 months which relate to our technology and of which we are unaware. Moreover, there is a risk that foreign intellectual property laws will not protect our intellectual rights to the same extent as United States intellectual property laws. In the absence of significant patent protection, we may be vulnerable to competitors who attempt to copy our products, processes or technology, which could harm our business.

If our products or services employ technology that infringes the proprietary rights of others, we may be subject to infringement claims, forced to pay certain fees to license technology or be required to stop selling our products. Our business could be harmed if we infringe upon the intellectual property rights of others. We have been notified in the past — and may be in the future — that we may be infringing intellectual property rights possessed by third parties. If any such claims are asserted, we may seek to enter into royalty or licensing agreements. There is a risk in these situations that no license will be available or that a license will not be available on reasonable terms, precluding our use of the applicable technology. Alternatively, we may decide to litigate such claims or to design around the patented technology. These actions could be costly and would divert the efforts and attention of our management and technical personnel. A successful claim of infringement against us or our failure or inability to license infringed or similar technology could damage our business to the extent we are required to pay substantial monetary damages or if, as a result of a successful claim, we are unable to sell our products or services without redeveloping them or are otherwise forced to incur significant additional expense. As a result, any infringement claims by third parties or claims for indemnification by customers resulting form infringement claims, whether or not proven to be true, may harm our business and prospects.

Diversification activities may not be successful and may divert management attention from our core business. In the past year, we have sought to diversify our business and decrease reliance on revenue from the hotel industry. These activities

LodgeNet Entertainment Corporation 16 Form 10-K 2006

have included sales of systems to healthcare facilities and travel centers and may include additional markets in the future that we consider to be complimentary to our other businesses. However, the diversification into areas in which we do not have the same experience as our core business involves a variety of risks, such as diversion of limited resources and personnel from our core business as well as management’s time and attention.

We are dependent on others for our programming content and increases in our costs or license fees to obtain such programming could reduce our cash flow and profitability. Our guest room programming content is provided primarily by movie studios, major television networks and other providers, aggregators and distributors of entertainment content. We currently pay each of these parties a fee for the right to distribute their programming in our installed guest rooms. In the future, we may be exposed to volatile or increased programming costs that may adversely affect our operating results. Our entertainment content providers may demand higher royalty rates or higher minimum payments than we are currently paying or may defer making their content available to us. We do not have a formal agreement with some of our content providers and, therefore, content from these providers may not be available in the future on terms that are acceptable to us, or at all. Increased licensing fees would also negatively impact our operating results.

Our revenue may be adversely affected by a reduction or elimination of the time between our receipt of movies and the movies being made available to the home market. We receive our movies directly from movie studios and the timing is at the studios’ discretion. Historically, we have received movies prior to their being more broadly distributed via movie rental or retail stores. The “window of release” has yielded a competitive advantage, as hotel guests have been able to view movies in the hotel rooms prior to being able to rent or purchase them for home viewing. Recently, this advance window of release has been reduced and a further reduction or elimination of this advance window of release could adversely affect our revenue. In addition, if a studio delays release of a movie to us in a manner inconsistent with past practices, we may not be able to generate as much revenue from such movie as we could have with an earlier release date.

The lack of quality programming or a change in available content could reduce our profitability and cash flows. Our profitability and cash flow is dependent on our ability to provide quality and popular programming to our hotel guests. We currently provide hotel guests major movies that we obtain from movie studios. The quality and popularity of major movies available at any given time and from year to year can vary widely. Generally, the more popular titles at the box office will also be more popular with hotel guests. We also provide hotel guests independent films most of which are non-rated and intended for mature audiences, music services and Nintendo video games. Our ability to be profitable and generate positive cash flow depends upon our ability to provide content for which hotel guests are willing to pay. However, we cannot predict the future popularity or quality of the movies, music, games or other content that we provide or may provide in the future. If, for any reason, such content became less popular than it is currently, or is not made available to us for distribution on a timely basis, our business could be adversely impacted. In addition, if any significant portion of the content we provide to hotel guests were to become unavailable, for reasons that could include licensing difficulties, governmental regulation or issues of public standards, our business could be adversely impacted. In addition, any negative publicity, lawsuit, or boycotts by opponents of the mature-themed programming content could have a negative impact on the willingness for the lodging industry generally to offer such content to guests which, in turn, could have a material adverse effect on our revenues and ability to achieve stated business goals.

Federal, state, local and foreign legislation and regulation may negatively impact our business and growth. We may be classified as a multi-channel video programming distributor, and thus may be subject to various provisions of the Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996, and the regulations promulgated under those acts. In addition, the Internet-based services offered by us may be affected by various laws and governmental regulations. While there are currently few laws or regulations directly applicable to access to or commerce on commercial online services, new laws and regulations are under debate by federal and local lawmakers and may be adopted. The adoption of such laws or regulations in the future may slow the growth of commercial online services and the Internet, which may cause a decline for our Internet-based services and products or have other adverse effects on our business. In addition, any legislative or regulatory changes restricting content that may be delivered over our systems, particularly mature content, could significantly reduce our revenue and operating income. Federal, state, local and foreign laws and regulations are, or may be, the subject of a variety of judicial, administrative and legislative hearings and proceedings that could change, in varying degrees, the

LodgeNet Entertainment Corporation 17 Form 10-K 2006

regulatory classification applicable to us and the manner in which we are regulated. We cannot predict the outcome of these proceedings or the impact on our operations at this time.

If our hotel customers become dissatisfied with our service, they may elect not to renew or to terminate service agreements with us and, in that event, our ability to maintain or grow our revenue would be adversely affected. In the event our customers become dissatisfied with the scope or capability of our products or services, they may elect not to renew our service agreements upon expiration or, in certain instances, terminate their existing agreements with us for failure to perform under the terms of their existing contracts. The loss of a hotel chain customer, any group of customers, or the loss of a significant number of hotels could have a material adverse effect on our operations and financial condition. However, we believe that our interactive hotel base is well diversified in terms of (i) location; (ii) demographics; and (iii) customer contracts. We rely on our diverse hotel base and geographic diversity to mitigate these exposures, as well as the fact that our services are provided under long-term contracts. Nevertheless, our success depends on maintaining good relationships with the clients and property owners we serve.

Our revenue is affected by seasonality and dependent on other factors beyond our control. Our revenue is dependent on the timely availability of content, including popular major motion pictures, the occupancy rate of each hotel property served, the percentage of occupied rooms that buy movies or other services at the property, and the price of the services. Occupancy rates vary based on the property’s location, its competitive position with the marketplace, seasonal factors, general economic conditions, changes in travel patterns due to public health concerns, the threat of terrorism, wars and other international crises, and other factors outside of our control. Occupancy rates are usually higher during the summer and lower during winter. The percentage of occupied rooms that buy movies or other services at the property generally reflects the hotel’s guest mix profile, the popularity and seasonality of movies and other services available at the hotel and the guests’ other entertainment alternatives. The percentage of occupied rooms that buy movies and other services at the property also varies over time with general economic conditions. Because many factors described above are out of our control, we may not be able to control negative trends in our revenue.

Opportunities to expand our installed customer room base may be limited, so we may be unable to grow our revenue. We believe that growth opportunities are available through (i) supply growth within the lodging industry, (ii) rooms currently served by other service providers when their contracts expire, and (iii) economically-viable rooms not yet served by any provider. However, while new hotel construction and hotel expansions offer an opportunity to expand our customer base, increases in un-served rooms due to the addition of new hotel rooms in any given year are generally not substantial. Additionally, there are no assurances that we will be able to secure contracts from hotels currently being served by other service providers or to secure contracts from properties currently not served by any provider. We may choose not to make capital or other expenditures, which would adversely affect growth if our cash management strategy calls for us to conserve available resources. Even if we are willing to make such expenditures, we may not be successful in our efforts to further expand our installed customer room base. These circumstances may limit our ability to expand our installed room base, which in turn could limit our ability to grow revenue.

We may not have adequate capital resources to carry out our business plan, which could have a harmful effect on our business and prospects. We may have insufficient capital resources to carry out our business plan if our capital expenditure or working capital requirements increase, whether as a result of product development efforts, changes in technology or otherwise, and we are unable to access financing on acceptable terms. This would have the following adverse impacts on our business and prospects, among others:

Ø	we may be required to delay or be unable to make the capital expenditures necessary to expand or maintain our customer base or to continue to deploy our digital systems and other technological advances throughout our installed room base;
Ø	we may have insufficient capital to make payments on our outstanding indebtedness as they become due;
Ø	we may have to delay or limit our product development activities; and
Ø	we may be required to seek additional capital through additional equity or debt financings, asset sales, collaborative arrangements or other sources, which may not be available to us on a timely basis, if at all, or may not be available on acceptable terms.

LodgeNet Entertainment Corporation 18 Form 10-K 2006

We have substantial debt and significant interest payment requirements, which will increase in connection with the On Command acquisition. As of December 31, 2006, we had $270.2 million of debt outstanding, and we are currently negotiating a new $450.0 million facility to repay current bank debt and to finance the cash component of the On Command transaction. Subject to restrictions on our Credit Facility and instruments governing our current and future debt securities, we may also incur significant amounts of additional debt for working capital, capital expenditures and other purposes. Our level of debt could have significant consequences on our business, including the following:

Ø	we may have difficulty borrowing money for working capital, capital expenditures, acquisitions or other purposes;
Ø	we will need to use a large portion of our cash flow to pay interest on borrowings under our Credit Facility and other debt instruments, which will reduce the amount of money available to fund operations, capital expenditures and other activities;
Ø	some of our debt has a variable rate of interest, which exposes us to the risk of increased interest rates;
Ø	we are more vulnerable to economic downturns and adverse development in our business;
Ø	we may not have the flexibility to respond to changing business and economic conditions, including increased competition and demand for new products and services; and
Ø	our various debt instruments contain cross-default provisions; if we default under any of these instruments, such default could constitute a default under our other debt instruments and may result in the acceleration of such indebtedness.

Covenant restrictions under our current Credit Facility, a New Credit Facility related to the acquisition of On Command or other instruments governing our debt securities may limit our ability to operate our business. Our current Credit Facility, a new proposed Credit Facility related to the acquisition of On Command and the instruments governing our debt securities contain covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities. Future borrowing instruments, such as credit facilities and indentures, if any, are also likely to contain restrictive covenants and may require us to pledge assets as security under those future arrangements. The terms of our current Credit Facility, a proposed new Credit Facility related to the acquisition of On Command and debt securities restrict, or will restrict, among other things, our ability and the ability of our subsidiary to:

Ø	borrow money;
Ø	pay dividends or make distributions;
Ø	purchase or redeem stock;
Ø	repay subordinated indebtedness before its stated maturity date;
Ø	make investments and extend credit;
Ø	engage in transactions with affiliates;
Ø	engage in sale-leaseback transactions;
Ø	consummate certain asset sales;
Ø	effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all of our assets; and
Ø	create liens on our assets.

In addition, the indenture for our 9.50% Notes and Credit Facility and other material agreements require us to maintain specified financial ratios and satisfy certain financial condition tests that may require us to reduce our debt or to act in a manner contrary to our business objectives. Our Credit Facility also includes a covenant that would result in an event of default if we suffer a material adverse effect as defined in the Credit Facility. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial conditions tests and to otherwise remain in compliance with the requirements of our Credit Facility, other debt instruments and other material agreements. A breach of any of these covenants would result in a default under the applicable debt instrument or agreement. In that event, the amounts under the applicable agreement could be declared immediately due and payable, and such a default may cause a default under and/or an acceleration of our other outstanding indebtedness and some of our material agreements. As a result of these covenants and restrictions, we are limited in how to conduct our business and we may be unable to raise additional debt, compete effectively or take advantage of new business opportunities.

LodgeNet Entertainment Corporation 19 Form 10-K 2006

Our ability to generate sufficient cash to service outstanding indebtedness or fund capital requirements depends on many factors beyond our control. Our ability to make payments on or to refinance outstanding indebtedness or to fund capital expenditures and acquisitions will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not be able to generate sufficient cash flow from operations or future borrowings under existing and future credit arrangements in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity, or sell assets. If we are not able to generate sufficient cash to service or refinance any of our indebtedness, it may have a material adverse affect on our business and financial condition.

Our data systems could fail or their security could be compromised. Our business operations depend on the reliability of sophisticated data systems. Any failure of these systems, or any breach of our systems’ security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated.

Item 1B — Unresolved Staff Comments

None.

Item 2 — Properties

Our headquarters, including our distribution center and principal executive offices, are located in Sioux Falls, South Dakota. Our owned facility 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. We believe that our facility is sufficient to accommodate foreseeable local operational space requirements.

We lease 26 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 United States and Canada. No individual facility occupies greater than 8,000 square feet.

Item 3 — Legal Proceedings

We are subject to litigation arising in the ordinary course of business. As of the date hereof, we believe the resolution of such litigation will not have a material adverse effect upon our financial condition or results of operations.

Item 4 — Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the quarter ended December 31, 2006.

PART II

Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock currently trades on the NASDAQ National Market System (“NASDAQ NMS”) under the symbol “LNET”. Our common stock began trading on the NASDAQ NMS on October 14, 1993 upon the effectiveness of our initial public offering. As of March 6, 2007, there were outstanding 19,251,294 shares of common stock.

The following table sets forth, for the fiscal quarters indicated, the range of high and low closing sales prices of our common stock as reported by NASDAQ NMS.

LodgeNet Entertainment Corporation 20 Form 10-K 2006

Quarter Ended	High		Low		Quarter Ended	High		Low
March 31, 2006		15.70		13.05	March 31, 2005		18.84		16.93
June 30, 2006		19.33		15.41	June 30, 2005		19.51		15.62
September 30, 2006		19.41		17.80	September 30, 2005		18.08		14.00
December 31, 2006		26.75		17.63	December 31, 2005		14.82		11.82

On March 6, 2007, the closing price of our common stock, as reported by NASDAQ NMS was $25.01. Stockholders are urged to obtain current market quotations for our common stock. As of March 6, 2007, we have 121 stockholders of record with approximately 98.9% of the shares held in “street name”. We estimate that as of March 6, 2007, we had more than 1,500 beneficial owners of our common stock.

Dividends

No dividends have been paid to date on our common stock. The terms and conditions of our 9.5% Senior Notes and of our bank Credit Facility both contain covenants which restrict and limit payments or distributions in respect of our common stock.

Stockholder Rights Plan

In February 1997, we adopted a stockholder rights plan, which was amended and restated effective in February 2007. The restated Stockholder Rights Plan will be submitted to a vote of the shareholders at the Company’s next annual meeting scheduled for May 2007. The rights plan is intended to maximize stockholder value by providing flexibility to the Board of Directors in the event that an offer for LodgeNet is received that is either inadequate or not in the best interest of all stockholders.

Under the rights plan, the Board of Directors declared a dividend distribution of one right for each outstanding share of common stock to stockholders of record at the close of business on March 10, 1997. Each right, when exercisable, entitles the registered holder to purchase one one-thousandth of a share of a new series of Series A Participating Preferred Stock, at a price of $60.00.

Initially, the rights are “attached” to the common stock and trade with the common stock. They separate from the common stock if a person or group acquires 20% or more of the outstanding shares of common stock or a public announcement of a tender offer or exchange offer is made which would result in someone becoming the owner of 20% or more of the outstanding common stock. Following a separation, the rights become exercisable, are separately tradable and we will mail separate rights certificates to stockholders.

The rights expire on the earliest of February 28, 2016, the date of the consummation of a merger with a person who acquired common stock with the approval of the Board of Directors or the redemption of the rights by us, either by the board of directors or upon the presentation of an offer meeting certain minimum criteria, by a vote of two-thirds of the shareholders.

The number of rights is adjusted to prevent dilution in the event of a stock split or stock dividend. The purchase price and the number of shares of preferred stock issuable upon exercise of the rights are also adjusted for stock splits and dividends, as well as for other events, including the issuance of preferred stock at less than the market price or the distribution of our assets to preferred stockholders.

If we are acquired without the approval of the directors who are neither officers, nor related to the acquirer, the rights become exercisable for shares of common stock of the acquiring company with a market value of two times the exercise price. If there is merely an acquisition of at least 20% of our common stock without such approval, the rights become exercisable for common stock with a market value of two times the exercise price.

Prior to a 20% acquisition or the expiration of the rights, we may redeem the rights at a price of $.01 per right. The rights are also redeemable in connection with a merger or other similar transaction not involving a 20% acquirer or if the acquirer has acquired less than 20% and there are no other acquirers.

LodgeNet Entertainment Corporation 21 Form 10-K 2006

In addition, the Board of Directors may, after a 20% acquisition (but less than a 50% acquisition), exchange the rights for shares of common stock on a one for one basis or for cash or other assets or securities of ours.

If issued, the preferred stock will be non-redeemable and junior to any other series of preferred stock we may issue, but will have a preferential quarterly dividend equal to 1,000 times the dividend, if any, declared on each share of common stock, but not less than $25.00 and, in the event of our liquidation, a preferred liquidation preference equal to the greater of $1,000 or 1,000 times the payment per share of common stock. Each share of preferred stock will have 1,000 votes and will vote together with the common stock.

Until a right is exercised, the holder will have no rights as a stockholder. We and the rights agent have broad discretion to amend the rights plan governing the rights; however, following a separation, no amendment may adversely affect the rights holders.

The 2007 Amended Rights Plan provides for a “TIDE Committee,” selected by and composed solely of independent directors of the Board, to review the Amended Rights Plan every three years, and to provide recommendations to the Board concerning the Rights Plan, including any modifications to the Amended Rights Plan, up to and including termination thereof.

The 2007 Amended Rights Plan incorporates a provision which requires that any offer meeting specified criteria (a “Qualified Offer”) will be submitted to the Company’s stockholders for consideration in certain circumstances. Under the Amended Rights Plan a Qualified Offer must include the following criteria:

Ø	For all shares of the Company;
Ø	At the same price for all shares acquired and such price must be greater than the highest reported market price per share during the prior 2 years and represents a premium above the average closing prices for the previous five trading days;
Ø	Conditioned on tender of at least 90% of the shares; and
Ø	Paid with at least 80% cash consideration, and any share consideration must be limited to publicly traded securities listed on the NASDAQ or NYSE.

LodgeNet Entertainment Corporation 22 Form 10-K 2006

Item 6 — Selected Financial Data

The following is a summary of the Statement of Operations and other data that is derived from the audited financial statements. The data should be read in conjunction with our 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 share data and per room amounts.

	Year Ended December 31,
	2006			2005			2004			2003			2002
Statement of Operations Data:
Revenues:
Guest Pay	$	277,433		$	267,754		$	258,571		$	243,732		$	226,238
Other		10,780			8,017			7,870			6,417			8,752
Total revenues		288,213			275,771			266,441			250,149			234,990
Direct costs (exclusive of operating expenses and depreciation and amortization)		131,953			123,228			119,193			111,947			100,782
Operating expenses		129,328			129,850			134,278			131,702			128,233
Income from operations		26,932			22,693			12,970			6,500			5,975
Investment gains		—			—			—			250			872
Litigation settlements (1)		—			—			—			—			(2,700	)
Write-off of debt issuance costs (2)		(227	)		(272	)		(810	)		(7,061	)		—
Interest expense		(25,730	)		(29,351	)		(31,891	)		(34,239	)		(33,037	)
Other (expense) income, net		1,165			421			(629	)		(43	)		314
Income (loss) before income taxes		2,140			(6,509	)		(20,360	)		(34,593	)		(28,576	)
Provision for income taxes (3)		(299	)		(450	)		(421	)		(459	)		(550	)
Net income (loss)	$	1,841		$	(6,959	)	$	(20,781	)	$	(35,052	)	$	(29,126	)
Net income (loss) per common share (basic and diluted)	$	0.10		$	(0.39	)	$	(1.36	)	$	(2.80	)	$	(2.35	)
Other Data:
Capital expenditures (4)	$	48,268		$	51,855		$	54,917		$	52,868		$	72,115
Average cost per room – new installation	$	354		$	340		$	364		$	405		$	438
Depreciation and amortization	$	66,311		$	69,862		$	77,045		$	78,459		$	75,918
Share-based compensation	$	1,677		$	288		$	198		$	—		$	—
Non-Financial Operating Data:
Total rooms served (5) (8)		1,052,025			1,053,806			1,034,605			994,127			952,673
Guest Pay interactive rooms served (6) (8)		1,004,937			1,001,929			974,798			924,643			876,348
Rooms with Digital services (7)		733,362			629,085			508,979			385,426			265,097
Free-to-guest rooms served (9)		535,777			536,984			525,436			500,170			477,698
Average monthly revenue per Guest Pay room:
Movie revenue	$	17.27		$	17.00		$	17.39		$	17.55		$	17.77
Other interactive service revenue		5.75			5.53			5.47			5.04			4.57
Total	$	23.02		$	22.53		$	22.86		$	22.59		$	22.34

LodgeNet Entertainment Corporation 23 Form 10-K 2006

	As of December 31,
	2006			2005			2004			2003			2002
Balance Sheet Data:
Cash and cash equivalents	$	22,795		$	20,742		$	24,995		$	2,772		$	1,107
Total assets	$	263,209		$	263,072		$	283,036		$	283,268		$	298,084
Total debt	$	270,169		$	292,000		$	312,291		$	368,248		$	353,790
Total stockholders’ deficiency	$	(58,122	)	$	(70,233	)	$	(72,118	)	$	(129,002	)	$	(101,304	)

	Year Ended December 31,
	2006			2005			2004			2003			2002
Statement of Cash Flows Data:
Cash provided by operating activities	$	72,301		$	64,285		$	60,614		$	48,563		$	43,769
Cash used for investing activities	$	(50,604	)	$	(51,455	)	$	(54,350	)	$	(53,618	)	$	(70,708	)
Difference	$	21,697		$	12,830		$	6,264		$	(5,055	)	$	(26,939	)

(1)	During 2002, we entered into settlement agreements with Broadcast Music Inc. (BMI) and the American Society of Composers, Authors and Publishers (ASCAP), which resolved claims for alleged nonpayment of royalties on copyrighted musical works performed in major motion pictures. BMI and ASCAP had asserted that the music, primarily background music, used within major motion pictures required licensing. BMI and ASCAP sought damages for public performances of such music from their respective catalogues. As a result of the settlements, we recorded a provision for the litigation settlements of $2.7 million that is related to pre-2002 reporting periods. This charge has been reported as a litigation expense in the accompanying statements of operations.
(2)	During 2006, we wrote off debt issuance costs of $227,000 as a result of $20.0 million in prepayments on our Term B notes under our bank Credit Facility. We wrote off debt issuance costs of $272,000 during 2005 as a result of $19.0 million in prepayments on our Term B notes under our bank Credit Facility. During 2004, we incurred a charge of $810,000 as a result of the early retirement of $35.0 million of our Term B notes. In 2003, we retired our 10.25% Senior Notes and incurred a $7.1 million loss on the write-off of related debt issuance costs and payment of call and tender premiums, and transaction expenses.
(3)	The provision for income taxes consists of current federal income and state franchise taxes.
(4)	Presented as cash used for property and equipment additions as reported in the Statement of Cash Flows.
(5)	Total rooms served include guest pay interactive rooms, rooms served by international licensees, and properties receiving only basic and premium televisions services.
(6)	Guest Pay interactive rooms are equipped with our interactive television system digital and tape-based systems.
(7)	Digital rooms are equipped with an interactive digital system where on-demand movies, television on-demand programming, and music content are stored in a digital format and are updated and delivered via satellite to our systems within respective hotels. Digital rooms are included in total Guest Pay interactive rooms and represent 73% of the Guest Pay interactive rooms served as of December 31, 2006.
(8)	As a result of Hurricane Katrina, room count as of December 31 was reduced by 4,053 rooms in 2006 and 8,195 in 2005.
(9)	Free-to-guest (FTG) rooms are equipped to provide satellite-delivered basic and premium television programming. FTG rooms are included in total rooms served.

LodgeNet Entertainment Corporation 24 Form 10-K 2006

Special Note Regarding Forward-Looking Statements

Certain statements in this Report on form 10K constitute “forward-looking statements”. When used in this report, the words “intends,” “expects,” “anticipates,” “estimates,” “believes,” “goal,” “no assurance” and similar expressions, and statements which are made in the future tense or refer to future events or developments, including, without limitation, those related to estimated free cash flow, cash earnings per share, debt ratios and synergies, are intended to identify such forward-looking statements. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the 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 herein, such factors include, among others, the following: the effects of economic conditions, including in particular the economic condition of the lodging industry, which can be particularly affected by international crisis, acts or threats of terrorism and public health issues; competition from providers of similar services and from alternative sources; changes in demand for our products and services; programming costs, availability, timeliness, and quality; technological developments by competitors; developmental costs, difficulties, and delays; relationships with clients and property owners; the availability of capital to finance growth; the impact of government regulations; potential effects of litigation; risks of expansion into new markets; risks related to the security of our data systems; and other factors detailed, from time to time, in our filings with the Securities and Exchange Commission. With respect to any proposed acquisition, we are subject to risks that integration costs will exceed expectations, that synergies we anticipate will not be realized, or will take longer than anticipated to realize, that our management and management systems will encounter difficulties in dealing with a bigger, more diversified enterprise, and that the financial results we expect from the acquisition will not be realized. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our 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 our Consolidated Financial Statements, including the notes thereto, appearing elsewhere herein.

Executive Overview

2006 marked a historic year for us as we achieved net income of $1.8 million for the full year. We continued to execute on our strategic plan focused on growth, profitability and the generation of net free cash flow, a non-GAAP measure, which we define as cash provided by operating activities less cash used for investing activities, including growth-related capital, which is capital used for new room installations. We increased our digital room base during the year by more than 100,000 net digital rooms. As of December 31, 2006, approximately 73% of our Guest Pay interactive room base, or 733,000 rooms, were equipped with a digital system. In addition, we continued to make progress with respect to our profitability goal, achieving net income for the year. During the year, we had net income of $1.8 million, an $8.8 million improvement from a net loss of $(7.0) million in 2005. Our operating income was up 18.7% to $26.9 million in 2006 from $22.7 million in 2005. During 2006, we generated $21.7 million of net free cash flow, representing an $8.9 million improvement over last year.

We continue to build upon our corporate strategy of expanding our networks and integrating additional market-valued solutions. The recent acquisition by our subsidiary, LodgeNet StayOnline, Inc., of substantially all of the assets of StayOnline, Inc., a leading provider of high-speed Internet access solutions focused on the lodging industry, presents an excellent opportunity to drive additional revenue streams through our customer base by providing high-speed Internet access solutions and services – one of the most highly demanded services of the traveling business person. The combination of StayOnline’s expertise and industry relationships, with our significant resources will allow us to enhance the array of IP-based solutions we can deliver to our customers, all backed by our nationwide customer service organization. With the closing of this acquisition, we now provide Internet access services to more than 175,000 hotel rooms nationwide.

LodgeNet Entertainment Corporation 25 Form 10-K 2006

Another significant step forward in the execution of our strategy to expand our networks and integrate a broader range of solutions for our customers is our pending acquisition of On Command Corporation. In December 2006, we announced that we had entered into a definitive agreement with Liberty Media Corporation to purchase all of the capital stock of Ascent Entertainment Group, Inc., the owner of 100% of the capital stock of On Command Corporation for $380.0 million. The purchase price will be paid at closing by the issuance of 2.05 million shares of our common stock and $332.0 million in cash. The acquisition holds the promise of creating significant new benefits for our lodging customers and shareholders as we combine the technologies and talents of the two organizations. On Command Corporation, based in Denver, Colorado, provides interactive media services to approximately 832,000 hotel rooms throughout the United States, Canada, and Mexico. It also owns 80% of the capital stock of The Hotel Networks, Inc., a distributor of advertising-supported, satellite-delivered television programming to approximately 300,000 rooms throughout the United States. Subject to regulatory approval, we expect the acquisition to close mid-2007.

During 2006, total revenue increased 4.5%, or $12.4 million, compared to 2005. The growth was driven in part by our diversification into healthcare and travel centers, which together produced $3.6 million of revenue, or approximately 30% of our revenue growth during the year. Our expanding digital room base and a 1.4% increase in revenue per average Guest Pay room contributed the balance of the incremental revenue. On a per room basis, monthly Guest Pay revenue increased to $23.02 in 2006 compared to $22.53 in 2005. In addition, movie revenue per room increased 1.6% to $17.27 this year as compared to $17.00 in the prior year. Revenue per room from other interactive services increased 4.0%, from $5.53 per month in 2005 to $5.75 in the current year. This change was primarily due to revenue increases associated with basic cable services, TV on-demand, music products and high-speed Internet access (HSIA) services, offset in part by a decrease in revenue from on demand video games and TV Internet.

For 2006, our Guest Pay direct costs increased to $10.51 per room as compared to $10.03 per room in 2005. The increase was primarily due to an increase in royalties for content, which varies with changes in the mix of movies and other products; higher costs associated with basic cable services; and higher hotel commissions resulting from our “pay for performance” commission structure. Guest Pay operations expenses decreased to $2.92 per average Guest Pay room per month in 2006 compared to $2.96 per month in the prior year. Selling, general, and administrative expenses increased to 10.1% of revenue for 2006 compared to 9.2% in 2005. Per average Guest Pay room, SG&A expenses increased to $2.41 per month in 2006 from $2.14 per month in the prior year. The increase was primarily due to increases in compensation expense, including the expensing of share-based compensation required under Financial Accounting Standard 123(R), and an increase in professional and consulting fees. Share-based compensation expenses were $1.7 million in 2006, compared to $288,000 in 2005. Professional and consulting fees were $2.9 million this year, compared to $1.9 million in 2005. A large part of that increase was related to the various strategic initiatives explored by the company. Depreciation and amortization expenses decreased 5.1% to $66.3 million in 2006 versus $69.9 million in 2005. The decrease was primarily attributable to a reduction in depreciation for Guest Pay systems as higher-cost assets became fully depreciated while the cost basis of more recently installed Guest Pay systems were relatively lower. Amortization expense also decreased due to intangible assets becoming fully amortized. Depreciation and amortization expenses per average Guest Pay room decreased 6.5% to $5.50 in 2006 compared to $5.88 in the prior year.

We continued to improve our financial position with the reduction of our investment of equipment into hotels through market and product segmentations and engineering development, reduction of interest costs by prepaying on our long-term debt, and prudent management of working capital. Cash at December 31, 2006 was $22.8 million compared to $20.7 million at December 31, 2005. The increase in cash was due to cash from operations offset by $20.0 million in discretionary pre-payments made on our term loan during 2006.

We continued to develop and secure the rights to use technologies that enable us to deliver high-definition television programming. In order to secure distribution rights for HD and other digital content, we are required to demonstrate appropriate security measures to protect that content. We have agreements or other arrangements with DIRECTV, ESPN, Paramount, Universal, MGM, DreamWorks, Lion’s Gate, Magnolia and First Independent Pictures to provide high-definition guest room entertainment content to the hotels we serve that are equipped to receive and display HDTV.

LodgeNet Entertainment Corporation 26 Form 10-K 2006

We continued to explore revenue growth opportunities within our core lodging business. These include, but are not limited to, new content and products such as Hotel SportsNET^SM service, which provides guests the ability to purchase daily subscriptions to certain professional and college sports television packages. During 2006, our Hotel SportsNET^SM line up included NFL SUNDAY TICKET, NHL CENTER ICE, NBA LEAGUE PASS, MLB EXTRA INNINGS and college sports programming including ESPN’s GamePlan, ESPN’s Full Court and College Sports TV (CSTV). As of December 31, 2006, Hotel SportsNET^SM was installed in approximately 76,000 rooms. We expect to have 140,000 to 150,000 rooms installed by the end of 2007.

Also, we continued to expand our efforts to develop linear and on-demand advertising and promotional messages. We are able to selectively place these messages at properties and to record the number of views and the viewing time per view using our LMMS. This business model has the potential of generating revenue from the advertiser in contrast to the hotel or the guest.

Guest Pay Interactive Services. Our 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, hourly or daily basis. Our services include on-demand movies, network-based video games, music and music videos, Internet on television (which does not require a laptop), and television on-demand programming.

Our total guest generated revenue depends on a number of factors, including:

• The number of rooms on our network. We can increase revenue over time by increasing the number of rooms served by our interactive systems. Our ability to expand our room base is dependent on a number of factors, including the attractiveness of our technology, service and support to hotels currently operating without an interactive television system, newly constructed hotel properties, and hotels with expiring contracts currently served by our competitors.

• The variety of services offered at the hotel. Rooms equipped with our digital system generate higher revenue than rooms equipped with our tape-based system primarily because they offer a greater variety of services and content choices. We plan to continue to grow the revenue we generate per average room by the installation of our digital system in all newly contracted rooms and by converting selected tape-based rooms to our digital system in exchange for long-term contract extensions.

• The popularity, timeliness and amount of content offered at the hotel. Our revenues vary to a certain degree with the number, timeliness and popularity of movie content available for viewing. Historically, a decrease in the availability of popular movie content has adversely impacted revenue. Although not completely within our control, we seek to program and promote the most popular available movie content and other content to maximize revenue and gross profit.

• The price of the service purchased by the hotel guest. Generally, we control the prices charged for our products and services and manage pricing in an effort to maximize revenue and overall gross profit. We establish pricing based on such things as the demographics of the property served, the popularity of the content and overall economic conditions. Our technology enables us to measure popularity of our content and make decisions to best position such content and optimize revenue from such content.

• The occupancy rate at the property. Our revenue also varies depending on hotel occupancy rates, which are subject to a number of factors, including seasonality, general economic conditions and world events, such as terrorist threats or public health issues. Occupancy rates are typically higher during the second and third quarters due to seasonal travel patterns. We target higher occupancy properties in diverse demographic and geographic locations in an effort to mitigate occupancy-related risks.

The primary direct costs of providing Guest Pay interactive services are:

Ø	license fees paid to major motion picture studios, which are based on a percent of guest-generated revenue, for non-exclusive distribution rights of recently released major motion pictures;
Ø	commissions paid to our hotel customers, which are also based on a percent of guest-generated revenue;

LodgeNet Entertainment Corporation 27 Form 10-K 2006

Ø	fixed monthly programming charges paid primarily to DIRECTV for satellite-delivered basic and premium television programming;
Ø	Internet connectivity costs;
Ø	license fees, which are based on a percent of guest-generated revenue, for television on demand, music, music video, video games and sports programming; and
Ø	one-time license fees paid for independent films, most of which are non-rated and intended for mature audiences.

Other Products and Services. Our revenue from other services continued to expand and was $10.8 million in 2006, an increase of $2.8 million or 34.5%, compared to 2005. The increase was driven by our new revenue streams related to the sale of systems and service to healthcare facilities and travel centers. Components of our other revenue sources are as follows:

Healthcare System Sales and Support. We provide our interactive television infrastructure and content to the healthcare industry. We generate revenue from the sale and installation of system equipment and long-term agreements with the healthcare facility to provide software maintenance, programming and system maintenance. During 2006, we continued to focus on developing our healthcare business and had 18 facilities under contract as of December 31, 2006. Revenue comes from the initial sale of system hardware, software licensing, and implementation services, and we additionally earn recurring revenues, under long-term contracts, by providing entertainment content, software maintenance and technical field service. During 2006, we generated $2.3 million in healthcare related revenue, compared to $201,000 in 2005, and had 12 interactive systems installed as of December 31, 2006. In 2007, we expect to continue expanding our presence in the healthcare market.

High Speed Internet Access System Sales, Service and Support. We generate revenue through the sale and installation of high-speed Internet access equipment. In addition, we provide ongoing maintenance, service and call center support services to hotel properties that have been installed by us and also to hotel properties that have been installed by other providers. We provide, in some cases, the hotel property with the portal to access the Internet. We receive monthly service fees from such hotel properties for our maintenance services and Internet access. In 2006, we generated $4.1 million of HSIA related revenue compared to $4.4 million in 2005. During 2007, we expect to greatly expand our HSIA market based on our purchase of substantially all of the assets of StayOnline, Inc. and the increase in our HSIA room base from approximately 38,000 rooms to more than 175,000 rooms at the acquisition closing date. We expect that the expertise acquired from StayOnline, together with access to our significantly larger room base will result in significant growth in our HSIA business in 2007.

System Sales and Support to Travel Centers. We also market and sell our interactive systems to IdleAire Technologies Corp. We generate revenue from three sources: 1) the sale of the interactive system, which includes equipment and a non-exclusive, non-transferable right to use the initial software package 2) extended service and maintenance agreements, which include future software upgrades as they become available and 3) entertainment programming.

Other. Revenue generated from other sources includes the following:

Ø	Revenue generated from the sale of our Guest Pay interactive systems to hotels, along with recurring support for interactive content, software maintenance and technical field service for a fixed fee;
Ø	Revenue from the sale of miscellaneous system equipment such as television remotes and service parts and labor;
Ø	Revenues from the sale of equipment to our international markets;
Ø	Revenues from the installation of master antenna wiring and related infrastructure;
Ø	Revenues from the sale and installation of DirecTV satellite systems; and
Ø	Revenue generated from delivery of satellite basic and premium television programming for which the hotel pays us a fixed monthly charge per room.

LodgeNet Entertainment Corporation 28 Form 10-K 2006

Key Metrics:

Special Note Regarding the Use of Non-GAAP Financial Information

To supplement our consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we use net free cash flow, a non-GAAP measure that is derived from results based on GAAP. The presentation of this additional information is not meant to be considered superior to, in isolation of, or as a substitute for results prepared in accordance with GAAP.

We define net free cash flow as cash provided by operating activities less cash used for investing activities. Net free cash flow is a key liquidity measure but should not be construed as an alternative to cash flows from operating activities or as a measure of our profitability or performance. We provide information about net free cash flow because we believe it is a useful way for us, and our investors, to measure our ability to satisfy cash needs, including interest payments on our debt, taxes and capital expenditures. GAAP requires us to provide information about cash flow generated from operations. However, GAAP cash flow from operations is reduced by the amount of interest and tax payments and also takes into account changes in net current liabilities (e.g., changes in working capital) that do not impact net income. Because changes in working capital can reverse in subsequent periods, and because we want to provide information about cash available to satisfy interest and income tax expense (by showing our cash flows before deducting interest and income tax expense), we are also presenting net free cash flow information. Our definition of net free cash flow does not take into account our working capital requirements, debt service requirements or other commitments. Accordingly, net free cash flow is not necessarily indicative of amounts of cash that may be available to us for discretionary purposes. Our method of computing net free cash flow may not be comparable to other similarly titled measures of other companies.

Free Cash Flow

One of our goals is to generate net free cash flow. In addition to increasing revenue and controlling expenses, we can manage our actions related to this goal by reducing the per-room installation cost of a digital room and by varying the number of rooms we install with the digital system in any given period. Over the past twelve months, we have generated $21.7 million of net free cash flow while having simultaneously installed or upgraded more than 118,000 digital rooms. Since existing operations more than fully funded our growth capital needs during the year, we reduced total debt to $270.2 million.

Our progress toward the goal of generating increased levels of net free cash flow is set forth in the following table in thousands of dollars:

	2006			2005			2004
Cash provided by operating activities	$	72,301		$	64,285		$	60,614
Cash used for investing activities		(50,604	)		(51,455	)		(54,350	)
Difference	$	21,697		$	12,830		$	6,264

The improvement from 2005 was driven by the management of operating costs and capital expenditures and a decrease in interest expense due to the discretionary pre-payment of $20.0 million of our Term B notes. These factors have eliminated the need for cash provided by external financing over the past three years.

Expansion capital investment, which we define as capital used for new room installations, is set forth in the following table in thousands of dollars:

	2006		2005		2004
Expansion Capital Investment	$	22,292	$	24,230	$	27,648

LodgeNet Entertainment Corporation 29 Form 10-K 2006

Rooms Served

One of the metrics we manage is controlled-growth, net of de-installations, of our hotel television network. Over the last five years, de-installation activity averaged approximately 3% of our total installed room base. In 2006, net new room growth was impacted by increased de-installation activity, including the de-installation of many Red Roof Inn properties, as a result of their transition to a different provider and the de-installation of other lower revenue properties at the end of their contract term. As lower revenue tape-based systems come up for contract renewal, the overall economics may not support upgrading the site to our digital system. In these situations, many properties decide to switch to their local cable provider or we may elect to remove a certain number of these sites from our interactive room base. We expect this trend to continue as we focus on the quality of rooms installed and upgraded with greater returns when investing our capital dollars. We installed our systems in the following number of net new rooms and had the following total rooms installed as of December 31:

	2006		2005		2004
Total rooms served (1) (3)		1,052,025		1,053,806		1,034,605
Total Guest Pay interactive rooms (2) (3)		1,004,937		1,001,929		974,798
Net new Guest Pay interactive rooms (4)		3,008		35,326		50,155

(1)	Total rooms served include guest pay interactive rooms, rooms served by international licensees, and properties receiving only basic and premium television services.
(2)	Guest Pay interactive rooms are equipped with our interactive television systems.
(3)	As a result of Hurricane Katrina, room count as of December 31 was reduced by 4,053 rooms in 2006 and 8,195 rooms in 2005.
(4)	Amounts shown are net of de-installations during the period. The gross number of new rooms installed was 65,993, 71,731 and 75,932 in 2006, 2005 and 2004, respectively.

Digital Room Growth

We continue to expand our digital base as we install our digital system in all newly contracted rooms as well as converting select tape-based served rooms to the digital system in exchange for long-term contract extensions. Rooms equipped with our digital system typically generate higher revenue since the range of services is greater than rooms equipped with our tape-based systems. We expect to have more than 80% of our room base installed with a digital system by the end of 2007.

	2006			2005			2004
Digital room installations		104,277			120,106			123,553
Total digital rooms installed		733,362			629,085			508,979
Digital rooms as a percent of total Guest Pay interactive rooms		73	%		63	%		52	%

LodgeNet Entertainment Corporation 30 Form 10-K 2006

Capital Investment Per Room

The average investment per-room associated with a digital installation has generally declined over the past several years due to our ongoing engineering efforts, lower component costs, product segmentation, and reduced cost of assembly and installation. The cost of installation can fluctuate due to the mix of services installed, average property size, certain fixed costs, hotel capital contributions and the expanding number of high-definition installations, which have a higher cost per room. The following table sets forth our average installation and conversion investment cost per room during the years ended December 31:

	2006		2005		2004
Average cost per room — new installation	$	354	$	340	$	364
Average cost per room — conversion	$	252	$	262	$	284

The increase in the average cost per new room from 2005 to 2006 is primarily driven by the increase in high definition installations, which have a higher cost per room. The incremental cost for a high-definition installation ranges from approximately $50 to $100 per room depending upon the average room size, the mix of high-definition services and the amount of hotel capital contributions.

Revenue Per Room

Guest Pay revenue can fluctuate based on several factors including the popularity of movie content, mix of movies purchased and the availability and popularity of free alternative programming. The 2006 Guest Pay revenue per room increased due in part by our expanding digital room base and in part by price variations, which are dependent upon product mix and guest purchase patterns. The following table sets forth the components of our Guest Pay revenue per room for the years ended December 31:

	2006		2005		2004
Average monthly revenue per room:
Movie revenue	$	17.27	$	17.00	$	17.39
Other interactive service revenue		5.75		5.53		5.47
Total per Guest Pay room	$	23.02	$	22.53	$	22.86

Direct Costs

Guest Pay direct costs (exclusive of operating expenses and depreciation and amortization discussed separately below) for interactive services include movie license fees, license fees for other interactive services, the commission retained by the hotel, and programming and other related costs. The following table sets forth our Guest Pay direct expenses per room and as a percent of revenue during the years ended December 31:

	2006			2005			2004
Guest Pay direct costs per room	$	10.51		$	10.03		$	10.22
Guest Pay direct costs as a percent of total revenue		45.6	%		44.5	%		44.7	%

LodgeNet Entertainment Corporation 31 Form 10-K 2006

Operating Expense Per Room

We continue to monitor and manage the operating expenses per room in order to increase the level of cash flow our business generates. Guest Pay operations expenses consist of costs directly related to the operation and maintenance of systems at hotel sites. Selling, general and administrative expense (SG&A) primarily includes administrative payroll costs, stock based compensation, engineering development costs and legal, professional and compliance costs. The following table sets forth our operating expenses per room and SG&A as a percent of revenue during the years ended December 31:

	2006			2005			2004
Guest Pay operating expenses	$	2.92		$	2.96		$	2.97
SG&A expense		2.41			2.14			2.09
Depreciation and amortization (D&A)		5.50			5.88			6.81
Other operating income, net (1)		(0.10	)		(0.04	)		—
	$	10.73		$	10.94		$	11.87
Guest Pay operations as a percent of total revenue		12.2	%		12.7	%		12.6	%
SG&A as a percent of total revenue		10.1	%		9.2	%		8.9	%
D&A as a percent of total revenue		23.0	%		25.3	%		28.9	%

(1) Other operating income includes net proceeds received from insurance related to business interruption and property damage claims associated with Hurricane Katrina and recoveries related to early contract terminations.

Net Income/(Loss)

We focused on attaining profitability by improving room and revenue growth coupled with reducing direct costs, overhead expenses, installation costs resulting in decreases in depreciation and amortization expenses, and interest costs. The following table sets forth our net income (loss) for the years ended December 31 (in thousands of dollars):

	2006		2005			2004
Net income (loss)	$	1,841	$	(6,959	)	$	(20,781	)

LodgeNet Entertainment Corporation 32 Form 10-K 2006

Liquidity and Capital Resources

During 2006, cash provided by operating activities was $72.3 million while cash used for property and equipment additions, including growth-related investments, was $48.3 million. Total cash used for investing activities during 2006, including business acquisition investments of $2.8 million, was $50.6 million. Excluding the acquisition investments, net free cash flow, a non-GAAP measure, which we define as cash provided by operating activities less cash used for investing activities, was $24.5 million. During 2005, cash provided by operating activities was $64.3 million while cash used for investing activities, including growth-related capital investments, was $51.5 million, resulting in a net change of $12.8 million. Cash as of December 31, 2006 was $22.8 million versus $20.7 million as of December 31, 2005.

On July 6, 2004, we completed a public offering of common stock registered pursuant to our shelf registration statement filed with the Securities and Exchange Commission in April 2004. In connection with the offering, we issued 3.95 million shares at a price of $16.50 per share. In addition, on August 4, 2004, we issued 392,500 shares as a result of the underwriters’ exercise of their over-allotment option. The net proceeds from the offering (including the over-allotment) were $66.7 million after deducting underwriting and offering expenses of approximately $5.0 million. We used the net proceeds to repay $35.0 million of our bank Credit Facility term loan and the remaining $12.0 million of our 11.50% Senior Notes. The remaining proceeds of approximately $19.7 million were retained as cash for use in general corporate purposes.

Our principal sources of liquidity are our cash on hand, operating cash flow and the revolver portion of our Credit Facility, which matures in 2007. Over the past twelve months, we have generated $21.7 million of net free cash flow while having simultaneously installed or upgraded more than 118,000 digital rooms. Since existing operations more than fully funded our growth capital needs during the year, we reduced long-term debt by $21.8 million. We believe that our cash on hand, operating cash flow and borrowing available under the Credit Facility will be sufficient for the foreseeable future to fund our future growth and financing obligations. As of December 31, 2006, working capital was $19.5 million, compared to $13.7 million at December 31, 2005.

In order to continue to operate and expand our business, we must remain in compliance with covenants imposed by our Credit Facility and Senior Notes. As of December 31, 2006, we were in compliance with all covenants, terms and conditions related to our Credit Facility and Senior Notes. We are not aware of any events that qualify under the material adverse effect clause of the Credit Facility. The total amount of long-term debt outstanding, including that portion of debt classified as current, as of December 31, 2006 was $270.2 million versus $292.0 million as of December 31, 2005.

Our leverage and interest coverage ratios were as follows for the years ended December 31:

	2006		2005		2004
Actual consolidated total leverage ratio (1) (4)		2.86		3.16		3.48
Maximum per covenant		3.50		4.00		4.50
Actual senior secured leverage ratio (2) (4)		0.74		1.00		1.25
Maximum per covenant		2.25		2.25		2.50
Actual consolidated interest coverage ratio (3) (4)		3.85		3.20		2.76
Minimum per covenant		2.75		2.50		2.25

(1) Our maximum consolidated total leverage ratio is a function of total indebtedness divided by operating income exclusive of depreciation and amortization and other miscellaneous non-recurring items as defined by the covenant.

LodgeNet Entertainment Corporation 33 Form 10-K 2006

(2)	Our maximum senior secured leverage ratio is a function of total indebtedness less total unsecured indebtedness, divided by operating income exclusive of depreciation and amortization and other miscellaneous non-recurring items as defined by the covenant.
(3)	Our minimum consolidated interest coverage ratio is a function of operating income exclusive of depreciation and amortization and other miscellaneous non-recurring items divided by interest expense as defined by the covenant.
(4)	Maximum consolidated total leverage ratio, maximum consolidated senior secured leverage ratio, and minimum consolidated interest coverage ratios are not based on generally accepted accounting principles and are not presented as alternative measures of operating performance or liquidity. They are presented here to demonstrate compliance with the covenants in our Credit Facility, as noncompliance with such covenants could have a material adverse effect on us.

Our debt covenant ratios under the existing Credit Facility will remain the same for periods subsequent to 2006.

We do not utilize special purpose entities or off balance sheet financial arrangements.

In January 2004, LodgeNet and the holders of the term loan amended the LIBOR pricing to be LIBOR plus a margin of 3.50%. In April 2004, LodgeNet and the holders of the term loan executed another amendment to establish the LIBOR pricing at LIBOR plus a margin of 2.75%. In July 2005, LodgeNet and the holders of the term loan again executed an amendment to establish the LIBOR pricing at LIBOR plus a margin of 2.25%. The term loan interest rate as of December 31, 2006 was 7.60%. The revolving credit facility matures in August 2007 and loans bear interest at our option of (1) the bank’s base rate plus a margin of 1.00% to 2.00%, or (2) LIBOR plus a margin of 2.25% to 3.25%. The maturity dates of the term loan and the revolver loan under our Credit Facility are August 2008 and August 2007, respectively.

In October 2006, LodgeNet and the holders of the term loan executed an amendment to the Credit Facility to increase the maximum amount allowed for other investments from $5.0 million to $25.0 million. In addition, the allowable amount for Restricted Junior Payments, as defined by the bank facility agreement, increased to a maximum of $25.0 million from a maximum of $15.0 million and removed the leverage ratio requirement. The amendment also lowered the revolver loan commitment fee rate from .750% per annum to .375% per annum.

In December 2006, LodgeNet and the holders of the term loan executed an amendment to the Credit Facility to allow LodgeNet to make and own investments in Ascent Entertainment Group, Inc., the owner of 100% of the capital stock of On Command Corporation.

In 2007, we expect to enter into a new credit facility to provide the necessary funding to acquire the shares of Ascent Entertainment Group, Inc. and to repay the existing credit facility. We have a firm commitment with Bear, Stearns & Co. Inc. and Credit Suisse Securities (USA) LLC to underwrite this facility.

In June 2003, we issued $200.0 million, principal amount of unsecured 9.50% Senior Subordinated Notes (the “9.50% Notes”), due June 15, 2013. The proceeds of the 9.50% Notes, which were issued at par, after underwriter fees and offering expenses, were approximately $192.5 million. Approximately $154.8 million of such proceeds were used to redeem the outstanding principal amount of the 10.25% Senior Notes, pay accrued interest, pay call premiums, and pay related fees. Approximately $35.0 million of the proceeds were used to reduce outstanding amounts under our Credit Facility. The remaining proceeds of approximately $2.7 million were for use in funding general corporate purposes.

The 9.50% Notes are unsecured, are subordinated in right of payment to all of our existing and future senior debt and rank pari passu in right of payment with any future senior subordinated indebtedness. The 9.50% Notes require semi-annual interest payments and contain covenants which restrict our ability to incur additional indebtedness, create liens, pay dividends or make certain distributions in respect to our common stock, redeem capital stock, issue or sell stock of subsidiaries in certain circumstances, effect certain business combinations and effect certain transactions with affiliates

LodgeNet Entertainment Corporation 34 Form 10-K 2006

or stockholders. As of December 31, 2006, we were in compliance with all financial covenants, terms and conditions of the 9.50% Notes.

The 9.50% Notes are redeemable at our option, in whole or in part, on or after June 15, 2008, initially at 104.75% 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 June 15, 2011.

Obligations and Commitments as of December 31, 2006 (in thousands)

	Payments due by period
			Less than		2 – 3		4 – 5		Over
	Total		1 year		years		years		5 years
Contractual obligations:
Long-term debt(s)	$	270,169	$	2,536	$	67,477	$	156	$	200,000
Interest on fixed rate debt		123,500		19,000		38,000		38,000		28,500
Interest on bank term loan (1)		8,579		5,206		3,373		—		—
Other long-term obligations
Acquired intangible asset (2)		2,500		2,500		—		—		—
Operating lease payments		1,622		608		851		163		—
Purchase obligations		3,462		3,462		—		—		—
Nintendo minimum royalty (3)		26,950		4,200		8,400		8,400		5,950
Programming related minimum royalties and commissions (4)		10,613		2,609		5,846		2,158		—
Total contractual obligations	$	447,395	$	40,121	$	123,947	$	48,877	$	234,450

			Amount of commitment expiration per period
			Less than		2 – 3		4 – 5		Over
	Total		1 year		years		years		5 years
Other commercial commitments:
Standby letters of credit	$	1,213	$	1,213	$	—	$	—	$	—

(1)	Interest payments are estimates based on current LIBOR and scheduled amortization.7
(2)	In July 2002, we acquired from Hilton Hotels Corporation the right to provide Internet on television access and television on-demand programming services to participating hotels and the right to independently pursue and further develop interactive television content throughout our entire room base.
(3)	Nintendo video games pursuant to a non-exclusive license agreement with Nintendo, which expires in May 2013. Under the terms of the agreement, we pay a monthly royalty equal to a percent of revenue generated from the sale of Nintendo video game services, subject to a monthly minimum.
(4)	In connection with our programming related agreements, we may guarantee minimum royalties for specific periods or by individual programming content. See Note 10 to the Consolidated Financial Statements.

Seasonality

Our quarterly operating results are subject to fluctuation depending upon hotel occupancy rates and other factors. Our hotel customers typically experience higher occupancy rates during the second and third quarters due to seasonal travel patterns and, accordingly, we historically have higher revenue in those quarters. However, quarterly revenue can be affected by the availability of popular content during those quarters and by commercial televised events. We have no control over when new movies are released, how popular they will be or the popularity of other televised events.

LodgeNet Entertainment Corporation 35 Form 10-K 2006

Results of Operations — Years Ended December 31, 2006 and 2005

Metrics are calculated based on reduced room counts due to the impact of Hurricane Katrina. As of December 31, 2006, 4,053 rooms remained out of service.

Revenue Analysis

Total revenue for 2006 was $288.2 million, an increase of $12.4 million, or 4.5%, compared to 2005. New revenue streams, including healthcare facilities and travel centers, produced revenue of $3.6 million, which was approximately 30% of our revenue growth during the year. The following table sets forth the components of our revenue (in thousands) for the years ended December 31:

	2006					2005
			Percent					Percent
			of Total					of Total
	Amount		Revenues			Amount		Revenues
Revenues:
Guest Pay	$	277,433		96.3	%	$	267,754		97.1	%
Other		10,780		3.7	%		8,017		2.9	%
	$	288,213		100.0	%	$	275,771		100.0	%

Guest Pay Interactive Services. Revenue from Guest Pay services was $277.4 million, an increase of $9.7 million or 3.6%, resulting in part from a 2.2% increase in revenue realized per average Guest Pay room and a 1.4% increase in the average number of rooms in operation. Guest Pay revenue per room increased to $23.02 per month in 2006 from $22.53 per month in 2005. The following table sets forth information with respect to revenue per Guest Pay room for the years ended December 31:

	2006		2005
Average monthly revenue per room:
Movie revenue	$	17.27	$	17.00
Other interactive service revenue		5.75		5.53
Total per Guest Pay room	$	23.02	$	22.53

Movie revenue per room increased 1.6% to $17.27 during 2006 as compared to $17.00 in the prior year. The revenue growth was driven in part by our expanding digital room base and in part by price variations, which are dependent upon product mix and guest purchase patterns. Revenue per room from other interactive services increased to $5.75 per month in 2006 as compared to $5.53 during 2005. The increase was primarily due to revenue increases associated with basic cable services, TV on-demand, music products, and high-speed Internet access (HSIA) services, offset in part by a decrease in revenue from on demand games and TV Internet.

Other revenue includes revenue from sales of system equipment and service parts and labor, free-to-guest (FTG) services provided to hotels not receiving Guest Pay services, and other revenue. Other revenue increased $2.8 million, or 34.5%, in comparison to 2005, primarily driven by our new revenue streams related to the sale of systems and service to healthcare facilities and travel centers. The increase was offset in part by a decrease in high-speed Internet equipment sales and FTG only revenue. FTG services revenue is expected to decrease as we continue to eliminate our FTG only business and related room base.

LodgeNet Entertainment Corporation 36 Form 10-K 2006

Expense Analysis

Direct Costs (exclusive of operating expenses and depreciation and amortization discussed separately below). Guest Pay direct costs increased $7.5 million or 6.3% to $126.6 million in 2006 as compared to $119.2 million in the prior year. As a percentage of Guest Pay revenue, Guest Pay direct costs increased to 45.6% for 2006 as compared to 44.5% last year. The increase was due to an increase in royalties for content, which varies with changes in the mix of movies and other products; higher costs associated with basic cable services; and higher hotel commissions resulting from our “pay for performance” commission structure.

Other direct costs include costs related to system sales, FTG only programming fees, and international royalties. Other direct costs increased $1.3 million to $5.3 million in 2006 as compared to $4.0 million in the prior year. The change was driven by our new revenue streams related to the sale of systems and service to healthcare facilities and travel centers offset in part by the decrease in high-speed Internet equipment sales and FTG only revenue.

Total direct costs were $132.0 million, an increase of $8.7 million as compared to $123.2 million in 2005. As a percentage of revenue, total direct costs increased to 45.8% in 2006 as compared to 44.7% last year. Per average Guest Pay room, total monthly direct costs increased to $10.95, or 5.6%, in 2006 compared to $10.37 in the prior year.

In addition to the information provided above, the following table sets forth the primary change drivers of total direct costs for the years ended December 31:

	2006			2005			Change
Direct costs as a percent of revenue (exclusive of operating expenses and depreciation and amortization discussed separately below):		45.8	%		44.7	%		1.1	%
Change drivers:
Internet related								-0.3	%
Programming costs (product mix)								1.1	%
Hotel incentive commissions								0.3	%
								1.1	%

Operating Expenses. The following table sets forth information in regard to operating expenses for the years ended December 31 (in thousands of dollars):

	2006						2005
				Percent						Percent
				of Total						of Total
	Amount			Revenues			Amount			Revenues
Operating expenses:
Guest Pay operations	$	35,223			12.2	%	$	35,117			12.7	%
Selling, general and administrative		28,999			10.1	%		25,379			9.2	%
Depreciation and amortization		66,311			23.0	%		69,862			25.3	%
Other operating income, net		(1,205	)		(0.4	)%		(508	)		-0.2	%
Total operating expenses	$	129,328			44.9	%	$	129,850			47.1	%

Guest Pay operations expenses consist of costs directly related to the operation and maintenance of systems at hotel sites. Guest Pay operations expenses remained level at $35.2 million in 2006 compared to $35.1 million last year. As a percentage of revenue, Guest Pay operations expenses were 12.2% in 2006 as compared to 12.7% in 2005. Per average installed room, Guest Pay operations expense decreased to $2.92 per month in 2006 as compared to $2.96 per month in 2005.

LodgeNet Entertainment Corporation 37 Form 10-K 2006

Selling, general and administrative expenses (“SG&A”) were $29.0 million, an increase of $3.6 million compared to $25.4 million in 2005. The increase was primarily due to increases in compensation expense, including the expensing of share-based compensation required under the new Financial Accounting Standard 123(R), and an increase in professional and consulting fees. Share-based compensation expenses were $1.7 million in 2006, compared to $288,000 last year. Professional and consulting fees were $2.9 million during 2006, compared to $1.9 million last year. A large part of that increase was related to various strategic initiatives of the Company. SG&A as a percentage of revenue was 10.1% in 2006 compared to 9.2% in 2005. Per average Guest Pay room, SG&A expenses were $2.41 in 2006, compared to $2.14 in the prior year.

Depreciation and amortization expenses decreased 5.1% to $66.3 million in 2006 versus $69.9 million in 2005. The decrease was primarily attributable to a reduction in depreciation for Guest Pay systems as higher-cost assets became fully depreciated while the cost basis of more recently deployed Guest Pay systems is lower. Amortization expense also decreased due to intangible assets becoming fully amortized. The decrease was partially offset by a $667,000 increase in system removal costs due to increased de-installations. Depreciation and amortization expenses per average Guest Pay room decreased 6.5% to $5.50 in 2006 compared to $5.88 in the prior year. As a percentage of revenue, depreciation and amortization expenses decreased to 23.0% in 2006 from 25.3% in 2005.

Other operating income of $1.2 million includes $817,000 of proceeds received from the Company’s insurance carrier for business interruption insurance and property damage related to Hurricane Katrina. In addition, we realized $390,000 in recoveries related to early contract terminations. In 2005, other operating income of $508,000 included insurance proceeds associated with the Hurricane Katrina recovery of $788,000 offset by a $280,000 charge for equipment impairment.

In August 2005, Hurricane Katrina swept through the Gulf of Mexico region, causing severe damage to properties located in Louisiana, Alabama, Mississippi, and Florida. LodgeNet sustained property damage to its systems installed at the hotels located within those states. The damage included 121 hotels or approximately 21,000 rooms served by the LodgeNet interactive systems. As of December 31, 2006, 4,053 rooms remain out of service, and no amounts had been recognized for future recoveries.

Operating Income. As a result of the factors described above, operating income increased to $26.9 million in 2006 as compared to $22.7 million in the prior year.

Write-Off of Debt Issuance Costs. During 2006, we incurred charges of $227,000 as a result of the early retirement of $20.0 million of our Term B notes as compared to charges of $272,000 as a result of the early retirement of $19.0 million of our Term B notes under our bank Credit Facility in 2005.

Interest Expense. Interest expense was $25.7 million in the 2006 versus $29.4 million in 2005. The decrease was driven in part by a 9.1% reduction of our average outstanding long-term debt, which was $278.4 million during 2006 compared to $306.5 million in 2005, along with the expiration of our interest rate swaps in March 2006. The swaps were previously required under our bank Credit Facility. During 2006, we made payments of $21.5 million on our long-term debt, of which $20.0 million were discretionary pre-payments on our term loan. The average interest rate on our outstanding debt decreased to 9.2% in 2006 versus 9.6% for 2005.

Other Income (Expense). During 2006, we recorded a $238,000 recovery related to the settlement of the Chapter 7 liquidation of Gamet Technology, Inc. In 2003, we advanced $1.0 million to Gamet Technology, Inc. pursuant to a written promissory note in connection with our effort to support the development of technology, which could utilize our interactive system. We had fully reserved for the $1.0 million promissory note in the fourth quarter of 2004. In addition, we recorded $846,000 of interest income in 2006. During 2005, we recorded $864,000 of interest income, which was offset by a charge of $248,000 for a Canadian music rights settlement and a $236,000 provision for state use tax.

Taxes. During 2006, we incurred federal income and state franchise tax of $299,000 versus $450,000 during 2005.

Net Income (Loss). As a result of the factors described above, net income was $1.8 million for 2006, an improvement of $8.8 million as compared to a net loss of $(7.0) million in 2005.

LodgeNet Entertainment Corporation 38 Form 10-K 2006

Results of Operations — Years Ended December 31, 2005 and 2004

Metrics are calculated based on reduced room counts due to the impact of Hurricane Katrina. As of December 31, 2005, 8,195 rooms remained out of service.

Revenue Analysis

Total revenue for 2005 was $275.8 million, an increase of $9.3 million, or 3.5%, compared to 2004. The following table sets forth the components of our revenue (in thousands) for the years ended December 31:

	2005					2004
			Percent					Percent
			of Total					of Total
	Amount		Revenues			Amount		Revenues
Revenues:
Guest Pay	$	267,754		97.1	%	$	258,571		97.0	%
Other		8,017		2.9	%		7,870		3.0	%
	$	275,771		100.0	%	$	266,441		100.0	%

Guest Pay Interactive Services. Revenue from Guest Pay interactive services increased $9.2 million, or 3.6%, resulting from a 5.1% increase in the average number of rooms in operation, offset by a 1.4% decrease in revenue realized per average Guest Pay room. The decrease in revenue per average Guest Pay room was primarily attributable to lower movie purchases, in the first three quarters of the year, our TV Internet profitability enhancement initiative, and the impact from Hurricane Katrina. We estimate the impact from having these rooms out of service due to Hurricane Katrina reduced Guest Pay revenue in 2005 by approximately $1.1 million or $0.09 per room. The TV Internet initiative, which removed poorly performing rooms from service, is estimated to have reduced revenue by approximately $1.4 million or $0.15 per average Guest Pay room, while lowering direct operating costs by approximately $2.9 million. The following table sets forth information with respect to revenue per Guest Pay room for the years ended December 31:

	2006		2005
Average monthly revenue per room:
Movie revenue	$	17.27	$	17.00
Other interactive service revenue		5.75		5.53
Total per Guest Pay room	$	23.02	$	22.53

Movie revenue per room decreased 2.2% to $17.00 this year as compared to $17.39 in the prior year. Monthly Guest Pay revenue per room was $22.53 in 2005 as compared to $22.86 in 2004. The decrease was primarily driven by a reduction in the number of movies purchased by hotel guests. Revenue per room from other interactive services increased 1.1%, from $5.47 per month in 2004 to $5.53 in the current year. The increase was primarily due to price changes associated with basic cable services and increased revenue from the high-speed Internet access (HSIA) services.

Other revenue includes revenue from free-to-guest (FTG) services provided to hotels not receiving Guest Pay services, sales of system equipment and service parts and labor, and other revenue. Other revenue increased $147,000, or 1.9%, in comparison to 2004, primarily due to increased high-speed Internet equipment sales, Healthcare equipment sales, sale of equipment to hotels, and reseller commissions received for programming services. The increase was offset by a decrease in FTG services revenue. FTG services revenue is expected to decrease as we continue to decrease our FTG only room base.

LodgeNet Entertainment Corporation 39 Form 10-K 2006

Expense Analysis

Direct Costs (exclusive of operating expenses and depreciation and amortization discussed separately below). Guest Pay direct costs for interactive services include movie license fees, license fees for other interactive services, and the commission paid to the hotel. Guest Pay direct costs, which generally vary with related revenue, increased $3.6 million, or 3.1% to $119.2 million in 2005 as compared to $115.6 million in the prior year. As a percentage of Guest Pay revenue, Guest Pay direct costs decreased to 44.5% for 2005 as compared to 44.7% last year. Our TV Internet initiative, which removed this service from hotels that were generating negative cash flow, effectively reduced direct costs by approximately $2.9 million.

Other direct costs include FTG only programming fees, costs related to system sales and international royalties. Other direct costs increased $432,000 to $4.0 million in 2005 as compared to $3.6 million in the prior year, primarily driven by increased sales activity of HSIA equipment offset by lower FTG only activity.

Total direct costs were $123.2 million, an increase of $4.0 million as compared to $119.2 million in 2004. As a percentage of revenue, total direct costs remained flat at 44.7% in 2005 as compared to 2004. Per average Guest Pay room, total monthly direct costs decreased to $10.37, or 1.6%, in 2005 compared to $10.54 in the prior year.

In addition to the information provided above, the following table sets forth the primary change drivers of total direct costs for the years ended December 31:

	2005			2004			Change
Direct costs as a percent of revenue (exclusive of operating expenses and depreciation and amortization discussed separately below):		44.7	%		44.7	%		0.0	%
Change drivers:
Internet related								-0.9	%
Programming costs (product mix)								0.5	%
Hotel incentive commissions								0.4	%
								0.0	%

Operating Expenses. The following table sets forth information in regard to our operating expenses (in thousands) for the years ended December 31:

	2005						2004
				Percent					Percen
				of Total					of Total
	Amount			Revenues			Amoun		Revenues
Operating expenses:
Guest Pay operations	$	35,117			12.7	%	$	33,637		12.6	%
Selling, general and administrative		25,379			9.2	%		23,596		8.9	%
Depreciation and amortization		69,862			25.3	%		77,045		28.9	%
Other operating income, net		(508	)		(0.2	)%		—		—
Total operating expenses	$	129,850			47.1	%	$	134,278		50.4	%

Guest Pay operations expenses consist of costs directly related to the operation and maintenance of systems at hotel sites. Guest Pay operations expenses increased by $1.5 million, or 4.4%, in 2005 from the prior year. The increase was primarily due to the 5.1% increase in the average number of rooms served and other increased costs such as labor, property taxes, freight and fuel and other vehicle related costs. These increases were offset in part by greater efficiencies associated with an expanding digital room base. As a percentage of revenue, Guest Pay operations

LodgeNet Entertainment Corporation 40 Form 10-K 2006

expenses were 12.7% in 2005 as compared to 12.6% in 2004. Per average installed room, Guest Pay operations expense decreased to $2.96 per month in 2005 as compared to $2.97 per month in 2004.

Selling, general and administrative expenses (“SG&A”) were $25.4 million, an increase of $1.8 million compared to $23.6 million in 2004. As a percentage of revenue, SG&A increased to 9.2% compared to 8.9% for 2004. The increase was primarily due to higher compensation, benefits and marketing expenses and the effect of a 2004 legal expense recovery of $525,000. The increases were partially offset by a reduction in engineering costs, telecommunication expenses, and recoveries from previously written-off bad debts. Per average Guest Pay room, SG&A expenses increased to $2.14 per month from $2.09 per month in 2004.

Depreciation and amortization expenses decreased 9.3% to $69.9 million in the current year versus $77.0 million in 2004. The decrease was driven by reductions in Guest Pay system depreciation as higher-cost assets have been fully depreciated while the cost basis of more recently deployed Guest Pay systems are lower. The average investment for a new room installation was $340 in 2005 as compared to $364 in 2004, $405 in 2003, and $438 in 2002. Per average Guest Pay room, depreciation and amortization expenses decreased 13.7% to $5.88 in 2005 compared to $6.81 in the prior year. As a percentage of revenue, depreciation and amortization expenses decreased to 25.3% in 2005 from 28.9% in 2004.

Other operating income of $508,000 included insurance proceeds associated with the Hurricane Katrina recovery of $788,000 offset by a $280,000 charge for equipment impairment during 2005. In August 2005, Hurricane Katrina affected approximately 20,700 of our hotel rooms. In the third quarter of 2005, we recorded an operating expense of $250,000 to cover that portion of the estimated damage to our equipment caused by these hurricanes that will not be covered by insurance. Our insurance coverage provides up to $2.5 million of property damage with a $250,000 deductible and we believe, based on the available information, it is probable that any property loss in excess of the deductible will be covered by our insurance. Our insurance policy also covers business income interruptions caused by these storms.

In the fourth quarter of 2005, based on physical inspection of the damaged hotel properties and a business income interruption evaluation, we filed an initial claim with our insurance carrier. In addition, we retired $1.1 million of damaged assets with a net book value of $280,000. Accordingly, we recorded $30,000 of additional operating expense for the amount in excess of the $250,000 operating expense recorded in the third quarter. In December 2005, we received an initial payment of $788,000 from our insurance carrier of which $400,000 was related to property damage and $388,000 was related to business interruption indemnification. The total proceeds of $788,000 were recorded as a gain and offset against the $280,000 expense. We expect to receive additional insurance proceeds for property damage and business interruption in 2006. As of December 31, 2005, no amounts have been recognized for future recoveries.

Operating Income. As a result of the factors described above, operating income increased to $22.7 million in 2005 as compared to $13.0 million in the prior year. The $22.7 million included a net insurance recovery of $508,000 related to the Hurricane Katrina impact.

Write-Off of Debt Issuance Costs. During 2005, we incurred charges of $272,000 as a result of the early retirement of $19.0 million of our Term B notes. In 2004, we incurred a charge of $810,000 as a result of the early retirement of $35.0 million of our Term B notes under our bank Credit Facility.

Interest Expense. Interest expense decreased $2.5 million to $29.4 million in the current year versus $31.9 million in 2004. Average debt during 2005 was $302.1 million versus $339.8 million in 2004, a decrease of $37.7 million. During 2005, we made payments of $20.5 million on our long-term debt of which, $19.0 million were pre-payments against our term loan. The average interest rate was 9.4% for 2005 as compared to 9.3% in 2004.

Other Income (Expense). During 2005, we recorded $864,000 of interest income, which was offset by a charge of $248,000 for a Canadian music rights settlement and a $236,000 provision for state use tax. During 2004, we incurred a charge of $1.0 million as a result of reserving fully for the Gamet note. The $1.0 million charge was offset by other income and expense, primarily interest income.

Taxes. During 2005, we incurred state franchise tax of $450,000 versus $421,000 during 2004.

LodgeNet Entertainment Corporation 41 Form 10-K 2006

Net Loss. As a result of factors previously described, we incurred a net loss of $7.0 million in 2005, an improvement of $13.8 million as compared to a net loss of $20.8 million in 2004.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Our primary cost drivers are predetermined rates, such as hotel commissions, license fees paid for major motion pictures and other content, or one-time fixed fees for independent films. However, the preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable based upon the available information. The following critical policies relate to the more significant judgments and estimates used in the preparation of the financial statements:

Revenue Recognition — We recognize revenue from various sources as follows:

• Guest Pay Services. Our primary source of revenue is from providing in-room, interactive television services to the lodging industry, which the hotel guest typically purchases on a per-view, hourly or daily basis. These services include on-demand movies, on-demand games, music and music video, Internet on television and television on-demand. We recognize revenue from the sale of these Guest Pay services in the period in which such services are sold to the hotel guest and when collection is reasonably assured. Persuasive evidence of a purchase exists through a guest buy transaction recorded on our system. No future performance obligations exist with respect to these types of services once they have been provided to the hotel guest. The prices related to our products or services are fixed or determinable prior to delivery of the products or services.

• Free-to-Guest Services. We generate revenue from the sale of basic and premium television programming to individual hotels. In contrast to Guest Pay Services, where the hotel guest is charged directly for the service, we charge the hotel for our Free-to-Guest Services. We recognize revenue from the sale of Free-to-Guest Services in the period in which such services are sold and when collection is reasonably assured. We establish the prices charged to each hotel and no future performance obligations exist on programming that has been provided to the hotel. Persuasive evidence of an arrangement exists through our long-term contract with each hotel. We also have advance billings from one month to three months for certain free-to-guest programming services where the revenue is deferred and recognized in the periods that services are provided.

• High Speed Internet Access System Sales. We provide high-speed Internet access through the sale and installation of equipment. Revenue from the sale and installation of this equipment is recognized when the equipment is installed. The delivery and installation of the equipment are concurrent. In addition, this equipment, which can be acquired from other manufacturers or retailers, has stand-alone value to the customer. The software used within these systems can also be supplied by other vendors unrelated to us. Equipment prices are fixed and determinable prior to delivery and are based on objective and reliable sales evidence from a stand-alone basis.

• High Speed Internet Access Service and Support. We provide ongoing maintenance, service and call center support services to hotel properties that have been installed by us and also to hotel properties that have been installed by other providers. In addition, we provide, in some cases, the hotel property with the portal to access the Internet. We receive monthly service fees from such hotel properties for our maintenance services and Internet access. We recognize the service fee ratably over the term of the contract. The prices for these services are fixed and determinable prior to delivery of the service. The fair value of these services are known due to objective and reliable evidence from contracts and stand-alone sales. Under the service agreement, which includes maintenance and Internet access, we recognize revenue ratably over the term of the maintenance and service contract, typically three years.

• Healthcare System Sales and Support. We provide our interactive television infrastructure and content to the healthcare industry. We generate revenue from two sources: 1) the sale and installation of system equipment

LodgeNet Entertainment Corporation 42 Form 10-K 2006

	and 2) support agreements with the facility to provide software maintenance, programming and system maintenance for one year. Typically, revenue from the sale and installation of our interactive system is recognized ratably over the one-year maintenance period after the equipment is installed. The contracted system hardware, installation and maintenance elements are not separable during this start-up phase due to insufficient vendor specific objective evidence (VSOE). The package price of the interactive system and related maintenance is fixed and determinable prior to delivery. Upon completion of the initial year, the support arrangement, which includes interactive content, software maintenance, and system services, is renewable and is recognized ratably over the term of the related contract. The hospital is under no obligation to contract with us for the support arrangement. They may contract with other providers and utilize the equipment and software installed by us. Management expects VSOE to be established after at least eighteen months of market history and meaningful renewal activity for maintenance services. Once VSOE has been established, the entire selling price of the interactive system will be recognized upon installation.
•	System Sales and Support to Travel Centers. We also market and sell our interactive systems to travel centers. We generate revenue from three sources: 1) the sale of the interactive system, which includes equipment, operating software and a one-year parts and labor warranty 2) optional extended service and maintenance agreements, which include future software upgrades as they become available and 3) programming. The interactive system price includes a non-exclusive, non-transferable right to use the initial software package. Currently, revenue from the sale of our interactive system and the extended service and maintenance agreement is recognized ratably over the three-year maintenance period, which includes the original one-year warranty and the two-year extension, after the equipment is delivered. The contracted interactive system and extended service and maintenance elements are not separable during this start-up phase due to insufficient vendor specific objective evidence (VSOE). The prices of the interactive system and extended service and maintenance agreement are fixed and determinable prior to delivery. Management expects VSOE to be established after at least eighteen months of market history and meaningful renewal activity for maintenance services. Once VSOE has been established, the entire selling price of the interactive system will be recognized upon delivery. Programming revenue from this arrangement is recognized on a recurring basis over the term of the related contract.
•	Hotel System Sales and Support. We also market and sell our Guest Pay interactive systems to hotels, along with recurring support for interactive content, software maintenance and technical field service for a fixed fee. Revenue from the sale and installation of the interactive system, including the operating software, is deferred and recognized over the term of the contract, generally five years, due to inseparable proprietary software elements. The multiple elements are not separable because the proprietary software is required to operate the system and we do not license or sell the software separately under this business model. The interactive system prices are fixed and determinable prior to delivery. Revenue from this arrangement, which includes equipment, operating software, interactive content, and maintenance services, is recognized ratably over the term of the related contract.
•	Master Antenna Television (MATV) Services. We generate revenues from the installation of master antenna wiring and related infrastructure. Revenues are recognized upon completion of the MATV installation and the prices of the services are fixed and determinable prior to delivery. MATV equipment and services are not proprietary and can be supplied by other vendors.
•	Satellite System Sales. We also generate revenues from the sale and installation of DirecTV satellite systems. Revenues are recognized upon installation of the satellite system and the prices for these services are fixed and determinable prior to delivery. DirecTV equipment and installation services are not proprietary and can be supplied by other vendors other than us.
•	Other. We also generate revenue from the sale of miscellaneous system equipment such as television remotes and service parts and labor. These sales are not made under multiple element arrangements and we recognize the revenue when the equipment is delivered or service (repair or installation) has been performed. No future performance obligation exists on an equipment sale or on a repair service that has been provided.

LodgeNet Entertainment Corporation 43 Form 10-K 2006

Allowance for Doubtful Accounts. We determine the estimate of the allowance for doubtful accounts considering several factors, including: (1) historical experience, (2) aging of the accounts receivable, (3) bad debt recoveries, and (4) contract terms between the hotel and us. In accordance with our hotel contracts, monies collected by the hotel for interactive television services are held in trust on our behalf. Collectibility is reasonably assured as supported by our credit check process and nominal write-off history. If the financial condition of a hotel chain or group of hotels were to deteriorate and reduce the ability to remit our monies, we may be required to increase our allowance by recording additional bad debt expense.

Allowance for Excess or Obsolete System Components. We regularly evaluate component levels to ascertain build requirements based on our backlog and service requirements based on our current installed base. When a certain system component becomes obsolete due to technological changes and it is determined that the component cannot be utilized within our current installed base, we record a provision for excess and obsolete component inventory based on estimated forecasts of product demand and service requirements. We make every effort to ensure the accuracy of our forecasts of service requirements and future production; however any significant unanticipated changes in demand or technological advances could have an impact on the value of system components and reported operating results.

Long-Lived Assets. We review the carrying value of long-lived assets such as property and equipment and intangible assets whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized to reduce the carrying value of the asset to its estimated fair value.

Property and Equipment. Our property and equipment is stated at cost, net of accumulated depreciation and amortization. Installed Guest Pay and free-to-guest systems consist of equipment and related costs of installation, including certain payroll costs, sales commissions and customer acquisition costs. Maintenance costs, which do not significantly extend the useful lives of the respective assets, and repair costs are charged to Guest Pay operations as incurred. We begin depreciating Guest Pay and free-to-guest systems when such systems are installed and activated. Depreciation of other equipment begins when such equipment is placed in service. We attribute no salvage value to equipment, and depreciation and amortization are computed using the straight-line method over the following useful lives:

	Years
Buildings		30
Guest Pay systems:
Installed system costs		2 – 7
Customer acquisition costs		5 – 7
System components		5 – 7
Software costs		3 – 5
Other equipment		3 – 10

Allowance for System Removal. We de-install properties through the course of normal operations due to a number of factors, including: poor revenue performance, hotel bankruptcy or collection issues, hotel closings, and change in service provider. We regularly evaluate our backlog of properties scheduled for de-installation and record a provision for estimated system removal costs. The costs incurred as a result of de-installation include the labor to de-install the system as well as unamortized installation costs. Over the last five years, de-installation activity averaged approximately 3% of our installed room base.

LodgeNet Entertainment Corporation 44 Form 10-K 2006

Recent Accounting Developments

In September 2005, the American Institute of Certified Public Accountants issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contract” (“SOP 05-1”). This SOP provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB Statement No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. The provisions in SOP 05-1 are effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The SOP is applicable to us as it relates to the accounting treatment of long-term contracts and customer acquisition costs. We believe the adoption of SOP 05-1 will not have a material impact on our consolidated financial position or results of operations.

In June 2006, the Emerging Issues Task Force (EITF) reached consensus on and ratified EITF Issue 06-03, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). The scope of this Issue includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes. The Task Force concluded that the presentation of taxes within the scope of the Issue on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed pursuant to Opinion 22. In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. The disclosure of those taxes can be done on an aggregate basis. The consensus in this Issue should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006. We believe the adoption of EITF 06-03 will not have an impact on our consolidated financial position or results of operations.

In July 2006, Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting treatment (recognition and measurement) for an income tax position taken in a tax return and recognized in a company’s financial statements. The new standard also contains guidance on “de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition”. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this statement but we believe the adoption of FIN 48 will not have an impact on our consolidated financial position or results of operations.

In September 2006, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). This SAB addresses diversity in practice of quantifying financial statement misstatements. It establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements and the related financial statement disclosures. The SAB is effective for financial statements issued for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have an impact on our consolidated financial position or results of operations.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this statement. We believe the adoption of SFAS No. 157 will not have a material impact on our consolidated financial position or results of operations.

LodgeNet Entertainment Corporation 45 Form 10-K 2006

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including potential losses resulting from adverse changes in interest rates and foreign currency exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest. At December 31, 2006, we had debt totaling $270.2 million. We had fixed rate debt of $202.1 million and variable rate debt of $68.1 million at December 31, 2006. For fixed rate debt, interest rate fluctuations affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate debt, interest rate fluctuations generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. Assuming other variables remain constant (such as debt levels), a one percentage point increase to interest rates would decrease the unrealized fair market value of the fixed rate debt by an estimated $19.3 million. The impact on earnings and cash flow for the next year resulting from a one percentage point increase to interest rates would be approximately $681,000, assuming other variables remain constant.

Foreign Currency Transactions. A portion of our revenues is derived from the sale of Guest Pay services in Canada. The results of operations and financial position of our operations in Canada are measured in Canadian dollars and translated into U.S. dollars. The effects of foreign currency fluctuations in Canada are somewhat mitigated by the fact that expenses and liabilities are generally incurred in Canadian dollars. The reported income of our Canadian subsidiary will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the Canadian dollar. Additionally, a portion of our assets is based in Canada and is translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period. Accordingly, our consolidated assets will fluctuate depending on the weakening or strengthening of the U.S. dollar against the Canadian dollar. During 2006 our consolidated assets increased $92,000 due to foreign currency fluctuations.

Item 8 — Financial Statements and Supplementary Data

See “Item 15 – Exhibits and Financial Statement Schedules” for LodgeNet’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.

Item 9A — Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosures.

Management’s report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with

LodgeNet Entertainment Corporation 46 Form 10-K 2006

authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed our internal control over financial reporting in relation to criteria described in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using those criteria, we concluded that, as of December 31, 2006, our internal control over financial reporting was effective.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

/s/ Scott C. Petersen  

Scott C. Petersen 

Chief Executive Officer 

/s/ Gary H. Ritondaro  

Gary H. Ritondaro 

Chief Financial Officer 

Item 9B — Other Information

None.

LodgeNet Entertainment Corporation 47 Form 10-K 2006

PART III

Item 10 — Directors and Executive Officers of the Registrant

The information concerning our directors and executive officers 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 our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

Information concerning Audit Committee membership and the Audit Committee’s designated financial expert is incorporated by reference from the sections entitled “Election of Directors – Corporate Governance and Committees of the Board of Directors —Committees” and “Audit Committee Report” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year

We have adopted a written code of business conduct and ethics, which applies to all employees, including the principal executive officer, principal financial officer and accounting officer, controller or persons performing similar functions. The policies are found on our web site, which is http://www.lodgenet.com.

The charters of our Audit Committee, Governance and Nominating Committee, and Compensation Committee may also be found on our website.

Item 11 — Executive Compensation

Information concerning executive remuneration and transactions is incorporated by reference from the sections entitled “Election of Directors—Director Compensation”; “Election of Directors—Executive Compensation”; “Report of the Compensation Committee on Executive Compensation” and “Performance Graph” of our 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 “About the Annual Meeting—Who are the largest owners of LodgeNet’s stock and how much stock do our directors and executive officers own?” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. Information concerning securities authorized for issuance under equity compensation plans is incorporated by reference from the section entitled “Equity Compensation Plan Information” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. We do not know of any arrangement that could, at a subsequent date, result in a change of control.

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 our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.

Item 14 — Principal Accountant Fees and Services

The information concerning principal accountant fees and services is incorporated by reference from the section entitled “Audit Committee Report” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

LodgeNet Entertainment Corporation 48 Form 10-K 2006

PART IV

Item 15 — Exhibits and Financial Statement Schedules

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, 2006, included herein.

Exhibits — Following is a list of Exhibits filed with this report. Exhibits 10.5, 10.9, 10.14, 10.15, 10.17, 10.19, 10.32 and 10.34 constitute management contracts. Exhibits 10.1, 10.2, 10.3, 10.4, 10.8, 10.16, 10.18, 10.20, 10.21, 10.22, 10.30, 10.31, 10.33 and 10.35 constitute compensatory plans.

If you would like a copy of any of the Exhibits listed herein, please submit a written request to LodgeNet Entertainment Corporation, Attention: Corporate Secretary, 3900 West Innovation Street, Sioux Falls, South Dakota, 57107-7002, telephone (605) 988-1000, and we will provide you with such Exhibit(s) upon the payment of a nominal fee, such fee being limited to the expenses incurred by us in providing you with the requested Exhibit(s).

Exhibit No.

3.1	Certificate of Incorporation of LodgeNet (1)
3.2	Restated By-Laws of the Registrant (1A)
3.3	Amendment No. 1 to Restated Certificate of Incorporation of LodgeNet (7)
4.1	Indenture dated June 18, 2003 between LodgeNet Entertainment Corporation and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (13)
4.2	Form of Notes (included in Exhibit 4.1)
4.3	First Supplemental Indenture dated June 18, 2003 between LodgeNet Entertainment Corporation and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (13)
4.4	Amended and Restated Rights Plan dated February 28, 2007 between LodgeNet Entertainment Corporation and Computershare, a Delaware limited liability company as Rights Agent
4.5	Second Supplemental Indenture dated January 16, 2007 between LodgeNet Entertainment Corporation and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013
10.1	LodgeNet Entertainment Corporation Stock Option Plan (as amended and restated effective May 8, 2001) (6)
10.2	1993 Plan Form of Stock Option Agreement for Non-Employee Directors (2)
10.3	1993 Plan Form of Incentive Stock Option Agreement for Key Employees (2)
10.4	Form of Executive Severance Agreement between LodgeNet and each of Scott C. Petersen, David M. Bankers and Steven D. Truckenmiller; all dated of July 25, 1995 (3)
10.5	Form of Employment Agreement between LodgeNet and David M. Bankers (4)
10.6	Master Services Agreement between Hilton Hotels Corporation and LodgeNet Entertainment Corporation dated October 9, 2000 † (5)

LodgeNet Entertainment Corporation 49 Form 10-K 2006

10.7	Warrant to Purchase Common Stock of LodgeNet Entertainment Corporation dated October 9, 2000 (5)
10.8	Executive Severance Agreement between LodgeNet and Gary H. Ritondaro dated March 1, 2001 (6)
10.9	Employment Agreement between LodgeNet and Gary H. Ritondaro dated March 1, 2001 (6)
10.10	Credit Agreement dated August 29, 2001 by and among LodgeNet Entertainment Corporation, Canadian Imperial Bank of Commerce, Bear Stearns Corporate Lending, Inc., U. S. Bank National Association, Fleet National Bank and the Lenders Named Therein (7)
10.11	Amendment To Master Services Agreement dated August 2, 2002 by and between Hilton Hotels Corporation and LodgeNet Entertainment Corporation (8)
10.12	Hilton LodgeNet Agreement dated August 2, 2002 by and between Hilton Hotels Corporation and LodgeNet Entertainment Corporation (8)
10.13	First Amendment to Credit Agreement, dated August 19, 2002, by and between LodgeNet Entertainment Corporation and Canadian Imperial Bank, as Administrative Agent for the Lenders named therein (9)
10.14	Employment Agreement between LodgeNet and Scott C. Petersen dated September 23, 2002 (10)
10.15	Employment Agreement between LodgeNet and Stephen D. McCarty dated March 1, 2003 (11)
10.16	Executive Severance Agreement between LodgeNet and Stephen D. McCarty dated March 1, 2003 (11)
10.17	Employment Agreement between the LodgeNet and Steven Pofahl dated March 1, 2003 (11)
10.18	Executive Severance Agreement between LodgeNet and Steven Pofahl dated March 1, 2003 (11)
10.19	Employment Agreement between LodgeNet and Steven D. Truckenmiller dated March 1, 2003 (11)
10.20	LodgeNet Entertainment Corporation 2003 Stock Option and Incentive Plan (12)
10.21	2003 Plan Form of Stock Option Agreement for Non-Employee Directors (13)
10.22	2003 Plan Form of Incentive Stock Option Agreement for Key Employees (13)
10.23	Second Amendment to Credit Agreement dated June 2, 2003 among LodgeNet Entertainment Corporation and Canadian Imperial Bank of Commerce, as Administrative Agent for the Lenders named therein (13)
10.24	Third Amendment to Credit Agreement dated January 13, 2004 among LodgeNet Entertainment Corporation and Canadian Imperial Bank of Commerce, as Administrative Agent for the Lenders named therein (13)
10.25	Form of Restricted Stock Agreement for Time-based Vesting (14)
10.26	Form of Restricted Stock Agreement for Performance-Based Vesting (14)
10.27	Seventh Amendment to Credit Agreement dated October 18, 2006 among LodgeNet Entertainment Corporation and Canadian Imperial Bank of Commerce, as Administrative Agent for the Lenders named therein
10.28	Eighth Amendment to Credit Agreement dated December 13, 2006 among LodgeNet Entertainment Corporation and Canadian Imperial Bank of Commerce, as Administrative Agent for the Lenders named therein

LodgeNet Entertainment Corporation 50 Form 10-K 2006

10.29	Employment Agreement between LodgeNet Entertainment Corp and James G. Naro dated June 26, 2006 (15)
10.30	Executive Severance Agreement between LodgeNet Entertainment Corp and James G. Naro dated June 26, 2006 (15)
10.31	Employment Agreement between LodgeNet Entertainment Corp and Scott E. Young dated August 17, 2006 (16)
10.32	Executive Severance Agreement between LodgeNet Entertainment Corp and Scott E. Young dated August 17, 2006 (16)
10.33	Asset Purchase Agreement, dated November 14, 2006, between StayOnline, Inc. and LodgeNet StayOnline, Inc., as assignee of LodgeNet Entertainment Corporation
10.34	Stock Purchase Agreement, dated December 13, 2006, between LodgeNet Entertainment Corp and Liberty Satellite Technology, Inc.
10.35	Shareholders Agreement, dated December 13, 2006, between LodgeNet Entertainment Corp and Liberty Satellite Technology, Inc.
10.36	Stock Purchase Agreement, dated December 13, 2006, between LodgeNet Entertainment Corp and PAR Capital Partners, LLC.
12.1	Statement of Computation of Ratios
21.1	Subsidiaries of LodgeNet
23.1	Consent of Independent Registered Public Accounting Firm
31.1	Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer
31.2	Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer
32.1	Section 1350 Certifications

LodgeNet Entertainment Corporation 51 Form 10-K 2006

†	Confidential Treatment has been requested with respect to certain portions of this agreement.
(1)	Incorporated by Reference to LodgeNet’s Amendment No. 1 to Registration Statement on Form S-1, as filed with the Securities and Exchange Commission, September 24, 1993. (File No. 033-67676).
(1A)	Incorporated by Reference to Exhibit 3.2 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
(2)	Incorporated by Reference to Exhibits 10.13 and 10.14 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 1993.
(3)	Incorporated by Reference to Exhibit 10.20 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
(4)	Incorporated by Reference to Exhibit 10.31 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
(5)	Incorporated by Reference to Exhibits 10.32 and 10.33 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
(6)	Incorporated by Reference to Exhibits 10.1, 10.35 and 10.36 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(7)	Incorporated by Reference to Exhibits 10.37 and 10.38 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
(8)	Incorporated by Reference to Exhibits 10.1 and 10.2 to LodgeNet’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission, August 15, 2002.
(9)	Incorporated by Reference to Exhibit 10.1 to LodgeNet’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission, August 20, 2002.
(10)	Incorporated by Reference to Exhibit 10.24 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
(11)	Incorporated by Reference to Exhibits 10.27, 10.28, 10.29, 10.30 and 10.31 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2002.
(12)	Incorporated by Reference to LodgeNet’s 2003 Definitive Proxy Statement.
(13)	Incorporated by Reference to Exhibits 4.1, 4.3, 10.26. 10.27, 10.28 and 10.29 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2003.
(14)	Incorporated by Reference to Exhibits 10.25 and 10.26 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2005.
(15)	Incorporated by Reference to Exhibit 10.1 and 10.2 to LodgeNet’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission, June 29, 2006.
(16)	Incorporated by Reference to Exhibit 10.1 and 10.2 to LodgeNet’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission, August 23, 2006.

LodgeNet Entertainment Corporation 52 Form 10-K 2006

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, LodgeNet 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 13, 2007.

LodgeNet Entertainment Corporation
By:	/s/ Scott C. Petersen
	Scott C. Petersen,
	President, Chief Executive Officer and Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, LodgeNet has duly caused this report to be signed on its behalf by the undersigned, and in the capacities indicated, on March 13, 2007.

Signature	Title	Date
/s/ Scott C. Petersen Scott C. Petersen	President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)	March 13, 2007
/s/ Gary H. Ritondaro Gary H. Ritondaro	Senior Vice President Chief Financial Officer (Principal Financial & Accounting Officer)	March 13, 2007
/s/ R. Douglas Bradbury	Director	March 13, 2007
R. Douglas Bradbury
/s/ Richard R. Hylland	Director	March 13, 2007
Richard R. Hylland
/s/ R. F. Leyendecker	Director	March 13, 2007
R. F. Leyendecker
/s/ Vikki I. Pachera	Director	March 13, 2007
Vikki I. Pachera
/s/ Scott H. Shlecter	Director	March 13, 2007
Scott H. Shlecter

LodgeNet Entertainment Corporation 53 Form 10-K 2006

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

LodgeNet Entertainment Corporation and Subsidiary

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		F - 2
Consolidated Balance Sheets as of December 31, 2006 and 2005		F - 4
Consolidated Statements of Operations — Three Years Ended December 31, 2006		F - 5
Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss) — Three Years Ended December 31, 2006		F - 6
Consolidated Statements of Cash Flows — Three Years Ended December 31, 2006		F - 7
Notes to Consolidated Financial Statements		F - 8
Index to Financial Schedules
Schedule II — Valuation and Qualifying Accounts		F - 29

LodgeNet Entertainment Corporation F — 1 Form 10-K 2006

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
LodgeNet Entertainment Corporation:

We have completed integrated audits of LodgeNet Entertainment Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing on page F-1 present fairly, in all material respects, the financial position of LodgeNet Entertainment Corporation and its subsidiaries at December 31, 2006 and 2005 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing on page F-1 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 12, the Company changed the manner in which it accounts for share-based compensation in 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

LodgeNet Entertainment Corporation F — 2 Form 10-K 2006

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 13, 2007

LodgeNet Entertainment Corporation F — 3 Form 10-K 2006

LodgeNet Entertainment Corporation and Subsidiary
Consolidated Balance Sheets
(Dollar amounts in thousands, except share data)

	December 31,
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	22,795		$	20,742
Restricted cash		1,006			—
Accounts receivable, net		32,959			29,617
Other current assets		10,728			2,629
Total current assets		67,488			52,988
Property and equipment, net		185,770			199,882
Debt issuance costs, net		5,704			7,423
Intangible assets, net		690			2,007
Other assets		3,557			772
Total assets	$	263,209		$	263,072
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable	$	19,165		$	16,036
Current maturities of long-term debt		2,536			2,749
Accrued expenses		18,193			15,322
Deferred revenue		8,076			5,143
Total current liabilities		47,970			39,250
Long-term debt		267,633			289,251
Other long-term liabilities		5,728			4,804
Total liabilities		321,331			333,305
Commitments and contingencies
Stockholders’ deficiency:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued or outstanding
Common stock, $.01 par value, 50,000,000 shares authorized; 19,084,734 and 18,165,643 shares outstanding at December 31, 2006 and December 31, 2005, respectively		191			182
Additional paid-in capital		242,383			232,327
Accumulated deficit		(302,466	)		(304,307	)
Accumulated other comprehensive income		1,770			1,565
Total stockholders’ deficiency		(58,122	)		(70,233	)
Total liabilities and stockholders’ deficiency	$	263,209		$	263,072

The accompanying notes are an integral part of these consolidated financial statements.

LodgeNet Entertainment Corporation F — 4 Form 10-K 2006

LodgeNet Entertainment Corporation and Subsidiary
Consolidated Statements of Operations
(Dollar amounts in thousands, except share data)

	Years Ended December 31,
	2006			2005			2004
Revenues:
Guest Pay	$	277,433		$	267,754		$	258,571
Other		10,780			8,017			7,870
Total revenues		288,213			275,771			266,441
Costs and Expenses:
Direct costs (exclusive of operating expenses and depreciation and amortization shown separately below):
Guest Pay		126,635			119,180			115,577
Other		5,318			4,048			3,616
Operating expenses:
Guest Pay operations		35,223			35,117			33,637
Selling, general and administrative		28,999			25,379			23,596
Depreciation and amortization		66,311			69,862			77,045
Other operating income, net		(1,205	)		(508	)		—
Total costs and operating expenses		261,281			253,078			253,471
Income from operations		26,932			22,693			12,970
Other Income and Expenses:
Interest expense		(25,730	)		(29,351	)		(31,891	)
Write-off of debt issuance costs		(227	)		(272	)		(810	)
Other income (loss)		1,165			421			(629	)
Income (loss) before income taxes		2,140			(6,509	)		(20,360	)
Provision for income taxes		(299	)		(450	)		(421	)
Net income (loss)	$	1,841		$	(6,959	)	$	(20,781	)
Net income (loss) per common share (basic)	$	0.10		$	(0.39	)	$	(1.36	)
Net income (loss) per common share (diluted)	$	0.10		$	(0.39	)	$	(1.36	)
Weighted average shares outstanding (basic)		18,332,824			17,923,297			15,275,867
Weighted average shares outstanding (diluted)		18,840,917			17,923,297			15,275,867

The accompanying notes are an integral part of these consolidated financial statements.

LodgeNet Entertainment Corporation F — 5 Form 10-K 2006

LodgeNet Entertainment Corporation and Subsidiary
Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss)
(Dollar amounts in thousands, except share data)

											Accumulated
					Additional						Other
	Common Stock				Paid-in			Accumulated			Comprehensive
	Shares		Amount		Capital			Deficit			Income/(Loss)			Total
Balance, December 31, 2003		12,722,267	$	127	$	155,163		$	(276,567	)	$	(7,725	)	$	(129,002	)
Common stock option exercises		410,341		4		4,447			—			—			4,451
Common stock issuance		4,342,500		43		66,677									66,720
Warrants issued (Note 13)		—		—		503			—			—			503
Warrants exercised		150,256		2		(2	)		—			—			—
Share-based compensation		—		—		77			—			—			77
Restricted stock		—		—		121			—			—			121
Comprehensive loss:
Net loss		—		—		—			(20,781	)		—
Foreign currency translation adjustment		—		—		—			—			810
Unrealized gain on derivative instruments		—		—		—			—			4,983
Comprehensive loss		—		—		—			—			—			(14,988	)
Balance, December 31, 2004		17,625,364	$	176	$	226,986		$	(297,348	)	$	(1,932	)	$	(72,118	)
Common stock option exercises		288,482		3		3,490			—			—			3,493
Warrants issued (Note 13)		—		—		446			—			—			446
Warrants exercised		207,797		3		1,117			—			—			1,120
Share-based compensation		—		—		57			—			—			57
Restricted stock		44,000		—		231			—			—			231
Comprehensive loss:
Net loss		—		—		—			(6,959	)		—
Foreign currency translation adjustment		—		—		—			—			241
Unrealized gain on derivative instruments		—		—		—			—			3,256
Comprehensive loss		—		—		—			—			—			(3,462	)
Balance, December 31, 2005		18,165,643	$	182	$	232,327		$	(304,307	)	$	1,565		$	(70,233	)
Common stock option exercises		587,721		6		8,382			—			—			8,388
Warrants exercised (Note 13)		196,570		2		(2	)		—			—			—
Share-based compensation		—		—		700			—			—			700
Restricted stock		134,800		1		976			—			—			977
Comprehensive income:
Net income		—		—		—			1,841			—
Foreign currency translation adjustment		—		—		—			—			49
Unrealized gain on derivative instruments		—		—		—			—			156
Comprehensive income		—		—		—			—			—			2,046
Balance, December 31, 2006		19,084,734	$	191	$	242,383		$	(302,466	)	$	1,770		$	(58,122	)

The accompanying notes are an integral part of these consolidated financial statements.

LodgeNet Entertainment Corporation F — 6 Form 10-K 2006

LodgeNet Entertainment Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)

	Years Ended December 31,
	2006			2005			2004
Operating activities:
Net income (loss)	$	1,841		$	(6,959	)	$	(20,781	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		66,311			69,862			77,045
Loss (recovery) on long-term notes receivable		(238	)		—			1,000
Write-off of debt issuance costs		227			272			810
Share-based compensation		1,677			288			198
Gain due to insurance proceeds		(817	)		(788	)		—
Non-cash other operating expense		—			280			—
Insurance proceeds related to business interruption		526			388			—
Change in operating assets and liabilities:
Accounts receivable		(3,332	)		(1,542	)		218
Other current assets		(2,070	)		(855	)		160
Accounts payable		3,126			(786	)		1,766
Accrued expenses and deferred revenue		7,795			3,262			(120	)
Other		(2,745	)		863			318
Net cash provided by operating activities		72,301			64,285			60,614
Investing activities:
Property and equipment additions		(48,268	)		(51,855	)		(54,917	)
Insurance proceeds related to property damage		291			400			—
Cash deposit related to acquisition		(1,006	)		—			—
Deferred acquisition costs		(1,859	)		—			—
Note receivable repayment		238			—			567
Net cash used for investing activities		(50,604	)		(51,455	)		(54,350	)
Financing activities:
Repayment of long-term debt		(21,500	)		(20,500	)		(48,500	)
Proceeds from lease transaction		—			1,022			—
Payment of capital lease obligations		(1,380	)		(1,421	)		(1,122	)
Borrowings of revolving credit facility		—			—			13,000
Repayments of revolving credit facility		—			—			(20,000	)
Debt issuance costs		—			—			(838	)
Proceeds from sale of interest rate swap		—			—			3,052
Proceeds from issuance of common stock, net of offering costs		—			—			66,720
Exercise of stock options		4,179			4,613			4,451
Change in other long-term liability		(930	)		(846	)		(995	)
Net cash (used for) provided by financing activities		(19,631	)		(17,132	)		15,768
Effect of exchange rates on cash		(13	)		49			191
Increase (decrease) in cash and cash equivalents		2,053			(4,253	)		22,223
Cash and cash equivalents at beginning of period		20,742			24,995			2,772
Cash and cash equivalents at end of period	$	22,795		$	20,742		$	24,995

The accompanying notes are an integral part of these consolidated financial statements.

LodgeNet Entertainment Corporation F — 7 Form 10-K 2006

LodgeNet Entertainment Corporation and Subsidiary
Notes to Consolidated Financial Statements

Note 1 — The Company

LodgeNet Entertainment Corporation is one of the world’s largest providers of interactive television and broadband solutions to hotels throughout the United States and Canada, as well as select international markets. Our interactive television network is designed to make the hotel guest’s stay more enjoyable, productive and convenient, and to allow our hotel customers to provide greater guest services and promote hotel brand loyalty. As of December 31, 2006, we provided interactive television services to approximately 6,000 hotel properties serving over one million rooms. In addition, LodgeNet delivers on-demand patient education, information and entertainment to healthcare facilities in the United States.

Our operating performance and outlook are strongly influenced by such factors as hotel occupancy levels, economic conditions in the lodging industry, the number of hotel rooms equipped with our interactive systems, hotel guest demographics, the number and type of product offerings, the popularity and availability of programming, and competitive factors.

Note 2 — Summary of Significant Accounting Policies

Revenue Recognition — We recognize revenue from various sources as follows:

• Guest Pay Services. Our primary source of revenue is from providing in-room, interactive television services to the lodging industry, which the hotel guest typically purchases on a per-view, hourly or daily basis. These services include on-demand movies, on-demand games, music and music video, Internet on television and television on-demand. We recognize revenue from the sale of these Guest Pay services in the period in which such services are sold to the hotel guest and when collection is reasonably assured. Persuasive evidence of a purchase exists through a guest buy transaction recorded on our system. No future performance obligations exist with respect to these types of services once they have been provided to the hotel guest. The prices related to our products or services are fixed or determinable prior to delivery of the products or services.

• Free-to-Guest Services. We generate revenue from the sale of basic and premium television programming to individual hotels. In contrast to Guest Pay Services, where the hotel guest is charged directly for the service, we charge the hotel for our Free-to-Guest Services. We recognize revenue from the sale of Free-to-Guest Services in the period in which such services are sold and when collection is reasonably assured. We establish the prices charged to each hotel and no future performance obligations exist on programming that has been provided to the hotel. Persuasive evidence of an arrangement exists through our long-term contract with each hotel. We also have advance billings from one month to three months for certain free-to-guest programming services where the revenue is deferred and recognized in the periods that services are provided.

• High Speed Internet Access System Sales. We provide high-speed Internet access through the sale and installation of equipment. Revenue from the sale and installation of this equipment is recognized when the equipment is installed. The delivery and installation of the equipment are concurrent. In addition, this equipment, which can be acquired from other manufacturers or retailers, has stand-alone value to the customer. The software used within these systems can also be supplied by other vendors unrelated to us. Equipment prices are fixed and determinable prior to delivery and are based on objective and reliable sales evidence from a stand-alone basis.

• High Speed Internet Access Service and Support. We provide, through our wholly-owned subsidiary LodgeNet StayOnline, ongoing maintenance, service and call center support services to hotel properties that have been installed by us and also to hotel properties that have been installed by other providers. In addition, we provide, in some cases, the hotel property with the portal to access the Internet. We receive monthly service fees from such hotel properties for our maintenance services and Internet access. We recognize the service fee ratably over the term of the contract. The prices for these services are fixed and determinable prior to delivery of the service. The fair value of these services are known due to objective and reliable evidence from contracts and stand-alone sales.

LodgeNet Entertainment Corporation F — 8 Form 10-K 2006

	Under the service agreement, which includes maintenance and Internet access, we recognize revenue ratably over the term of the maintenance and service contract, typically three years.
•	Healthcare System Sales and Support. We provide our interactive television infrastructure and content to the healthcare industry. We generate revenue from two sources: 1) the sale and installation of system equipment and 2) long-term agreements with the facility to provide software maintenance, programming and system maintenance for one year. Typically, revenue from the sale and installation of our interactive system is recognized ratably over the one-year maintenance period after the equipment is installed. The contracted system hardware, installation and maintenance elements are not separable during this start-up phase due to insufficient vendor specific objective evidence (VSOE). The package price of the interactive system and related maintenance is fixed and determinable prior to delivery. Upon completion of the initial year, the support arrangement, which includes interactive content, software maintenance, and system services, is renewable and is recognized ratably over the term of the related contract. The hospital is under no obligation to contract with us for the support arrangement. They may contract with other providers and utilize the equipment and software installed by us. Management expects VSOE to be established after at least eighteen months of market history and meaningful renewal activity for maintenance services. Once VSOE has been established, the entire selling price of the interactive system will be recognized upon installation.
•	System Sales and Support to Travel Centers. We also market and sell our interactive systems to travel centers. We generate revenue from three sources: 1) the sale of the interactive system, which includes equipment, operating software and a one-year parts and labor warranty 2) optional extended service and maintenance agreements, which include future software upgrades as they become available and 3) programming. The interactive system price includes a non-exclusive, non-transferable right to use the initial software package. Currently, revenue from the sale of our interactive system and the extended service and maintenance agreement is recognized ratably over the three-year maintenance period, which includes the original one-year warranty and the two-year extension, after the equipment is delivered. The contracted interactive system and extended service and maintenance elements are not separable during this start-up phase due to insufficient vendor specific objective evidence (VSOE). The prices of the interactive system and extended service and maintenance agreement are fixed and determinable prior to delivery. Management expects VSOE to be established after at least eighteen months of market history and meaningful renewal activity for maintenance services. Once VSOE has been established, the entire selling price of the interactive system will be recognized upon delivery. Programming revenue from this arrangement is recognized on a recurring basis over the term of the related contract.
•	Hotel System Sales and Support. We also market and sell our Guest Pay interactive systems to hotels, along with recurring support for interactive content, software maintenance and technical field service for a fixed fee. Revenue from the sale and installation of the interactive system, including the operating software, is deferred and recognized over the term of the contract, generally five years, due to inseparable proprietary software elements. The multiple elements are not separable because the proprietary software is required to operate the system and we do not license or sell the software separately under this business model. The interactive system prices are fixed and determinable prior to delivery. Revenue from this arrangement, which includes equipment, operating software, interactive content, and maintenance services, is recognized ratably over the term of the related contract.
•	Master Antenna Television (MATV) Services. We generate revenues from the installation of master antenna wiring and related infrastructure. Revenues are recognized upon completion of the MATV installation and the prices of the services are fixed and determinable prior to delivery. MATV equipment and services are not proprietary and can be supplied by other vendors.
•	Satellite System Sales. We also generate revenues from the sale and installation of DirecTV satellite systems. Revenues are recognized upon installation of the satellite system and the prices for these services are fixed and determinable prior to delivery. DirecTV equipment and installation services are not proprietary and can be supplied by other vendors other than us.

LodgeNet Entertainment Corporation F — 9 Form 10-K 2006

• Other. We also generate revenue from the sale of miscellaneous system equipment such as television remotes and service parts and labor. These sales are not made under multiple element arrangements and we recognize the revenue when the equipment is delivered or service (repair or installation) has been performed. No future performance obligation exists on an equipment sale or on a repair service that has been provided.

Principles of Consolidation — The consolidated financial statements include the accounts of LodgeNet and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Foreign Currency Translation — The assets and liabilities of our Canadian subsidiary were translated at year-end exchange rates. Statement of operations items were translated at average exchange rates during the periods.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that 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. Actual results could differ from those estimates.

Long-Lived Assets — We review the carrying value of long-lived assets such as property and equipment and intangible assets whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized to reduce the carrying value of the asset to its estimated fair value.

Property and Equipment — Our property and equipment is stated at cost, net of accumulated depreciation and amortization. Installed Guest Pay and free-to-guest systems consist of equipment and related costs of installation, including certain payroll costs, sales commissions and customer acquisition costs. Maintenance costs, which do not significantly extend the useful lives of the respective assets, and repair costs are charged to Guest Pay operations as incurred. We begin depreciating Guest Pay and free-to-guest systems when such systems are installed and activated. Depreciation of other equipment begins when such equipment is placed in service. We attribute no salvage value to equipment, and depreciation and amortization are computed using the straight-line method over the following useful lives:

	Years
Buildings		30
Guest Pay systems:
Installed system costs		2 - 7
Customer acquisition costs		5 - 7
System components		5 - 7
Software costs		3 - 5
Other equipment		3 - 10

Allowance for System Removal — We de-install properties through the course of normal operations due to a number of factors, including: poor revenue performance, hotel bankruptcy or collection issues, hotel closings, and change in service provider. We regularly evaluate our backlog of properties scheduled for de-installation and record a provision for estimated system removal costs. The costs incurred as a result of de-installation include the labor to de-install the system as well as unamortized installation costs. Over the last five years, de-installation activity averaged approximately 3% of our installed room base.

Allowance for Excess or Obsolete System Components — We regularly evaluate component inventory levels to ascertain build requirements based on our backlog and service requirements based on our current installed base. When a certain system component becomes obsolete due to technological changes and it is determined that the component cannot be utilized within our current installed base, we record a provision for excess and obsolete component inventory based on estimated forecasts of product demand and service requirements. We make every effort to ensure the accuracy of our forecasts of service requirements and future production; however any significant

LodgeNet Entertainment Corporation F — 10 Form 10-K 2006

unanticipated changes in demand or technological advances could have an impact on the value of system components and reported operating results.

Software Development — We have capitalized certain costs of developing software for our Guest Pay and Healthcare 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. We capitalized system development costs of $1,399,000, $1,496,000 and $1,176,000 during the years ended December 31, 2006, 2005 and 2004, respectively. Amortization of such costs was $1,793,000, $2,235,000 and $2,420,000, during the years ended December 31, 2006, 2005 and 2004, respectively. We charged research and development activities of $635,000, $566,000 and $952,000 for each of the years presented to operating expense.

Concentration of Credit Risks and Customer Data — We derive virtually all of our revenue from entities in the lodging industry. During 2006, hotels owned, managed or franchised by Hilton Hotels Corporation (Hilton) represented approximately 20.8% of our consolidated revenue compared to 18.1% in 2005. The Hilton owned properties account for less than 5% of total properties operating under the Hilton brand within our room base. In 2000, we signed a master services agreement with Hilton to install, on an exclusive basis, our interactive television system in all Hilton owned properties and to be the exclusive recommended provider of choice for its managed and franchised properties. The loss of this hotel chain customer could have a material adverse effect on our results of operations, cash flows and financial condition. No other customer accounts for more than 10% of our total revenue.

Significant Vendors — We obtain most of our basic and premium television programming pursuant to an agreement with DIRECTV, which expires in January 2010. We are not obligated to have any minimum number of hotel rooms under the agreement nor are we obligated to make any minimum payments under the agreement. We pay only for the selected programming provided to a hotel. We obtain our selection of Nintendo video games pursuant to a non-exclusive license agreement with Nintendo, which expires in May 2013. Under the terms of the agreement, we pay a monthly fee based on revenue generated from Nintendo video game services, subject to a monthly minimum. The loss of these vendors could limit our ability to provide such programming to our customers and impact our results of operations, cash flows and financial condition.

Allowance for Doubtful Accounts — We determine the estimate of the allowance for doubtful accounts considering several factors, including: historical experience, aging of the accounts receivable, bad debt recoveries and contract terms between the hotel and LodgeNet. In accordance with our hotel contracts, monies collected by the hotel for interactive television services are held in trust on our behalf. Collectibility is reasonably assured as supported by our credit check process and nominal write-off history. If the financial condition of a hotel chain or group of hotels were to deteriorate and reduce the ability to remit the monies to us, we may be required to increase our allowance by recording additional bad debt expense. The allowance for doubtful accounts was $175,000, $300,000 and $300,000 at December 31, 2006, 2005 and 2004, respectively

Derivative Financial Instruments — LodgeNet follows Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item and requires that we must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

In August 2003, we entered into a $50.0 million interest rate swap agreement, expiring in June 2013, to effectively change the underlying debt from a fixed interest rate to a variable interest rate. In March 2004, we terminated the swap arrangement and received proceeds of $3.1 million of which $2.6 million was recorded as a deferred gain. The deferred gain is classified within other long-term liabilities on our consolidated balance sheet and is being recognized ratably over the remaining term of the underlying debt instrument as an offset to interest expense. The unamortized balance of the deferred gain is $1.8 million at December 31, 2006.

LodgeNet Entertainment Corporation F — 11 Form 10-K 2006

Income Taxes — We account for income taxes under the liability method, in accordance with the requirements of 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Income (Loss) — We follow 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. Total comprehensive income (loss) is disclosed in the consolidated statement of stockholders’ deficiency and comprehensive income (loss) and includes net income (loss) and other comprehensive income (loss), which is comprised of unrealized gains (losses) on derivative instruments and foreign currency translation adjustments. Accumulated balances for each component of other comprehensive income (loss) were as follows (in thousands of dollars):

	Unrealized Gain			Foreign		Accumulated
	(Loss) on			Currency		Other
	Derivative			Translation		Comprehensive
	Instruments			Adjustment		Income (Loss)
Balance, December 31, 2003	$	(8,395	)	$	670	$	(7,725	)
Change during period		4,983			810		5,793
Balance, December 31, 2004		(3,412	)		1,480		(1,932	)
Change during period		3,256			241		3,497
Balance, December 31, 2005		(156	)		1,721		1,565
Change during period		156			49		205
Balance, December 31, 2006	$	—		$	1,770	$	1,770

Earnings Per Share Computation — We calculate earnings per share (EPS) in accordance with SFAS No. 128, “Earnings Per Share” as amended by SFAS 123(R) “Share Based Payment”, which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted average number of common shares 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. Such potential dilutive common shares consist of stock options, non-vested shares (restricted stock) and warrants and are calculated using the ‘treasury stock method’ as defined by SFAS 128. Potential common shares that have an anti-dilutive effect are excluded from diluted earnings per share.

The following table reflects the calculation of weighted average basic and fully diluted shares for the periods ended December 31. For the year ended December 31, 2006, potential common shares with exercise prices greater than the average market price of our common stock are excluded from the diluted earnings per share calculation, as their inclusion would have been anti-dilutive. For the years ended December 31, 2005 and 2004, potential dilutive common shares were not included in the computation of diluted earnings per share as we were in a loss position and their inclusion would have been anti-dilutive.

	2006		2005		2004
Average shares outstanding – basic		18,332,824		17,923,297		15,275,867
Dilutive effect of stock options, non- vested shares and warrants		508,093		—		—
Average shares outstanding – diluted		18,840,917		17,923,297		15,275,867
Antidilutive securities excluded from calculation		295,100		4,295,749		4,498,169

LodgeNet Entertainment Corporation F — 12 Form 10-K 2006

The total number of potential dilutive common shares outstanding at December 31 is set forth below:

	2006		2005		2004
Potential dilutive common shares		2,056,754		3,611,774		2,745,251

Share-based Compensation — Effective January 1, 2006, we adopted FASB Statement No. 123(R), Share-Based Payment (“Statement 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based awards based on estimated fair values. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) providing supplemental implementation guidance for Statement 123(R). We have applied the provisions of SAB 107 in our adoption of Statement 123(R). We adopted Statement 123(R) using the modified prospective transition method. In accordance with that method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of Statement 123(R). Share-based compensation expense recognized in 2006 under Statement 123(R) includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Prior to January 1, 2006, we accounted for our stock option and incentive plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“Statement 123”).

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 at the date of purchase. Cash paid for interest was $25,884,000, $29,221,000 and $32,480,000 during the years ended December 31, 2006, 2005 and 2004, respectively. Cash paid for taxes, primarily state franchise tax, was $281,000, $552,000 and $455,000 during the years ended December 31, 2006, 2005 and 2004, respectively. Equipment acquired under capital lease arrangements totaled $1,048,000, $1,626,000 and $657,000 during the years ended December 31, 2006, 2005 and 2004, respectively. During 2005 and 2004, we issued 47,886 and 51,663 stock purchase warrants priced at $20.44 per share, valued at $446,000 and $503,000, respectively to Hilton Hotels Corporation (Hilton) to acquire rights to deliver interactive television services in Hilton hotels.

Effect of Recently Issued Accounting Standards — In September 2005, the American Institute of Certified Public Accountants issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contract” (“SOP 05-1”). This SOP provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB Statement No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. The provisions in SOP 05-1 are effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The SOP is applicable to us as it relates to the accounting treatment of long-term contracts and customer acquisition costs. We believe the adoption of SOP 05-1 will not have a material impact on our consolidated financial position or results of operations.

In June 2006, the Emerging Issues Task Force (EITF) reached consensus on and ratified EITF Issue 06-03, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). The scope of this Issue includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes. The Task Force concluded that the presentation of taxes within the scope of the Issue on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed pursuant to Opinion 22. In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. The disclosure of those taxes can be done on an aggregate basis. The consensus in this Issue should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006. We believe the adoption of EITF 06-03 will not have an impact on our consolidated financial position or results of operations.

LodgeNet Entertainment Corporation F — 13 Form 10-K 2006

In July 2006, Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting treatment (recognition and measurement) for an income tax position taken in a tax return and recognized in a company’s financial statements. The new standard also contains guidance on “de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition”. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this statement but we believe the adoption of FIN 48 will not have an impact on our consolidated financial position or results of operations.

In September 2006, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). This SAB addresses diversity in practice of quantifying financial statement misstatements. It establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements and the related financial statement disclosures. The SAB is effective for financial statements issued for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have an impact on our consolidated financial position or results of operations.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this statement. We believe the adoption of SFAS No. 157 will not have a material impact on our consolidated financial position or results of operations.

Note 3 ¾ Investments

Gamet and PointOne — In the first quarter of 2003, we entered into an agreement with Gamet Technology, Inc (“Gamet”), a company engaged in the casino system technology industry, to form a limited liability company, PointOne Technologies, LLC (“PointOne”). The business purpose of PointOne was to engage in the development of server-based gaming systems for the casino industry by utilizing some of our intellectual property. We entered into a technology licensing agreement with PointOne, for which we received a 37.5% equity interest in PointOne. Our contribution consisted of the licensing of certain technology rights to PointOne and, accordingly, we did not record an investment in PointOne as an asset. Gamet also contributed certain intellectual property related to server-based gaming to PointOne and entered into a technology licensing agreement with PointOne for other owned software, pursuant to which Gamet received a 62.5% equity interest in PointOne. In May 2003, PointOne’s operations were suspended. In connection with our effort to support the development of technology, we advanced $1.0 million to Gamet pursuant to a written promissory note during the first quarter of 2003. The Gamet note was personally guaranteed by Steve and Margaret Urie, the principal owners of Gamet, and was collateralized by the unconditional assignment of rights to receive quarterly deferred payments due to the principal owner in connection with the sale of a prior business. The Gamet note was due and payable in April 2003. In July 2003, we filed a lawsuit against Gamet and the Uries, demanding payment of the note. In August 2003, the defendants submitted an answer denying liability on the note and also asserted counterclaims against us alleging our failure to procure private financing for PointOne, which caused Gamet to suffer damages in an undetermined amount. In December 2003, the Uries and various companies owned or controlled by the Uries, including Gamet, filed for Chapter 11 reorganization. In January 2005, we became aware that the purchaser of the prior business owned by the Uries (Argosy) had ceased making deferred payments, claiming a right of set-off against the Uries. We challenged this action as a violation of the automatic stay in the bankruptcy case and also challenged the alleged set-off rights in an adversary proceeding in the bankruptcy court. In the fourth quarter of 2004, we fully reserved for the full amount of the note in light of the reduced probability of collection. In May 2005, the U.S. Bankruptcy Court converted the case from a Chapter 11 reorganization to a Chapter 7 liquidation. In June 2006, we entered into a settlement agreement pursuant to which we received $238,000 from Argosy in return for a dismissal of the adversary proceeding, which is shown as an investment gain in operating activities in the consolidated statement of cash flows. While we have retained our rights against the Uries and Gamet in the bankruptcy proceedings, we do not expect to recover the balance of the note.

LodgeNet Entertainment Corporation F — 14 Form 10-K 2006

Note 4 — Fair Value of Financial Instruments

Estimated fair values and carrying amounts of financial instruments in the financial statements are as follows at December 31 (in thousands of dollars):

	2006						2005
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Assets (Liabilities):
Interest rate swaps	$	—		$	—		$	(156	)	$	(156	)
Other long-term liability	$	(2,225	)	$	(2,225	)	$	(2,541	)	$	(2,541	)
Long-term debt	$	(270,169	)	$	(285,669	)	$	(292,000	)	$	(310,259	)

Fair values were determined under the following methods: interest rate swaps — quoted amount we would pay to terminate the swap agreements, considering current interest rates; other long-term liability – present value of future cash flows using our current interest rates; and long-term debt - - interest rates currently available to us for debt with similar terms and maturities. For certain of our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, the carrying amounts approximate fair value due to their short maturities.

Note 5 — Property and Equipment

Property and equipment was comprised as follows at December 31 (in thousands of dollars):

	2006			2005
Land, building and equipment	$	85,642		$	83,267
Free-to-guest equipment		35,065			33,989
Guest Pay systems:
Installed system costs		438,865			450,754
Customer acquisition costs		53,156			52,264
System components		26,464			25,336
Software costs		22,520			21,889
Total		661,712			667,499
Less — depreciation and amortization		(475,942	)		(467,617	)
Property and equipment, net	$	185,770		$	199,882

We recorded depreciation and amortization expense of $63,504,000, $65,620,000 and $71,669,000 during the years ended December 31, 2006, 2005 and 2004, respectively.

Note 6 ¾ 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. We capitalized $838,000 of debt issuance costs during the year ended December 31, 2004. No costs were capitalized during the years ended December 31, 2006 and 2005. Unamortized debt issuance costs of $227,000, $272,000 and $810,000 were written off in 2006, 2005 and 2004, respectively (see Note 18). Amortization of the debt issuance costs was $1,494,000 in 2006, $1,636,000 in 2005, and $1,734,000 in 2004. The components of the debt issuance costs recorded in the balance sheets are as follows at December 31 (in thousands of dollars):

	2006			2005
Debt issuance costs	$	13,617		$	13,842
Accumulated amortization		(7,913	)		(6,419	)
	$	5,704		$	7,423

LodgeNet Entertainment Corporation F — 15 Form 10-K 2006

Note 7 — Intangible Assets

We have intangible assets consisting of certain acquired technology, patents, trademarks and licensee fees. We account for these assets on an ongoing basis in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. The intangible assets have been deemed to have definite useful lives based on several factors including our anticipation of technological changes associated with increasing accessibility to the Internet by the traveler, the economic viability of charging a hotel guest to access the Internet through the television, and a finite market potential for the products acquired. Intangible assets are amortized over their current estimated useful lives ranging from three to five years.

In July 2002, we expanded our master services agreement with Hilton Hotels Corporation and acquired the right to provide Internet on television access and television on-demand programming services to participating hotels and the right to independently pursue and further develop interactive television content throughout our entire room base. As consideration, we agreed to pay Hilton $5.8 million, on a present value basis, over a five-year period. Approximately $5.8 million has been capitalized within intangible assets and is being amortized on a straight-line basis over its estimated useful life of five years.

We have the following intangible assets at December 31 (in thousands of dollars):

	2006				2005
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Assets subject to amortization:
Acquired technology	$	10,280	$	10,280	$	14,291	$	14,150
Acquired intangibles		5,774		5,101		5,774		3,945
Other		449		432		497		460
	$	16,503	$	15,813	$	20,562	$	18,555

During 2006, we retired an asset no longer in service and reduced both the carrying amount and the related accumulated amortization by $4.0 million. We recorded amortization expense of $1,312,000, $2,606,000 and $3,642,000 during the years ended December 31, 2006, 2005 and 2004, respectively. We estimate amortization expense of $690,000 for the year ending December 31, 2007.

Note 8 — Accrued Expenses

Accrued expenses were comprised as follows at December 31 (in thousands of dollars):

	2006		2005
Accrued taxes	$	4,088	$	3,679
Accrued compensation		6,842		5,803
Accrued interest		946		1,100
Accrued programming related		1,748		1,637
Other		4,569		3,103
	$	18,193	$	15,322

LodgeNet Entertainment Corporation F — 16 Form 10-K 2006

Note 9 — Long-term Debt and Credit Facilities

Long-term debt was comprised as follows at December 31 (in thousands of dollars):

	2006			2005
Bank Credit Facility:
Bank term loan	$	68,125		$	89,625
Revolving credit facility		-			-
9.50% senior notes		200,000			200,000
Capital leases		2,044			2,375
		270,169			292,000
Less current maturities		(2,536	)		(2,749	)
	$	267,633		$	289,251

Bank Credit Facility ¾ In August 2001, we entered into a $225.0 million bank Credit Facility, comprised of a $150.0 million term loan and a $75.0 million revolving credit facility that may be increased to $100.0 million, subject to certain limitations. The term loan matures in August 2008 and quarterly repayments of $375,000 began in December 2001. The term loan bears interest at our option of (1) the bank’s base rate plus a margin of 1.50% or (2) LIBOR plus a margin originally established at 4.00%. In January 2004, LodgeNet and the holders of the term loan amended the LIBOR pricing to be LIBOR plus a margin of 3.50%. In April 2004, LodgeNet and the holders of the term loan executed another amendment to establish the LIBOR pricing at LIBOR plus a margin of 2.75%. In July 2005, LodgeNet and the holders of the term loan again executed an amendment to establish the LIBOR pricing at LIBOR plus a margin of 2.25%. The term loan interest rate as of December 31, 2006 was 7.60%. The revolving credit facility matures in August 2007 and loans bear interest at our option of (1) the bank’s base rate plus a margin of 1.00% to 2.00%, or (2) LIBOR plus a margin of 2.25% to 3.25%. As of December 31, 2006, there were no amounts outstanding under the revolving credit facility. Loans under the Credit Facility are collateralized by a first priority interest in all of our assets. As of December 31, 2006, we had $59.8 million of borrowing available under the revolver portion of the bank Credit Facility.

The facility provides for the issuance of letters of credit up to $10.0 million, subject to customary terms and conditions. As of December 31, 2006, we had outstanding letters of credit totaling $1.2 million.

The facility includes terms and conditions which require compliance with a material adverse effect covenant as well as the maintenance of certain financial ratios and places limitations on capital expenditures, additional indebtedness, liens, investments, guarantees, asset sales and certain payments or distributions in respect of the common stock. Our consolidated total leverage ratio was 2.86 compared to the maximum allowable of 3.50, the consolidated senior secured leverage ratio was 0.74 compared to the maximum allowable of 2.25 and the consolidated interest coverage ratio was 3.85 compared to the minimum allowable of 2.75. As of December 31, 2006, we were in compliance with all financial covenants of our bank Credit Facility.

In October 2006, LodgeNet and the holders of the term loan executed an amendment to the Credit Facility to increase the maximum amount allowed for other investments from $5.0 million to $25.0 million. In addition, the allowable amount for Restricted Junior Payments, as defined by the bank facility agreement, increased to a maximum of $25.0 million from a maximum of $15.0 million and removed the leverage ratio requirement. The amendment also lowered the revolver loan commitment fee rate from .750% per annum to .375% per annum.

In December 2006, LodgeNet and the holders of the term loan executed an amendment to the Credit Facility to allow LodgeNet to make and own investments in Ascent Entertainment Group, Inc., the owner of 100% of the capital stock of On Command Corporation.

9.50% Senior Notes ¾ In June 2003, we issued $200.0 million of unsecured 9.50% Senior Subordinated Notes (the “9.50% Notes”), due June 15, 2013. The 9.50% Notes are unsecured, are subordinated in right of payment to all existing and future senior debt of LodgeNet and rank pari passu in right of payment with any future senior subordinated indebtedness of LodgeNet. The 9.50% Notes require semi-annual interest payments and contain

LodgeNet Entertainment Corporation F — 17 Form 10-K 2006

covenants which restrict our ability to incur additional indebtedness, create liens, pay dividends or make certain distributions with respect to our 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, 2006, we were in compliance with all financial covenants of the 9.50% Notes.

The 9.50% Notes are redeemable at our option, in whole or in part, on or after June 15, 2008, initially at 104.75% 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 June 15, 2011.

Capital Leases — As of December 31, 2006, we had total capital lease obligations of $2,283,000. Equipment acquired under capital lease arrangements totaled $1,048,000, $1,626,000 and $657,000 during the years ended December 31, 2006, 2005 and 2004, respectively.

Long-term debt has the following scheduled annual maturities for the years ended December 31 (in thousands):

	2007			2008			2009			2010			2011		Thereafter
Long-term debt	$	1,500		$	66,625		$	—		$	—		$	—	$	200,000
Capital leases		1,162			596			355			167			3		—
		2,662			67,221			355			167			3		200,000
Less amount representing interest on capital leases		(126	)		(66	)		(33	)		(14	)		—		—
	$	2,536		$	67,155		$	322		$	153		$	3	$	200,000

We do not utilize special purpose entities or off-balance sheet financial arrangements.

Note 10 — Commitments and Contingencies

Programming Agreements — We obtain non-exclusive rights to show recently released major motion pictures from motion picture studios pursuant to an agreement with each studio that is typically two to three years in length. The royalty rate for each movie is pre-determined, with the studio receiving a percentage of the gross revenue from the movie. For our television on-demand programming, we obtain rights to release television on-demand content for which we pay a predetermined percentage of gross revenue or a one-time fixed fee. In addition, we obtain non-exclusive rights to cable or premium television programming through an agreement with a third party provider, whereby we pay a fixed monthly fee. We obtain independent films, most of which are non-rated and intended for mature audiences, for a one-time fixed fee. We also obtain non-exclusive rights to digital music content through an agreement with a third party vendor, whereby we pay a predetermined percentage of the gross revenue from the music service. We obtain our selection of Nintendo video games pursuant to a non-exclusive license agreement with Nintendo. Under the terms of the agreement, we pay a monthly fee based on revenue generated from Nintendo video game services, subject to a monthly minimum. For our Hotel SportsNET^SM programming, we obtain the rights to exhibit on-demand sporting event content for which we pay a predetermined percentage of gross revenue, subject to a minimum guarantee. These agreements contain various restrictions, including default and termination procedures.

Minimum Guarantees — In connection with our programming related agreements, we may guarantee minimum royalties for specific periods or by individual programming content. Generally, our programming contracts are typically two to five years in length. The unpaid balance of programming related minimum guarantees reflected as a liability in our consolidated balance sheet as of December 31, 2006 was approximately $2.0 million.

At December 31, 2006, our obligations for programming related guarantees, primarily Nintendo programming, aggregated to approximately $37.6 million. We obtain our selection of Nintendo video games pursuant to a non-exclusive license agreement with Nintendo, which expires in May 2013. Under the terms of the agreement, we pay a monthly royalty equal to a percent of revenue generated from the sale of Nintendo video game services. The monthly royalty is subject to a minimum only when the percent of revenue generated does not meet the contractual threshold. Our estimate for future minimum royalty amounts payable are as follows: $6.8 million in 2007, $7.6 million in 2008, $6.7 million in 2009, $6.2 million in 2010, $4.3 million in 2011, and $6.0 million thereafter.

LodgeNet Entertainment Corporation F — 18 Form 10-K 2006

Purchase Commitments — We have purchase commitments in the ordinary course of business, none of which is expected to result in losses.

Operating Leases — We have entered into certain operating leases, which at December 31, 2006, require future minimum lease payments, as follows: 2007 — $608,000; 2008 — $498,000; 2009 — $353,000; 2010 — $111,000; 2011 — $51,000. The leases, which relate to our 26 field service offices, expire at dates ranging from 2007 to 2011. Rental expense under all operating leases was $734,000, $758,000 and $714,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Hilton Agreement — In 2002, we expanded our master services agreement with Hilton Hotels Corporation. We acquired the right from Hilton Hotel Corporation to provide Internet on television access and television on-demand programming services to participating hotels and the right to independently pursue and further develop interactive television content throughout our entire room base. As consideration, we agreed to pay Hilton $5.8 million, on a present value basis, over a five-year period (see Note 7).

Legal Proceedings — We are subject to legal proceedings and claims arising in the ordinary course of our businesses. As of the date hereof, in the opinion of management, we do not believe that the resolution of such matters will have a material adverse effect on our financial position, results of operations, or cash flows.

Note 11 — Stockholders’ Equity

Preferred Stock — 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.

Common Stock — In 2004, we completed a public offering of common stock registered pursuant to our shelf registration statement filed with the Securities and Exchange Commission in April 2004. In connection with the offering, we issued 3.95 million shares at a price of $16.50 per share. In addition, in 2004, we issued 392,500 shares as a result of the underwriters’ exercise of their over-allotment option. The net proceeds from the offering (including the over-allotment) were $66.7 million after deducting underwriting and offering expenses of approximately $5.0 million. We used the net proceeds to repay $35.0 million of our bank Credit Facility term loan and the remaining $12.0 million of our 11.50% Notes. The remaining proceeds of approximately $19.7 million were retained as cash for use in general corporate purposes.

Stockholder Rights Plan — In February 1997, we adopted a stockholder rights plan, which was amended and restated effective in February 2007. The restated Stockholder Rights Plan will be submitted to a vote of the shareholders at the Company’s next annual meeting scheduled for May 2007. The rights plan is intended to maximize stockholder value by providing flexibility to the Board of Directors in the event that an offer for LodgeNet is received that is either inadequate or not in the best interest of all stockholders.

Under the rights plan, the Board of Directors declared a dividend distribution of one right for each outstanding share of common stock to stockholders of record at the close of business on March 10, 1997. Each right, when exercisable, entitles the registered holder to purchase one one-thousandth of a share of a new series of Series A Participating Preferred Stock, at a price of $60.00.

Initially, the rights are “attached” to the common stock and trade with the common stock. They separate from the common stock if a person or group acquires 20% or more of the outstanding shares of common stock or a public announcement of a tender offer or exchange offer is made which would result in someone becoming the owner of 20% or more of the outstanding common stock. Following a separation, the rights become exercisable, are separately tradable and we will mail separate rights certificates to stockholders.

The rights expire on the earliest of February 28, 2016, the date of the consummation of a merger with a person who acquired common stock with the approval of the Board of Directors or the redemption of the rights by us, either by the board of directors or upon the presentation of an offer meeting certain minimum criteria, by a vote of two-thirds of the shareholders.

LodgeNet Entertainment Corporation F — 19 Form 10-K 2006

The number of rights is adjusted to prevent dilution in the event of a stock split or stock dividend. The purchase price and the number of shares of preferred stock issuable upon exercise of the rights are also adjusted for stock splits and dividends, as well as for other events, including the issuance of preferred stock at less than the market price or the distribution of our assets to preferred stockholders.

If we are acquired without the approval of the directors who are neither officers, nor related to the acquirer, the rights become exercisable for shares of common stock of the acquiring company with a market value of two times the exercise price. If there is merely an acquisition of at least 20% of our common stock without such approval, the rights become exercisable for common stock with a market value of two times the exercise price.

Prior to a 20% acquisition or the expiration of the rights, we may redeem the rights at a price of $.01 per right. The rights are also redeemable in connection with a merger or other similar transaction not involving a 20% acquirer or if the acquirer has acquired less than 20% and there are no other acquirers.

In addition, the Board of Directors may, after a 20% acquisition (but less than a 50% acquisition), exchange the rights for shares of common stock on a one for one basis or for cash or other assets or securities of ours.

If issued, the preferred stock will be non-redeemable and junior to any other series of preferred stock we may issue, but will have a preferential quarterly dividend equal to 1,000 times the dividend, if any, declared on each share of common stock, but not less than $25.00 and, in the event of our liquidation, a preferred liquidation preference equal to the greater of $1,000 or 1,000 times the payment per share of common stock. Each share of preferred stock will have 1,000 votes and will vote together with the common stock.

Until a right is exercised, the holder will have no rights as a stockholder. We and the rights agent have broad discretion to amend the rights plan governing the rights; however, following a separation, no amendment may adversely affect the rights holders.

The 2007 Amended Rights Plan provides for a “TIDE Committee,” selected by and composed solely of independent directors of the Board, to review the Amended Rights Plan every three years, and to provide recommendations to the Board concerning the Rights Plan, including any modifications to the Amended Rights Plan, up to and including termination thereof.

The 2007 Amended Rights Plan incorporates a provision which requires that any offer meeting specified criteria (a “Qualified Offer”) will be submitted to the Company’s stockholders for consideration in certain circumstances. Under the Amended Rights Plan a Qualified Offer must include the following criteria:

• For all shares of the Company;

• At the same price for all shares acquired and such price must be greater than the highest reported market price per share during the prior 2 years and represents a premium above the average closing prices for the previous five trading days;

• Conditioned on tender of at least 90% of the shares; and

• Paid with at least 80% cash consideration, and any share consideration must be limited to publicly traded securities listed on the NASDAQ or NYSE.

Restricted Stock — For the years ended December 31, 2006, 2005 and 2004, we awarded 28,250, 21,500 and 22,500 shares of time-based restricted stock (non-vested shares), respectively, to certain officers pursuant to our amended 2003 Stock Option and Incentive Plan. The shares vest over four years from the date of grant with 50% vested at the end of year three and 50% at the end of year four. The fair value of the non-vested shares is equal to the fair market value, as defined by the terms of the 2003 Plan, on the date of grant and is amortized ratably over the vesting period.

During 2006, we awarded 12,500 shares of time-based restricted stock (non-vested shares) to our non-employee directors pursuant to our amended 2003 Stock Option and Incentive Plan. The shares vested 50% at the date of grant

LodgeNet Entertainment Corporation F — 20 Form 10-K 2006

and 50% on the one-year anniversary of the date of grant. The fair value of the non-vested shares is equal to the fair market value, as defined by the terms of the 2003 Plan, on the date of grant and is amortized ratably over the vesting period.

Also in 2006, we awarded 101,550 shares of performance-based restricted stock (non-vested shares) to certain officers and key employees that vest according to the terms of our Restricted Stock Agreement for Performance-Based Vesting. The vesting of the performance based restricted stock (non-vested shares) is contingent on the Company’s financial achievement of cumulative earnings for 2006, 2007, and 2008 of at least $1.10 per share. We currently expect to achieve the performance goal and are ratably amortizing the fair value over the period the performance metric is being measured. If the goal is not met, no compensation cost is ultimately recognized and any amount of previously recognized compensation cost will be reversed.

Note 12 — Stock Option Plans

The LodgeNet Entertainment Corporation 2003 Stock Option and Incentive Plan (the “2003 Plan”) provides for the award of incentive stock options, non-qualified stock options, non-vested shares (restricted stock), stock appreciation rights and phantom stock units. The stockholders approved and adopted this plan at the 2003 Annual Meeting and approved an amendment to the plan at the Annual Meeting in May of 2006. As of December 31, 2006, there were 1,500,000 shares authorized under this plan and 696,638 shares available for grant. In addition to the stock option and non-vested share awards currently outstanding under the 2003 Plan, we have stock options outstanding under previously approved plans, which are inactive.

Certain officers, directors and key employees have been awarded non-vested shares (restricted stock) and options to purchase common stock of LodgeNet under the 2003 Plan and other prior plans. Stock options issued under the plans have an exercise price equal to the fair market value, as defined by the terms of the plan, on the date of grant. The stock options become exercisable in accordance with vesting schedules determined by the Compensation Committee of the Board of Directors, and expire ten years after the date of grant. Restrictions applicable to non-vested shares lapse based either on performance or service standards as determined by the Compensation Committee of the Board of Directors. We currently do not have a stock repurchase program, which would allow us to issue awards from treasury shares, therefore stock option exercises and non-vested share awards are new issues of common stock.

Prior to January 1, 2006, we accounted for our stock option and incentive plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“Statement 123”). Accordingly, compensation costs for stock options were measured as the excess, if any, of the quoted market price of our stock at the date of grant over the amount an employee must pay to acquire the stock. Stock options were issued at an exercise price equal to the fair market value on the date of grant therefore no compensation cost was recognized at the time of the grant. Effective January 1, 2006, we adopted FASB Statement No. 123(R), Share-Based Payment (“Statement 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based awards based on estimated fair values. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) providing supplemental implementation guidance for Statement 123(R). We have applied the provisions of SAB 107 in our adoption of Statement 123(R). We adopted Statement 123(R) using the modified prospective transition method. In accordance with that method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of Statement 123(R). Share-based compensation expense recognized in 2006 under Statement 123(R) includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R).

On November 16, 2005, the Board of Directors of LodgeNet Entertainment Corporation approved the acceleration of vesting of unvested stock options granted to its employees and executive officers that had an exercise price greater than $17.00 per share. The action was taken in the belief that it was in the best interest of our shareholders to minimize the future non-cash compensation expense associated with stock options upon adoption of Statement 123(R) on January 1, 2006. As a result of the acceleration, options to acquire 373,174 shares of common stock became immediately exercisable on that date.

LodgeNet Entertainment Corporation F — 21 Form 10-K 2006

The following amounts were recognized in our consolidated statement of operations for share-based compensation plans for the years ended December 31 (dollar amounts in thousands, except per share data):

	Years Ended December 31,
	2006		2005		2004
Compensation Cost:
Stock options	$	700	$	57	$	77
Non-vested (restricted) shares		977		231		121
Total share-based compensation expense	$	1,677	$	288	$	198
Compensation expense per common share:	$	0.09	$	0.02	$	0.01

Cash received from stock option exercises for the years ended December 31, 2006, 2005, and 2004 was $4,179,000, $4,613,000, and $4,451,000 respectively. Statement 123(R) requires that the cash retained as a result of the tax deductibility of employee share-based awards be presented as a component of cash flows from financing activities in the consolidated statement of cash flows. Due to our net operating loss position, we did not recognize a tax benefit from options exercised under the share-based payment arrangements. Cash flow from operating activities for the year ended December 31, 2006 included non-cash compensation expense related to stock options of $700,000 and non-cash compensation expense in the amount of $977,000 related to non-vested shares (restricted stock).

Pro Forma Information under Statement 123

The following table illustrates the effect on net income (loss) and earnings (loss) per share if we had applied the fair value recognition provisions of Statement 123 to options granted under our stock option plan for the years ended December 31, 2005 and 2004. For purposes of this pro forma disclosure, the value of the options was estimated using the Black-Scholes-Merton option-pricing formula at date of grant and amortized to expense over the options’ vesting periods (dollar amounts in thousands, except per share data).

	Years Ended December 31,
	2005			2004
Net income (loss), as reported	$	(6,959	)	$	(20,781	)
Add: stock based employee compensation expense included in reported net income (loss)		288			198
Less: stock based employee compensation expense determined under fair value method, net of related tax effects		(5,708	)		(3,772	)
Net income (loss), pro forma	$	(12,379	)	$	(24,355	)
Net income (loss) per common share (basic and diluted)
As reported	$	(0.39	)	$	(1.36	)
Pro forma	$	(0.69	)	$	(1.59	)

Stock Option Valuation and Expense Information under Statement 123(R)

For the year ended December 31, 2006, we did not grant stock options to employees and granted 25,000 stock options to non-employee directors of the Company. The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes-Merton option-pricing model, an acceptable model in accordance with Statement 123(R). The Black-Scholes-Merton model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the stock price, the weighted average risk-free

LodgeNet Entertainment Corporation F — 22 Form 10-K 2006

interest rate, and the weighted average expected life of the options. We do not pay dividends therefore the dividend rate variable in the Black-Scholes-Merton model is zero.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of our stock options and is calculated by using the average monthly yield for the twelve months preceding the grant date.

The volatility assumption is measured as the fluctuation or movement of the Company’s stock price over a time period corresponding to the expected life of the option. We calculate volatility as the annualized standard deviation of the natural logarithms of relative stock prices over the option’s expected term and is based on monthly historical stock prices through the month preceding the grant date.

The expected life of stock options granted to employees represents the weighted average of the result of the “simplified” method applied to “plain vanilla” options granted during the period, as provided within Staff Accounting Bulletin No. 107 (“SAB 107”). The expected life of stock options granted to non-employee directors represents the weighted average period that those options are expected to remain outstanding and is based on analysis of historical behavior of non-employee director option holders. Prior to the adoption of Statement 123(R), we used five years as the expected term for the purposes of pro forma information under Statement 123, as disclosed in our Notes to Consolidated Financial Statements for the related periods.

Share-based compensation expense recognized in our results for the years ended December 31, 2006, 2005, and 2004 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Statement 123(R) requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Our forfeiture rates were estimated based on our historical experience. Prior to adoption of Statement 123(R), we accounted for forfeitures as they occurred for the purposes of our pro forma information under Statement 123, as disclosed in the Notes to Consolidated Financial Statements for the related periods.

The weighted average fair value of options granted and the assumptions used in the Black-Scholes-Merton model during the years ended December 31, are set forth in the table below.

	Years Ended December 31,
	2006			2005			2004
Weighted average fair value of options granted	$	12.23		$	8.90		$	9.70
Dividend yield		0.0	%		0.0	%		0.0	%
Weighted average risk-free interest		4.36	%		3.5	%		3.0	%
Weighted average expected volatility		53.5	%		55.6	%		57.4	%
Weighted average expected life – employee		N/A		5.0 years			5.0 years
Weighted average expected life – non-employee director	8.47 years			5.0 years			5.0 years

LodgeNet Entertainment Corporation F — 23 Form 10-K 2006

The following is a summary of the stock option activity for the years ended December 31:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Term		Intrinsic
	Options			Price		in Years		Value
Outstanding, December 31, 2003		2,652,661		$	14.73
Granted		306,455			18.76
Exercised		(410,341	)		10.98
Forfeited/canceled		(4,275	)		19.65
Outstanding, December 31, 2004		2,544,500			15.81
Granted		297,920			17.38
Exercised		(288,482	)		12.28
Forfeited/canceled		(61,863	)		18.62
Outstanding, December 31, 2005		2,492,075			16.33
Granted		25,000			19.09
Exercised		(587,721	)		14.28
Forfeited/canceled		(56,400	)		21.79
Outstanding, December 31, 2006		1,872,954		$	16.85		5.1	$	15,320,666
Outstanding, December 31, 2006, (net of expected forfeiture)		1,872,169		$	16.85		5.2	$	15,312,496
Options exercisable, December 31, 2006		1,837,414		$	16.85		5.0	$	15,023,353

The aggregate intrinsic value in the table above represents the difference between the closing stock price on December 31, 2006 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their options on December 31, 2006. The total intrinsic value of options exercised the years ended December 31, 2006, 2005, and 2004 was approximately $4,302,000, $1,595,000, and $3,417,000, respectively.

The fair value of options vested during the years ended December 31, 2006, 2005, and 2004 was approximately $650,000, $5,564,000, and $4,286,000, respectively.

For the year ended December 31, 2006, 54,250 vested options to purchase shares with a weighted average exercise price of $22.23 expired. The remaining outstanding share options expire in 2007 though 2016.

Non-Vested Shares (Restricted Stock)

For the years ended December 31, 2006, 2005 and 2004, we awarded 28,250, 21,500 and 22,500 shares of time-based restricted stock (non-vested shares), respectively, to certain officers pursuant to our 2003 Stock Option and Incentive Plan. The shares vest over four years from the date of grant with 50% vested at the end of year three and 50% at the end of year four. The fair value of the non-vested shares is equal to the fair market value, as defined by the terms of the 2003 Plan, on the date of grant and is amortized ratably over the vesting period.

During 2006, we awarded 12,500 shares of time-based restricted stock (non-vested shares) to our non-employee directors pursuant to our 2003 Stock Option and Incentive Plan. The shares vested 50% at the date of grant and 50% on the one-year anniversary of the date of grant. The fair value of the non-vested shares is equal to the fair market value, as defined by the terms of the 2003 Plan, on the date of grant and is amortized ratably over the vesting period.

Also in 2006, we awarded 101,550 shares of performance-based restricted stock (non-vested shares) to certain officers and key employees that vest according to the terms of our Restricted Stock Agreement for Performance-Based Vesting. The vesting of the performance based restricted stock (non-vested shares) is contingent on the Company’s financial

LodgeNet Entertainment Corporation F — 24 Form 10-K 2006

achievement of cumulative earnings for 2006, 2007, and 2008 of at least $1.10 per share. The Compensation Committee of the Board of Directors has the right to amend the performance contingency. We currently expect to achieve the performance goal and are ratably amortizing the fair value over the period the performance metric is being measured. If the goal is not met, no compensation cost is ultimately recognized and any amount of previously recognized compensation cost will be reversed.

We recorded the following amounts in our consolidated statement of operations related to non-vested shares (restricted stock) for the years ended December 31 (dollar amounts in thousands):

	Years Ended December 31,
	2006		2005		2004
Compensation cost – non-vested shares:
Time-based vesting	$	530	$	231	$	121
Performance-based vesting		447		—		—
Total share-based compensation expense – non-vested shares	$	977	$	231	$	121

A summary of the status of non-vested shares and changes as of December 31, 2006 is set forth below:

	Year Ended
	December 31, 2006
	Time Based					Performance Based
				Weighted				Weighted
				Average				Average
	Non-vested			Grant-date		Non-vested		Grant-date
	Shares			Fair Value		Shares		Fair Value
Outstanding, beginning of period		44,000		$	18.01		—	$	—
Granted		40,750			16.02		101,550		14.47
Vested		(6,250	)		18.65		—		—
Forfeited/canceled		—			—		—		—
Outstanding, end of period		78,500		$	16.93		101,550	$	14.47

Unrecognized Compensation Expense

As of December 31, 2006 unrecorded compensation costs related to awards issued under our various share-based compensation plans are as follows (dollar amounts in thousands):

			Weighted average
	December 31,		recognition period
	2006		(months)
Unrecognized compensation cost:
Stock options, net of expected forfeitures	$	174		16.4
Non-vested shares — time based vesting		564		24.0
Non-vested shares — performance based vesting		1,022		24.0
Total unrecognized compensation cost	$	1,760

LodgeNet Entertainment Corporation F — 25 Form 10-K 2006

Note 13 — Warrants

In 1995, we issued 480,000 warrants to purchase common stock in connection with the issuance of our 11.50% Senior Notes which were repaid in July 2004. Each warrant entitled the holder to purchase one share of common stock at an exercise price of $7.00 per share. The warrants included demand registration rights and anti-dilution provisions and expired on August 9, 2005. In January 2004, a holder of the 11.50% Notes exercised 240,000 warrants. In March 2005, a holder of the 11.50% Notes exercised 80,000 warrants. In August 2005, a holder of the 11.50% Notes exercised the remaining 160,000 warrants outstanding.

In October 2000, we entered into an agreement with Hilton Hotels Corporation to provide LodgeNet’s interactive television services into Hilton’s owned, leased and joint venture hotels in the United States. Under terms of the agreement, Hilton was issued a warrant granting it the right to purchase up to 2.1 million shares of LodgeNet common stock over seven years at a price of $20.44 per share. Warrants in the amount of 1.5 million shares related to hotels owned or operated by Hilton and vested immediately. The remaining 600,000 warrant shares related to hotels franchised through Hilton and vested on a per room basis as we obtained contracts for delivery of services to these hotels. The vesting period for these warrant shares ended October 9, 2005. We followed the guidance provided in EITF 96-18 to account for the warrants issued. The fair value of the 1.5 million warrant shares was estimated at $21.8 million using the Black-Scholes valuation method and was recorded as contract acquisition costs within fixed assets and credited to additional paid-in capital. The 600,000 warrant shares were measured and similarly accounted for upon delivery of the related room contracts. During 2005 and 2004, 47,886 and 51,663 of these warrant shares were issued with a fair value of $446,000 and $503,000, respectively, and were recorded as contract acquisition costs within fixed assets and credited to additional paid-in capital. The costs are amortized over the contract life. As of December 31, 2005, there were 1,761,555 warrant shares outstanding under this agreement with Hilton.

In December 2006, we issued 196,570 shares of our common stock pursuant to the exercise by Hilton, on a cashless basis, permissible by the agreement, of its warrant to purchase 1,761,555 shares of common stock. This represented all of the shares of our common stock that Hilton was entitled to purchase pursuant to the warrant.

As of December 31, 2006, we do not have any warrants outstanding.

Note 14 — Employee Benefit Plans

We sponsor defined contribution plans covering eligible employees. The plans provide for employer contributions based on the level of employee participation. Our contribution expense was $869,000, $816,000 and $813,000, in 2006, 2005 and 2004, respectively.

Note 15 — Income Taxes

Income (loss) before income taxes was as follows for the years ended December 31 (in thousands of dollars):

	2006		2005			2004
Domestic	$	1,159	$	(6,288	)	$	(19,793	)
Foreign		981		(221	)		(567	)
Total	$	2,140	$	(6,509	)	$	(20,360	)

The income tax expense (benefit) for financial reporting purposes varied from the federal statutory rate as follows for the years ended December 31 (in thousands of dollars):

LodgeNet Entertainment Corporation F — 26 Form 10-K 2006

	2006			2005			2004
Federal income tax benefit at statutory rate (35%)	$	749		$	(2,341	)	$	(7,126	)
State income taxes, net of federal benefit		441			(241	)		(439	)
Other non-deductible items		134			152			306
Net change to valuation allowance		(1,025	)		2,880			7,680
	$	299		$	450		$	421

The provision for income taxes of $299,000 in 2006 consists of current federal income and state franchise taxes. The provisions for income taxes of $450,000 in 2005 and $421,000 in 2004 consist of current state franchise taxes. Such amounts differ from that which would be obtained by applying the statutory federal income tax rate to income or loss before income taxes due primarily to changes in the valuation allowance reflecting changes in net deferred tax assets.

Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows at December 31 (in thousands of dollars):

	2006			2005
Deferred tax assets:
Net operating loss carryforwards	$	64,096		$	67,458
Capital loss carryforwards		1,431			1,431
Reserves and accruals		1,588			1,084
Deferred credits, net		3,371			2,571
Book over tax depreciation/amortization		21,692			20,658
Total deferred tax assets		92,178			93,202
Total deferred tax liabilities		—			—
Net deferred assets		92,178			93,202
Tax valuation allowance		(92,178	)		(93,202	)
Net deferred tax assets	$	—		$	—

We evaluated the realization of deferred tax assets and reduced the carrying amount of these deferred tax assets by a valuation allowance. We considered various factors when assessing the future realization of our deferred tax assets including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to us for tax reporting purposes, and other relevant factors. Significant judgment is required in making this assessment, and it is very difficult to predict when and by how much our current deferred tax assets are realizable.

The following table shows the current and noncurrent deferred tax assets, had an entry been recorded on our Consolidated Balance Sheet at December 31 (in thousands of dollars):

	2006		2005
Deferred tax assets:
Current deferred tax assets	$	4,243	$	2,939
Noncurrent deferred tax assets		87,935		90,263
Total deferred tax assets	$	92,178	$	93,202

In 2006 we utilized approximately $10.0 million in net operating loss carryforwards for federal tax purposes. We currently have a remaining net operating loss carryforward of approximately $188.0 million and a capital loss carryforward of $4.2 million. Such carryforwards expire in 2008 through 2021, and federal tax regulations limit the availability and timing of usage of carryforwards, which could result in expiration of loss carryforwards before they can be utilized. Tax loss carryforwards expiring in the next five years are as follows: (in thousands of dollars): 2007 — $0, 2008 — $2,074; 2009 — $8,434; 2010 — $13,188; and 2011—$17,631.

LodgeNet Entertainment Corporation F — 27 Form 10-K 2006

Note 16 — Other Receivable

As of December 31, 2006, $4.2 million of proceeds from the exercise of employee stock options had not been received due to the timing of the transactions. The related receivable is included in other current assets on our consolidated balance sheet.

Note 17 — Segment Information

We operate in one reportable segment, the distribution of entertainment and information services to the lodging industry. The following table presents revenues by country based on the location of the customer for the year ended December 31 (in thousands of dollars):

	2006		2005		2004
United States	$	275,190	$	263,927	$	255,047
Canada		12,310		11,083		10,651
Other		713		761		743
Total	$	288,213	$	275,771	$	266,441

Property and equipment by country based on the location of the assets were as follows at December 31 (in thousands of dollars):

	2006		2005
United States	$	177,979	$	191,750
Canada		7,791		8,132
Total	$	185,770	$	199,882

Note 18 — Write-Off of Debt Issuance Costs

In 2004, we incurred a charge of $810,000 as a result of the early retirement of $35.0 million of our Term B notes under our bank Credit Facility. In 2006 and 2005 we made discretionary pre-payments on our term loan of $20.0 million and $19.0 million, respectively. As a result of these pre-payments, we incurred charges of $227,000 and $272,000 in 2006 and 2005, respectively.

Note 19 — Impact of Hurricane Katrina

In August 2005, Hurricane Katrina swept through the Gulf of Mexico region, causing severe damage to properties located in Louisiana, Alabama, Mississippi, and Florida. LodgeNet sustained property damage to its systems installed at the hotels located within those states. The damage included 121 hotels or approximately 21,000 rooms served by the LodgeNet interactive systems. In December 2005, we received insurance proceeds associated with the Hurricane Katrina recovery of $788,000 offset by a $280,000 charge for equipment impairment during 2005. During 2006, we received payments from our insurance carrier totaling $817,000 of which $291,000 was related to property damage and $526,000 was related to business interruption indemnification. The insurance proceeds were recorded within other operating income. As of December 31, 2006, approximately 4,000 rooms remain out of service, and no amounts had been recognized for future recoveries.

LodgeNet Entertainment Corporation F — 28 Form 10-K 2006

Note 20 — Selected Quarterly Financial Data (Unaudited)

The following selected quarterly financial data are in thousands of dollars, except per share data:

	Quarter			Quarter			Quarter		Quarter
	Ended			Ended			Ended		Ended
	March 31,			June 30,			September 30,		December 31,
2005
Revenues	$	65,989		$	68,115		$	74,145	$	67,522
Net income (loss)		(3,604	)		(1,655	)		585		(2,285	)
Per common share (basic and diluted)	$	(0.20	)	$	(0.09	)	$	0.03	$	(0.13	)
2006
Revenues	$	70,193		$	71,871		$	76,510	$	69,639
Net income (loss)		(654	)		433			2,184		(122	)
Per common share (basic and diluted)	$	(0.04	)	$	0.02		$	0.12	$	(0.01	)

Note 21 — Subsequent Events

On November 15, 2006, we entered into a definitive agreement to acquire the substantially all of StayOnline, Inc. for $15.0 million in cash. StayOnline, Inc., based in Atlanta, Georgia, is a leading provider of high-speed Internet access solutions focused on the lodging industry. On February 1, 2007, LodgeNet Entertainment Corporation, through its wholly-owned subsidiary, LodgeNet StayOnline, Inc., completed the acquisition of the operating assets, including technology and intellectual property, of StayOnline, Inc. The $15.0 million purchase will be subject to certain post-closing adjustments.

On December 13, 2006, we entered into a definitive agreement with Liberty Satellite Technology, Inc., a wholly owned subsidiary of Liberty Media Corporation to purchase 100% of the outstanding stock of Ascent Entertainment Group, Inc. and its subsidiaries (“Ascent”). On Command Corporation, a competitor of the Company, is a wholly- owned subsidiary of Ascent. Ascent also owns 80% of The Hotel Network, Inc., a provider of advertising supported television services to hotels. On Command currently serves approximately 830,000 hotel rooms in the United States and Canada. The purchase price of Ascent and its subsidiaries is approximately $380.0 million, of which $332.0 million will be paid in cash and the balance of which will be paid in the common stock of the Company. Following the completion of the proposed transaction, Liberty Satellite will own approximately 2,050,000 shares of the Company’s common stock, representing approximately 9.95% of the total shares outstanding. The transaction is awaiting antitrust clearance by the U.S. government, and is subject to the satisfaction or waiver of certain other standard conditions. In a related transaction, PAR Capital Advisors has agreed to acquire, from the Company, an additional 1,000,000 shares of the Company’s common stock, the proceeds of which will be used to pay a portion of the cash consideration for the Ascent transaction. Both the Liberty Satellite stock and the Par Capital Advisors stock will be sold at $23.65 per share, the average closing price of the common stock of the Company on the NASDAQ stock market for a period of ten trading days prior to the execution of these agreements.

During 2006, we recorded $2.8 million of deferred acquisition costs related to these agreements, $1.8 million of which was paid prior to December 31, 2006.

LodgeNet Entertainment Corporation F — 29 Form 10-K 2006

LodgeNet Entertainment Corporation and
Subsidiary Schedule II — Valuation and Qualifying Accounts
(Dollar amounts in thousands)

			Additions
	Balance		Charged to						Balance
	Beginning		Costs and						End of
Description	of Period		Expenses			Deductions			Period
Allowances deducted from related balance sheet accounts:
Year Ended December 31, 2004:
Allowance for Excess or Obsolete	$	1,698	$	1,515		$	1,913		$	1,300
System Components
Allowance for Doubtful Accounts		300		290			290			300
Allowance for System Removal		353		781			834			300
Year Ended December 31, 2005:
Allowance for Excess or Obsolete
System Components	$	1,300	$	725		$	1,325		$	700
Allowance for Doubtful Accounts		300		135			135			300
Allowance for System Removal		300		1,534			994			840
Year Ended December 31, 2006:
Allowance for Excess or Obsolete
System Components	$	700	$	946		$	1,186		$	460
Allowance for Doubtful Accounts		300		(154	)		(29	)		175
Allowance for System Removal		840		2,155			2,175			820

LodgeNet Entertainment Corporation F — 30 Form 10-K 2006

EX-4.4

Exhibit 4.4

LODGENET ENTERTAINMENT CORPORATION,

a Delaware corporation,

and

COMPUTERSHARE INVESTOR SERVICES, LLC,

a Delaware Limited Liability Company,

Rights Agent

Amended and Restated Rights Agreement

Dated as of February 28, 2007

TABLE OF CONTENTS

	PAGE
1. CERTAIN DEFINITIONS		1
2. APPOINTMENT OF RIGHTS AGENT		9
3. ISSUE OF RIGHTS CERTIFICATES		9
4. FORM OF RIGHTS CERTIFICATES		11
5. COUNTERSIGNATURE AND REGISTRATION		11
6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES		12
7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS		12
8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES		15
9. RESERVATION AND AVAILABILITY OF PREFERRED STOCK		15
10. PREFERRED STOCK RECORD DATE		16
11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS		16
12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES		23
13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS, CASH FLOW OR EARNING POWER		24
14. ADDITIONAL COVENANTS		26
15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES		27
16. RIGHTS OF ACTION		28
17. AGREEMENT OF RIGHTS HOLDERS		28
18. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER		29
19. CONCERNING THE RIGHTS AGENT		29
20. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT		30

i

	PAGE
21. DUTIES OF RIGHTS AGENT		30
22. CHANGE OF RIGHTS AGENT		32
23. ISSUANCE OF NEW RIGHTS CERTIFICATES		33
24. REDEMPTION, TERMINATION AND EXCHANGE		34
25. NOTICE OF CERTAIN EVENTS		38
26. NOTICES		39
27. SUPPLEMENTS AND AMENDMENTS		39
28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC		40
29. SUCCESSORS		41
30. BENEFITS OF THIS AGREEMENT		41
31. SEVERABILITY		41
32. GOVERNING LAW		41
33. COUNTERPARTS		41
34. DESCRIPTIVE HEADINGS		41
Exhibit A — Form of Rights Certificate		A-1
Exhibit B — Form of Summary of Rights		B-1

ii

AMENDED AND RESTATED RIGHTS AGREEMENT

     THIS AMENDED AND RESTATED AGREEMENT is dated as of February 28, 2007 between LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (the “Company”), and COMPUTERSHARE INVESTOR SERVICES, LLC, a Delaware Limited Liability Company, as successor-in-interest to HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation (the “Rights Agent”).

W I T N E S S E T H:

     WHEREAS, the Board of Directors of the Company (the “Board of Directors”) previously (a) authorized and declared a dividend distribution of one Right (as hereinafter defined) for each share of Common Stock, par value $.01 per share, of the Company (the “Common Stock”) outstanding as of the close of business on March 10, 1997 (the “Record Date”), and (b) authorized the issuance of one Right (subject to adjustment as provided herein) for each share of Common Stock of the Company issued between the Record Date and the earlier of the Distribution Date and the Expiration Date, as such terms are hereinafter defined (with Rights also to be issued in connection with certain issuances of Common Stock after the Distribution Date, as provided more fully herein), each Right representing the right to purchase one one-thousandth of a share of Series A Participating Preferred Stock, par value $.01 per share, of the Company (“Preferred Stock”) having the rights, powers and preferences set forth in the form of Certificate of Designation previously filed with the Delaware Secretary of State (“Certificate of Designation”), upon the terms and subject to the conditions hereinafter set forth (the “Rights”);

     WHEREAS, the Company previously appointed the Rights Agent to act on behalf of the Company, and the Rights Agent is willing so to act, in connection with the issuance, transfer, exchange, replacement and redemption of the Rights Certificates (as hereinafter defined), the exercise of Rights and other matters referred to herein;

     WHEREAS, the Company entered into a Rights Agreement with the Rights Agent dated March 5, 1997, to govern the administration of the Rights (the “Prior Agreement”);

     WHEREAS, the Prior Agreement would have expired on February 28, 2007;

     WHEREAS, the Board of Directors has determined that it is in the best interests of the Company and its stockholders to amend and restate the Prior Agreement, to among other things, extend the term of the Prior Agreement as described herein;

     NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereby agree that the Prior Agreement is hereby amended and restated in its entirety to provide as follows:

     1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated:

     (a) “Acquiring Person” shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates (as such term is hereinafter defined) and Associates (as

1

such term is hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of securities representing twenty percent (20%) or more of the shares of Common Stock then outstanding or who was such a Beneficial Owner at any time on or after the date hereof, whether or not such Person continues to be the Beneficial Owner of securities representing twenty percent (20%) or more of the outstanding shares of Common Stock. Notwithstanding the foregoing,

     (i) in no event shall a Person who or which, together with all Affiliates and Associates of such Person, is the Beneficial Owner of less than twenty percent (20%) of the Company’s outstanding shares of Common Stock become an Acquiring Person solely as a result of a reduction of the number of shares of outstanding Common Stock, including repurchases of outstanding shares of Common Stock by the Company, which reduction increases the percentage of outstanding shares of Common Stock beneficially owned by such Person (provided that any subsequent increase in the amount of Common Stock beneficially owned by such Person after such Person becomes aware that such Person is the Beneficial Owner of twenty percent (20%) or more of the then outstanding shares of Common Stock, together with all Affiliates and Associates of such Person acquiring beneficial ownership of additional shares of Common Stock which in the aggregate represent more than one percent (1%) of the shares of Common Stock outstanding, without the prior written approval of the Board of Directors shall cause such Person to be an Acquiring Person);

     (ii) the term Acquiring Person shall not mean (A) the Company, (B) any subsidiary (as such term is hereinafter defined) of the Company, (C) any employee benefit plan of the Company or any of its subsidiaries, (D) any entity holding securities of the Company organized, appointed or established by the Company or any of its subsidiaries for or pursuant to the terms of any such plan, or (E) any underwriter acting in good faith in a firm commitment underwriting of an offering of the Company’s securities pursuant to arrangements with the Company which have been approved by the Board of Directors (HOWEVER, the exception provided by this clause (E) shall no longer be available in the event that any such underwriter is otherwise an Acquiring Person on or after the date which is forty (40) days after the date of initial acquisition of the Company’s securities by such underwriter in connection with such offering);

     (iii) no Person shall be deemed to be an Acquiring Person if: (A) such Person has reported or is required to report such ownership (but less than twenty-five percent (25%)) on Schedule 13G under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (or any comparable or successor report), or any Schedule 13D under the Exchange Act (or any comparable or successor report) and any such report filed (or required to be filed) by such Person does not (or would not) state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 (or any comparable or successor Item) of such Schedule 13D (other than the disposition of Common Stock); (B) either (1) within ten (10) Business Days of being requested by the Company to advise the Company regarding the same, such Person certifies in writing to the Company that such Person acquired Beneficial Ownership of securities representing shares of Common Stock in excess of twenty percent (20%) inadvertently or without knowledge of the terms of the Rights, or (2) the

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Board of Directors determines in good faith that such Person has become an Acquiring Person inadvertently; (C) such Person divests as promptly as practicable a sufficient number of securities representing shares of Common Stock so that such Person shall not be deemed to be an Acquiring Person pursuant to the first sentence of this Section 1(a); and (D) promptly following such Person’s divestiture of such securities, such Person certifies to the Board of Directors that such Person is no longer an Acquiring Person as defined pursuant to the first sentence of this Section 1(a); and

     (iv) the term Acquiring Person shall not mean any Person who or which has entered into any agreement or arrangement with the Company or any subsidiary of the Company providing for an Acquisition Transaction (as hereinafter defined).

     (b) “Acquisition Transaction” shall mean (i) a merger, consolidation or similar transaction involving the Company or any of its subsidiaries as a result of which stockholders of the Company will no longer own a majority of the outstanding shares of (A) Common Stock of the Company or a publicly-traded entity which controls the Company or, (B) if appropriate, the entity into which the Company may be merged, consolidated or otherwise combined (based solely on the shares of Common Stock received or retained by such stockholders, in their capacity as stockholders of the Company, pursuant to such transaction); (ii) a purchase or other acquisition of all or a substantial portion of the assets of the Company and its subsidiaries; or (iii) a purchase or other acquisition of securities representing twenty percent (20%) or more of the shares of Common Stock then outstanding.

     (c) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement.

     (d) A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities:

     (i) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for payment or exchange; (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event (as hereinafter defined); or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event, which Rights were acquired by such Person or any of such Person’s Affiliates or Associates prior to the Distribution Date (as hereinafter defined) or pursuant to Section 3(a) or Section 23 hereof (the “Original Rights”) or pursuant to Section 11(a)(i) hereof in connection with an adjustment made with respect to any Original Rights;

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     (ii) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this subparagraph (ii) as the result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations of the Exchange Act, and (B) is not reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or

     (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the Company; provided, however, that nothing in this paragraph (d) shall cause a Person engaged in business as an underwriter of securities to be the “Beneficial Owner” of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition, and then only if such securities continue to be owned by such Person at such expiration of forty (40) days; and provided further, however, that any stockholder of the Company, with affiliate(s), associate(s) or other person(s) who may be deemed representatives of it serving as director(s) of the Company, shall not be deemed to beneficially own securities held by other Persons as a result of (A) persons affiliated or otherwise associated with such stockholder serving as directors or taking any action in connection therewith; (B) discussing the status of its shares with the Company or other stockholders of the Company similarly situated; or (C) voting or acting in a manner similar to other stockholders similarly situated, absent a specific finding by the Board of Directors of an express agreement among such stockholders to act in concert with one another as stockholders so as to cause, in the good faith judgment of the Board of Directors, each such stockholder to be the Beneficial Owner of the shares held by the other stockholder(s).

     (e) “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of Delaware are authorized or obligated by law or executive order to close.

     (f) The term “close of business” on any given date shall mean 5 P.M., Eastern time, on such date; provided, however, that if such date is not a Business Day it shall mean 5 P.M., Eastern time, on the next succeeding Business Day.

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     (g) “Common Stock” shall mean the Common Stock, par value $.01 per share, of the Company, except that “Common Stock” when used with reference to stock issued by any Person other than the Company shall mean the capital stock with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person or, if such Person is a subsidiary of another Person, of the Person which ultimately controls such first-mentioned Person and which has issued and outstanding such capital stock, equity securities or equity interests.

     (h) “Person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust or other entity.

     (i) “Preferred Stock” shall mean the Series A Participating Preferred Stock, par value $.01 per share, of the Company, and to the extent that there are not sufficient numbers of shares of Series A Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Participating Preferred Stock.

     (j) “Qualified Offer” shall mean a tender offer for all outstanding shares of Common Stock not already beneficially owned by the Person making the offer that meets all of the following requirements on the date on which the Qualified Offer is commenced (for purposes of this definition, the “date on which the Qualified Offer is commenced” shall be determined within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act) and immediately prior to the consummation of the Qualified Offer:

     (i) the same per share price and consideration is offered for all shares of Common Stock in the Qualified Offer, provided that such per share price and consideration is greater than the highest reported market price for the Common Stock during the twenty-four (24) month period immediately preceding the date on which the Qualified Offer is commenced and represents a premium above the average of the closing prices (as determined pursuant to Section 11(d)(i) hereof) for the five (5) Trading Days immediately preceding the date on which the Qualified Offer is commenced;

     (ii) the consideration is at least eighty percent (80%) cash (and any non-cash portion is comprised of shares of common stock of the offering Person that are listed on either the New York Stock Exchange or The Nasdaq Stock Market LLC, such consideration to be adjusted to reflect any decrease in the value of such shares prior to the consummation of the Qualified Offer) and is to be paid upon consummation of the Qualified Offer for all shares of Common Stock tendered or exchanged in the Qualified Offer;

     (iii) in the case of a Qualified Offer that includes shares of common stock of the offering Person, (A) the value of such shares for purposes of this definition shall be the lower of (1) the average of the last sale prices (regular way) of such shares reported in the principal consolidated transaction reporting system with respect to such shares for the five (5) Trading Days immediately preceding the date of any determination, and (2) the lowest reported market price for common stock of the offering Person during the five (5) Trading Days immediately preceding the date on which the offer is commenced, (B) the

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offering Person is a publicly owned corporation organized under the federal laws of the United States or the state laws of any of the fifty (50) states or the District of Columbia, and its common stock is listed or admitted to trading on a national securities exchange, (C) no stockholder approval of the offering Person is required to issue such common stock, or, if required, has already been obtained, (D) no other class of voting stock of the offering Person is outstanding, and (E) the offering Person shall permit a nationally recognized investment banking firm retained by the Board of Directors and legal counsel designated by the Company to have access to such offering Person’s books, records, management, accountants and other appropriate outside advisers for the purposes of permitting such investment banking firm and such legal counsel to conduct a due diligence review of the offering Person in order to permit such investment banking firm (relying as appropriate on the advice of such legal counsel) to be able to render an opinion to the Board of Directors with respect to whether the consideration being offered to the Company’s stockholders is fair;

     (iv) on or prior to the date on which the Qualified Offer is commenced, such offering Person:

     (A) has on hand cash or cash equivalents for the full amount necessary to consummate such offer and has irrevocably committed in writing to the Company to utilize such cash or cash equivalents for purposes of such offer if consummated and to set apart and maintain available such cash or cash equivalents for such purposes until the offer is consummated or withdrawn; or

     (B) has all financing in the full amount necessary to consummate such offer and has: (1) entered into, and provided to the Company certified copies of, definitive financing agreements (including exhibits and related documents) for funds for such offer which, when added to the amount of cash and cash equivalents available, committed in writing, set apart and maintained in the same manner as described in clause (A) above, are in an amount not less than the full amount necessary to consummate such offer, which agreements are with one or more responsible financial institutions or other entities having the necessary financial capacity and ability to provide such funds, constitute firm, unqualified commitments to provide the funding described above without market or company maximum limitations, and are subject only to customary terms and conditions (which shall in no event include conditions requiring access by such financial institutions to non-public information to be provided by the Company, conditions based on the accuracy of any information concerning the Company, or conditions requiring the Company to make any representations, warranties or covenants in connection with such financing), and (2) provided to the Company copies of all written materials prepared by such Person for such financial institutions in connection with entering into such financing agreements; provided that, “the full amount necessary to consummate such offer” in either clause (A) or (B) above shall be an amount sufficient to pay for all shares of Common Stock outstanding on a fully diluted basis the consideration pursuant to the offer and the second-step transaction required by clause (viii) below and all related expenses;

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     (v) such offer is conditioned on receiving a minimum of at least ninety percent (90%) of the outstanding shares of Common Stock (other than those owned by the offering Person and its Affiliates or Associates) being tendered and not withdrawn as of the Qualified Offer’s expiration date, which condition shall not be waivable;

     (vi) prior to or on the date that such offer is commenced, the Company shall have received an irrevocable written commitment of the offering Person that the offer will remain open for at least sixty (60) days and, if a Special Meeting is duly requested in accordance with Section 24(a)(iii), for at least ten (10) Business Days after the date of the Special Meeting or, if no Special Meeting is held within ninety (90) Business Days following receipt of the Special Meeting Notice in accordance with Section 24(a)(iii), for at least ten (10) Business Days following such ninety (90) Business Day period;

provided, however, that (x) if there is any increase in the price of such offer, such offer must remain open for at least an additional fifteen (15) Business Days after the last such increase, (y) such offer must remain open for at least fifteen (15) Business Days after the date that any bona fide alternative offer is made which, in the opinion of one or more investment banking firms designated by the Company, provides for consideration per share in excess of that provided for in such offer, and (z) such offer must remain open for at least fifteen (15) Business Days after the date, if any, on which such offering Person reduces the per share price offered in accordance with clause (viii)(B) below (provided, in the case of each of clauses (x),(y) and (z) above, in no event will such Qualified Offer have been outstanding for less than sixty (60) days);

provided further, however, that such offer need not remain open, as a result of this clause (vi), beyond (1) the time which any other offer satisfying the criteria for a Qualified Offer is then required to be kept open under this clause (vi), or (2) the scheduled expiration date, as such date may be extended by public announcement on or prior to the then scheduled expiration date, of any other tender offer for shares of Common stock with respect to which the Board of Directors has agreed to redeem the Rights immediately prior to acceptance for payment of shares of Common Stock thereunder (unless such other offer is terminated prior to its expiration without any shares of Common Stock having been purchased thereunder);

     (vii) such offer is accompanied by a written opinion, in customary form, of a nationally recognized investment banking firm which is addressed to the Company and the holders of shares of Common Stock (other than such offering Person) and states that the price to be paid to holders pursuant to the offer is fair from a financial point of view to such holders and includes any written presentation of such firm showing the analysis and range of values underlying such conclusions and such written opinion and any such presentation is updated and provided to the Company within two (2) Business Days prior to the date such offer is consummated;

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     (viii) prior to or on the date that such Qualified Offer is commenced, such offering Person makes an irrevocable written commitment to the Company and, with respect to clause (A) to the Company’s stockholders,

     (A) to consummate a transaction or transactions promptly upon the completion of such Qualified Offer (and in no event later than five (5) Business Days thereafter), whereby all shares of Common Stock not purchased in such Qualified Offer will be acquired at the same cash price per share paid in such Qualified Offer,

     (B) that the offering Person will not make any amendments to the Qualified Offer to reduce the offer consideration, or otherwise change the terms of the Qualified Offer in a way that is adverse to a tendering stockholder (other than a reduction to reflect any dividend declared by the Company, other than a regular quarterly dividend, after the commencement of such Qualified Offer or any material change in the capital structure of the Company initiated by the Company after the commencement of such Qualified Offer, whether by way of reclassification, recapitalization, reorganization, repurchase or otherwise), and

     (C) if the Qualified Offer is not consummated, that neither such offering Person nor any of its Affiliates or Associates will make any offer for or purchase any equity securities of the Company for a period of one (1) year after the commencement of the original offer if such original offer does not result in the tender of at least eighty-five percent (85%) of the outstanding shares of Common Stock not owned by such offering Person (including its Affiliates and Associates), unless another tender offer by another party for all outstanding shares of Common Stock is commenced that (a) constitutes a Qualified Offer (in which event, any new offer by such offering Person or of any Affiliates or Associates must be at a price no less than that provided for in such original offer) or (b) is approved by the Board of Directors (in which event, any new offer by such offering Person or of any of its Affiliates or Associates must be at a price no less than that provided for in such approved offer); and

     (ix) in addition to each of the requirements set forth above, the Qualified Offer is subject only to the conditions required in this definition and other customary terms and conditions, and is not subject to any financing, funding or similar condition, nor any condition relating to completion of or satisfaction with any due diligence or similar investigation.

     (k) “Section 11(a)(ii) Event” shall mean any event described in Section 11(a)(ii) hereof.

     (l) “Section 13 Event” shall mean any event described in Section 13(a) hereof.

     (m) “Stock Acquisition Date” shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such.

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     (n) A “subsidiary” of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or voting interests is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person.

     (o) “Trading Day” shall mean a day on which the national securities exchange on which the shares of Common Stock of the Company or shares of stock of another Person, as applicable, are principally listed or admitted to trading or quoted is open for the transaction of business or, if the shares of Common Stock of the Company or shares of stock of another Person, as applicable, are not listed or admitted to trading or quoted on any national securities exchange, a Business Day.

     (p) “Triggering Event” shall mean any Section 11(a)(ii) Event or Section 13 Event.

     (q) “Voting power” shall mean the voting power of all securities of the Company then outstanding and generally entitled to vote for the election of directors of the Company.

     2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable, upon ten (10) days’ prior written notice to the Rights Agent. The Rights Agent shall have no duty to supervise, and in no event be liable for, the acts or omissions of any such co-Rights Agent. In the event the Company appoints one or more Co-Rights Agents, the respective duties of the Rights Agents and any Co-Rights Agents shall be as the Company shall determine.

     3. ISSUE OF RIGHTS CERTIFICATES.

     (a) Until the earlier of (i) the close of business on the tenth (10th) Business Day after the Stock Acquisition Date, or (ii) the close of business on the tenth (10th) Business Day (or such later date as the Board of Directors shall determine) after the date of the commencement of a tender offer or exchange offer by any Person (other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or any of its subsidiaries, or any Person or entity organized, appointed or established by the Company or any of its subsidiaries for or pursuant to the terms of any such plan) within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, or any successor provision thereto, if upon consummation thereof, such Person would become an Acquiring Person (the earliest of (i) and (ii) being herein referred to as the “Distribution Date”), (A) the Rights shall be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (B) the Rights (and the right to receive certificates therefor) shall be transferable only in connection with the transfer of the underlying shares of Common Stock. As soon as practicable after the Distribution Date, the Rights Agent shall send, by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a

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certificate for Rights, in substantially the form of Exhibit A hereto (the “Rights Certificates”), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(n) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 15(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights shall be evidenced solely by such Rights Certificates.

     The Company will make available, as soon as practicable following the date hereof, a Summary of Rights, in substantially the form attached hereto as Exhibit B (the “Summary of Rights”), to any holder of Rights who may so request from time to time prior to the Final Expiration Date. With respect to certificates for the Common Stock issued at any time after the Record Date and until the Distribution Date (or earlier redemption, expiration or termination of the Rights), the Rights shall be evidenced by such certificates for the Common Stock together with the Summary of Rights and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the Distribution Date (or earlier redemption, expiration or termination of the Rights), the surrender for transfer of any of the certificates for the Common Stock outstanding at any time after the Record Date, even without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate.

     (b) Certificates issued for Common Stock (including, without limitation, certificates issued upon transfer or exchange of Common Stock) after the Record Date, but prior to the earlier of the Distribution Date or the Expiration Date (as such term is hereinafter defined), shall be deemed also to be certificates for Rights, and shall have impressed, printed, stamped, written or otherwise affixed onto them the following legend:

     This certificate also evidences and entitles the holder hereof to certain Rights as set forth in an Amended and Restated Rights Agreement between LodgeNet Entertainment Corporation (the “Company”) and the Rights Agent thereunder dated as of February 28, 2007 (the “Rights Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may expire, or may be evidenced by separate Certificates and will no longer be evidenced by this Certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge within five Business Days after receipt of a written request therefor. Under certain circumstances, Rights issued to Acquiring Persons (as defined in the Rights Agreement) or certain related Persons and any subsequent holder of such Rights may become null and void.

     With respect to such certificates containing the foregoing legend, until the Distribution Date (or earlier redemption, expiration or termination of the Rights), the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate.

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     4. FORM OF RIGHTS CERTIFICATES.

     (a) The Rights Certificates (and the forms of election to purchase shares and of assignment and certificates to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or interdealer quotation system on which the Rights may from time to time be listed or traded, or to conform to usage. Subject to the provisions of Section 11 and Section 23 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date, and on their face shall entitle the holders thereof to purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the price per one one-thousandth of a share set forth therein (the “Purchase Price”), but the number of such shares and the Purchase Price shall be subject to adjustment as provided herein.

     (b) Any Rights Certificate issued pursuant to Section 3(a) hereof that represents Rights beneficially owned by an Acquiring Person or any Associate or Affiliate thereof and any Rights Certificate issued at any time upon the transfer of any Rights to such an Acquiring Person or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate, and any Rights Certificate issued pursuant to Section 6 or Section 11 upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain the following legend:

The Rights represented by this Rights Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person, as such terms are defined in the Rights Agreement. This Rights Certificate and the Rights represented hereby may become void under the circumstances specified in Section 7(e) of the Rights Agreement.

The provisions of Section 7(e) of this Rights Agreement shall be operative whether or not the foregoing legend is contained on any such Rights Certificate.

     5. COUNTERSIGNATURE AND REGISTRATION. The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, any Vice Chairman of the Board, its President, Chief Operating Officer or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company’s seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and delivered by the Company with the same force and effect as though the Person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the

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Company by any Person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such Person was not such an officer.

     Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its office designated for such purpose, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates.

     6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. Subject to the provisions of Sections 7(e), 7(f) and 15 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Rights Certificates, entitling the registered holder to purchase a like number of shares of Preferred Stock as the Rights Certificate or Rights Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Rights Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates.

     Subject to the provisions of Sections 7(e), 7(f) and 15 hereof, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate and such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company shall execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

     7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.

     (a) The registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part upon presentation of the Rights Certificate, with the appropriate form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each one one-thousandth of a share of Preferred Stock (or such other number of shares or other securities) as to which the Rights are exercised at any time after the

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Distribution Date, provided that such exercise also occurs at or prior to the earliest of (i) the close of business on February 28, 2016 (the “Final Expiration Date”), (ii) the time at which a decision of the Board of Directors is made to terminate this Agreement, upon the recommendation of the TIDE Committee (as hereinafter defined) as provided in Section 28(b) hereof, (iii) the time at which the Rights are redeemed as provided in Section 24 hereof, (iv) the consummation of a transaction contemplated by Section 13(d) hereof, (v) the time at which the Rights are exchanged as provided in Section 24(c) hereof, or (vi) one (1) year from the date hereof if this Agreement is not approved by the holders of a majority of shares of Common Stock present in person or represented by proxy and entitled to vote on the subject matter (excluding the vote of any Acquiring Person) at a duly called meeting of stockholders or any adjournment or postponement thereof, at which a quorum is present, within such one (1) year period (the earliest time of (i), (ii), (iii), (iv), (v) or (vi) being the “Expiration Date”). Notwithstanding any other provision of this Agreement, any Person who prior to the Distribution Date becomes a record holder of shares of Common Stock may exercise all of the rights of a registered holder of a Rights Certificate with respect to the Rights associated with such shares of Common Stock in accordance with and subject to the provisions of this Agreement, including the provisions of Section 7(e) hereof, as of the date such Person becomes a record holder of shares of Common Stock.

     (b) The Purchase Price for each one one-thousandth share of Preferred Stock pursuant to the exercise of a Right shall initially be $60.00, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below.

     (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the appropriate form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares (or other securities or property) to be purchased and an amount equal to any applicable transfer tax (as determined by the Rights Agent) in cash, or by certified check or bank draft payable to the order of the Company, the Rights Agent shall, subject to Section 21(k), thereupon promptly (i)(A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent) certificates for the number of shares of Preferred Stock to be purchased, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company, in its sole discretion, shall have elected to deposit the shares of Preferred Stock issuable upon exercise of the Rights hereunder into a depositary, requisition from the depositary agent depositary receipts representing such number of one one-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company shall direct the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash, if any, to be paid in lieu of issuance of fractional shares in accordance with Section 15, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) when appropriate, after receipt promptly deliver such cash to or upon the order of the registered holder of such Rights Certificate. In the event that the Company is obligated to issue other securities of the Company, and/or distribute other property pursuant to Section 11(a), the Company shall make all arrangements necessary so that such other securities and/or property are

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available for distribution by the Rights Agent, if and when appropriate. In addition, in the case of an exercise of the Rights by a holder pursuant to Section 11(a)(ii), the Rights Agent shall return such Rights Certificate to the registered holder thereof after imprinting, stamping or otherwise indicating thereon that the rights represented by such Rights Certificate no longer include the rights provided by Section 11(a)(ii) of the Rights Agreement and if less than all the Rights represented by such Rights Certificate were so exercised, the Rights Agent shall indicate on the Rights Certificate the number of Rights represented thereby which continue to include the rights provided by Section 11(a)(ii). The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued.

     (d) In case the registered holder of any Rights Certificate shall exercise (except pursuant to Section 11(a)(ii)) less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Rights Certificate or to such registered holder’s duly authorized assigns, subject to the provisions of Section 15 hereof.

     (e) Notwithstanding anything in this Agreement to the contrary, if there occurs any Triggering Event, then any Rights that are or were on or after the Distribution Date beneficially owned by an Acquiring Person or any Associate or Affiliate of an Acquiring Person shall become null and void, without any further action, and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. Without limiting the foregoing sentence, Rights held by the following Persons shall be null and void without any further action: (i) any direct or indirect transferee of any Rights that are or were on or after the Distribution Date beneficially owned by an Acquiring Person or any Associate or Affiliate of an Acquiring Person; (ii) any direct or indirect transferee of any Rights that were on or before the Distribution Date beneficially owned by an Acquiring Person or any Associate or Affiliate of an Acquiring Person if the transferee received such Rights, directly or indirectly, (A) from an Acquiring Person or any Associate or Affiliate of an Acquiring Person (x) as a result of a distribution by such Acquiring Person or any Associate or Affiliate of an Acquiring Person to holders of its equity securities or similar interests (including, without limitation, partnership interests) or (y) pursuant to any continuing agreement, arrangement or understanding with respect to the Rights or (B) in a transfer (or series of transfers) which the Board of Directors determines is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this Section 7(e); and (iii) subsequent transferees of Persons referred to in the foregoing clauses (i) and (ii) as well as this clause (iii). The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) are complied with, but shall have no liability to any holder of Rights or any Rights Certificate or to any other Person as a result of the Company’s failure to make any determination with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder.

     (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless the certificate contained in the appropriate form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise shall have been properly completed and

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duly executed by the registered holder thereof and the Company shall have been provided with such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request.

     8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

     9. RESERVATION AND AVAILABILITY OF PREFERRED STOCK. The Company covenants and agrees that it shall cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock, or any authorized and issued shares of Preferred Stock held in its treasury, the number of shares of Preferred Stock that will be sufficient to permit the exercise in full of all outstanding Rights and, after the occurrence of a Triggering Event, shall so reserve and keep available a sufficient number of shares of Common Stock (and/or other securities) which may be required to permit the exercise in full of the Rights pursuant to this Agreement.

     So long as the shares of Preferred Stock (and, after the occurrence of a Triggering Event, any other securities) issuable upon the exercise of the Rights may be listed on any national securities exchange or national quotation system, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares (or other securities) reserved for such issuance to be listed on such exchange or system upon official notice of issuance upon such exercise.

     The Company covenants and agrees that it shall take all such action as may be necessary to ensure that all shares of Preferred Stock and/or other securities delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares or other securities (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares or securities.

     The Company further covenants and agrees that it shall pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates or of any certificates for shares of Preferred Stock and/or other securities upon the exercise of Rights. The Company shall not, however, be required to (i) pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or in respect of the issuance or delivery of the shares of Preferred Stock and/or other securities in a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or (ii) issue or deliver any certificates for shares of Preferred Stock and/or other securities in a name other than that of the

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registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company’s satisfaction that no such tax is due.

     The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of: (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this paragraph, the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension has been rescinded. In addition, if the Company shall determine that a registration statement is required following the Distribution Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law, or a registration statement shall not have been declared effective.

     10. PREFERRED STOCK RECORD DATE. Each Person in whose name any certificate for shares of Preferred Stock (or other securities) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock (or other securities) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly presented and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such presentation and payment is a date upon which the Preferred Stock (or other securities) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or other securities) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate, as such, shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

     11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number of shares covered by each Right

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and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

     (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and in Section 7(e), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of capital stock and other securities which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii).

     (ii) Subject to Section 24 of this Agreement, in the event any Person shall become an Acquiring Person (except pursuant to a tender or exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company and are not representatives or nominees of Acquiring Persons or Affiliates or Associates thereof to be in the best interests of the Company and its stockholders (other than the Person or an Affiliate or Associate thereof on whose behalf the offer is being made) that the price offered is fair to stockholders and not inadequate (taking into account all factors which such members of the Board of Directors deem relevant, including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value), after receiving advice from one or more nationally recognized investment banking firms (a “Permitted Offer”)), unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, then, promptly following the first occurrence of an event described in this Section 11(a)(ii), proper provision shall be made so that each holder of a Right, except as provided in Section 7(e) hereof, shall have a right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of shares of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable (prior to any adjustment required pursuant to this Section 11(a)(ii)) and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the “Purchase Price” for each Right and for all purposes of this Agreement) by fifty percent (50%) of the current market price per one share of

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Common Stock (determined pursuant to Section 11(d)) on the date of the occurrence of the event set forth in this subparagraph (ii) (such shares, as adjusted as provided in this Section 11(a)(ii), being referred to as the “Adjustment Shares”).

     (iii) In the event that the number of shares of Common Stock which is authorized by the Company’s Certificate of Incorporation, as amended, but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights, is not sufficient to permit the exercise in full of the Rights in accordance with foregoing subparagraph (ii) of this Section 11(a), the Company shall (A) determine the value of the Adjustment Shares issuable upon the exercise of a Right (the “Current Value”), and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon the exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock, such as the Preferred Stock, which the Board of Directors has deemed to have essentially the same value or economic rights as shares of Common Stock (such shares of preferred stock being referred to as “Common Stock Equivalents”)), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board of Directors based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors; provided, however, that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later to occur of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company’s right of redemption pursuant to Section 24(a) expires (the later of (x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger Date”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term “Spread” shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the Board of Directors determines in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the “Substitution Period”). To the extent the Company determines that action should be taken pursuant to the first and/or third sentences of this Section 11(a)(iii), the Company (1) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such stockholder approval for such authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension

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is no longer in effect. For purposes of this Section 11(a)(iii), the value of each Adjustment Share shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit value of any common stock equivalent shall be deemed to equal the current market price per share of the Common Stock on such date.

     (b) If the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them (for a period expiring within forty-five (45) calendar days after such record date) to subscribe for or purchase Preferred Stock (or shares having the same or more favorable rights, privileges and preferences as the Preferred Stock (“equivalent preferred stock”)) or securities convertible into Preferred Stock or equivalent preferred stock at a price per share of Preferred Stock or per share of equivalent preferred stock (or having a conversion price per share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the current market price (as defined in Section 11(d)) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred stock to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or equivalent preferred stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be determined reasonably and with good faith to the holders of Rights by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and conclusive for all purposes. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

     (c) If the Company shall fix a record date for the making of a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as defined in Section 11(d)) per share of Preferred Stock on such record date, less the fair market value (as determined reasonably and with good faith to the holders of Rights by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and conclusive for all purposes) of the portion of the cash, assets or

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evidences of indebtedness so to be distributed or of such subscription rights or warrants distributable in respect of one share of Preferred Stock and the denominator of which shall be the current market price (as defined in Section 11(d)) per share of the Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would be in effect if such record date had not been fixed.

     (d) (i) For the purpose of any computation hereunder, other than as provided in Section 11(a)(iii), the “current market price” per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of thirty (30) Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the “current market price” shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange (including The Nasdaq Stock Market LLC) on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or quoted on a national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Over the Counter Bulletin Board or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined reasonably and with good faith by the Board of Directors shall be used and shall be binding on the Rights Agent. If the Common Stock is not publicly held or not so listed or traded, “current market price” per share shall mean the fair value per share determined reasonably and with good faith to the holders of Rights by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent.

     (ii) For the purpose of any computation hereunder, the “current market price” per share (or one one-thousandth of a share) of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in Section 11(d)(i) (other than the last sentence thereof). If the current market price per share (or one one-thousandth of a share) of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in Section 11(d)(i), the “current market

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price” per share of Preferred Stock shall be conclusively deemed to be an amount equal to 1,000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalization with respect to the Common Stock occurring after the date of this Agreement) multiplied by the current market price per share of the Common Stock and the “current market price” per one one-thousandth of a share of Preferred Stock shall be equal to the current market price per share of the Common Stock (as appropriately adjusted). If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, “current market price” per share shall mean the fair value per share as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

     (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which mandates such adjustment or (ii) the Expiration Date.

     (f) If as a result of any provision of Section 11(a) or Section 13(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 15 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares.

     (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

     (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-thousandths of a share of Preferred Stock covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

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     (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of shares of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one millionth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) Business Days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 15 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement.

     (j) Irrespective of any adjustment or change in the Purchase Price or the number of shares of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Rights Certificates issued hereunder.

     (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the shares of Preferred Stock, Common Stock or other securities issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Preferred Stock, Common Stock or other securities at such adjusted Purchase Price. If upon any exercise of the Rights, a holder is to receive a combination of Common Stock and common stock equivalents, a portion of the consideration paid upon such exercise, equal to at least the then par value of a share of Common Stock of the Company, shall be allocated as the payment for each share of Common Stock of the Company so received.

     (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the shares of Preferred Stock and other capital stock or securities of the

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Company, if any, issuable upon such exercise over and above the shares of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

     (m) Anything to the contrary in this Section 11 notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Preferred Stock, issuance wholly for cash of any shares of Preferred Stock at less than the current market price, issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, stock dividends or issuance of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders.

     (n) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the date of this Agreement and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of the outstanding Common Stock, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event.

     (o) The exercise of Rights under Section 11(a)(ii) shall only result in the loss of rights under Section 11(a)(ii) to the extent so exercised and shall not otherwise affect the rights represented by the Rights under this Rights Agreement, including the rights represented by Section 13.

     12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Preferred Stock and the Common Stock a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate in accordance with Section 26 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any adjustment unless and until it shall have received such certificate. Notwithstanding the foregoing provisions of this Section 12, the failure of the Company to make

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such certification or give such notice shall not affect the validity of or the force or effect of the requirement for such adjustment.

     13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS, CASH FLOW OR EARNING POWER.

     (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (i) the Company shall consolidate with, or merge with and into, any other Person; (ii) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger (other than, in the case of either transaction described in (i) or (ii), a merger or consolidation which would result in all of the voting power represented by the securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into securities of the surviving entity) all of the voting power represented by the securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and the holders of such securities not having changed as a result of such merger or consolidation); or (iii) the Company shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer), in one or more transactions, assets, cash flow or earning power aggregating more than fifty percent (50%) of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any other Person, then, and in each such case, proper provision shall be made so that (A) following the Distribution Date, each holder of a Right (other than as provided in Section 7(e) hereof) shall have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of shares of freely tradable Common Stock of the Principal Party (as hereinafter defined), free and clear of liens, rights of call or first refusal, encumbrances or other adverse claims, as shall be equal to the result obtained by (x) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable (without taking into account any adjustment previously made pursuant to Section 11(a)(ii) hereof), and (y) dividing that product by fifty percent (50%) of the current market price per share of the Common Stock of such Principal Party (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (B) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply to such Principal Party; and (D) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights.

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     (b) “Principal Party” shall mean:

     (i) in the case of any transaction described in (i) or (ii) of the first sentence of this Section 13, the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to the merger or consolidation (including, if applicable, the Company, if it is the surviving corporation); and

     (ii) in the case of any transaction described in (iii) of the first sentence in this Section 13, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions;

provided, however, that in any such case, (A) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect subsidiary or Affiliate of another Person the Common Stock of which is and has been so registered, “Principal Party” shall refer to such other Person; (B) in case such Person is a subsidiary, directly or indirectly, of more than one Person, the Common Stock of two or more of which are and have been so registered, “Principal Party” shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value; and (C) in case such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in (A) and (B) above shall apply to each of the chains of ownership having an interest in such joint venture as if such party were a “Subsidiary” of both or all of such joint venturers and the Principal Parties in each such chain shall bear the obligations set forth in this Section 13 in the same ratio as their direct or indirect interests in such Person bear to the total of such interests.

     (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock that have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and each Principal Party and each other Person who may become a Principal Party as a result of such consolidation, merger, sale or transfer shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of this Section 13, the Principal Party at its own expense shall:

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     (i) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, will use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and will use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date;

     (ii) use its best efforts to (A) qualify or register the Rights and the securities purchasable upon exercise of the Rights under the blue sky laws of such jurisdictions as may be necessary or appropriate, and (B) cause the Rights and the securities purchasable upon exercise of the Rights to be listed on any national securities exchange or national quotation system upon which its Common Stock is listed, traded or quoted; and

     (iii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all material respects with the requirements for registration on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a).

     (d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (i) and (ii) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a Permitted Offer (or a wholly owned subsidiary of any such Person or Persons); (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of Common Stock whose shares were purchased pursuant to such Permitted Offer; and (iii) the form of consideration being offered to the remaining holders of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such Permitted Offer. Upon consummation of any such transaction contemplated by this subsection (d), all Rights hereunder shall expire.

     14. ADDITIONAL COVENANTS.

     (a) The Company covenants and agrees that after the Distribution Date it shall not (i) consolidate with; (ii) merge with or into; or (iii) sell or transfer, or permit a subsidiary to sell or transfer, to any other Person, in one or more transactions, assets, cash flow or earning power aggregating more than fifty percent (50%) of the assets or earning power of the Company and its subsidiaries taken as a whole, if at the time of or after such consolidation, merger or sale there are any charter or by-law provisions or any rights, warrants or other instruments outstanding or any other action taken which would diminish or otherwise eliminate the benefits intended to be afforded by the Rights. The Company agrees that the Principal Party shall take all such actions as may be necessary to enable the Principal Party to issue the securities purchasable upon exercise of the Rights.

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     (b) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 24 or Section 27 hereof, take any action the purpose or effect of which is to diminish or otherwise eliminate the benefits intended to be afforded by the Rights.

     15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.

     (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(n), or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 15(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq National Market or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined reasonably and with good faith to the holders of Rights by the Board of Directors shall be used and shall be binding on the Rights Agent.

     (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). Fractions of shares of Preferred Stock in integral multiples of one one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the shares of Preferred Stock represented by such depositary receipts. In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-thousandth of a share of Preferred Stock. For purposes of this Section 15(b), the current market value of one one-thousandth of a share of Preferred Stock shall be one one-thousandth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise.

     (c) Following the occurrence of one of the transactions or events specified in Section 11 or Section 13 giving rise to the right to receive common stock equivalents (other than Preferred Stock) or other securities upon the exercise of a Right, the Company shall not be required to issue fractions of shares or units of such common stock equivalents or other securities upon exercise of the Rights or to distribute certificates which evidence fractional shares of such

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common stock equivalents or other securities. In lieu of fractional shares or units of such common stock equivalents or other securities, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share or unit of such common stock equivalent or other securities. For purposes of this Section 15(c), the current market value shall be determined in the manner set forth in Section 11(d) hereof for the Trading Day immediately prior to the date of such exercise and, if such common stock equivalent is not traded, each such common stock equivalent shall have the value of one one-thousandth of a share of Preferred Stock.

     (d) Except as otherwise expressly provided herein, the holder of a Right by the acceptance of the Right expressly waives such holder’s right to receive any fractional Rights or any fractional shares (other than, in the case of Preferred Stock, fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of a Right.

     16. RIGHTS OF ACTION. All rights of action in respect of this Agreement, except those rights of action vested in the Rights Agent pursuant to Section 21, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in such holder’s own behalf and for such holder’s own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder’s right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Holders of Rights shall be entitled to recover the reasonable costs and expenses, including attorneys’ fees, incurred by them in any action to enforce the provisions of this Agreement.

     17. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

     (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock;

     (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and

     (c) the Company and the Rights Agent may deem and treat the Person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights

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evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary.

          (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by a governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible.

     18. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the shares of Preferred Stock, Common Stock or any other securities of the Company which may at any time be issuable upon exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions thereof.

     19. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without gross negligence or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The indemnification provided for hereunder shall survive the expiration of the Rights and the termination of this Agreement. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company.

     The Rights Agent may conclusively rely upon and shall be protected against and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer,

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power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper Person or Persons.

     20. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stockholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 22 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

     In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

     21. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement (and no implied duties or obligations shall be read into this Agreement against the Rights Agent) upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

     (a) Before the Rights Agent acts or refrains from acting, it may consult with legal counsel selected by it (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

     (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of “current market price”) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof shall be

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herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, any Vice Chairman of the Board, the President, the Chief Operating Officer, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

     (c) The Rights Agent shall be liable hereunder only for its own gross negligence or willful misconduct.

     (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates (except as to the fact that it has countersigned the Rights Certificates) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

     (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof), nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 7(e)) except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of such change; nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after receipt of a certificate pursuant to Section 12 describing any such adjustment); nor shall it be responsible for any determination by the Board of Directors of the current market value of the Rights or Preferred Stock or Common Stock pursuant to the provisions of Section 15 hereof; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Preferred Stock or other securities to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Preferred Stock or other securities will, when so issued, be validly authorized and issued, fully paid and nonassessable.

     (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

     (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder and certificates delivered pursuant to any provision hereof from the Chairman of the Board, any Vice Chairman of the

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Board, the President, the Chief Operating Officer, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and is authorized to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent with respect to its duties or obligations under this Rights Agreement and the date on and/or after which such action shall be taken or omitted and the Rights Agent shall not be liable for any action taken or omitted in accordance with a proposal included in any such application on or after the date specified therein (which date shall not be less than five Business Days after the date any such officer actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking or omitting any such action, the Rights Agent has received written instructions in response to such application specifying the action to be taken or omitted.

     (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.

     (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or to the holders of the Rights resulting from any such act, omission, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

     (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

     (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the Certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause l and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company.

     22. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days’

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notice in writing mailed to the Company and to each transfer agent of the Common Stock and Preferred Stock by registered or certified mail, and at the expense of the Company, to the holders of the Rights Certificates by first-class mail. In the event the transfer agency relationship in effect between the Company and the Rights Agent terminates, the Rights Agent will be deemed to resign automatically on the effective date of such termination; and any required notice will be sent by the Company. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit such holder’s Rights Certificate for inspection by the Company), then the registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the State of New York or the State of Illinois (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of New York or the State of Illinois), in good standing, having a principal office in the State of New York or the State of Illinois, which is authorized under such laws to exercise corporate trust or stockholder services powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000.00, or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall mail notice thereof in writing to the predecessor Rights Agent and each transfer agent of the Common Stock and Preferred Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 22, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

     23. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or otherwise under any employee plan or arrangement, which plan or arrangement is existing as of the Distribution Date,

33

or upon the exercise, conversion or exchange of any other securities issued by the Company on or prior to the Distribution Date, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificates shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificates would be issued, and (ii) no such Rights Certificates shall be issued if, and to the extent that appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.

     24. REDEMPTION, TERMINATION AND EXCHANGE.

     (a) (i) The Board of Directors may, at its option, at any time prior to the earlier of (A) the close of business on the tenth (10th) Business Day following the Stock Acquisition Date, or (B) 5 P.M., Central time, on the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “Redemption Price”). Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company’s right of redemption hereunder has expired.

     (ii) In addition, and notwithstanding the provisions of Section 24(a)(i), the Board of Directors may redeem all, but not less than all, of the then outstanding Rights at the Redemption Price following the Stock Acquisition Date, but prior to a Section 13(a) Event, either (A) in connection with a Section 13(a) Event in which all holders of Common Stock are treated alike and not involving (other than as a holder of Common Stock being treated like all other such holders) an Acquiring Person or an Affiliate or Associate thereof or any other Person in which such Acquiring Person or Affiliate or Associate thereof has any interest, or any other Person acting directly or indirectly on behalf of or in association with any such Acquiring Person or Affiliate or Associate thereof, or (B) following the occurrence of a Section 11(a)(ii) Event, if and for as long as any Acquiring Person having triggered such event is not thereafter the Beneficial Owner of securities representing twenty percent (20%) or more of the outstanding shares of Common Stock, and at the time of redemption there are no other Persons who are Acquiring Persons.

     (iii) (A) In the event the Company, not earlier than sixty (60) Business Days nor later than eighty (80) Business Days following the commencement of a Qualified Offer which has not been terminated prior thereto and which continues to be a Qualified Offer, receives a written notice complying with the terms of this Section 24(a)(iii) (“Special Meeting Notice”) that is properly executed by the holders of record (or their duly authorized proxy) of not less than ten percent (10%) of the shares of Common Stock then outstanding (other than shares of Common Stock held by the offering Person or its Affiliates and Associates), directing the Board of Directors to submit to a vote of stockholders at a special meeting of the stockholders of the Company (“Special Meeting”) a resolution authorizing the redemption of all, but not less than all, of the then outstanding Rights at the Redemption Price (the “Resolution”), then the Board of Directors shall take such actions as are necessary or desirable to cause the Resolution to be so

34

submitted to a vote of stockholders, by including a proposal relating to adoption of the Resolution in the proxy materials of the Company for the Special Meeting; provided, however, that in any twelve (12) month period, the Company shall not be required to submit more than one Resolution to a vote of stockholders with respect to Qualified Offers from any given potential Acquiring Person (including any Affiliates or Associates). The Board of Directors shall set a date for determining the stockholders of record entitled to notice of and to vote at the Special Meeting in accordance with the Company’s Certificate of Incorporation, Bylaws and applicable law.

          (B) Any Special Meeting Notice must be delivered to the Secretary of the Company at the principal executive offices of the Company and must set forth as to the stockholders of record executing the request (1) the name and address of such stockholders, as they appear on the Company’s books and records, (2) the number of shares of Common Stock which are owned of record by each such stockholders, and (3) in the case of shares of Common Stock that are owned beneficially by another Person, an executed certification by the holder of record that such holder has executed such Special Meeting Notice only after obtaining instructions to do so from such beneficial owner.

          (C) Subject to the requirements of applicable law, the Board of Directors may take a position in favor of or opposed to the adoption of the Resolution, or no position with respect to the Resolution, as it determines to be appropriate in the exercise of its duties. At the request of the offering Person, the Company shall include in any proxy soliciting material submitted by it in connection with the Special Meeting relevant proxy soliciting materials reasonably pertinent and appropriate to the subject matter submitted by the offering Person; provided, however, that the offering Person, by written agreement with the Company contained in or delivered with such request shall (1) have indemnified the Company against any and all liabilities resulting from any statements found to be defamatory, misstatements, misleading statements or omissions contained in or omitted from the proxy soliciting materials from the offering Person, and (2) have agreed to pay the Company’s incremental costs incurred as a result of including such material in the Company’s proxy soliciting material. Notwithstanding anything to the contrary contained in this Agreement, if the Board of Directors determines that it is in the best interests of stockholders to seek an alternative transaction so as to obtain greater value for stockholders than that provided by any Qualified Offer, the Company shall be entitled to include in the proxy soliciting material prepared by it in connection with any Special Meeting information relating to such alternative transaction and to recommend that the Resolution not be adopted.

          (D) If no Person has become an Acquiring Person prior to the redemption date referred to in this Section 24(a)(iii), and the Qualified Offer continues to be a Qualified Offer, and either (1) the Special Meeting is not held on or prior to the 90th Business Days following receipt of the Special Meeting Notice (unless the failure to hold such meeting is the result of failure to obtain clearance by the Securities and Exchange Commission (“SEC”) of the proxy statement after reasonable efforts by the Company, in which case, such ninety (90) Business Day period shall be extended by the number of Business Days it takes to receive SEC clearance) (the “Outside Date”), or (2) at the Special Meeting, the holders of at least two-thirds (2/3) of the shares of Common Stock outstanding and entitled to vote on the Resolution at the Special Meeting (not giving effect to any affirmative votes cast by the offering Person or any of its

35

Affiliates or Associates) shall vote in favor of the Resolution (and the results of the vote are certified as official by the appointed inspector of election for the Special Meeting), then (x) all of the Rights shall be deemed redeemed by such failure to hold the Special Meeting or as a result of such stockholder action, as the case may be, at the Redemption Price, or (y) the Board of Directors shall take such other action as would prevent the existence of the Rights from interfering with the consummation of the Qualified Offer, effective immediately prior to the consummation of the Qualified Offer, if, and only if, the Qualified Offer is consummated within sixty (60) Business Days after either the earlier of the date of the Special Meeting or the Outside Date.

          (E) Nothing in this subparagraph (iii) shall be construed as limiting or prohibiting the Company or any offering Person from proposing or engaging in any acquisition, disposition or other transfer of any securities of the Company, any merger or consolidation involving the Company, any sale or other transfer of assets of the Company, any liquidation, dissolution or winding-up of the Company, or any other business combination or other transaction, or any other action by the Company or such offering Person; provided, however, that the holders of Rights shall have the rights set forth in this Agreement with respect to any such acquisition, disposition, transfer, merger, consolidation, sale, liquidation, dissolution, winding-up, business combination, transaction or action.

     (b) In the case of a redemption permitted under Section 24(a)(i) or (ii), immediately upon the action of the Board of Directors ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. In the case of a redemption permitted under Section 24(a)(iii), upon effectiveness of the redemption of the Rights pursuant to failure to hold the Special Meeting or stockholder adoption of the Resolution, as the case may be, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Within ten (10) Business Days after the action of the Board of Directors or stockholders, as applicable, ordering any such redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to the Rights Agent and to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the current market price, as defined in Section 11(d) hereof, of the Common Stock at the time of redemption), or any other form of consideration deemed appropriate by the Board of Directors.

     In the case of a redemption permitted under Section 24(a)(i), (ii) or (iii), the Company may, at its option, discharge all of its obligations with respect to the Rights by (i) issuing a press release announcing the manner of redemption of the Rights, and (ii) mailing payment of the Redemption Price to the registered holders of the Rights at their last addresses as they appear on the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of

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the transfer agent of the Common Stock, and upon such action, all outstanding Rights Certificates shall be null and void without any further action by the Company.

     (c) (i) Subject to the limitations of applicable law, the Board of Directors may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for (A) shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (the “Exchange Shares”), or (B) Substitute Consideration (as that term is defined below). The Board of Directors may determine, in its sole discretion, whether to deliver Exchange Shares or Substitute Consideration. Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or any such subsidiary, or any entity holding Common Stock for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of fifty percent (50%) or more of the Common Stock then outstanding.

     (ii) In the event the Board of Directors shall determine to deliver Substitute Consideration in exchange for Rights, the Company shall (A) determine the value of the Exchange Shares (the “Exchange Value”), and (B) with respect to each Right to be exchanged, make adequate provision to substitute for Exchange Shares the following (the “Substitute Consideration”): (1) cash, (2) Common Stock or common stock equivalents (as that term is defined in Section 11(a)(iii) hereof) or Preferred Stock or equivalent preferred stock (as that term is defined in Section 11(b) hereof), (3) debt securities of the Company, (4) other assets, or (5) any combination of the foregoing, having an aggregate value equal to the Exchange Value, where such aggregate value has been determined by the Board of Directors based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors. For purposes of this Section 24(c), the value of a share of Common Stock shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Common Stock on the day that is the later of (x) the first occurrence of a Section 11(a)(ii) Event, and (y) the date on which the Company’s right of redemption pursuant to Section 24(a) expires; and the value of any common stock equivalent shall be deemed to have the same value as the Common Stock on such date.

     (iii) Immediately upon the action of the Board of Directors ordering the exchange of any Rights pursuant to this Section 24(c), and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive Exchange Shares or Substitute Consideration for each Right exchanged by such holder. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last address as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall

37

be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.

     (iv) In the event that there shall not be sufficient shares of Common Stock or Preferred Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24(c), the Company shall take all such action as may be necessary to authorize additional shares of Common Stock or Preferred Stock for issuance upon exchange of the Rights.

     (v) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this Section 24(c)(v), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to Section 11(d) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24(c).

     25. NOTICE OF CERTAIN EVENTS. In case the Company shall propose (a) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (b) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (c) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (d) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its subsidiaries to effect any sale or other transfer), in one or more transactions, of more than fifty percent (50%) of the assets, cash flow or earning power of the Company and its subsidiaries (taken as a whole) to, any other Person or Persons, or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock whichever shall be the earlier.

     In case any Triggering Event shall occur, then, in any such case, the Company or the Principal Party, as the case may be, shall as soon as practicable thereafter give to each holder of a Rights Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such

38

event, which shall specify the event and the consequences of the event to holders of Rights under Sections 11(a)(ii) or 13(a) hereof, as the case may be.

     The failure to give notice required by this Section 25 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action.

     26. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

LodgeNet Entertainment Corporation
3900 West Innovation Street
Sioux Falls, SD 57107
Attention: James G. Naro, General Counsel

Subject to the provisions of Section 22, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sent by registered or certified mail (and shall be deemed given upon receipt) addressed (until another address is filed in writing with the Company) as follows:

Computershare Investor Services, LLC
2 North LaSalle Street – 3^rd Fl
Chicago, IL 60602
Attention: Relationship Management

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

     27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing Common Stock. From and after the Distribution Date, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (a) to cure any ambiguity, (b) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (c) to shorten or lengthen any time period hereunder, or (d) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person, an Adverse Person or an Affiliate or Associate of an Acquiring Person or an Adverse Person). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment unless the Rights Agent shall have determined in good faith that such supplement or amendment would adversely

39

affect its interests under this Agreement. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock.

     28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.

     (a) For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock or any other securities of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement. Except as otherwise provided herein, the Board of Directors shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors, or the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (B) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors in good faith, shall (A) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights Certificates and all other parties, and (B) not subject the Board of Directors to any liability to the holders of the Rights Certificates.

     (b) Notwithstanding any other provision of this Agreement, the “TIDE Committee” of the Board of Directors shall meet not less than once every three (3) years to review the terms and conditions of this Agreement, including whether the termination or modification of this Agreement is in the best interest of the Company and its stockholders, and to make a recommendation based on such review to the Board of Directors. The first meeting of the TIDE Committee shall take place no later than February 28, 2010. The TIDE Committee, when reviewing the terms and conditions of this Agreement, shall have the power to set its own agenda and to retain at the expense of the Company such legal counsel, investment bankers and other advisors as such Committee deems appropriate in carrying out its foregoing responsibilities under this Agreement. The TIDE Committee, when reviewing the terms and conditions of this Agreement, shall have the authority to review all information of the Company and to consider any and all factors it deems relevant to any such review. The TIDE Committee shall be comprised solely of members of the Board of Directors selected by the Board of Directors who are “Independent Directors” as that term is defined in the rules of The Nasdaq Stock Market LLC.

     (c) Without limiting the foregoing, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to reject any Qualified Offer or any other tender offer or other acquisition proposal, or to recommend that the holders of Common Stock reject any Qualified Offer or any other tender offer or other acquisition proposal, or to take any other action (including, without limitation, the commencement, prosecution, defense or settlement of any litigation and the submission of additional or alternative offers or other proposals) with respect to any Qualified Offer or any other tender offer or other acquisition

40

proposal that the Board of Directors believes is necessary or appropriate in the exercise of such fiduciary duty.

     29. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

     30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the Common Stock).

     31. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

     32. GOVERNING LAW. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and to be performed entirely within such state.

     33. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

     34. DESCRIPTIVE HEADINGS.. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

     35. FORCE MAJEURE. Notwithstanding anything to the contrary contained herein, Rights Agent shall not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement 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.

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Attest:	LODGENET ENTERTAINMENT CORPORATION
	By
		Scott C. Petersen
Title:		Title: Chief Executive Officer
Attest:	COMPUTERSHARE INVESTOR SERVICES, LLC,
	as Rights Agent
	By
Title:		Title:

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EXHIBIT A

[Form of Rights Certificate]

Certificate No. R-                                          Rights          

NOT EXERCISABLE AFTER FEBRUARY 28, 2016, OR EARLIER IF TERMINATED BY THE COMPANY OR IF REDEMPTION OR EXCHANGE OCCURS AS PROVIDED IN THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE WERE ISSUED TO A PERSON WHO WAS AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID UNDER THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.]^*

Rights Certificate

LODGENET ENTERTAINMENT CORPORATION

     This certifies that                                         , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Amended and Restated Rights Agreement dated as of February 28, 2007 (the “Rights Agreement”) between LodgeNet Entertainment Corporation, a Delaware corporation (the “Company”), and Computershare Investor Services, LLC, a Delaware Limited Liability Company (the “Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5 P.M. (Central time) on February 28, 2015, at the office of the Rights Agent designated for such purpose, one one-thousandth of a fully paid, nonassessable share of Series A Participating Preferred Stock (the “Preferred Stock”) of the Company, at a purchase price of $60.00 per one one-thousandth of a share (the “Purchase Price”), upon presentation and surrender of this Rights Certificate with the appropriate Form of Election to Purchase and Certificate duly executed.

     The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of the close of business on the record date relating to the initial distribution of the Rights, based on the Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of shares of Preferred Stock or other securities which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events.

^* The portion of the legend in brackets shall be inserted only if applicable.

A-1

     This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are also available upon written request to the Company.

     This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised (other than pursuant to Section 11(a)(ii) of the Rights Agreement) in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. If this Rights Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii) of the Rights Agreement, the holder shall be entitled to receive this Rights Certificate duly marked to indicate that such exercise has occurred as set forth in the Rights Agreement.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by this Rights Certificate may be redeemed by the Company at its option at a redemption price of $.01 per Right. Subject to the provisions of the Rights Agreement, the Company, at its option, may elect to mail payment of the redemption price to the registered holder of the Right at the time of redemption, in which event this Rights Certificate may become void without any further action by the Company.

     No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement.

     No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

     This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

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     WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.

Dated: ____________, 20___.

Attest:		LODGENET ENTERTAINMENT CORPORATION
By		By
	Title:		Title:
Countersigned:
COMPUTERSHARE, as Rights Agent
By

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[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)

     FOR VALUE RECEIVED,                                                                                   hereby sells, assigns and transfers unto _________                                                                                                                                                                                                           & nbsp;                          

(please print name and address of transferee)

                                                                                                     this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                      Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution.

Dated:                     , 20___.

Signature

Signature Guaranteed:

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CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); and

     (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated:                     , 20___.

Signature

NOTICE

     The signature to the foregoing Assignment must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

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FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to
exercise the Rights Certificate pursuant to
Section 11(a)(ii) of the Rights Agreement.)

To: LODGENET ENTERTAINMENT CORPORATION

     The undersigned hereby irrevocably elects to exercise ___ Rights represented by this Rights Certificate to purchase the shares of Common Stock (or such other securities of the Company) issuable upon the exercise of the Rights and requests that certificates for such shares be issued in the name of:

(Please insert social security or other identifying number)

(Please print name and address)

     The Rights Certificate indicating the balance, if any, of such Rights which may still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement shall be returned to the undersigned unless such Person requests that the Rights Certificate be registered in the name of and delivered to:

Please insert social security or other identifying number (complete only if Rights Certificate is to be registered in a name other than the undersigned)

(Please print name and address)

Dated:                     , 20___

Signature

Signature Guaranteed:

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CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); and

     (2) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); and

     (3) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

     Dated:                     , 20___.

Signature

NOTICE

     The signature to the foregoing Election to Purchase must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

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FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise
the Rights Certificate other than pursuant to
Section 11(a)(ii) of the Rights Agreement.)

TO: LODGENET ENTERTAINMENT CORPORATION

     The undersigned hereby irrevocably elects to exercise                      Rights represented by this Rights Certificate to purchase the shares of Preferred Stock (or such other securities of the Company or any other Person) issuable upon the exercise of the Rights and requests that certificates for such shares be issued in the name of:

(Please insert social security or other identifying number)

(Please print name and address)

     The Rights Certificate indicating the balance, if any, of such Rights which may still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement shall be returned to the undersigned unless such Person requests that the Rights Certificate be registered in the name of and delivered to:

Please insert social security or other identifying number (complete only if Rights Certificate is to be registered in a name other than the undersigned)

(Please print name and address)

     Dated:                     , 20___.

Signature

Signature Guaranteed:

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CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); and

     (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated:                     , 20___.

Signature

NOTICE

     The signature to the foregoing Election to Purchase must correspond to the name as written upon the fact of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

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EXHIBIT B

SUMMARY OF RIGHTS

     On February 28, 1997, the Board of Directors of LodgeNet Entertainment Corporation (the “Company”) 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”), and effective February 28, 2007, the Board of Directors of the Company (the “Board of Directors”) approved amending the Company’s outstanding Rights on each outstanding share of Common Stock. Except as set forth below, each Right, as amended, 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 description and terms of the Rights are set forth in an Amended and Restated Rights Agreement (the “Rights Agreement”), dated February 28, 2007, between the Company and Computershare Investor Services, LLC as the “Rights Agent.”

     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) ten Business Days after 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 20% 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 Business Days (unless such date is extended by the Board of Directors) following the commencement of a tender offer or exchange offer which would result in any person, entity or group of 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 this 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 this 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 any Common Stock, and the separate Rights Certificates alone will evidence the Rights.

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     The Rights are not exercisable until the Distribution Date. The Rights will expire on the earliest of (i) February 28, 2016, (ii) the 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, (iii) redemption or exchange of the Rights by the Company as described below, (iv) one year from the date of the Rights Agreement, or February 28, 2008, if the Rights Agreement is not approved by the holders of a majority of shares of Common Stock present and entitled to vote at a meeting of the stockholders of the Company, or (v) a decision of the Board of Directors to terminate the Rights Agreement upon the recommendation of the TIDE Committee.

     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 earnings or retained earnings) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price.

     In the event that a Person becomes the beneficial owner of 20% 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 by at least a majority of the members of the Board of Directors who are not officers of the Company and are not representatives or nominees of Acquiring Persons or Affiliates or Associates thereof to be both adequate and otherwise in the best interests of the Company and its stockholders, after receiving advice from at least one nationally recognized investment banking firm to be at a price which is fair and not inadequate to the Company’s stockholders (a “Permitted Offer”)), then proper provision shall be made so that each holder of a Right will (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”). Notwithstanding the foregoing, upon the occurrence of any of the events 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.

     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

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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, following the Distribution Date, 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 shares 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.

     At any time prior to the earlier to occur of (i) ten Business Days after a Person becomes 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, the Subscription Right if and for as long as the Acquiring Person triggering the Subscription Right beneficially owns securities representing less than 20% 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.

     In the event the Company receives a Qualified Offer, the Rights may be redeemed by way of stockholder action taken at a special meeting of stockholders called by the Board of Directors upon the written notice of the holders of at least 10% of the shares of Common Stock then outstanding (other than shares of Common Stock held by the offering Person or its Affiliates and Associates) for the purpose of voting on a resolution accepting the Qualified Offer and authorizing the redemption of the Rights pursuant to the provisions of the Rights Agreement. The written notice must be received by the Company not earlier than 60, nor more than 80, Business Days following the commencement of a Qualified Offer that has not been terminated prior thereto and that continues to be a Qualified Offer. The special meeting must be held on or prior to the 90th Business Day following the Company’s receipt of such notice. Such an action by stockholders requires the affirmative vote of two-thirds of all shares of Common Stock and any other stock entitled to vote on such issue (excluding shares held by an offering Person and its Affiliates and Associates). If either (A) the special meeting is not held on or prior to the 90th Business Day following receipt of the special meeting notice, or (B) at the special meeting, the requisite holders of shares of Common Stock vote in favor of the redemption resolution, then all of the Rights will be deemed redeemed by such failure to hold the special meeting or as a result of such stockholder action, as the case may be, at the Redemption Price, or the Board of Directors shall take such other action as would prevent the existence of the Rights from interfering with the consummation of the Qualified Offer, effective immediately prior to the consummation of the Qualified Offer if, and only if, the Qualified Offer is consummated within 60 Business Days after either (x) the close of business on the 90th Business Day following

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receipt of the special meeting notice if a special meeting is not held on or prior to such date, or (y) the date on which the results of the vote on the redemption resolution at the special meeting are certified as official, as the case may be. Immediately upon any 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.

     In the determination of the fairness of any offer, the Board of Directors retains the authority to reject, advise the stockholders to reject, or take other action in response to any offer (including a Qualified Offer) necessary to the exercise of its fiduciary duties.

     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). Each share of Preferred Stock will have a preferential quarterly dividend in an amount equal to 1,000 times the dividend 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 each share of Common Stock. Each share of Preferred Stock will have 1,000 votes, voting together with the shares of Common Stock. In the event of any merger, consolidation or other transaction in which shares of Common Stock are exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount and type of consideration received per share 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 shares and (ii) in lieu of fractional shares other than fractions that are multiples of one one-thousandth of a share, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise.

     Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. The Company and the Rights Agent retain broad authority to amend the Rights Agreement; however, following any Distribution Date any amendment may not adversely affect the interests of holders of Rights.

     A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A/A. A copy of the Rights Agreement is available free of charge from the Company. THIS SUMMARY DESCRIPTION OF THE RIGHTS DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, WHICH IS INCORPORATED HEREIN BY REFERENCE.

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EX-4.5

Exhibit 4.5

SECOND SUPPLEMENTAL INDENTURE

     Second Supplemental Indenture (this “Supplemental Indenture”), dated as of January 15, 2007, among LodgeNet StayOnline, Inc. (the “Guaranteeing Subsidiary”), a subsidiary of LodgeNet Entertainment Corporation (or its permitted successor), a Deleaware corporation (the “Company”), LodgeNet Entertainment Corporation, a Delaware corporation (the “Issuer”) and HSBC Bank USA, a New York banking corporation, as trustee under the indenture referred to below (the “Trustee”).

WITNESSETH

     WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an Indenture dated as of June 18, 2003 (the “Base Indenture”), as supplemented by the First Supplemental Indenture dated as of June 18, 2003 (the “First Supplemental Indenture”; and, the Base Indenture as supplemented by the First Supplemental Indenture, the “Indenture”) providing for the issuance of $200,000,000 aggregate principal amount of 9.50% Senior Subordinated Notes due 2013 (the “Notes”);

     WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

     WHEREAS, pursuant to Section 601 of the Base Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

     NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

     1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

     2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows:

          (a) to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Issuer hereunder or thereunder, that:

          (i) the principal of, and premium, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or

otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and

          (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately.

          (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Issuer, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. The Guaranteeing Subsidiary agrees that this guarantee is a guarantee of payment and not of collection.

          (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest, notice and all demands whatsoever.

          (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all obligations of a Guarantor under the Indenture.

          (e) If any Holder or the Trustee is required by any court or otherwise to return to the Issuer, the Guarantors, or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuer or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.

          (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.

          (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 502 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Section 502 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee.

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          (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee.

          (i) Pursuant to Paragraph 29(B) of Section 1.1 of the First Supplemental Indenture, after giving effect to any maximum amount and all other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Paragraph 29(B) of Section 1.1 of the First Supplemental Indenture, this new Note Guarantee shall be limited to the maximum amount permissible such that the obligations of such Guarantor under this Note Guarantee will not constitute a fraudulent transfer or conveyance.

          (j) To the extent not already covered in clauses (a) through (i) and in no way limiting the meaning and effect of such clauses, to provide as unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture.

     3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.

     4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.

          (a) The Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person (other than the Issuer or another Guarantor) unless:

          (i) immediately after giving effect to such transaction, no Default or Event of Default exists; and

          (ii) either (A) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger unconditionally assumes all the obligations of that Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Note Guarantee on the terms set forth herein or therein; or (B) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation, Paragraph 22(B)(ix) of Section 1.1 of the First Supplemental Indenture.

          (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon

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all of the Notes issuable under the Indenture which theretofore shall not have been signed by the Issuer and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof.

     5. Releases.

          (a) In connection with (i) any sale or other disposition of all or substantially all of the assets of any Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Issuer, or (ii) the sale or other disposition of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Issuer, or (iii) the designation of any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary, the Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that (i) immediately after giving effect to the transaction, no Default or Event of Default exists and (ii) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of Paragraph 22(B)(ix) of Section 1.1 of the First Supplemental Indenture. Upon delivery by the Issuer to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Issuer in accordance with the provisions of this Indenture, including without limitation Paragraph 22(B)(ix) of Section 1.1 of the First Supplemental Indenture, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee.

          (b) Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture.

     6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, solely by reason of their status as such, shall have any liability for any obligations of the Issuer or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy.

     7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

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     8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

     9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

     10. 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 recitals are made solely by the Guaranteeing Subsidiary and the Issuer.

[Signatures on next page.]

5

     IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

Dated: January 16, 2007

LODGENET STAYONLINE, INC.
By:
Name:
Title:
LODGENET ENTERTAINMENT CORPORATION
By:
Name:
Title:
HSBC BANK USA,
as Trustee
By:
	Authorized Officer

Signature Page to Supplemental Indenture

S-1

EX-10.27

Exhibit 10.27

LODGENET ENTERTAINMENT CORPORATION

SEVENTH AMENDMENT TO CREDIT AGREEMENT

     This SEVENTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of October      , 2006 and entered into by and between LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (“Borrower”) and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent for the Lenders (in such capacity, “Administrative Agent”), and is made with reference to that certain Credit Agreement dated as of August 29, 2001, as amended (the “Credit Agreement”), by and among Borrower, the Lenders named therein, Administrative Agent, the Syndication Agent named therein, the Co-Documentation Agents named therein, the Co-Lead Arrangers named therein and the Swing Line Lender named therein. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement.

RECITALS

     WHEREAS, Borrower and Lenders desire to make certain amendments to the Credit Agreement as provided for herein;

     NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:

     Section 1. AMENDMENTS TO THE CREDIT AGREEMENT

     1.1 Amendments to Section 1: Certain Defined Terms.

     A. Subsection 1.1 of the Credit Agreement is hereby amended by deleting the definition of “Consolidated EBITDA” in its entirety and by inserting in lieu thereof the following:

“Consolidated EBITDA” means, for any period, the sum, without duplication, of the amounts for such period of (i) Consolidated Net Income, plus the following to the extent deducted in determining Consolidated Net Income, any purchase accounting adjustments, change of control payments, fees and expenses and other non-recurring items or expenses the aggregate amount of which does not exceed $1,500,000 incurred in connection with an Investment permitted under subsection 7.3(vi) of the Credit Agreement to the extent reasonably satisfactory to the Co-Lead Arrangers, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense, and (vi) other non-recurring and non-cash items reducing Consolidated Net Income, less interest income and any non-recurring and non-cash items increasing Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Borrower and its Subsidiaries in conformity with GAAP.”

     1.2 Amendments to Section 2: Amounts and Terms of Commitments and Loans.

     A. Subsection 2.3A of the Credit Agreement is hereby amended by deleting it in its entirety and by inserting in lieu thereof the following:

“Revolving Loan Commitment Fees. Borrower agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender’s Pro Rata Share of the Revolving Loan Commitments, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date equal to the average of the daily excess of the Revolving Loan Commitments over the sum of (i) the aggregate principal amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans) plus (ii) the Letter of Credit Usage multiplied by 0.375% per annum, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on the last Business Day of each March, June, September and December of each Fiscal Year, commencing on the first such date to occur after the Closing Date, and on the Revolving Loan Commitment Termination Date.”

1.3 Amendments to Section 7: Borrower’s Negative Covenants.

     A. Subsection 7.3(vi) of the Credit Agreement is hereby amended by deleting it in its entirety and by inserting in lieu thereof the following:

“(vi) so long as no Potential Event of Default or Event of Default has occurred and is continuing at the time of such Investment, Borrower and its Domestic Subsidiaries that are Subsidiary Guarantors may make and own other Investments in an aggregate amount not to exceed at any time $25,000,000;”

     B. Subsection 7.5 of the Credit Agreement is hereby amended by deleting in their entirety the second and third provisos in the first sentence and by inserting in lieu thereof the following:

“provided further so long as no Potential Event of Default or Event of Default has occurred and is continuing, Borrower and its Subsidiaries may make Restricted Junior Payments in the form of share repurchases or dividends in an aggregate amount not to exceed $25,000,000;”

     Section 2. CONDITIONS TO EFFECTIVENESS

     Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the “Amendment Effective Date”):

     A. On or before the Amendment Effective Date, Borrower shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies,

2

where appropriate, for each Lender and its counsel) copies of this Amendment, executed by Borrower.

     B. On or before the Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request.

     C. On or before the Amendment Effective Date, Administrative Agent shall have received an executed consent to this Amendment in the form attached hereto as Exhibit A (a “Lender Consent”) from Requisite Lenders and from each Revolving Lender.

     Section 3. BORROWER’S REPRESENTATIONS AND WARRANTIES

     In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrower represents and warrants to each Lender that the following statements are true, correct and complete:

     A. Corporate Power and Authority. Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the “Amended Agreement”).

     B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Borrower.

     C. No Conflict. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrower or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Borrower or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Borrower or any of its Subsidiaries; (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Borrower or any of its Subsidiaries; (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Borrower or any of its Subsidiaries; or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Borrower or any of its Subsidiaries.

     D. Governmental Consents. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body.

3

     E. Binding Obligation. This Amendment and the Amended Agreement have been duly executed and delivered by Borrower and are the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

     F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

     G. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default.

     Section 4. MISCELLANEOUS

     A. Reference to and Effect on the Credit Agreement and the Other Loan Documents.

     (i) On and after the Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement.

     (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

     (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

     B. Fees and Expenses. Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrower.

     C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

4

EXHIBIT A
to Seventh Amendment
to Credit Agreement

CONSENT OF LENDER

     Reference is hereby made to the Seventh Amendment to Credit Agreement (the “Amendment”) dated as of October      , 2006 by and between LodgeNet Entertainment Corporation, a Delaware corporation (“Borrower”), and Canadian Imperial Bank of Commerce, as administrative agent for the Lenders (“Administrative Agent”), which is made with reference to that certain Credit Agreement dated as of August 29,2001, as amended, by and among Borrower, the Lenders named therein, Administrative Agent, the Syndication Agent named therein, the Co-Documentation Agents named therein, the Co-Lead Arrangers named therein and the Swing Line Lender named therein.

     The undersigned Lender hereby consents to the execution and delivery of the Amendment by Administrative Agent on its behalf, substantially in the form of the draft presented to the undersigned Lender on October      , 2006.

Dated: October      ,2006

[Name of Institution]

By:

Name:

Title:

EX-10.28

Exhibit 10.28

LODGENET ENTERTAINMENT CORPORATION

EIGHTH AMENDMENT TO CREDIT AGREEMENT

     This EIGHTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of December 13, 2006 and entered into by and between LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation (“Borrower”) and, for purposes of Section 4 hereof, LODGENET STAYONLINE, INC., a Delaware corporation (“Guarantor”), and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent for the Lenders (in such capacity, “Administrative Agent”), and is made with reference to that certain Credit Agreement dated as of August 29, 2001, as amended (the “Credit Agreement”), by and among Borrower, the Lenders named therein, Administrative Agent, the Syndication Agent named therein, the Co-Documentation Agents named therein, the Co-Lead Arrangers named therein and the Swing Line Lender named therein. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement.

RECITALS

     WHEREAS, Borrower and Lenders desire to make certain amendments to the Credit Agreement as provided for herein;

     NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:

     Section 1. AMENDMENTS TO THE CREDIT AGREEMENT

     1.1 Amendments to Section 7: Borrower’s Negative Covenants.

          Subsection 7.3(vi) of the Credit Agreement is hereby amended by deleting it in its entirety and by inserting in lieu thereof the following:

“(vi) so long as no Potential Event of Default or Event of Default has occurred and is continuing at the time of such Investment, Borrower and its Domestic Subsidiaries that are Subsidiary Guarantors may make and own (a) Investments in Ascent Entertainment Group, Inc., owner of 100% of the issued and outstanding shares of capital stock of On Command Corporation and (b) other Investments in an aggregate amount not to exceed at any time $25,000,000;”

     Section 2. CONDITIONS TO EFFECTIVENESS

     Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the “Amendment Effective Date”):

     A. On or before the Amendment Effective Date, Borrower shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) copies of this Amendment, executed by Borrower.

     B. On or before the Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request.

     C. On or before the Amendment Effective Date, Administrative Agent shall have received an executed consent to this, Amendment in the form attached hereto as Exhibit A (a “Lender Consent”) from Requisite Lenders.

     Section 3. BORROWER’S REPRESENTATIONS AND WARRANTIES

     In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrower represents and warrants to each Lender that the following statements are true, correct and complete:

     A. Corporate Power and Authority. Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the “Amended Agreement”).

     B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Borrower.

     C. No Conflict. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrower or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Borrower or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Borrower or any of its Subsidiaries; (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Borrower or any of its Subsidiaries; (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Borrower or any of its Subsidiaries; or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Borrower or any of its Subsidiaries.

     D. Governmental Consents. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and

2

will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body.

     E. Binding Obligation. This Amendment and the Amended Agreement have been duly executed and delivered by Borrower and are the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

     F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

     G. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default.

     Section 4. ACKNOWLEDGEMENT AND CONSENT BY GUARANTOR

     Guarantor hereby acknowledges that it has read this Amendment and consents to the terms thereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Agreement, the obligations of Guarantor under the Loan Documents shall not be impaired or affected and each of the Loan Documents is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects.

     Section 5. MISCELLANEOUS

     A. Reference to and Effect on the Credit Agreement and the Other Loan Documents.

     (i) On and after the Amendment Effective Date each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement.

     (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

     (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a

3

waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

     B. Fees and Expenses. Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrower.

     C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

     D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

     E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.

(remainder of page intentionally left blank)

4

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

LODGENET ENTERTAINMENT CORPORATION
By:	/s/ Gary H. Ritondaro
Name: Gary H. Ritondaro
Title: Chief Financial Officer
LODGENET STAYONLINE, INC.
as Guarantor
By:	/s/ Gary H. Ritondaro
Name: Gary H. Ritondaro
Title: Chief Financial Officer
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
By:	/s/ Leonardo R. Fernandez, Jr.
Name: Leonardo R. Fernandez, Jr.
	Authorized Signatory

EXHIBIT A
to Eighth Amendment
to Credit Agreement

CONSENT OF LENDER

     Reference is hereby made to the Eighth Amendment to Credit Agreement (the “Amendment”) dated as of December 13, 2006 by and between LodgeNet Entertainment Corporation, a Delaware corporation (“Borrower”), LodgeNet StayOnLine, Inc., a Delaware corporation (“Guarantor”) and Canadian Imperial Bank of Commerce, as administrative agent for the Lenders (“Administrative Agent”), which is made with reference to that certain Credit Agreement dated as of August 29, 2001, as amended, by and among Borrower, the Lenders named therein, Administrative Agent, the Syndication Agent named therein, the Co-Documentation Agents named therein, the Co-Lead Arrangers named therein and the Swing Line Lender named therein.

     The undersigned Lender hereby consents to the execution and delivery of the Amendment by Administrative Agent on its behalf, substantially in the form of the draft presented to the undersigned Lender on February 23, 2007.

CIBC, INC., as a Lender
By:	/s/ Leonardo Fernandez
Name: Leonardo Fernandez
Title: Executive Director

EX-10.33

EXECUTION COPY

Exhibit 10.33

ASSET PURCHASE AGREEMENT

By and Between

StayOnline, Inc.,

a Delaware corporation

as Seller

and

LodgeNet Entertainment Corporation,
a Delaware corporation

as Buyer

TABLE OF CONTENTS

	Page No.
Article 1 Defined Terms		1
Article 2 The Transaction		6
2.1 Sale and Purchase of Acquired Assets		6
2.2 Excluded Liabilities		7
Article 3 Purchase Consideration		7
3.1 Purchase Price		7
3.2 Deposit		8
3.3 Working Capital Adjustment		9
3.4 Adjustments for Delays in Closing		11
3.5 Allocation of Purchase Price		11
3.6 Escrow		11
Article 4 Representations and Warranties of Seller		12
4.1 Organization		12
4.2 Effect of Agreement		12
4.3 Financial and Corporate Records		12
4.4 Compliance with Law		13
4.5 Financial Statements		13
4.6 Acquired Assets; Sufficiency		13
4.7 Absence of Undisclosed Liabilities		14
4.8 Operations Since December 31, 2005		14
4.9 Accounts Receivable		14
4.10 Tangible Property		14
4.11 Real Property		14
4.12 Software		15
4.13 Intellectual Property Assets		16
4.14 Significant Contracts		17
4.15 Employees and Independent Contractors		18
4.16 Employee Benefit Plans		19
4.17 Customers, Prospects and Suppliers		19
4.18 Taxes		20

i

	Page No.
4.19 Proceedings and Judgments		20
4.20 Insurance		21
4.21 Questionable Payments		21
4.22 Related Party Transactions		21
4.23 Brokerage Fees		22
4.24 Full Disclosure		22
4.25 Litigation		22
4.26 Environmental Matters		22
Article 5 Representations and Warranties of Buyer		23
5.1 Organization		23
5.2 Effect of Agreement		23
5.3 Brokerage Fees		23
5.4 Litigation		23
5.5 Availability of Funds		23
Article 6 Covenants of Seller Prior to Closing		23
6.1 Access And Investigation		23
6.2 Operation of the Business of Seller		24
6.3 Negative Covenant		24
6.4 Notification		25
6.5 Monthly Financial Statements		25
6.6 Change of Name		25
6.7 Payment of Liabilities		25
6.8 Shareholder Meeting		25
Article 7 Covenant of Buyer Prior to Closing		26
Article 8 Conditions to Buyer’s Obligation to Close		26
8.1 Accuracy of Representations		26
8.2 Seller’s Performance		26
8.3 Consents		26
8.4 Additional Documents		26
8.5 No Proceedings		28
8.6 Permits		28
8.7 No Material Adverse Effect		28
8.8 Financial Statements		28
8.9 Deliveries		28

ii

	Page No.
Article 9 Conditions To Seller’s Obligation To Close		29
9.1 Accuracy of Representations		29
9.2 Buyer’s Performance		29
9.3 Consents		29
9.4 Shareholder Approval		29
9.5 Additional Documents		29
9.6 No Proceedings		30
9.7 Purchase Price		30
9.8 Deliveries		30
Article 10 Termination		30
10.1 Termination Events		30
10.2 Effect of Termination		30
10.3 Termination in Response to Superior Proposal		31
Article 11 Additional Covenants		31
11.1 Employees and Employee Benefits		31
11.2 Payment of All Taxes Resulting from Sale of Assets by Seller		33
11.3 Restrictions on Seller Dissolution and Distributions		33
11.4 Removing Excluded Assets		33
11.5 Reports and Returns		33
11.6 Assistance In Proceedings		33
11.7 Customer and Other Business Relationships		33
11.8 Retention of and Access to Records		33
11.9 Further Assurances		33
11.10 Reconciliations and Allocations		34
11.11 Tax Matters		34
11.12 Confidentiality		35
11.13 Announcement		36
11.14 Exclusivity		36
11.15 Audit Fees		37
11.16 Auditor’s Consent and Audit Preparation		37
Article 12 Closing		38
12.1 Closing		38
Article 13 Indemnification		38
13.1 Seller’s Indemnification		38

iii

	Page No.
13.2 Buyer’s Indemnification		38
13.3 Indemnification Procedures		39
13.4 Survival Periods		41
13.5 Shareholder/Partner Suits		42
13.6 Limitations on Indemnification Obligation		42
13.7 Insurance and Tax Benefits		42
13.8 Exclusive Remedy		42
Article 14 Other Provisions		42
14.1 Fees and Expenses		42
14.2 Notice		43
14.3 Entire Understanding		43
14.4 Parties in Interest		43
14.5 Waivers		43
14.6 Severability		44
14.7 Counterparts; Facsimile		44
14.8 Section Headings		44
14.9 References		44
14.10 Controlling Law		44
14.11 No ThirdParty Beneficiaries		44
14.12 Neutral Construction		44
14.13 Dispute Resolution		44
14.14 Schedules		45

iv

LIST OF SCHEDULES

Schedule 1.1	Accounts Receivable
Schedule 1.2	Excluded Contracts
Schedule 1.9	Excluded Assets
Schedule 2.1(b)(ii)(A)	Trade Accounts Payable – Current
Schedule 2.1(b)(ii)(B)	Trade Accounts Payable – Past Due
Schedule 2.1(b)(iii)	Assumed Obligations
Schedule 2.2	Excluded Liabilities
Schedule 4.1	Qualified to do Business; Corporate Name; Subsidiaries
Schedule 4.2	Effect of Agreement
Schedule 4.3	Exceptions to Financial and Corporate Records
Schedule 4.4	Permits Relating to Business
Schedule 4.5	Internal Control Matters and Seller’s NAICS Codes
Schedule 4.6	Exceptions to Title; Encumbrances
Schedule 4.7	Undisclosed Liabilities
Schedule 4.8	Conduct of Business; Material Adverse Effects
Schedule 4.11	Facilities
Schedule 4.12	Software
Schedule 4.13(a)	Intellectual Property Assets
Schedule 4.13(b)	Encumbrances on Intellectual Property
Schedule 4.14	Significant Contracts
Schedule 4.15	Officer Terminations; Employees
Schedule 4.16	Employee Benefit Plans
Schedule 4.17	Fifteen Largest Customers
Schedule 4.18	Taxes
Schedule 4.19	Proceedings and Judgments
Schedule 4.20	Insurance
Schedule 4.22	Related Party Transactions
Schedule 4.23	Brokerage Fees
Schedule 8.3	Buyer’s Consents
Schedule 9.3	Seller’s Consents

v

LIST OF EXHIBITS

Exhibit 3.1	Wire Transfer Instructions
Exhibit 3.2(a)	Escrow Agreement
Exhibit 4.13(b)(ii)	Form of Employee Confidentiality Agreement
Exhibit 8.4(a)	Bill of Sale
Exhibit 8.4(b)	Assignment and Assumption Agreement
Exhibit 8.4(c)	Assignment of Trademark
Exhibit 8.4(g)	Non-Competition Agreement

vi

ASSET PURCHASE AGREEMENT

     This Asset Purchase Agreement (this “Agreement”), is made as of November 14, 2006, by and between StayOnline, Inc., a Delaware corporation with its principal executive offices at 120 Interstate North Parkway, Suite 160, Atlanta, Georgia 30339 (“Seller”), and LodgeNet Entertainment Corporation, a Delaware corporation with principal executive offices at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Buyer”).

RECITALS

     A. Seller is in the business of developing, marketing, selling, installing and servicing wireless broadband Internet access systems and related products and services to hotels and other locations (the “Business”).

     B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Business and substantially all of the assets associated therewith, in exchange for the consideration specified in this Agreement, and in accordance with the terms and conditions set forth herein.

AGREEMENT

     NOW, THEREFORE, in consideration of the covenants, representations, warranties and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1
DEFINED TERMS

     In addition to certain terms defined elsewhere in this Agreement, the following capitalized terms shall have the meanings set forth as follows:

     1.1 “Accounts Receivable” means all trade accounts receivable and other rights to payment from customers of Seller, including but not limited to all trade accounts receivables listed on Schedule 1.1 and all trade accounts receivable representing amounts receivable in respect of goods shipped or products sold or services rendered to customers of Seller.

     1.2 “Assumed Contracts” means all of the Contracts to which Seller is a party or by which Seller is bound, including, unless otherwise designated, the Contracts listed on Schedule 4.14; but excluding (a) Contracts of Seller evidencing Indebtedness other than capital leases listed on Schedule 4.14, (b) Contracts that constitute Employee Benefit Plans listed on Schedule 4.16, (c) oral Contracts with employees for “at will” employment, (d) Contracts that constitute Insurance Policies listed on Schedule 4.20, (e) Contracts that relate to Seller’s equity securities, including any buy-sell agreements, stock option and warrant agreements, (f) this Agreement and all Related Agreements entered into or to be entered into between Seller and Buyer, or among Seller, Buyer and other parties in connection herewith, (g) at the election of Buyer, any Contract which violates a representation or warranty contained in this Agreement, and (h) the Contracts listed on Schedule 1.2 attached hereto.

     1.3 “Contract” means any written or oral contract, agreement, instrument, order, arrangement, commitment or understanding of any nature, including, but not limited to, sales orders, purchase orders, leases, subleases, data processing agreements, maintenance agreements, license agreements, sublicense agreements, loan agreements, promissory notes, security agreements, pledge agreements, deeds, mortgages, guaranties, indemnities, warranties, employment agreements, consulting agreements, sales representative agreements, joint venture agreements, buy-sell agreements, options or warrants.

     1.4 “Employee Benefit Plan” means any employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or any other plan, program, policy or arrangement for or regarding bonuses, commissions, incentive compensation, vacation, deferred compensation, pensions, profit sharing, retirement, payroll savings, stock options, stock purchases, stock awards, stock ownership, phantom stock, stock appreciation rights, medical/dental expense payment or reimbursement, disability income or protection, sick pay, group insurance, self insurance, death benefits, employee welfare or fringe benefits of any nature.

     1.5 “Encumbrance” means any lien, security interest, pledge, mortgage, easement, covenant, restriction, reservation, conditional sale, prior assignment, or other encumbrance, claim, burden or charge of any nature.

     1.6 “Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation (in each case in writing) by any Person (including any Governmental Authority), alleging noncompliance, violation or potential liability (including potential responsibility or liability for costs of enforcement, investigation, cleanup, governmental response, removal or remediation, for natural resources damages, property damage, personal injuries or penalties or for contribution, indemnification, cost recovery, compensation or injunctive relief) arising out of, or related to the presence, release or threatened release of any Hazardous Substances at any location, whether or not owned or operated by Seller.

     1.7 “Environmental Laws” means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, treaty, writ or order and any enforceable judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree, judgment, stipulation, injunction, permit, authorization, policy, opinion or agency requirement, in each case having the force and effect of law, relating to the pollution, protection, investigation or restoration of the environment, health and safety as affected by the environment or natural resources, including, without limitation, those relating to the use, handling, presence, transportation, treatment, storage, disposal, release, threatened release or discharge of Hazardous Substances or noise, odor, wetlands, pollution or contamination (including any and all National Environmental Protection Act requirements).

     1.8 “Escrow Agent” means U.S. Bank, National Association.

     1.9 “Excluded Assets” means (a) all rights of Seller under its Insurance Policies; (b) cash; (c) Seller’s Employee Benefit Plans; and (d) those assets identified on Schedule 1.9 attached hereto.

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     1.10 “GAAP” means generally accepted accounting principles in the United States as set forth in the opinions and pronouncements of the Accounting Principles Board (and its predecessors), the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) that are applicable to the circumstances as of the date of determination.

     1.11 “Governmental Authority” means any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any executive official thereof.

     1.12 “Hazardous Substances” means any substance, waste, contaminant, pollutant or material that has been determined by any United States federal government authority, or any state or local government authority having jurisdiction over Seller’s Real Property, to be capable of posing a risk of injury or damage to health, safety, property or the environment, including, but not limited to (a) all substances, wastes, contaminants, pollutants and materials defined or designated as hazardous, dangerous or toxic pursuant to any Law of any state in which any of Seller’s Real Property is located or any United States Law, and (b) asbestos, polychlorinated biphenyls (“PCBs”) and petroleum.

     1.13 “Indebtedness” means, with respect to any Person, without duplication (a) every liability of such Person (i) for borrowed money, including all amounts that may be payable in order to extinguish the debt, including items such as prepayment penalties, breakage costs, early termination fees and cost reimbursements required to obtain releases from lenders, and amounts payable on termination of any interest rate swap arrangements, (ii) evidenced by notes, bonds, debentures or similar instruments (whether or not negotiable), (iii) capital leases, or (iv) any contingent reimbursement obligations or amounts outstanding pursuant to any letters of credit or similar facilities issued for the account of such Person, and (b) every liability of any other Person of the kind described in the preceding clause (a) that such Person has guaranteed.

     1.14 “Information Technology Systems” means any combination of computer software, firmware, computer hardware (whether general or special purpose), telecommunications capabilities (including all voice, data and video networks) and/or other similar or related items of automated, computerized, and/or software systems and any other networks or systems and related services that are used or relied on by Seller for operations.

     1.15 “Insurance Policy” means any public liability, product liability, general liability, comprehensive, property damage, vehicle, life, hospital, medical, dental, disability, worker’s compensation, key man, fidelity bond, theft, forgery, errors and omissions, directors’ and officers’ liability, or other insurance policy of any nature.

     1.16 “Intellectual Property Assets” means any name, corporate name, assumed fictitious business name, trade name, trade dress, brand, slogan, design, logo, registered and unregistered trademark, service mark and application for the registration of any of the foregoing (collectively, “Trademarks”); all patents (including all provisional, divisionals, continuations, continuations in part, and reissues), patent applications and inventions and discoveries that may be patentable or unpatentable and whether or not reduced to practice (collectively, “Patents”); all

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registered and unregistered copyrights in both published works and unpublished works, copyright applications, and copyrightable subject matter (collectively, “Copyrights”); all rights in mask works; all know-how, trade secrets, confidential or proprietary information, customer and vendor lists, Proprietary Software, Software, technical information, data, process technology, plans, drawings and blue prints, processes, methods and techniques, research and development information, industry analyses, drawings, algorithms, etherware, specifications, proposals, models, financial and accounting data, business and marketing plans, business method, product right, or other intangible asset of any nature (collectively, “Trade Secrets”); and all rights in internet web sites and internet domain names (collectively “Net Names”).

     1.17 “Judgment” means any order, writ, injunction, citation, award, decree or other judgment of any nature of any Governmental Authority or arbitration tribunal.

     1.18 A party to this Agreement shall be deemed to have “Knowledge” of a fact or other matter only if an officer of such party has or had actual awareness of such fact or other matter or reasonably ought to have actual awareness of such fact or other matter in the ordinary course of the performance of his duties as an officer, without any duty to inquire or investigate.

     1.19 “Law” means any provision of any federal, state or local law, statute, ordinance, charter, constitution, rule or regulation.

     1.20 “Material Adverse Effect” means any change, event or effect that, individually or in the aggregate, is materially adverse to the financial condition, financial performance or business prospects of the Business or the Acquired Assets or materially increases Seller’s Obligations under any of the Assumed Liabilities, regardless of whether such effect (i) was reasonably foreseeable; or (ii) is of a type or nature inherent in the business or operations of the party; other than any such effect attributable to or resulting (a) directly and solely from the public announcement or consummation of the transactions contemplated by this Agreement, including loss of vendors, customers or employees resulting directly therefrom, (b) from the compliance by any party with its obligations under the Agreement, or (c) from any act or omission taken at the specific written request of the other party to this Agreement.

     1.21 “Multiemployer Plan” means a multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of ERISA.

     1.22 “Multiple Employer Plan” means any employee pension benefit plan (as defined in Section 3(2) of ERISA) sponsored by more than one employer, at least two of whom are not under common control as described in Sections 4063 of ERISA or 4064 of ERISA or Section 413(c) of the Code.

     1.23 “Obligation” means any debt, liability or obligation of any nature, whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown or otherwise.

     1.24 “Permit” means any license, permit, approval, waiver, order, authorization, right or privilege of any nature, granted, issued, approved or allowed by any foreign, federal, state or local governmental body, administrative agency or regulatory authority.

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     1.25 “Permitted Encumbrances” shall mean (i) liens for current Taxes not yet due and payable, (ii) mechanics’, carriers’, workers’, repairers’, materialmen’s, warehousemen’s and other similar liens arising or incurred in the ordinary course of the Business or which are not material in amount, and (iii) any Encumbrances set forth on Schedule 4.6.

     1.26 “Person” means any individual, sole proprietorship, joint venture, partnership, limited liability company, corporation, association, cooperative, trust, estate, governmental body, administrative agency, regulatory authority or other entity of any nature.

     1.27 “Proceeding” means any demand, claim, suit, action, litigation, investigation, arbitration, administrative hearing or other proceeding of any nature.

     1.28 “Proprietary Software” means Software (whether general or special purpose) that is used or relied on by Seller for its operations that it (either directly or through a third party) has developed, customized or enhanced or is in the process of doing the same, to the extent of Seller’s proprietary interest therein.

     1.29 “Real Property” means any real estate, land, building, structure or other real property of any nature and all appurtenant and ancillary rights thereto, including, but not limited to, easements, covenants, water rights, sewer rights and utility rights.

     1.30 “Software” means any computer program, operating system, applications system, firmware or software of any nature, including all object code, source code, technical manuals, user manuals and other documentation therefor, whether in machine-readable form, programming language or any other language or symbols, and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature.

     1.31 “Superior Proposal” means any bona fide written Acquisition Proposal (as defined in Section 11.14) that the Board of Directors of Seller determines in good faith, after consultation with its legal and financial advisers, to be more favorable to Seller than the transaction contemplated by this Agreement, taking into account (i) all financial and strategic considerations, including legal, financial, regulatory and other aspects of such Acquisition Proposal and the transaction contemplated by this Agreement, deemed relevant by the Board of Directors, and (ii) all the terms and conditions of such Acquisition Proposal and of the transaction contemplated by this Agreement.

     1.32 “Tangible Property” means any furniture, fixtures, leasehold improvements, vehicles, office equipment, computer equipment, other equipment, machinery, tools, forms, supplies or other tangible personal property of any nature.

     1.33 “Tax” means any foreign, federal, state or local income, earnings, profits, gross receipts, franchise, capital stock, net worth, sales, use, occupancy, general property, real property, personal property, intangible property, transfer, fuel, excise, payroll, withholding, unemployment compensation, social security or other tax of any nature, or any deficiency, interest or penalty imposed with respect to any of the foregoing.

     1.34 “Tax Return” means any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental

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Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Law relating to any Tax.

ARTICLE 2
THE TRANSACTION

     2.1 Sale and Purchase of Acquired Assets. On the Closing Date (as defined in Section 12.1), effective to the fullest extent possible at 5:00 p.m. Eastern time on the Closing Date, and subject to the other terms and conditions of this Agreement, Seller shall sell, transfer, assign and convey to Buyer, and Buyer shall purchase, all right, title and interest in and to the Acquired Assets (as defined in Section 2.1(a)), free and clear of all Encumbrances other than Permitted Encumbrances, and Seller shall assign to Buyer, and Buyer shall assume, the Assumed Liabilities.

     (a) Acquired Assets. The “Acquired Assets” means all assets, properties and Intellectual Property Rights of Seller other than the Excluded Assets, including, without limitation, all assets used by Seller in or for its Business, wherever located and whether or not reflected on Seller’s books and records, including, but not limited to, the following assets:

     (i) All of the assets reflected on Seller’s balance sheet, as of the Closing Date, including but not limited to, Seller’s Accounts Receivable, prepaid expenses, security deposits, rent escrows, and other prepayments, deposits and escrows, provided that if Closing occurs on or prior to January 15, 2007 Seller may retain any cash or cash equivalents on Seller’s balance sheet.

     (ii) All of Seller’s Tangible Property and Intellectual Property Assets, including, but not limited to, all Proprietary Software and all rights in and to the name “StayOnline” and all derivations thereof, but excluding Seller’s rights as licensee in and to commonly available off-the-shelf Software licensed by Seller, to the extent the same are not transferable.

     (iii) All rights of Seller under the Assumed Contracts.

     (iv) All of Seller’s rights under any noncompetition, nondisclosure or other restrictive covenant made for the benefit of Seller in any Contract with current or former employees of Seller, regardless of whether any such current employee accepts an offer of employment from Buyer pursuant to Section 11.1(b).

     (v) All transferable rights under all of Seller’s Permits granted or issued to Seller or otherwise held by Seller relating to or for the benefit of Seller, and all transferable rights to the Software used in the Business.

     (vi) All of Seller’s rights in Real Property as specified in Section 4.11.

     (vii) All of Seller’s rights with respect to telephone numbers, telephone directory listings and advertisements.

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     (viii) All of Seller’s goodwill and customer lists, prospect lists, supplier lists, data bases, computer media, sales and marketing materials, invoices, correspondence, files, books and records relating to the Acquired Assets or the Business.

     (ix) All of Seller’s claims, causes of action and other legal rights and remedies, whether or not known as of the Closing Date, relating to Seller’s ownership of the Acquired Assets and/or the operation of the Business.

     (x) All of Seller’s claims, causes of action, contract rights, powers and remedies and other legal rights and remedies, whether or not known as of the Closing Date, arising under the Assumed Contracts and all indemnification rights under such Assumed Contracts.

     (b) Assumed Liabilities. Buyer shall assume and pay, perform and discharge only the following liabilities of Seller and not any of the Excluded Liabilities (as defined in Section 2.2), in accordance with the respective terms and subject to the respective conditions thereof (collectively, the “Assumed Liabilities”):

     (i) The Obligations of Seller under those Assumed Contracts to which Seller is a party solely to the extent such liabilities accrue or arise from and after the Closing.

     (ii) All trade accounts payable and normal recurring accrued liabilities that are not Excluded Liabilities that arose in the ordinary course of business and that are included as a current liability on Seller’s books and records as consistently maintained and that are listed on Schedule 2.1(b)(ii)(A) other than those accounts payable and accrued liabilities for which the original payment due date is past, unless such accounts are listed on Schedule 2.1(b)(ii)(B).

     (iii) Any Obligation of Seller described on Schedule 2.1(b)(iii).

     2.2 Excluded Liabilities. Buyer shall not assume, and shall have no liability for, any Obligations of Seller including but not limited to those set forth on Schedule 2.2 other than the Assumed Liabilities (the “Excluded Liabilities”). The Excluded Liabilities shall remain the sole responsibility of Seller. Seller shall promptly pay, discharge and perform all Excluded Liabilities in accordance with their terms.

ARTICLE 3
PURCHASE CONSIDERATION

     3.1 Purchase Price. In consideration of the sale and transfer by Seller to Buyer of the Acquired Assets, Buyer shall pay to Seller Fifteen Million and No/100 Dollars ($15,000,000), subject to adjustment pursuant to Section 3.1(b), Section 3.3 and Section 3.4 (the “Purchase Price”), payable as follows:

     (a) Concurrently with the execution and delivery of this Agreement, Buyer shall deliver to Escrow Agent One Million Dollars ($1,000,000) (the “Deposit”), by wire

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transfer of immediately available funds to the Escrow Account in accordance with the Escrow Agreement (as such terms are defined in Section 3.2(a));

     (b) At the Closing, Buyer shall (i) pay an amount equal to Twelve Million Dollars ($12,000,000), plus or minus (1) an amount equal to the Closing Purchase Price Adjustment, as defined in Section 3.3(b), plus (2) an amount equal to the Audit Fees, as defined in Section 11.15, plus (3) an amount equal to the Delay Adjustment, if any, as defined in Section 3.4, minus (4) an amount equal to the Deposit plus income actually earned thereon from the date hereof to the Closing Date, in the aggregate, by wire transfer of immediately available funds, in the amounts and to the accounts of those Persons identified on Exhibit 3.1, and (ii) pay Three Million Dollars ($3,000,000) (the “Escrow Amount”) by wire transfer of immediately available funds to the Escrow Account pursuant to Section 3.6. Seller shall provide Buyer with written wire transfer instructions for the payment of the Purchase Price, or shall update Exhibit 3.1 to include such instructions, at least forty-eight (48) hours prior to the Closing.

Notwithstanding the foregoing, Seller shall have the option, exercisable by notice to Buyer not later than ten (10) business days prior to the Closing Date, to permit certain stockholders of Seller and/or their affiliates who have guaranteed Seller’s obligations to Technology Investment Capital Corp. (the “Guarantors”) to, by separate written agreement reasonably acceptable to Buyer and the Guarantors, jointly and severally guarantee Seller’s indemnity obligations to Buyer under Section 13.1 of this Agreement up to the Escrow Amount and for the period contemplated by the Escrow Agreement (as hereinafter defined) rather than having Buyer pay the Escrow Amount into the Escrow Account as contemplated by Section 3.1(b)(ii). In that event, (i) to support such guarantee, the Guarantors and Buyer will either enter into an escrow agreement, containing substantially the same principal terms and provisions as the Escrow Agreement, provided that the Guarantors shall designate a representative to act on behalf of the Guarantors under the Agreement, and deposit Three Million Dollars ($3,000,000) cash into escrow under such new agreement, or provide irrevocable, clean letter of credit arrangements with a term of not less than eighteen (18) months from the Closing Date (“Letters of Credit”) in the amount of $3,000,000, which arrangements are satisfactory in form and substance to Buyer in its sole discretion, not later than the Closing Date; (ii) the deposit of the Escrow Amount into the Escrow Account by Buyer, as contemplated by Section 3.1(b)(ii), will not be made; and (iii) the portion of the Purchase Price payable by Buyer at Closing pursuant to Section 3.1(b)(i) will be increased by Three Million Dollars ($3,000,000).

     3.2 Deposit.

     (a) Concurrently with the execution and delivery of this Agreement, Seller and Buyer shall execute and deliver an escrow agreement substantially in the form of Exhibit 3.2(a) attached hereto, by and among Seller, Buyer and Escrow Agent (the “Escrow Agreement”). The Deposit shall be held in escrow in an account (the “Escrow Account”) of immediately available funds in accordance with the applicable terms and conditions of this Agreement and of the Escrow Agreement and will be disbursed as provided herein and in the Escrow Agreement.

     (b) If the transactions contemplated by this Agreement are consummated, then the Deposit plus income actually earned thereon as contemplated by the Escrow

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Agreement shall be released from escrow and paid to Seller by Escrow Agent and credited against the Purchase Price payable by Buyer to Seller at the Closing pursuant to Section 3.1(b).

     (c) If the transactions contemplated by this Agreement are not consummated by reason of a default by Buyer under the terms of this Agreement, then Seller shall be entitled to retain the Deposit, plus income actually earned thereon, as liquidated damages for such default. For purposes of this Section 3.2(c), Buyer shall be deemed in default if Buyer (i) shall fail to materially perform any of the covenants or agreements of Buyer contained in this Agreement, (ii) shall fail to satisfy any of the conditions set forth in Sections 9.1, 9.2, 9.7, or 9.8 within ten (10) business days after Seller has satisfied the conditions set forth in Sections 8.1, 8.2, 8.3, 8.4, 8.7, 8.8, and 8.9, or (iii) shall refuse to consummate, or have insufficient funds to consummate, the transactions contemplated by this Agreement when Seller has shown itself able and willing to consummate such transactions and has performed all the covenants and agreements required to have been performed by Seller hereunder; provided, however, that Buyer shall not be deemed to be in default under clause (ii) or (iii) of this sentence until one hundred eighty (180) days have elapsed from the date of this Agreement. The parties agree that time is of the essence for the consummation of the transactions contemplated by this Agreement and that the amount of damages caused by a default by Buyer hereunder would be very difficult to calculate. Accordingly, the parties agree that the provision for liquidated damages contained in this Section 3.2 shall not be construed as a penalty provision. The retention by Seller of the Deposit plus income actually earned thereon shall be Seller’s sole and exclusive remedy hereunder.

     (d) If the transactions contemplated by this Agreement are not consummated for reasons that do not entitle Seller to retain the Deposit pursuant to Section 3.2(c), then Buyer shall be entitled to an immediate return of the Deposit plus income actually earned thereon through the date of such return, which shall be Buyer’s sole and exclusive remedy hereunder unless Seller has committed a breach or default under this Agreement and the transactions contemplated by this Agreement are not consummated as a result of Seller’s willful and wrongful failure to consummate such transactions under circumstances under which all conditions to the obligations of Seller set forth in Article 9 have been satisfied or waived (other than any conditions that have not been satisfied as a result of any action or inaction on the part of Seller), in which event Buyer shall be entitled to pursue any rights or remedies existing at law or in equity with respect to such default.

     3.3 Working Capital Adjustment.

     (a) “Working Capital” as of a given date shall mean as recorded on the balance sheet as of that date in accordance with GAAP the net of accounts receivable (net of reserve for doubtful accounts) plus inventory (net of reserve for obsolescence) plus other current assets minus Assumed Liabilities and minus other deferred revenue of Seller. The anticipated Working Capital of Seller as of the signing of this Agreement shall be $250,000 (the “Target Working Capital”). Seller shall, not less than three (3) business days prior to the Closing, estimate the Working Capital as of Closing, based on the balance sheet of Seller as of the prior month-end, but brought forward to include any

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known changes in the components of Working Capital since such prior month-end, supporting documentation for all of which shall be provided to Buyer for its review (the “Estimated Working Capital”). Within sixty (60) days following the Closing, Buyer shall calculate the Working Capital as of the date of the Closing (the “Actual Working Capital”). On or prior to the thirtieth (30th) day after Seller receives Buyer’s calculation of the Actual Working Capital, Seller may give Buyer a written notice that it objects (an “Objection Notice”) to Buyer’s calculation. Any Objection Notice shall specify the dollar amount of any objection and a reasonably detailed summary of the basis for objection. Except to the extent Seller timely objects to a specific determination set forth in Buyer’s calculation of the Actual Working Capital pursuant to an Objection Notice delivered to Buyer within such thirty (30) day period, Buyer’s calculation of the Actual Working Capital will be conclusive and binding upon the parties. If Seller delivers a timely Objection Notice, then Buyer and Seller shall negotiate in good faith to resolve their disputes raised pursuant to a timely Objection Notice. If Buyer and Seller are unable to resolve any disputes related to the calculation of the Actual Working Capital within thirty (30) business days following the delivery of the Objection Notice, then Buyer shall retain a mutually-acceptable accounting firm (“Independent Accounting Firm”) to resolve the dispute as soon as practicable, and in any event within thirty (30) days after Buyer retains such firm. The Actual Working Capital as determined by the Independent Accounting Firm will be conclusive and binding upon the Parties hereto and will constitute the Actual Working Capital for all purposes of this Agreement. The fees and expenses of the Independent Accounting Firm in connection with its review of the Actual Working Capital shall be paid one-half by Seller and one-half by Buyer.

     (b) If, as of the Closing Date, the Estimated Working Capital is (i) less than the Target Working Capital, the Purchase Price payable at the Closing will be reduced by the difference between the Estimated Working Capital and the Target Working Capital or (ii) more than the Target Working Capital, the Purchase Price payable at the Closing will be increased by the difference between the Estimated Working Capital and the Target Working Capital (such increase or decrease, the “Closing Purchase Price Adjustment”). If the Actual Working Capital is (i) less than the Estimated Working Capital, the Purchase Price will be reduced by the difference between the Estimated Working Capital and the Actual Working Capital or (ii) more than the Estimated Working Capital, the Purchase Price will be increased by the difference between the Estimated Working Closing and the Actual Working Capital (the “Final Purchase Price Adjustment”). In the event of a reduction to the Purchase Price pursuant to the Final Purchase Price Adjustment, Seller will be liable for the amount of the reduction and will pay to Buyer, within five (5) business days of the calculation of the Actual Working Capital being declared final pursuant to Section 3.3(a) (the “Balance Sheet Date”), the amount of such reduction plus interest accruing on such amount at a rate of six percent (6%) per annum from the Closing Date until such amount is paid, in immediately available funds to an account specified by Buyer. In the event of an increase to the Purchase Price pursuant to the Final Purchase Price Adjustment, Buyer will pay to Seller, within five (5) business days of the Balance Sheet Date, the amount of such increase plus interest accruing on such amount at a rate of six percent (6%) per annum from the Closing Date until such amount is paid, in immediately available funds to an account specified by Seller. Any amount paid pursuant to this Section 3.3(b) will be treated as an adjustment to the Purchase Price for all purposes. Notwithstanding the foregoing, in the event of a net

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reduction to the Purchase Price pursuant to this Section 3.3(b), Seller’s obligations will first be satisfied from the Escrow Account, with any additional payment being made directly by Seller, and Buyer and Seller shall promptly execute the necessary documents instructing Escrow Agent to make the applicable payment to Buyer.

     3.4 Adjustments for Delays in Closing. If the transactions contemplated by this Agreement are not consummated by the later of (i) January 15, 2007 or (ii) five (5) business days after Seller satisfies all of the conditions to closing under Article 8, for any reason other than the failure by Seller to perform any of the covenants or agreements of Seller contained in this Agreement ((i) or (ii), whichever occurs later, is hereinafter referred to as the “Trigger Date”), then an amount equal to the aggregate of the Delay Adjustments (as defined below) shall be added to the Purchase Price payable at Closing pursuant to Section 3.1(b). The Delay Adjustment for each 30-day period that elapses after the Trigger Date, until the Closing Date shall be equal to the lesser of (i) Two Hundred Fifty Thousand Dollars ($250,000) or (ii) the amount invested in, contributed to or lent to Seller by its stockholders during such 30-day period.

     3.5 Allocation of Purchase Price. Buyer shall prepare an allocation of the Purchase Price among each of the Acquired Assets and the Assumed Liabilities. Buyer shall deliver such allocation to Seller within ninety (90) days after the Closing Date. Seller shall provide its consent to such allocation within fifteen (15) days of delivery; such consent not to be unreasonably withheld. Such allocation shall be reported by both Buyer and Seller on Internal Revenue Service Form 8594, Asset Acquisition Statement, which will be filed with Buyer’s and Seller’s Federal Income Tax Return for the tax year that includes the Closing Date. The agreed-upon allocation shall be conclusive and binding upon Buyer and Seller for all purposes, and neither Buyer nor Seller shall file any Tax Return or other document with, or make any statement or declaration to, any Governmental Authority that is inconsistent with such allocation. If the Purchase Price is adjusted pursuant to the applicable provisions of this Agreement, such allocation shall be revised to reflect such adjustment in a manner mutually acceptable to Buyer and Seller.

     3.6 Escrow. Absent an election by Seller pursuant to Section 3.1 to permit Buyer and the Guarantors to enter into a separate arrangement to secure the indemnity obligations of Seller, the following provisions shall apply. On or prior to the Closing Date, Buyer shall deliver to Escrow Agent the Escrow Amount. The Escrow Amount will be held by Escrow Agent in the Escrow Account, to secure the indemnity obligations of Seller under Section 13.1 of this Agreement, in accordance with the applicable terms and conditions of this Agreement and of the Escrow Agreement. The Escrow Amount will be held in the Escrow Account for such purpose for a period of eighteen (18) months following the Closing Date or such shorter period as Buyer may agree, and at the end of such period, all amounts not theretofore released to or upon the instruction of Buyer in respect of Losses (as defined in Section 13.1) for which Seller is obligated to indemnify the Buyer Indemnified Parties (as defined in Section 13.1), together with all income actually earned thereon, shall be released to or upon the instruction of Seller, all in accordance with the applicable terms and conditions of this Agreement and of the Escrow Agreement, provided that an amount equal to the amount claimed by Buyer pursuant to any unresolved indemnification claims shall remain in the Escrow Account until such claims are resolved. The fees and expenses of Escrow Agent shall be paid first out of income actually earned on amounts held in the Escrow Account (including the Deposit and the Escrow Amount), and to the extent such income is not sufficient therefor, such fees and expenses shall be paid one-half by Seller and one-

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half by Buyer. References in this Article 3 to the release of amounts from the Escrow Account (including the application of the Deposit to the Purchase Price pursuant to Section 3.1(b) and Section 3.2(b)) with income earned thereon shall be deemed to refer to the portion of such income, if any, remaining after the satisfaction in full of the Escrow Agent’s fees and expenses in accordance with the Escrow Agreement.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER

     As of the date hereof, Seller represents and warrants to and for the benefit of Buyer as follows:

     4.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the Laws of Delaware. Seller has full corporate power and authority to own the Acquired Assets, conduct the Business as and where presently conducted, and enter into and perform this Agreement and the Assignment and Assumption Agreement and all other agreements and documents contemplated by this Agreement (the “Related Agreements”) to which Seller is a party. Seller is duly qualified to do business in the jurisdictions listed on Schedule 4.1, and Seller is not required to be qualified in any other jurisdiction except where the failure to be so qualified would not have, and could not reasonably be expected to have, a Material Adverse Effect. Schedule 4.1 states: (a) Seller’s exact legal name; and (b) all fictitious, assumed or other names that are registered or used by it or under which it or its predecessors have done business at any time. Accurate and complete copies of Seller’s certificate of incorporation and bylaws, each as amended to date (“Organizational Documents”), have been delivered to Buyer. Except as set forth on Schedule 4.1, Seller has no subsidiaries and does not own any securities of any corporation or any other interest in any Person.

     4.2 Effect of Agreement. The execution, delivery and performance of this Agreement and the Related Agreements by Seller and the consummation by Seller of the transactions contemplated hereby and thereby: (a) have been duly authorized by its Board of Directors and have been, or will be on or prior to the Closing Date, duly authorized by its shareholders in accordance with Delaware law and Seller’s Organizational Documents; (b) do not constitute a violation or default under the Organizational Documents of Seller; (c) except as set forth on Schedule 4.2, do not constitute a default or breach of (after the giving of notice, passage of time or both), or result in the termination of any Assumed Contract to which Seller is a party or by which Seller is bound; (d) do not constitute a material violation of any Law or Judgment applicable to Seller or the Acquired Assets; (e) except as stated on Schedule 4.2, do not require the consent of any Person; (f) except as stated on Schedule 4.2, do not result in the acceleration or adverse change in any material Obligation of Seller; and (g) do not result in the creation of any Encumbrance upon, or give to any other Person any interest in, any of the Acquired Assets. No Person has a right of first refusal or other preemptive right to acquire the Business or the Acquired Assets. This Agreement and the Related Agreements to which Seller is a party constitute the valid and legally binding agreements of Seller, enforceable against Seller in accordance with their respective terms.

     4.3 Financial and Corporate Records. Seller’s books and records are and have been properly prepared and maintained in accordance with GAAP and, except as set forth on Schedule 4.3, are accurate and complete in all material respects.

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     4.4 Compliance with Law. The operation of the Business and Seller’s ownership, possession and use of the Acquired Assets comply in all material respects with all Laws applicable to Seller, the Business or the Acquired Assets. Except as set forth on Schedule 4.4, Seller has obtained and holds all Permits required for the lawful operation of the Business as and where the Business is presently conducted, except where the failure to obtain and maintain such Permits would not have a Material Adverse Effect. All Permits relating to the Business held by Seller are listed on Schedule 4.4.

     4.5 Financial Statements. Seller has provided to Buyer a copy of the audited balance sheet and notes thereto of Seller as of December 31, 2005, and the unaudited balance sheet of Seller as of December 31, 2004, and unaudited statement of cash flows, statement of income and statement of changes in stockholders equity, and notes thereto of Seller for the fiscal year ended December 31, 2005 (the “Annual Financial Statements”). Seller has provided to Buyer copies of the unaudited balance sheet and statements of cash flows, income and changes in stockholders equity of Seller as of and for the nine-month period ended September 30, 2006 (the “Interim Financial Statements” and, together with Annual Financial Statements, the “Financial Statements”). The Financial Statements were prepared in accordance with GAAP and present fairly in all material respects the financial condition and results of operation of Seller as of such dates and for such periods. The financial statements to be delivered by Seller to Buyer after the date hereof pursuant to Sections 6.5 and 8.8 hereof will fairly present, in all material respects, the financial position of Seller, as at the respective dates thereof and the results of operations and cash flows for the respective periods then ended (subject in the case of unaudited information to normal, recurring year-end adjustments that will not be material either individually or in the aggregate and to any other adjustments described therein) in conformity with GAAP. Except as set forth on Schedule 4.5, Seller’s independent auditors have not advised Seller that they have identified any control deficiency, significant deficiency or material weakness in the system of internal control over financial reporting (each term as defined in Auditing Standard No. 2 of the Public Company Accounting Oversight Board) utilized by Seller. Neither Seller nor, to Seller’s Knowledge , any of its employees or Seller’s independent auditors have identified or been made aware of (i) any fraud, whether or not material, that involves Seller’s management or other employees who have a role in the preparation of financial statements or the internal control over financial reporting utilized by Seller or (ii) any claim or allegation regarding the foregoing. Schedule 4.5 includes a list of all of Seller’s revenues by NAICS codes for the years ended December 31, 2005 and December 31, 2002 in the format required by item 5 of the Hart-Scott-Rodino Notification and Report Form.

     4.6 Acquired Assets; Sufficiency. Seller has provided to Buyer a detailed list of the Acquired Assets which is true and correct in all material respects. Except as set forth on Schedule 4.6, Seller has good and marketable title to all of the Acquired Assets and has the right to transfer all right, title and interest in the Acquired Assets to Buyer, free and clear of any Encumbrance. The Acquired Assets, together with the rights related thereto, shall provide Buyer with the means and capability to perform, in all material respects, the obligations of Buyer with respect to the Assumed Liabilities in substantially the same manner as such obligations have been performed by Seller prior to the Closing and otherwise to conduct the Business immediately after the Closing in the ordinary course thereof and in accordance with past practices. Tangible Property included in the Acquired Assets is in good and serviceable condition (subject to normal wear and tear) and is suitable for the uses for which intended.

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     4.7 Absence of Undisclosed Liabilities. Except as set forth on Schedule 4.7, Seller has not incurred, and neither the Acquired Assets nor Seller is subject to, any material Obligations (whether accrued, absolute, contingent or otherwise) which are not shown or reflected on the Financial Statements.

     4.8 Operations Since December 31, 2005. Except as set forth on Schedule 4.8, from December 31, 2005 (or such other date indicated below) to the date of this Agreement, Seller has conducted its business in the ordinary course consistent with past practice and:

     (a) Seller has not (i) created or assumed any Encumbrance upon any of the Acquired Assets; (ii) incurred any Obligation in excess of $50,000; (iii) made any loan or advance to any Person (other than advances of travel expenses to employees in the ordinary course of business); (iv) assumed, guaranteed or otherwise become liable for any Obligation of any Person; (v) committed for any capital expenditure in excess of $50,000; (vi) purchased, leased, sold, abandoned or otherwise acquired or disposed of any asset or property identified within the Acquired Assets having a value in excess of $50,000; (vii) waived any right or canceled any debt or claim; (viii) assumed or entered into any Significant Contract, other than those included in the Significant Contracts listed on Schedule 4.14, (ix) declared, set aside or paid any dividend or distribution on any class of its equity securities, (x) since September 30, 2006, increased compensation payable or to become payable to its officers or employees or any increase in any bonus, insurance, pension or other benefit, payment or arrangement made to, for or with such officers or employees, (xi) changed accounting methods, principles or practices except in accordance with GAAP (all of which changes are set forth on Schedule 4.8), or (xii) taken any action that, if taken during the period from the date hereof through Closing, would constitute a breach of Sections 6.2 and 6.3 hereof.

     (b) There has been no Material Adverse Effect affecting Seller or the Acquired Assets.

     4.9 Accounts Receivable. All of Seller’s Accounts Receivable arose in the ordinary course of business and are proper and valid accounts receivable. There are no material (individually or in the aggregate) refunds, discounts or rights of setoff or assignment affecting any such Accounts Receivable that are not reflected on the Financial Statements. Proper amounts of deferred revenues appear on Seller’s books and records, in accordance with GAAP. None of the Accounts Receivable are from Governmental Authorities subject to Assignment of Claims Act or any state law counterparts.

     4.10 Tangible Property. Except as set forth on Schedule 4.6, Seller has good and valid title to all of its Tangible Property, free and clear of any Encumbrances other than Permitted Encumbrances. All of Seller’s Tangible Property is located at the Facilities (as defined in Section 4.11) or to the extent not material, is in the possession of Seller’s field personnel, and Seller has the full and unqualified right to require the immediate return of any of its Tangible Property that is not located at the Facilities.

     4.11 Real Property. Seller owns no Real Property. Schedule 4.11 lists all Real Property leased by Seller (the “Facilities”), showing location, rental cost, landlord, square footage and lease expiration date of each respective leased Real Property, together with details of

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any security deposit and other prepaid amounts made or owing in respect of each Real Property lease. To Seller’s Knowledge, the Real Property is not subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations on use of any nature, except for zoning laws and other land use restrictions, which would prohibit the operation of Seller’s Business as presently conducted. Seller has heretofore delivered or made available to Buyer true, correct and complete copies of all Real Property leases, including all modifications, amendments and supplements thereto. Each Real Property lease is valid, binding and in full force and effect, and as of the Closing all amounts currently owing pursuant to the Real Property leases will have been paid in full. Seller is not in default or breach in any material respect under any Real Property lease and no event or circumstance has occurred that, with notice or lapse of time or both, would constitute any material event of default thereunder. Seller has not received notice of, nor has there been any, threatened default by any landlord under any Real Property lease. All required consents, approvals or authorization of, filing with, or notice to, any party to any Real Property lease in connection with the transactions contemplated by this Agreement have been completed or will be obtained prior to Closing.

     4.12 Software. Schedule 4.12 is an accurate and complete list and description of all Software and Proprietary Software owned, marketed, licensed, used or under development by Seller. Except as otherwise provided on Schedule 4.12, Seller has good and valid title to all Proprietary Software listed on Schedule 4.12 and has the full right to use and transfer to Buyer all of Seller’s Software and Proprietary Software listed on Schedule 4.12, free and clear of any Encumbrance (except for restrictions contained in licensed commercially available Software other than Proprietary Software). None of Seller’s Proprietary Software listed on Schedule 4.12, or Seller’s uses of such Proprietary Software, has violated or infringed upon, or is violating or infringing upon, any Software or other intellectual property of any Person. To Seller’s Knowledge, no Person is violating or infringing upon, or has violated or infringed upon at any time, any of Seller’s Proprietary Software listed on Schedule 4.12. To the Knowledge of Seller, the documentation and source code with its embedded commentary, descriptions, and indicated authorship, the specifications and the other informational materials that describe the operation, functions, and technical characteristics applicable to the Proprietary Software listed on Schedule 4.12 is complete in all material respects and sufficient to permit Buyer to support and maintain the business of Seller as currently conducted. Seller has taken reasonably prudent actions (determined by reference to the actions of companies of a similar size in similar business lines) necessary to maintain the Proprietary Software as protectable trade secrets. Seller has taken reasonably prudent actions (determined by reference to the actions of companies of a similar size in similar business lines) to protect the data contained in its Information Technology Systems related to its business and protect against the existence of (i) any protective, encryption, security or lock-out devices that might in any way interrupt, discontinue, or otherwise adversely affect the use of such Information Technology Systems; and (ii) any so-called computer viruses, worms, trap or back doors, Trojan horses or any other instructions, codes, programs, data or materials (collectively, “Malicious Instructions”) that could improperly interfere with the operation or use of such Information Technology Systems. None of the Information Technology Systems related to the business of Seller has experienced bugs, failures, breakdowns, continued substandard performance, Malicious Instructions, data losses, data-integrity problems, hacking attempts or security breaches since January 1, 2005, that have caused any substantial disruption or interruption in, or to the use of, any such Information Technology Systems. Seller has not provided the source code for any Proprietary Software to any other Person, directly or indirectly,

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by license, transfer, sale, escrow, or otherwise, or granted permission to any other Person to reverse engineer, disassemble, or decompile the Proprietary Software.

     4.13 Intellectual Property Assets.

     (a) Schedule 4.13(a) contains a complete and accurate list and summary description of all registered Trademarks, Patents, Copyrights and Net Names and all of Seller’s Contracts relating to the Intellectual Property Assets, including any royalties paid or received by Seller, and all material unregistered Intellectual Property Assets. Seller has delivered to Buyer accurate and complete copies of any registrations for Intellectual Property Assets and any such Contracts, except for any license implied by the sale of a product and licenses for commonly available Software programs under which Seller is the licensee. All of Seller’s rights related to the Intellectual Property Assets are valid and enforceable. There are no outstanding and, to Seller’s Knowledge, no threatened disputes or disagreements with respect to any such registration or Contract. No allegations have been asserted or, to Seller’s Knowledge, threatened that the Intellectual Property Assets violate or infringe upon any intellectual property or other rights of any other person. Seller has not received a notice that it is required to license any Person’s intellectual property for which it does not currently have a license. No customer Contract transfers ownership of any Intellectual Property Assets to the customer, and Seller has not transferred ownership rights in any Intellectual Property Assets to (i) Hilton Hotels Corporation under the Preferred Vendor Services Agreement, dated January 12, 2004 or (ii) SITA Information Networking Computing USA Inc. (“SITA”), the City of Atlanta Department of Aviation or the Hartsfield-Jackson Atlanta International Airport under the Agreement with SITA described on Schedule 4.19.

     (b) Except as set forth in Schedule 4.13(b):

     (i) the Intellectual Property Assets are all those necessary for the operation of the Business as it is currently conducted. Seller is the owner or licensee of all right, title and interest in and to each of the Intellectual Property Assets, free and clear of all Encumbrances, and has the right to use without payment to a third party all of the Intellectual Property Assets, other than in respect of licenses listed in Schedule 4.13(a).

     (ii) all current employees of Seller have executed, or will execute prior to the Closing Date, written Contracts with Seller substantially in the form of Exhibit 4.13(b)(ii) that assign to Seller all rights to any inventions, improvements, discoveries or information relating to the Business.

     (iii) All of the Intellectual Property Assets (other than commonly available Software licensed by Seller as licensee) are assignable to Buyer without the requirement of any consent or the payment of any fees.

     (c) Trademarks.

     (i) The name “StayOnline” has been registered as a service mark with the United States Patent and Trademark Office (the “PTO”), and such registration is currently in compliance with all formal requirements of Law (including the

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timely post-registration filing of affidavits of use and incontestability and renewal applications), is valid and enforceable and is not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date.

     (ii) Seller’s registered Trademark has not been and is not now involved in any opposition, invalidation or cancellation Proceeding and, to Seller’s Knowledge, no such action is threatened.

     (iii) To Seller’s Knowledge, there is no trademark registered with, or trademark application pending with, the PTO of any other Person potentially interfering with or infringing on Seller’s registered Trademark.

     (iv) All products and materials containing Seller’s registered Trademark bear the proper federal registration notice where permitted by law.

     (d) Trade Secrets. Seller has taken reasonably prudent actions (determined by reference to the actions of companies of a similar size in similar business lines) to protect the secrecy, confidentiality and value of all Trade Secrets.

     (e) Net Names. All Net Names have been registered in the name of Seller and are in compliance with all formal requirements of law. No Net Name has been or is now involved in any dispute, opposition, invalidation or cancellation Proceeding and, to Seller’s Knowledge, no such action is threatened with respect to any Net Name.

     4.14 Significant Contracts.

     (a) For the purposes of this Agreement, “Significant Contracts” means (a) all of the Contracts to which Seller is a party or by which Seller is bound under which Seller’s payment obligations, or Seller’s rights to receive payment, exceed $25,000 in any 12-month period or $100,000 over the term of the Contract, or on which Seller is otherwise substantially dependent in connection with the conduct of the Business, (b) any agreement with a customer (including any master agreement pursuant to which Seller has entered into multiple service agreements covering individual hotels) under which Seller’s right to receive payment exceeds $25,000 in any 12-month period or $50,000 over the term of the Contract, (c) any outstanding purchase order or group of purchase orders, or understandings or commitments payable to the same payee pursuant to which the amount payable to Seller exceeds $25,000, (d) any agreement governing a general or limited partnership, limited liability company or other form of joint venture to which Seller is a party or by which Seller is bound, (e) any agreement under which Seller has created, incurred, assumed or guaranteed or may be obligated to create, incur, assume or guarantee any Indebtedness or any capitalized lease obligation in an amount in excess of $25,000 or under which Seller has imposed an Encumbrance on any of Seller’s assets having a book value in excess of $5,000, (f) any agreement, arrangement or commitment under which Seller has agreed or committed to advance or loan or has advanced or loaned any amount to any of its directors, officers or employees or any family member thereof, other than advances with respect to reasonable and customary business expenses incurred in the ordinary course of business, (g) any agreement, arrangement or commitment entered into outside the ordinary course of business and pursuant to which any obligations or liabilities (whether absolute, contingent or otherwise) remain outstanding,

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(h) any employment, bonus or consulting agreement, arrangement or commitment involving potential payments in excess of $100,000, (i) any agreement that contains any preferential or “most favored nations” provisions, (j) any agreements that guarantee any person a particular amount of payment irrespective of such person’s performance of any of its obligations under such agreement, (k) any agreement that contains a restriction on assignment or that requires payment or results in a modification of the terms or termination of the agreement on a change of control, (l) any agreement that prohibits the incurrence of a lien on Seller’s assets, (m) any agreement involving indemnification for obligations of or losses or damages incurred by third parties that are not otherwise included in an Assumed Contract, or (n) any agreement pursuant to which Seller has acquired or is obligated to acquire any material portion of the assets or business of any other person since Seller’s date of incorporation, or any amendments, modifications or supplements to any of the foregoing.

     (b) Each of the Significant Contracts constitutes a valid and binding obligation of Seller, is in full force and effect and is enforceable against Seller in accordance with its terms, subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding at equity or at law), and except as enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to creditors’ rights. Set forth on Schedule 4.14 is an accurate and complete list of all Significant Contracts. Seller has provided Buyer a true and complete copy of each Significant Contract. Except as set forth on Schedule 4.14, with respect to each of the Significant Contracts, Seller is not in default thereunder in any material respect nor would be in default thereunder in any material respect with the passage of time, the giving of notice or both. Except as set forth on Schedule 4.14, to Seller’s Knowledge, none of the other parties to any Significant Contract is in default thereunder in any material respect or would be in default thereunder with the passage of time, the giving of notice or both. Except as set forth on Schedule 4.14, Seller has not given or received any notice of default or notice of termination with respect to any Significant Contract. The Significant Contracts are all the material Contracts necessary and sufficient to operate the Business as currently operated. Except as set forth on Schedule 4.14, there are no currently outstanding proposals or offers submitted by Seller to any customer, prospect, supplier or other Person which, if accepted, would result in a legally binding Significant Contract of Seller.

     4.15 Employees and Independent Contractors. Except as limited by any employment Contracts listed on Schedule 4.14 and except for any limitations of general application which may be imposed under applicable employment Laws, Seller has the right to terminate the employment of each of its employees at will and to terminate the engagement of any of its at will independent contractors without payment to such employee or independent contractor other than for services rendered through termination and without incurring any penalty or liability other than liability for severance pay in accordance with the employment Contracts listed on Schedule 4.14. Seller is in material compliance with all Laws respecting employment practices. Seller has not been a party to or bound by any union or collective bargaining Contract, nor is any such Contract currently in effect or being negotiated by or on behalf of Seller and, to Seller’s Knowledge, there are no union organizing activities involving Seller’s employees. Seller has not experienced any labor problem that was or is material to the Business. Seller’s relations with its

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employees are currently on a satisfactory and normal basis. Except as indicated on Schedule 4.15, no officer of Seller has indicated to Seller an intention to terminate his employment with Seller. To the Knowledge of Seller, no officer, employee or independent contractor of Seller is in violation of any term of any contract, proprietary information agreement, noncompetition agreement or any other agreement or any restrictive covenant or any other common law obligation to a former employer relating to the right of any such person to be engaged by Seller or to the use of trade secrets or proprietary information of any such former employer. Seller is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses, perquisites or any other form of compensation for any services performed by them or amounts required to be reimbursed to such employees. Schedule 4.15 sets forth a complete and accurate list of the following information for each employee of Seller: name, job title, location in which employed, current compensation paid or payable, and service credited for purposes of vesting and eligibility to participate under any Employee Benefit Plan listed on Schedule 4.16.

     4.16 Employee Benefit Plans. Except as set forth on Schedule 4.16, Seller does not sponsor, maintain or contribute to, or have any ongoing Obligations with respect to, any Employee Benefit Plan, including, but not limited to, any employee benefit plan as defined in ERISA, with respect to employees of Seller. Copies of all Employee Benefit Plans described on Schedule 4.16 have been delivered to Buyer along with copies of all summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the two most recent years’ Form 5500s and financial reports, and any notices to or from the Internal Revenue Service or any office or representative of the Department of Labor or any similar Governmental Authority. With respect to each Employee Benefit Plan described on Schedule 4.16, Seller has operated and currently operates such plan in compliance with the plan documents and all applicable Laws, including without limitation ERISA and the Internal Revenue Code of 1986, as amended (the “Code”). No liability or contingent liability under Title IV or Section 302 of ERISA has been incurred by Seller or any ERISA Affiliate that has not been satisfied in full, and neither Seller nor any ERISA Affiliate made, or was required to make, contributions to any Employee Benefit Plan subject to Title IV of ERISA during the last six years ended prior to the Closing Date. Neither Seller nor any ERISA Affiliate sponsors or ever has sponsored, maintained, contributed to or incurred an obligation to contribute to any Multiemployer Plan or to a Multiple Employer Plan. There are no actions, suits or claims pending or, to the Knowledge of Seller, threatened (other than routine claims for benefits) in writing with respect to or relating to any Employee Benefit Plan. To the Knowledge of Seller, no event has occurred and there currently exists no condition or set of circumstances in connection with which Seller or any of its ERISA Affiliates could be subject to any liability (other than routine claims for benefits) under the terms of any Employee Benefit Plan, ERISA, the Code, or any other law applicable to Seller’s Employee Benefit Plans. “ERISA Affiliate” means any entity which is part of a “controlled group” with Seller or is under “common control” with Seller, or is treated as employed by a single employer with Seller (within the meaning of Sections 414(b), (c), (m) or (o) of the Code).

     4.17 Customers, Prospects and Suppliers. Each of the fifteen (15) largest customers of Seller (measured by the total amount paid during the nine (9) months ended September 30, 2006 by such customers to Seller for its services and grouping as one customer multiple franchisees of a single franchisor with which Seller has contracted) (the “Fifteen Largest Customers”) has signed a Contract and is listed on Schedule 4.17. Seller has previously delivered to Buyer a list

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of Seller’s prospects and proposals with respect to its Business. Schedule 4.17 lists such prospects to which Seller has made a proposal that, if accepted, would reasonably be expected to cause such prospect to become one of Seller’s fifteen (15) largest customers during the first twelve (12) months of the resulting agreement. All of the proposals made to the prospects listed on Schedule 4.17 are still pending and have not been rejected. Except as set forth on Schedule 4.17, none of the Fifteen Largest Customers has given notice or otherwise indicated to Seller that it will or intends to terminate or not renew any Significant Contract before the scheduled expiration date or otherwise terminate its relationship with Seller and since December 31, 2005, there has not been any material adverse change in the business relationship of Seller with any of the Fifteen Largest Customers. To Seller’s Knowledge, the transactions contemplated by this Agreement will not have a Material Adverse Effect on Buyer’s relations with any of the Fifteen Largest Customers. There has not been any Material Adverse Effect since December 31, 2005 in the business relationship of Seller with any supplier from whom Seller purchased more that five percent (5%) of the goods and services which it purchased during the same period.

     4.18 Taxes. Except as disclosed on Schedule 4.18, Seller has timely filed all Tax Returns and reports required to be filed by it, all of which to Seller’s Knowledge were accurately prepared, and, except as set forth in Schedule 4.18, Seller has timely paid all Taxes or withholdings required to be paid by it with respect to such Tax Returns. Seller has properly withheld from payments to its employees, contractors, salesmen, agents, representatives, vendors and other Persons all amounts required by Law to be withheld, and Seller has timely filed all Tax Returns to be filed by it with respect to such withholdings. Except as indicated on Schedule 4.18, (a) no audit or other Proceeding relating to Taxes is pending or threatened against Seller; (b) no notice of deficiency or adjustment has been received by Seller, by or from any governmental taxing authority, with respect to sales, use, excise, real property, payroll, withholding or similar Taxes; (c) there are no agreements or waivers in effect that provide for an extension of time for the assessment of any such Tax against Seller; (d) Seller has established on its books and records reserves in accordance with GAAP that are adequate for the payment of all Taxes of Seller not yet due and payable; and (e) there are no liens for Taxes upon the Acquired Assets other than any liens for Taxes not yet due and payable.

     4.19 Proceedings and Judgments. Except as described on Schedule 4.19, (i) no Proceeding involving or related to the Acquired Assets or the Business is currently pending or threatened, nor during the two (2) years preceding the date of this Agreement has any material Proceeding occurred to which Seller is or was a party or by which the Acquired Assets are or were affected in any material respect; (ii) no Judgment involving or related to Seller, the Acquired Assets or the Business is currently outstanding, nor during the two (2) years preceding the date of this Agreement has any material Judgment been outstanding against Seller, the Acquired Assets or the Business or by which Seller, the Acquired Assets or the Business is or was affected, which remains unsatisfied; and (iii) no breach of contract, material breach of warranty, tort, negligence, infringement, product liability, discrimination, charge or complaint filed by an employee or a union with a court of law, the National Labor Relations Board, the Department of Labor, the Equal Employment Opportunity Commission, or any comparable Governmental Authority, or any other labor or employment dispute against or affecting Seller or its premises, and including but not limited to any claim or charge for wrongful termination, harassment, defamation, unfair labor practices, wage and hour violations, or violation of any federal, state or local laws governing employment, or other material claim of any nature

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involving or related to Seller, the Acquired Assets or the Business is currently being asserted or threatened by or against Seller, and to Seller’s Knowledge there is no basis for any such claim. As to each matter described on Schedule 4.19, accurate and complete copies of all pertinent pleadings, judgments, orders, correspondence and other legal documents have been delivered to Buyer.

     4.20 Insurance. Schedule 4.20 is an accurate and complete list of all Insurance Policies currently owned or maintained by Seller. Seller has not received notice of cancellation with respect to any such current Insurance Policy, and to Seller’s Knowledge there is no basis for the insurer thereunder to terminate any such current Insurance Policy. Each such Insurance Policy is or was in full force and effect during the period(s) of coverage indicated on Schedule 4.20. All premiums payable by Seller under all such Insurance Policies have been timely paid, and Seller otherwise has complied in all material respects with the terms and conditions of all such Insurance Policies. Seller has not received notice of any threatened termination of, material premium increase with respect to, or material alteration of coverage under, any of such Insurance Policies. Except as described on Schedule 4.20 and except for claims by covered employees under medial, dental and health insurance policies, there are no claims that are pending under any of the Insurance Policies described on Schedule 4.20.

     4.21 Questionable Payments. To Seller’s Knowledge, neither Seller nor any of the current or former directors, executives, officers, representatives, agents or employees of Seller (when acting in such capacity or otherwise on behalf of Seller): (a) has used or is using any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) has used or is using any corporate funds for any direct or indirect unlawful payments to any foreign or domestic government officials or employees; (c) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977; (d) has established or maintained, or is maintaining, any unlawful or unrecorded fund of corporate monies or other properties; (e) has made any false or fictitious entries on the books and records of Seller; (f) has made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature using corporate funds or otherwise on behalf of Seller; or (g) made any material favor or gift that is not deductible for federal income tax purposes using corporate funds or otherwise on behalf of Seller.

     4.22 Related Party Transactions. Except as described on Schedule 4.22 and except for any employment Contracts listed on Schedule 4.14, (a) no director, officer, record or beneficial owner of five percent (5%) or more of the equity securities of Seller, affiliate or controlling Persons of Seller, (b) no immediate family member of any such director, officer, record or beneficial owner of five percent (5%) or more of the equity securities of Seller, affiliate or controlling Person, and (c) no entity controlled by any one or more of the foregoing (excluding Seller) (collectively, the “Related Parties”): (i) owns, directly or indirectly, any interest in (excepting not more than three percent (3%) stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any Person that is engaged in business as a competitor of Seller, or as a lessor, lessee, customer, distributor, sales agent, or supplier of any material amount of goods or services to Seller; (ii) owns, directly or indirectly, in whole or in part, any material tangible or intangible property that Seller uses or the use of which is necessary for the conduct of its Business; (iii) has any cause of action or other claim whatsoever against Seller or its Business; (iv) on behalf of Seller, has made any payment or commitment to pay any commission, fee or other amount to, or

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purchase or obtain or otherwise contract to purchase or obtain any goods or services from, any corporation or other Person of which any officer or director of Seller, or an immediate family member of the foregoing, is a partner or stockholder (excepting stock holdings solely for investment purposes in securities of publicly held and traded companies). Schedule 4.22 contains a complete list of all material Contracts between Seller and any Related Party relating to the Business, entered into on or prior to the date of this Agreement or contemplated to be entered into before Closing.

     4.23 Brokerage Fees. Except for the fees payable to Daniels & Associates, L.P. as set forth on Schedule 4.23, which fees and all other costs and expenses relating thereto shall be paid by Seller, no Person acting on behalf of Seller is or shall be entitled to any brokerage, finder’s or investment banking fee in connection with the transactions contemplated by this Agreement.

     4.24 Full Disclosure. To Seller’s Knowledge, no representation or warranty made by Seller in this Agreement: (a) contains any untrue statement of any material fact; or (b) omits to state any fact that is necessary to make the statements made, in the context in which made, not false or misleading in any material respect.

     4.25 Litigation. There is no litigation or other Proceeding pending or, to the Knowledge of Seller, threatened against Seller that questions or challenges the validity of this Agreement or any of the Related Agreements, the consummation of the transactions contemplated hereby or any action taken or to be taken by Seller pursuant to this Agreement or any Related Agreement.

     4.26 Environmental Matters. Seller has obtained, or has timely applied for, all permits, licenses, approvals, identification numbers and any other authorizations (collectively, “Environmental Permits”) required under applicable Environmental Laws to conduct its business and operations as currently conducted. Seller is in material compliance with all applicable Environmental Laws and Environmental Permits, and Seller has not received any written communication from any Person or Governmental Authority that alleges that Seller is not in such compliance. There are no Environmental Claims pending or, to the Knowledge of Seller, threatened in writing, against Seller. Seller (i) has not entered into or agreed to any consent decree or order and is not subject to any judgment, decree or judicial order relating to compliance with Environmental Laws, Environmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Substances, or (ii) is not an indemnitor in connection with any claim asserted in writing or, to the Knowledge of Seller, threatened in writing against Seller by any third-party indemnitee for any liability under any Environmental Law or relating to any Hazardous Substances. Seller has not treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including any Hazardous Substance, or owned or operated any property or facility in a manner, that has given, or to the Knowledge of Seller reasonably could give, rise to any material liabilities pursuant to any Environmental Laws.

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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER

     As of the date hereof, Buyer represents and warrants to and for the benefit of Seller as follows:

     5.1 Organization. Buyer is a corporation that is duly organized, validly existing and in good standing under the Laws of the State of Delaware. Buyer has full corporate power and authority to own its assets, conduct its business as and where such business is presently conducted, and enter into this Agreement.

     5.2 Effect of Agreement. The execution, delivery and performance by Buyer of this Agreement and the Related Agreements to which it is a party, and its consummation of the transactions contemplated hereby and thereby, (a) have been duly authorized by all necessary corporate actions by its Board of Directors; (b) do not constitute a violation of or default under its charter or bylaws; (c) do not constitute a default or breach (after the giving of notice, passage of time or both) under any Contract to which it is a party or by which it is bound; (d) do not constitute a violation of any Law or Judgment that is applicable to it or to the transactions contemplated by this Agreement; and (e) do not require the consent of any Person. This Agreement and the Related Agreements to which Buyer is a party constitute the valid and legally binding agreements of Buyer, enforceable against Buyer in accordance with their respective terms.

     5.3 Brokerage Fees. No Person acting on behalf of Buyer is entitled to any brokerage, finder’s or investment banking fee in connection with the transactions contemplated by this Agreement.

     5.4 Litigation. There is no litigation or other Proceeding pending or, to the Knowledge of Buyer, threatened against Buyer that questions or challenges the validity of this Agreement or any of the Related Agreements, the consummation of the transactions contemplated hereby or any action taken or to be taken by Buyer pursuant to this Agreement or any Related Agreement.

     5.5 Availability of Funds. Buyer will have cash on hand sufficient to fund Buyer’s payment of the entire Purchase Price at the Closing.

ARTICLE 6
COVENANTS OF SELLER PRIOR TO CLOSING

     6.1 Access And Investigation. Between the date of this Agreement and the Closing Date, and upon reasonable advance notice received from Buyer, Seller shall (a) afford Buyer and its representatives (collectively, “Buyer Group”) full and free access, during regular business hours, to Seller’s personnel, properties, Contracts, Permits, books and records and other documents and data, such rights of access to be exercised in a manner that does not unreasonably interfere with the operations of Seller; (b) furnish Buyer Group with copies of all such Contracts, Permits, books and records and other existing documents and data as Buyer may reasonably request; (c) furnish Buyer Group with such additional financial, operating and other relevant data and information as Buyer may reasonably request; and (d) otherwise cooperate and assist, to the

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extent reasonably requested by Buyer, with Buyer’s investigation of the properties, assets and financial condition of Seller.

     6.2 Operation of the Business of Seller. Between the date of this Agreement and the Closing, Seller shall:

     (a) conduct its business only in the ordinary course consistent with past practice;

     (b) except as otherwise directed by Buyer in writing, and without making any commitment on Buyer’s behalf, use its best efforts to preserve intact its current business organization, keep available the services of its officers, employees and agents and maintain its relations and goodwill with suppliers, customers, landlords, creditors, employees, agents and others having business relationships with it;

     (c) confer with Buyer prior to implementing operational decisions of a material nature;

     (d) otherwise report periodically to Buyer concerning the status of its business, operations and finances;

     (e) make no material changes in management personnel without prior consultation with Buyer;

     (f) maintain the Acquired Assets in a state of repair and condition that complies with legal requirements and is consistent with the requirements for the normal conduct of the Business;

     (g) use its best efforts to keep in full force and effect, without amendment, all material rights relating to the Business;

     (h) comply with all material requirements of Law and Contracts applicable to the operations of Business;

     (i) continue in full force and effect the insurance coverage under the policies set forth in Schedule 4.20 or substantially equivalent policies;

     (j) cooperate with Buyer and assist Buyer in identifying the Permits required by Buyer to operate the Business from and after the Closing Date and either transferring existing Permits of Seller to Buyer, where permissible, or obtaining new Permits for Buyer; and

     (k) maintain all financial books and records of Seller relating to the Business in accordance with GAAP.

     6.3 Negative Covenant. Except as otherwise expressly permitted herein, between the date of this Agreement and the Closing Date, Seller shall not, without the prior written consent of Buyer, (a) take any affirmative action, or fail to take any reasonable action within its control, as a result of which any Material Adverse Effect or any of the changes or events listed in

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Section 4.8(a) would be likely to occur; (b) make any modification to any Significant Contract or terminate or cancel any Significant Contract; (c) enter into any compromise or settlement of any Proceeding relating to the Acquired Assets, the Business or the Assumed Liabilities, (d) amend its Certificate of Incorporation or Bylaws, except as contemplated by Section 6.6, (e) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, any Person, (f) enter into any agreement, contract or lease that would constitute a Significant Contract, except in the ordinary course of business, (g) incur or commit to any capital expenditure other than capital expenditures incurred or committed to in the ordinary course of business, (h) adopt, commit to adopt, enter into, terminate or amend any Employee Benefit Plan, (i) make or change any accounting method or tax election or file an amended Tax Return, (j) enter into any agreement with any directors, employees, or officers, or (k) grant any license or sublicense to any rights under the Intellectual Property Assets.

     6.4 Notification. Between the date of this Agreement and the Closing, Seller shall promptly notify Buyer in writing if it becomes aware of (a) any fact or condition that causes or constitutes a breach of any of Seller’s representations and warranties made as of the date of this Agreement or (b) the occurrence after the date of this Agreement of any fact or condition that would be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had that representation or warranty been made as of the time of the occurrence of, or Seller’s discovery of, such fact or condition. Should any such fact or condition require any change to any Schedule hereto, Seller shall promptly deliver to Buyer a supplement to the Schedule specifying such change. Such delivery shall not affect any rights of Buyer under Section 10.2 and Article 12.

     6.5 Monthly Financial Statements. Until the Closing Date, Seller shall deliver to Buyer within thirty (30) days after the end of each month a copy of the balance sheet, statement of operations, change in stockholders’ equity and cash flow statement for such month prepared in a manner and containing information in accordance with GAAP and certified by Seller’s Chief Financial Officer as to compliance with Section 4.5.

     6.6 Change of Name. On or before the Closing Date, Seller shall (a) take all corporate action necessary to approve and authorize the amendment of its certificate of incorporation to change its name to one sufficiently dissimilar to Seller’s present name, in Buyer’s judgment, to avoid confusion and (b) take all actions requested by Buyer or a subsidiary of Buyer to enable Buyer or a subsidiary of Buyer to change its name to Seller’s present name after the Closing.

     6.7 Payment of Liabilities. Seller shall pay or otherwise satisfy in the ordinary course all of its Obligations.

     6.8 Shareholder Meeting. Seller shall cause a meeting of its shareholders (the “Shareholder Meeting”) to be duly called and held as soon as reasonably practicable after the date hereof for the purpose of obtaining the approval contemplated by Section 9.4 of this Agreement. In connection with the Shareholder Meeting, Seller shall (i) subject to the provisions of Section 11.14(b) the Board shall recommend to the shareholders that the shareholders approve this agreement and use all reasonable efforts to obtain the approval of its shareholders of the transaction contemplated by this Agreement, and (ii) otherwise comply with all legal

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requirements applicable to such meeting. In lieu of holding the Shareholder Meeting, the Seller, at its election, may cause the actions required hereunder to be approved by written consent of its shareholders.

ARTICLE 7
COVENANT OF BUYER PRIOR TO CLOSING

     Buyer shall use its best efforts to cause the conditions in Article 9 to be satisfied at or prior to the Closing.

ARTICLE 8
CONDITIONS TO BUYER’S OBLIGATION TO CLOSE

     Buyer’s obligation to purchase the Acquired Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

     8.1 Accuracy of Representations.

     (a) The representations and warranties in Section 4.2 and each other representation and warranty in this Agreement that contains an express materiality qualification, shall have been accurate in all respects as of the date of this Agreement, and shall be accurate in all respects as of the time of the Closing as if then made, without giving effect to any supplement to any schedules hereto.

     (b) Each of Seller’s representations and warranties in this Agreement other than those referred to in paragraph (a) of this Section 8.1 shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the time of the Closing as if then made, without giving effect to any supplement to any schedules hereto.

     8.2 Seller’s Performance. Each of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing shall have been duly performed and complied with in all material respects.

     8.3 Consents. Each of the Consents identified in Schedule 8.3 shall have been obtained and shall be in full force and effect.

     8.4 Additional Documents. Seller shall have caused the following documents to be delivered to Buyer:

     (a) a bill of sale for all of the Acquired Assets that are Tangible Property in the form of Exhibit 8.4(a) (the “Bill of Sale”), executed by Seller;

     (b) an assignment of all of the Acquired Assets that are Intellectual Property Assets in the form of Exhibit 8.4(b), which assignment shall also contain Buyer’s undertaking and assumption of the Assumed Liabilities (the “Assignment and Assumption Agreement”), executed by Seller;

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     (c) a separate assignment of Seller’s registration for the service mark “StayOnline” (Registration No. 2665968) in the form of Exhibit 8.4(c), executed by Seller;

     (d) the assignments of the leases of the Facilities in a form reasonably acceptable to Buyer and Seller (the “Assignments of Facilities”), executed by Seller;

     (e) such other bills of sale, assignments, certificates, documents and other instruments of transfer and conveyance as may reasonably be requested by Buyer, each in form and substance satisfactory to Buyer and executed by Seller;

     (f) an employment agreement in a form reasonably acceptable to Buyer executed by each of Antonio DiMilia, Steven Berrey, Chris Medders and Ron Peterson (the “Employment Agreements”);

     (g) a non-competition agreement in the form of Exhibit 8.4(g), executed by each of Seller and William C. Newton (the “Non-Competition Agreements”);

     (h) a certificate executed by Chief Executive Officer of Seller as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing in accordance with Section 8.1 and as to its compliance with and performance of its covenants and obligations to be performed or complied with at or before the Closing in accordance with Section 8.2;

     (i) a certificate of the Secretary of Seller certifying, as complete and accurate as of the Closing, and attaching all requisite resolutions or actions of Seller’s Board of Directors and shareholders approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the change of name contemplated by Section 6.6 and certifying to the incumbency and signatures of the officers of Seller executing this Agreement, any Related Agreement to which Seller is a party and any other document relating to such contemplated transactions, and accompanied by the requisite documents for amending Seller’s certificate of incorporation required to effect such change of name in form sufficient for filing with the Secretary of State of Delaware;

     (j) the certificate of incorporation and all amendments thereto of Seller, duly certified as of a recent date by the Secretary of State of Delaware;

     (k) recently dated lien search reports describing all security interests reflected in the Uniform Commercial Code or similar records of such jurisdictions and the United States Patent and Trademark Office as Buyer may reasonably request, indicating that any Encumbrances on any of the Acquired Assets (including, without limitation, the security interests previously granted by Seller to Technology Investment Capital Corp.), other than those to which Buyer does not object and Permitted Encumbrances, have been discharged or released before or simultaneously with the Closing;

     (l) if requested by Buyer, any Consents or other instruments that may be required to permit Buyer’s qualification in each jurisdiction in which Seller is licensed or

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qualified to do business as a foreign corporation under the name “StayOnline” or any derivative thereof;

     (m) opinion of counsel to Seller in a form reasonably acceptable to Buyer and Seller;

     (n) payoff letters for repayment in full of all Indebtedness secured by any of the Acquired Assets, which set forth the terms and conditions for payment and satisfaction in full of all such Indebtedness and release of all Encumbrances granted by Seller relating thereto on and as of the Closing Date and release and termination of all Deposit Account Control Agreements relating thereto;

     (o) evidence of payoff of all Obligations of Seller under the Employee Benefit Plans, including, but not limited to, any salaries, bonuses, commissions, accrued vacation pay, benefits or severance; and

     (p) the Escrow Agreement in the form of Exhibit 3.4, executed by each of Seller and Escrow Agent.

     8.5 No Proceedings. There shall not have been commenced or threatened against Seller or Buyer any litigation or other Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated by this Agreement or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of such contemplated transactions.

     8.6 Permits. Buyer shall have received such Permits as are necessary to allow Buyer to operate the Acquired Assets from and after the Closing.

     8.7 No Material Adverse Effect. Since the date of this Agreement there shall not have occurred a Material Adverse Effect nor shall there exist any facts or circumstances that could reasonably be expected to cause such a Material Adverse Effect.

     8.8 Financial Statements. Not less than twenty days prior to Closing, Buyer shall have received audited (including an audit report with no qualifications) and unaudited consolidated financial statements of Seller and, to the extent necessary, its predecessor entities necessary for Buyer to comply with any applicable requirements for filings under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC, promulgated thereunder, which shall be certified by the Chief Financial Officer of Seller as fairly presenting in all material respects the matters presented therein and otherwise as materially consistent with the Financial Statements previously provided to Buyer.

     8.9 Deliveries. Buyer shall have received from Seller each item required to be delivered by Seller pursuant to this Agreement.

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ARTICLE 9
CONDITIONS TO SELLER’S OBLIGATION TO CLOSE

     Seller’s obligation to sell the Acquired Assets and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller in whole or in part):

     9.1 Accuracy of Representations. Each of Buyer’s representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the time of the Closing as if then made.

     9.2 Buyer’s Performance. Each of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing shall have been performed and complied with in all material respects.

     9.3 Consents. Each of the Consents identified in Schedule 9.3 shall have been obtained and shall be in full force and effect.

     9.4 Shareholder Approval. Seller’s shareholders shall have approved and authorized the execution and delivery of this Agreement and the Related Agreements by Seller and the consummation of the transactions contemplated hereby and thereby in accordance with Delaware law and Seller’s Organizational Documents.

     9.5 Additional Documents. Buyer shall have caused the following documents to be delivered at Closing to Seller:

     (a) the Assignment and Assumption Agreement executed by Buyer;

     (b) the Assignments of Facilities executed by Buyer;

     (c) the Employment Agreements executed by Buyer;

     (d) a certificate executed by the Chief Executive Officer of Buyer as to the accuracy of Buyer’s representations and warranties as of the date of this Agreement and as of the Closing Date in accordance with Section 9.1 and as to Buyer’s compliance with and performance of its covenants and obligations to be performed or complied with at or before the Closing in accordance with Section 9.2;

     (e) a certificate of the Secretary of Buyer certifying, as complete and accurate as of the Closing, and attaching all requisite resolutions or actions of Buyer’s Board of Directors approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and certifying to the incumbency and signatures of the officers of Buyer executing this Agreement, and the Related Agreements to which Buyer is a party and any other document relating to such contemplated transactions;

     (f) Opinion of counsel to Buyer in a form reasonably acceptable to Buyer and Seller; and

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     (g) the Escrow Agreement in the form of Exhibit 3.4, executed by each of Buyer and Escrow Agent.

     9.6 No Proceedings. There shall not have been commenced or threatened against Buyer or Seller any litigation or other Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated by this Agreement or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of such contemplated transactions.

     9.7 Purchase Price. Buyer shall have paid the Purchase Price as provided in Section 3.1.

     9.8 Deliveries. Seller shall have received from Buyer each item required to be delivered by Buyer pursuant to this Agreement.

ARTICLE 10
TERMINATION

     10.1 Termination Events. By notice given prior to or at the Closing, subject to Section 10.2, this Agreement may be terminated as follows:

     (a) by Buyer if a material breach of any provision of this Agreement has been committed by Seller and such breach has not been waived by Buyer;

     (b) by Seller (i) if a material breach of any provision of this Agreement has been committed by Buyer and such breach has not been waived by Seller, or (ii) at any time when Seller is entitled to retain the Deposit as a result of a default by Buyer as provided in Section 3.2(d);

     (c) by mutual consent of Buyer and Seller;

     (d) by Buyer if the Closing has not occurred on or before June 30, 2007, or such later date as the parties may agree upon, unless Buyer is in material breach of this Agreement or the reason for the delay is a failure by Buyer to comply with its obligations under this Agreement;

     (e) by Seller if the Closing has not occurred on or before June 30, 2007, or such later date as the parties may agree upon, unless Seller is in material breach of this Agreement or the reason for the delay is a failure by Seller to comply with its obligations under this Agreement; or

     (f) by Seller or Buyer if Seller’s Board of Directors determines in good faith, pursuant to Section 11.14, that an unsolicited Acquisition Proposal constitutes a Superior Proposal and authorizes a Change in Recommendation in response thereto.

     10.2 Effect of Termination. Each party’s right of termination under Section 10.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 10.1, all obligations of the parties under this Agreement will terminate,

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except that the obligations of the parties in this Section 10.2 and Article 14 and the terms of the Confidentiality Agreement will survive, provided, however, that, nothing in this Agreement shall relieve any party from liability for fraud or any intentional breach of this Agreement.

     10.3 Termination in Response to Superior Proposal. If this Agreement is terminated pursuant to Section 10.1(f), then on the earlier of (i) the date on which Seller enters into a definitive written agreement providing for the consummation of a transaction contemplated by the Superior Proposal or (ii) two (2) business days after the date of termination, Seller shall pay to Buyer, by wire transfer of immediately available funds to an account specified by Buyer, a termination fee of One Million Dollars ($1,000,000).

ARTICLE 11
ADDITIONAL COVENANTS

     11.1 Employees and Employee Benefits.

     (a) Information on Active Employees. For the purpose of this Agreement, the term “Active Employees” shall mean all employees employed on the Closing Date by Seller who are employed exclusively in the Business as currently conducted.

     (b) Employment of Active Employees by Buyer.

     (i) Buyer is not obligated to hire any Active Employee but may interview all Active Employees. Buyer will provide Seller with a list of Active Employees to whom Buyer has made an offer of employment that has been accepted to be effective on the Closing Date (the “Hired Active Employees”). Subject to applicable legal requirements, Buyer will have reasonable access to Seller’s Facilities and personnel records (including performance appraisals, disciplinary actions, grievances and medical records) for the purpose of preparing for and conducting employment interviews with all Active Employees and will conduct the interviews as expeditiously as possible prior to the Closing Date. Access will be provided by Seller upon reasonable prior notice during normal business hours. Effective immediately before the Closing, Seller will terminate the employment of all of the Hired Active Employees.

     (ii) Seller shall not solicit the continued employment of any Active Employee (unless and until Buyer has informed Seller in writing that the particular Active Employee will not receive any employment offer from Buyer) or the employment of any Hired Active Employee after the Closing. Buyer shall inform Seller promptly of the identities of those Active Employees to whom it will not make employment offers, and Seller shall comply with the Worker Adjustment and Retraining Notification Act (the “WARN Act”) or similar state or local law, if applicable, as to those Active Employees.

     (iii) It is understood and agreed that (A) Buyer’s expressed intention to extend offers of employment as set forth in this section shall not constitute any commitment, contract or understanding (expressed or implied) of any obligation on the part of Buyer to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that Buyer may

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establish pursuant to individual offers of employment, and (B) employment offered by Buyer is “at will” and may be terminated by Buyer or by an employee at any time for any reason (subject to any written commitments to the contrary made by Buyer or an employee and applicable Law). Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Buyer to terminate, reassign, promote or demote any of the Hired Active Employees after the Closing or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment of such employees.

     (c) Salaries and Benefits.

     (i) Seller shall be responsible for (A) the payment of all wages and other remuneration due to Active Employees with respect to their services as employees of Seller through the close of business on the Closing Date, including pro rata commissions, bonus payments and all vacation pay earned prior to the Closing Date, (B) the payment of any termination or severance payments and the provision of health plan continuation coverage in accordance with the requirements of COBRA and sections 601 through 608 of ERISA; and (C) any and all payments to employees required under the WARN Act or similar state or local law.

     (ii) Seller shall be liable for any claims made or incurred by Active Employees and their beneficiaries through the Closing Date under the Employee Benefit Plans. For purposes of the immediately preceding sentence, a charge will be deemed incurred, in the case of hospital, medical or dental benefits, when the services that are the subject of the charge are performed and, in the case of other benefits (such as disability or life insurance), when an event has occurred or when a condition has been diagnosed that entitles the employee to the benefit.

     (d) General Employee Provisions.

     (i) Seller and Buyer shall give any notices required by applicable Law and take whatever other actions with respect to the plans, programs and policies described in this Section 11.1 as may be necessary to carry out the arrangements described in this Section 11.1.

     (ii) Seller shall provide Buyer with completed I-9 forms and attachments with respect to all Hired Active Employees, except for such employees as Seller certifies in writing to Buyer are exempt from such requirement.

     (iii) Buyer shall not have any responsibility, liability or obligation, whether to Active Employees, former employees, their beneficiaries or to any other Person, with respect to any employee benefit plans, practices, programs or arrangements (including the establishment, operation or termination thereof and the notification and provision of COBRA coverage extension) maintained by Seller.

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     11.2 Payment of All Taxes Resulting from Sale of Assets by Seller. Seller shall pay in a timely manner all Taxes resulting from or payable in connection with the sale of the Assets pursuant to this Agreement, regardless of the Person on whom such Taxes are imposed by Law.

     11.3 Restrictions on Seller Dissolution and Distributions. Seller shall not dissolve, or make any distribution of the Escrow Amount released to it pursuant to Section 3.1, until the later of (a) three (3) business days after the completion of all adjustment procedures contemplated by Section 3.3; or (b) Seller’s payment, or adequate provision for the payment, of all of its obligations pursuant to Section 11.2.

     11.4 Removing Excluded Assets. On or before the Closing Date, Seller shall remove all Excluded Assets from all Facilities to be occupied by Buyer. Such removal shall be done in such manner as to avoid any damage to the Facilities to be occupied by Buyer and any disruption of the business operations to be conducted by Buyer after the Closing. Any damage to the Acquired Assets or to the Facilities resulting from such removal shall be paid by Seller at the Closing or thereafter.

     11.5 Reports and Returns. Seller shall promptly after the Closing prepare and file all reports and returns required by applicable Law relating to the Business as conducted using the Acquired Assets, to and including the Closing Date.

     11.6 Assistance In Proceedings. Seller will cooperate with Buyer and its counsel in the contest or defense of, and make available its personnel and provide any testimony and access to its books and records in connection with, any Proceeding involving or relating to (a) this Agreement or the transactions contemplated hereby or (b) any action, activity, circumstance, condition, conduct, event, fact, failure to act, incident, occurrence, plan, practice, situation, status or transaction on or before the Closing Date involving Seller or the Business.

     11.7 Customer and Other Business Relationships. After the Closing, Seller will cooperate with Buyer in its efforts to continue and maintain for the benefit of Buyer those business relationships of Seller existing prior to the Closing and relating to the Business to be operated by Buyer after the Closing, including relationships with lessors, employees, regulatory authorities, licensors, prospects, customers, suppliers and others, and Seller will satisfy the Excluded Liabilities in a manner that is not detrimental to any of such relationships. Seller will refer to Buyer all inquiries relating to the Business after the Closing.

     11.8 Retention of and Access to Records. After the Closing Date, Buyer shall retain for a period consistent with Buyer’s record-retention policies and practices those books and records of Seller delivered to Buyer. Buyer also shall provide Seller and its representatives reasonable access thereto, during normal business hours and on at least three days’ prior written notice, to enable them to prepare financial statements or tax returns or deal with tax audits. After the Closing Date, Seller shall provide Buyer and its representatives reasonable access to records that are Excluded Assets, during normal business hours and on at least three days’ prior written notice, for any reasonable business purpose specified by Buyer in such notice.

     11.9 Further Assurances. The parties shall cooperate reasonably with each other and with their respective representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information; (b) execute and deliver to each other such other documents; and

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(c) do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions contemplated hereby.

     11.10 Reconciliations and Allocations. At and after the Closing, all payments received by Seller on account of Accounts Receivable in existence as of the Closing Date or arising after the Closing Date under any of the Assumed Contracts and all other payments received by Seller with respect to the operation of the Business after the Closing Date, shall be held in trust for Buyer and shall be promptly paid to Buyer.

11.11 Tax Matters

     (a) Liability for Taxes

     (i) Taxable Periods Ending On or Before the Closing Date. Seller shall be responsible for filing all Tax Returns required to be filed by or with respect to Seller for any taxable year or taxable period ending on or before the Closing Date and shall be liable for all Taxes for any taxable year or period ending on or before the Closing Date which are due and payable by Seller or with respect to the Acquired Assets or Assumed Liabilities.

     (ii) Taxable Periods Commencing On or After the Closing Date. Buyer shall be responsible for filing all Tax Returns required to be filed by or with respect to the Acquired Assets and the Assumed Liabilities for any taxable year or period commencing after the Closing Date and shall be liable for and any and all Taxes for any taxable year or period commencing on or after the Closing Date due or payable by Buyer with respect to the Acquired Assets or Assumed Liabilities.

     (iii) Taxable Periods Commencing Before the Closing Date and Ending After the Closing Date. In the case of any taxable year or period which commences before and would otherwise end after the Closing Date (the “Closing Period”), Seller shall, to the extent required or permitted under applicable Law, end its taxable year or period on the Closing Date. For purposes of paragraphs (i) and (ii) of this Section 11.11(a), the Taxes related to the pre-Closing Date portion of the Closing Period shall (1) in the case of Taxes other than Taxes based upon or related to income, sales, gross receipts, wages, capital expenditures, expenses or any similar Tax base, be deemed to be the amount of such Tax for the entire Closing Period multiplied by a fraction the numerator of which is the number of days in the Closing Period ending on the Closing Date and the denominator of which is the number of days in the entire Closing Period, and (2) in the case of any Tax based upon or related to income, sales, gross receipts, wages, capital expenditures, expenses or any similar Tax base, be deemed equal to the amount which would be payable if the relevant Tax period ended on the Closing Date. Any credits relating to the Closing Period shall be taken into account as though the relevant Tax period ended on the Closing Date.

     (iv) Mutual Cooperation. As soon as practicable, but in any event within thirty (30) days after a request by either Seller or Buyer, the party to which such request is made shall deliver to the requesting party such information and

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other data relating to the Tax Returns and Taxes of Seller or Buyer and shall make available such knowledgeable employees of Seller or Buyer, as may be appropriate, as the requesting party may reasonably request, including providing the information and other data customarily required by the requesting party to cause the completion and filing of all Tax Returns for which the requesting party has responsibility or liability under this Agreement, or to respond to audits by any taxing authorities with respect to any Tax Returns or taxable periods for which the requesting party has any responsibility or liability under this Agreement or to otherwise enable the requesting party to satisfy its accounting or tax requirements.

     (b) Resolution of Disagreements Among Seller and Buyer. If Seller and Buyer disagree as to the amount of Taxes for which each is liable under this Agreement, such dispute shall be resolved pursuant to Section 14.13. In no event shall the arbitrators determine that a party’s liability for Taxes exceeds the maximum amount for which both parties assert such party is liable or determine that a party’s liability for Taxes is less than the minimum amount for which both parties assert such party is liable. The parties’ Tax obligations as finalized by the arbitrators shall be deemed final and conclusive with respect to the parties’ Tax obligations and shall be binding on Seller and Buyer for such purposes. The fees and expenses of the arbitrators in resolving all such objections shall be borne by Seller and Buyer in amounts equal to the proportion that the arbitrator finds that each of Seller and Buyer is responsible to bear in relation to the total amount at issue.

     11.12 Confidentiality. Subject to the obligations of Buyer to provide disclosure to comply with federal securities laws, Buyer on the one hand, and Seller, on the other hand (the party receiving confidential information and its Authorized Representatives, the “Receiving Party”) will maintain in strict confidence, and will cause its respective directors, officers, employees, subsidiaries, agents, and advisors (collectively, “Authorized Representatives”) to maintain in strict confidence, any confidential information disclosed by any other party or its Authorized Representatives (the party disclosing confidential information, the “Disclosing Party”) pursuant to the letter agreement, dated as of April 12, 2006, between Buyer and Daniels & Associates, L.P., for the benefit of Seller (the “Confidentiality Agreement”) or this Agreement, unless (a) such information is already known to the Receiving Party or becomes generally available to the public other than as a result of a disclosure in violation of the Confidentiality Agreement or this provision or a disclosure by a Person owing a duty of confidentiality to the Disclosing Party and known to the Receiving Party, (b) the use of such confidential information is necessary to make a required filing or obtain any consent or approval required for the consummation of the transactions contemplated by this Agreement, (c) such information is disclosed to the Receiving Party’s financial and legal advisors, lenders and investors, solely for the purpose of assisting in the consummation of the transactions contemplated by this Agreement and such Persons are advised prior to such disclosure of the confidential nature of the information disclosed, or (d) the furnishing or use of such information is required by or necessary in connection with any Proceeding, applicable requirements of any stock exchange, or applicable Law; provided, however that if the terms of this Agreement and the transactions contemplated hereby or any confidential information furnished by Seller must, in the reasonable judgment of Buyer’s counsel, be disclosed pursuant to clause (b) or (d) above, then (i) the party proposing to disclose or cause the disclosure of such information will notify the Disclosing Party whose confidential information may be disclosed within a reasonable period of time prior to such disclosure being made, (ii) the party proposing to disclose such information

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will take all actions necessary or reasonably requested by the Disclosing Party to ensure that such information is maintained confidential to the maximum extent possible, (iii) the Disclosing Party will be given a reasonable opportunity to participate in any process or Proceeding for the purpose of ensuring that such information is maintained confidential to the maximum extent possible, and (iv) the party proposing to disclose such information will reasonably cooperate with the Disclosing Party in any such process or Proceeding, and otherwise take such actions as reasonably are requested to the end that such information is maintained confidential to the maximum extent possible. The provisions of this Section 11.12 are intended to supplement and not to supersede or replace the provisions of the Confidentiality Agreement, all provisions of which remain in full force and effect except as modified above.

     11.13 Announcement. Subject to the obligations of Buyer to provide disclosure to comply with federal securities laws, any public announcement, press release or similar publicity with respect to this Agreement or the transactions contemplated by this Agreement will be issued only at such time and in such manner as mutually determined by the parties. Buyer and Seller understand and agree that Buyer will publicly disclose, by means of a press release and a report on Form 8-K filed with the Securities and Exchange Commission, the execution and delivery of this Agreement and the principal terms of the transaction contemplated hereby, including the Purchase Price, within four business days after such execution and delivery and that Buyer may subsequently file a copy of the Agreement with the Securities and Exchange Commission. Buyer and Seller will consult with each other concerning the means by which the employees, customers, and suppliers of Seller and others having dealings with Seller will be informed of the execution of this Agreement and the consummation of the transactions contemplated by this Agreement. The provisions of this Section 11.13 are intended to supplement and not to supersede or replace the provisions of the Confidentiality Agreement.

     11.14 Exclusivity.

     (a) In recognition of the time that will be expended and the expense that will be incurred by Buyer in connection with the transactions contemplated hereby, until such time, if any, as this Agreement is terminated pursuant to Article 10, Seller will not and will not cause its officers, directors, employees, attorneys, financial advisors, agents or other representatives to, directly or indirectly, (a) encourage, solicit, engage in negotiations or discussions about, or provide information with respect to, any inquiry or proposal (an “Acquisition Proposal”) relating to (i) the possible direct or indirect acquisition of all or any portion of the Business, whether through the acquisition of the stock, other ownership interests in Seller, or all or substantially all of the assets of Seller or any business or division of Seller, or (ii) any business combination with or involving Seller or (b) discuss or disclose the existence or terms of this Agreement (except as may be required by Law, or is necessary in connection with the transactions contemplated hereby, and except to the extent that such information becomes public other than as result of a violation hereof) with or to any Person other than Buyer without the prior written consent of Buyer. Nothing contained in this Agreement shall prohibit Seller or its Board of Directors from disclosing to its stockholders any information which, after consultation with its outside legal and financial advisors, is required to be disclosed in order for the Board of Directors to comply with its fiduciary obligations in seeking approval of the stockholders of this Agreement, or is otherwise required, under applicable Law.

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     (b) Notwithstanding anything to the contrary contained in this Section 11.14, if, at any time prior to the shareholder approval contemplated by Section 9.4 of this Agreement, Seller receives an unsolicited Acquisition Proposal that the Board of Directors of Seller determines in good faith, after receiving the advice of its financial advisers and legal counsel, constitutes a Superior Proposal, then Seller shall be permitted to (i) engage in negotiations regarding such Acquisition Proposal with the Person that has submitted it (the “Bidder”), (ii) furnish to the Bidder confidential information relating to Seller and the Business, subject to the execution and delivery of an appropriate nondisclosure agreement with the Bidder at least as restrictive as Section 11.12 of this Agreement, and (iii) if required by fiduciary duties, make a change in or withdraw the recommendation of the Board of Directors to the shareholders of Seller (or decline to make such a recommendation, if not previously made) with respect to the approval of the transaction contemplated by this Agreement (a “Change in Recommendation”); provided, however, that within five (5) business days after receipt of such Acquisition Proposal, Seller shall provide to Buyer a summary of the material terms and conditions of such Acquisition Proposal, including the identity of the Bidder, and the same confidential information disclosed to the Bidder if such confidential information has not previously been disclosed to Buyer. Seller shall give written notice to Buyer promptly after any decision by Seller’s Board of Directors to make any Change in Recommendation, and Seller shall not submit such Change in Recommendation to its shareholders for at least ten (10) business days after the date of such notice, during which period Buyer shall have the opportunity to propose revisions to the terms of this Agreement (or to make an alternative proposal) that it believes would cause the Bidder’s Acquisition Proposal not to constitute a Superior Proposal and, if Buyer makes such a proposal, Seller’s Board of Directors shall consider such proposal in good faith. Seller shall be permitted to disclose to the Bidder a summary of the material terms and conditions of any revised or alternative proposal submitted by Buyer pursuant to this Section 11.14(b), subject to the terms of the nondisclosure agreement contemplated by clause (ii) of the first sentence of this Section 11.14(b).

     11.15 Audit Fees. Buyer acknowledges that the requirement that Seller obtain an audit of the Financial Statements is a result of Buyer’s reporting obligations under federal securities laws. Accordingly, Buyer agrees to pay the fees and expenses of Seller’s independent public accounting firm related to such audit and any additional audits that may be required in order to satisfy the condition set forth in Section 8.8 of this Agreement, other than the audit of the Annual Financial Statements, up to a maximum amount of Thirty-Five Thousand Dollars ($35,000) (the “Audit Fees”). Such amounts shall be payable by Buyer to Seller in the form of an adjustment to the Purchase Price payable at the Closing pursuant to Section 3.1(b). Seller shall bear the costs of the audit of the Annual Financial Statements.

     11.16 Auditor’s Consent and Audit Preparation. Seller shall cooperate with Buyer and shall use its commercially reasonable efforts to cause its independent public accounting firm, at Buyer’s expense, to deliver all necessary consents for inclusion of such firm’s audit report on Seller’s consolidated financial statements to be included, to the extent required, in Buyer’s SEC filings from time to time. Seller shall conduct an inventory observation at year-end that is observed and recorded by its independent public accounting firm and shall take all such other steps necessary in order for a subsequent audit of Seller’s financial statements as of and for the year ended December 31, 2006 to be conducted by an independent public accounting firm.

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ARTICLE 12
CLOSING

     12.1 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Leonard, Street and Deinard, Professional Association, at 10:00 a.m. (Eastern time) on the first business day after all conditions set forth in Article 8 and Article 9 to be satisfied before Closing have been satisfied, or such other time or location as is mutually agreeable to the parties (the “Closing Date”). The Closing shall be considered to have been effective at 5:00 p.m. (Eastern time) on the Closing Date.

ARTICLE 13
INDEMNIFICATION

     13.1 Seller’s Indemnification. From and after the Closing Date, Seller shall indemnify and hold harmless Buyer and its directors, officers, and controlling persons (the “Buyer Indemnified Parties”), from and against any and all actions, suits, claims, demands, debts, liabilities, obligations, losses, damages, costs and expenses, including without limitation reasonable attorney’s fees, expenses and court costs, arising out of or caused by, directly or indirectly, any of all of the following (collectively, the “Losses”):

     (a) Misrepresentation. Any misrepresentation, breach, inaccuracy or failure of any warranty or representation made by Seller in or pursuant to this Agreement or any schedule, exhibit or other agreement or document contemplated by this Agreement.

     (b) Nonperformance. Any failure or refusal by Seller to satisfy or perform any covenant, term or condition of this Agreement or any schedule, exhibit or other agreement or document contemplated by this Agreement that is required to be satisfied or performed by it.

     (c) Non-Assumed Obligations. Any: (a) Excluded Liability; and (b) any Obligation that may be imposed upon any of the Buyer Indemnified Parties as a result of any Law under which any of the Buyer Indemnified Parties may have successor liability for any Tax or other Obligations of Seller (collectively, the “Non-Assumed Obligations”).

     (d) Unasserted Claims. Any Proceeding arising out of, caused by or based upon any act or omission of Seller at any time before the Closing other than the Assumed Liabilities.

     (e) Intentional Misrepresentation, Fraud or Criminal Matter. Any intentional misstatement, fraud or crime committed by Seller.

     (f) Proceedings by Employees. Any Proceeding against any of the Buyer Indemnified Parties by or on behalf of any employee of Seller who is not hired by Buyer or by or on behalf of any Hired Active Employee that relates to matters or events that occurred prior to the Closing.

     13.2 Buyer’s Indemnification. From and after the Closing Date, Buyer shall indemnify and hold harmless Seller and its directors, officers and controlling persons (the “Seller

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Indemnified Parties”), from and against any and all Losses arising out of or caused by, directly or indirectly, any of the following:

     (a) Misrepresentation. Any misrepresentation, breach, inaccuracy or failure of any warranty or representation made by Buyer in or pursuant to this Agreement or any schedule, exhibit or other agreement or document contemplated by this Agreement.

     (b) Nonperformance. Any failure or refusal by Buyer to satisfy or perform any covenant, term or condition of this Agreement or any schedule, exhibit or other agreement or document contemplated by this Agreement that is required to be satisfied or performed by Buyer.

     (c) Assumed Liabilities. Any failure or refusal of Buyer to satisfy or perform any of the Assumed Liabilities.

     (d) Unasserted Claim. Any Proceeding arising out of, caused by or based upon any act or omission of Buyer at any time after the Closing Date.

     13.3 Indemnification Procedures. The following procedures shall be followed with respect to each event, occurrence or matter (each, an “Indemnification Matter”) as to which any Buyer Indemnified Party or Seller Indemnified Party (in either case, an “Indemnitee”) is entitled to indemnification from Seller or Buyer, as the case may be (referred to, as the case may be, as “Indemnitor”) under this Article 13.

     (a) Notice of Claims. If: (a) a claim is made by a third party against any party that is subject to a right of indemnification hereunder, (b) any party hereto becomes aware of facts or circumstances establishing that such party has experienced or incurred Losses or will experience or incur Losses subject to indemnification under this Article 13, or (c) any party becomes aware of any facts or events that could give rise to indemnification by an Indemnitor hereunder, then such Indemnitee shall give to Indemnitor written notice of such claim (“Indemnification Notice”) as soon as reasonably practicable but in no event more than thirty (30) days after the Indemnitee has received notice of or obtains actual knowledge of such claim (provided that failure to give such notice shall not limit the Indemnitor’s indemnification obligation hereunder except to the extent that the delay in giving, or failure to give, the notice adversely affects the Indemnitor’s ability to defend against the claim). To the extent practicable, the Indemnification Notice will describe with reasonable specificity (1) the nature of and the basis for the indemnification claim, including any relevant supporting documentation, and (2) an estimate of all Losses associated therewith.

     (b) Procedure in Event of Indemnification Claim. If an Indemnitee desires to assert an indemnification claim pursuant to Section 13.1 or Section 13.2, the Indemnitee promptly shall provide an Indemnification Notice to the Indemnitor in accordance with the procedures set forth in Section 13.3(a) hereof. If the Indemnitor does not object within twenty (20) days after receipt of the Indemnification Notice to the propriety of the indemnification claims described as being subject to indemnification pursuant to Section 13.1 or Section 13.2 or the amount of Losses asserted in the Indemnification Notice, the indemnification claims described in the Indemnification Notice shall be deemed final and binding upon the Indemnitor (the “Permitted Indemnification Claims”).

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If the Indemnitor contests the propriety of an indemnification claim described on the Indemnification Notice and/or the amount of Losses associated with such claim, then the Indemnitor shall deliver to the Indemnitee a written notice detailing with reasonable specificity all specific objections the Indemnitor has with respect to the indemnification claims contained in the Indemnification Notice (“Indemnification Objection Notice”). If the Indemnitor and the Indemnitee are unable to resolve the disputed matters described in the Indemnification Objection Notice within fifteen (15) business days after the date the Indemnitee received the Indemnification Objection Notice, the disputed matters will be subject to the dispute resolution procedures set forth in Section 14.13 hereof. Any undisputed indemnification claims contained in the Indemnification Notice shall be deemed to be final and binding upon the Indemnitor and shall constitute a Permitted Indemnification Claim. If the procedures in Section 14.13 result in all or any portion of an indemnification claim properly being subject to indemnification pursuant to Section 13.1 or Section 13.2 such claim or portion thereof shall be final and binding upon Indemnitor and shall constitute a Permitted Indemnification Claim.

     (c) Defense of Third Party Claims. An Indemnitee against whom a third party claim is made shall give the Indemnitor prompt notice of such claim so that the Indemnitor shall have an opportunity to defend such claim, at the Indemnitor’s sole expense and with counsel selected by the Indemnitor and reasonably satisfactory to the Indemnitee; provided, however, that Indemnitee may participate in such defense through counsel selected by the Indemnitee and reasonably satisfactory to Indemnitor and paid at Indemnitee’s sole expense. Failure of an Indemnitor to give an Indemnitee written notice of its election to defend such claim within twenty (20) days after receipt of notice thereof shall be deemed a waiver by such Indemnitor of its right to defend such claim. If an Indemnitor shall elect not to assume the defense of such claim (or if such Indemnitor shall be deemed to have waived its right to defend such claim), the Indemnitee against whom such claim is made shall have the right, but not the obligation, to undertake the defense of the claim through counsel chosen by the Indemnitee, but shall not thereby waive any right to indemnity therefor pursuant to this Agreement; provided, however, that if the Indemnitee undertakes the defense of such claim, it shall defend such claim in good faith and shall apprise the Indemnitor from time to time as the Indemnitee deems appropriate of the progress of such defense. The Indemnitee shall not dispose of such claim or enter into any settlement without first obtaining the written consent of the Indemnitor (which consent shall not be unreasonably withheld), which settlement or other disposition shall include as an unconditional term thereof the giving by the claimant to the Indemnitor against whom such claim is made of a release from all liability in respect of such claim (which release shall exclude only any obligations incurred in connection with any such settlement). The Indemnitor shall be obligated to pay the reasonable attorney’s fees and expenses of the Indemnitee to the extent such fees and expenses relate to claims as to which indemnification is payable under Section 13.1 or Section 13.2. If one or more of the Indemnitors assumes the defense of such claim, the obligation of such Indemnitor hereunder as to such claim shall include taking all steps necessary in the defense or settlement of such claim. The Indemnitor, in the defense of such claim, shall not consent to the entry of any judgment or enter into any settlement (except with the written consent of the Indemnitee, which shall not be unreasonably withheld) which does not include as an unconditional term thereof the giving by the claimant to the Indemnitee against whom such claim is made of a release from all

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liability in respect of such claim (which release shall exclude only any obligations incurred in connection with any such settlement). The Indemnitor, then the Indemnitee shall make available, at the Indemnitor’s expense, all information and assistance that the Indemnitor reasonably may request.

     (d) Payments. All amounts owed by the Indemnitor to the Indemnitee (if any) shall be paid in full within fifteen (15) business days following such time as a claim or portion thereof becomes final and binding upon the Indemnitor and constitutes a Permitted Indemnification Claim.

     13.4 Survival Periods. For purposes of this Agreement, a “Survival Period” shall be the period during which a claim for indemnification may be asserted under this Agreement by an Indemnitee. The Survival Periods under this Agreement shall commence on the date of this Agreement and shall terminate as follows:

     (a) The Survival Period for the representations, warranties, covenants and obligations of Buyer and Seller set forth in this Agreement shall terminate eighteen (18) months following the Closing Date; provided, however, that the Survival Period for (a) representations, warranties, covenants and obligations arising under Section 4.1 (Organization), Section 4.2 (Effect of Agreement), Section 4.6 (Acquired Assets; Sufficiency, other than the first and last sentences), Section 4.22 (Related Party Transactions), Section 4.23 (Brokerage Fees), Section 5.1 (Organization), Section 5.2 (Effect of Agreement), and Section 5.3 (Brokerage Fees) (collectively, the “Fundamental Representations”) shall continue indefinitely except as limited by Law (including any applicable statutes of limitation, extensions and tollings thereof); (b) representations, warranties, covenants and obligations arising under Section 4.16 (Employee Benefit Plans), Section 4.18 (Taxes), Section 4.26 (Environmental Matters) shall continue for a period specified in the applicable statute of limitations; and (c) covenants and obligations that require performance after Closing shall continue until performed. Notwithstanding the foregoing provisions or anything to the contrary in this Agreement, a party’s rights to bring legal and equitable claims for fraud or intentional misrepresentation shall survive for thirty (30) days after the expiration of the statute of limitations applicable to (A) such fraud or intentional misrepresentation itself or (B) the underlying matters with respect to which fraud or intentional misrepresentation was committed, whichever is later.

     (b) No Indemnitor shall have any liability with respect to any Indemnification Matter unless an Indemnitee gives an Indemnification Notice with respect thereto within the Survival Period. Notwithstanding the foregoing, if prior to the close of business on the last day of the applicable Survival Period, an Indemnitor shall have been properly notified as provided hereunder of a claim for indemnity hereunder and such claim shall not have been finally resolved or disposed of at such date, such claim shall continue to survive and shall remain a basis for indemnity hereunder until such claim is finally resolved or disposed of in accordance with the terms hereof.

     (c) The representations and warranties contained in this Agreement or in any certificate or other writing delivered in connection with this Agreement shall survive for the periods set forth in this Section 13.4 and shall in no event be affected by any investigation, inquiry or examination made for or on behalf of any Party, or the

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Knowledge of any party’s Authorized Representatives or the acceptance by any party of any certificate or opinion hereunder.

     13.5 Shareholder/Partner Suits. No party shall have any liability under this Article 13 or otherwise for suits brought by the other party’s shareholders or partners.

     13.6 Limitations on Indemnification Obligation. The indemnification obligations of this Article 13 are subject to the following limitations:

     (a) No indemnification pursuant to Section 13.1 shall be made unless the aggregate amount of Losses incurred by the Buyer Indemnified Parties exceeds One Hundred Fifty Thousand and No/100 Dollars ($150,000.00) (the “Buyer Threshold Amount”), and, in such event, indemnification shall be made only to the extent that the aggregate amount of Losses incurred by the Buyer Indemnified Parties exceeds the Buyer Threshold Amount; provided that, the Buyer Threshold Amount shall not limit indemnification with respect to Losses related to breaches of the Fundamental Representations or any facts or circumstances which constitute fraud or intentional misrepresentation or failure to perform or satisfy any of the Non-Assumed Obligations.

     (b) In the absence of intentional misrepresentation, fraud or criminal matters on the part of Seller or Losses related to breaches of the Fundamental Representations, in no event shall Seller’s aggregate obligation to indemnify the Buyer Indemnified Parties pursuant to Section 13.1 with respect to Indemnification Matters other than those involving the Excluded Liabilities, exceed Three Million and No/100 Dollars ($3,000,000.00).

     (c) If any representation, warranty or covenant which is qualified by materiality or Material Adverse Effect is breached, the amount of any Loss related to a breach of any such representation or warranty shall be determined without regard to any materiality qualification (including terms such as “material” and “Material Adverse Effect”) set forth therein.

     13.7 Insurance and Tax Benefits. The amount of any Losses incurred by an Indemnitee shall be reduced by any amount received by the Indemnitee with respect thereto under any insurance coverage or pursuant to any tax benefit available to the Indemnitee relating thereto. The Indemnitees shall use reasonable efforts to collect any amounts available under such insurance coverage and shall take advantage of such tax benefit.

     13.8 Exclusive Remedy. The right of each party hereto to assert indemnification claims and receive indemnification payments pursuant to this Article 13 shall be the sole and exclusive right and remedy exercisable by such party with respect to any matter, except (a) for the right to seek specific performance of any of the agreements and covenants contained herein, and (b) in the event of fraud or intentional breach.

ARTICLE 14
OTHER PROVISIONS

     14.1 Fees and Expenses. Each party shall pay all of the fees and expenses incurred by it in negotiating and preparing this Agreement (and all of the Related Agreements and other

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documents and instruments executed in connection herewith) and in consummating the transactions contemplated by this Agreement and the Related Agreements. Seller shall be responsible for all fees paid or payable to Daniels & Associates, L.P. in connection with the transactions contemplated by this Agreement.

     14.2 Notice. All notices, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given: (a) when delivered personally or (b) upon receipt of proof of delivery indicating the date of delivery after being sent by a reputable overnight delivery service, postage or delivery charges prepaid, to the parties at their respective addresses stated on the first page of this Agreement. Notices may also be given by facsimile and shall be effective on the date transmitted if confirmed within twenty four (24) hours thereafter by a signed original sent in the manner provided in the preceding sentence. Notice to Seller at the address specified in the preamble to this Agreement or to facsimile number (404) 592-4004 to the attention of Antonio DiMilia, shall suffice as notice to Seller, provided that a copy thereof is simultaneously sent to Carrington, Coleman, Sloman & Blumenthal, L.L.P., 901 Main Street, Suite 5500, Dallas, Texas 75202, facsimile number (214) 855-1333, attention Kenn W. Webb, Esquire.

     Notice to Buyer at the address specified in the preamble to this Agreement or to facsimile number (605) 988-2910 to the attention of James G. Naro, shall suffice as notice to Buyer, provided that a copy thereof is simultaneously sent to Leonard, Street and Deinard, Professional Association, 150 South Fifth Street, Suite 2300, Minneapolis, MN 55402, facsimile number (612) 335-1657, attention Mark S. Weitz, Esquire. Any party may change its address for notice and the address to which copies must be sent by giving notice of the new addresses to the other party in accordance with this Section 14.2, except that any such change of address notice shall not be effective unless and until received.

     14.3 Entire Understanding. This Agreement, together with the Exhibits and Schedules hereto, states the entire understanding among the parties with respect to the subject matter hereof, and supersedes all prior oral and written communications and agreements, and all contemporaneous oral communications and agreements, with respect to the subject matter hereof, including without limitation all letters of intent previously entered into between the parties hereto. No amendment or modification of this Agreement shall be effective unless in writing and signed by the party against whom enforcement is sought.

     14.4 Parties in Interest. Neither of the parties may assign this Agreement or any rights or obligations under this Agreement without the prior written consent of the other party, provided that Buyer may assign this Agreement or any rights or obligations under this Agreement to a subsidiary of Buyer without the prior written consent of Seller and provided further that Buyer or its assignee may make a collateral assignment of its rights, but not its obligations, under this Agreement to any of its financing sources. This Agreement shall bind, benefit, and be enforceable by and against the parties hereto, and their respective successors and permitted assigns.

     14.5 Waivers. Except as otherwise expressly provided herein, no waiver with respect to this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and

43

no course of dealing between or among any of the parties, shall constitute a waiver of, or shall preclude any other or further exercise of, any right, power or remedy.

     14.6 Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

     14.7 Counterparts; Facsimile. This Agreement may be executed in any number of counterparts, and delivered by facsimile or other form of electronic communication, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof.

     14.8 Section Headings. The section and subsection headings in this Agreement are used solely for convenience of reference, do not constitute a part of this Agreement, and shall not affect its interpretation.

     14.9 References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. Unless a particular context clearly requires otherwise, the words “hereof” and “hereunder” and similar references refer to this Agreement in its entirety and not to any specific section or subsection of this Agreement.

     14.10 CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

     14.11 No Third-Party Beneficiaries. No provision of this Agreement is intended to or shall be construed to grant or confer any right to enforce this Agreement, or any remedy for breach of this Agreement, to or upon any Person other than the parties hereto, including, but not limited to, any customer, prospect, supplier, employee, contractor, salesman, agent or representative of Seller.

     14.12 Neutral Construction. The parties have negotiated this Agreement and all of the terms and conditions contained in this Agreement in good faith and at arms’ length, and each party has been represented by counsel during such negotiations. No term, condition, or provision contained in this Agreement shall be construed against any party or in favor of any party: (a) because such party or such party’s counsel drafted, revised, commented upon, or did not comment upon, such term, condition, or provision; or (b) because of any presumption as to any inequality of bargaining power between or among the parties. Furthermore, all terms, conditions, and provisions contained in this Agreement shall be construed and interpreted in a manner which is consistent with all other terms, conditions, and provisions contained in this Agreement.

     14.13 Dispute Resolution. If any dispute arises: (a) out of or relating to, this Agreement or any alleged breach thereof; or (b) with respect to any of the transactions or events contemplated hereby (a “Dispute”), the party desiring to resolve such Dispute shall deliver a written notice describing such Dispute with reasonable specificity to the other party (the “Dispute Notice”). If any party delivers a Dispute Notice pursuant to this Section 14.13, or if

44

any Indemnifying Party delivers to any Indemnitee an Indemnification Objection Notice pursuant to Section 13.3, the parties involved in the Dispute shall meet at least twice within the twenty (20) day period commencing with the date of the Dispute Notice or the Indemnification Objection Notice (as the case may be) and in good faith shall attempt to resolve such Dispute.

     If the Dispute is not resolved pursuant to the above paragraph, the Dispute shall be settled by arbitration conducted in Minneapolis, Minnesota, or such other place as mutually agreed to by the parties, which shall be in accordance with the rules and procedures of the American Arbitration Association then in effect with respect to commercial disputes; provided that discovery shall be limited to depositions and interrogatories, document production and other written discovery and provided that the arbitration shall be conducted by three arbitrators, with each of Buyer and Seller selecting one arbitrator and the two so selected shall select a third (and if they are unable to agree, such third arbitrator shall be appointed by AAA). The arbitration of such issues, including the determination of any amount of damages suffered by any party hereto by reason of the acts or omissions of any party, shall be final and binding upon all parties. Notwithstanding the foregoing, the arbitrator shall not be authorized to award punitive damages with respect to any such claim or controversy, nor shall any party seek punitive damages relating to any matter under, arising out of or relating to this Agreement in any other forum, provided that the arbitrator may award punitive damages in the event a third party claim for which a party is seeking indemnification includes a punitive damages claim. Except as otherwise set forth in the Agreement, the cost of any arbitration hereunder, including the cost of the record or transcripts thereof, if any, administrative fees, and all other fees involved including reasonable attorneys’ fees incurred by the party determined by the arbitrator to be the prevailing party, shall be paid by the party determined by the arbitrator not to be the prevailing party, or otherwise allocated in an equitable manner as determined by the arbitrator. The parties shall use reasonable efforts to enable the arbitrator to render its decision no later than sixty (60) days after the submission of the Dispute or Indemnification Objection Notice to the arbitrator.

     14.14 Schedules. Seller’s disclosures contained in the schedules described in Section 2.1(b)(ii), Article 4 and Section 8.3 of this Agreement are made as of August 31, 2006. Not later than ten (10) days prior to the Closing, Seller shall supplement or amend all schedules as may be necessary to update the disclosures contained therein and provide all documentary materials referred to in such amended schedules and, as so updated, such disclosures shall be deemed to be made as of the Closing Date. Such amended or supplemented schedules shall not disclose the occurrence of any Material Adverse Effect or any material breach of this Agreement on the date hereof or thereafter. For purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Section 8.1 have been fulfilled and for purposes of Section 13.1(a), such schedules shall be deemed to include all information in the schedules as so supplemented or amended which are accepted by Buyer based on the standard set forth in the preceding sentence. Information contained on any schedule to this Agreement that is also responsive to the requirements of any other schedule shall also be deemed to have been disclosed on such other schedule if it is reasonably apparent that such disclosure relates to such other schedule, whether or not specifically set forth or cross-referenced therein.

[Remainder of Page Intentionally Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.

SELLER: StayOnline, Inc.
By:
	Antonio DiMilia, President and
	Chief Executive Officer
BUYER: LodgeNet Entertainment Corporation
By:
	James G. Naro, Senior Vice President,
	General Counsel, Secretary and Chief Compliance Officer

46

EX-10.34

Exhibit 10.34

EXECUTION COPY

STOCK PURCHASE AGREEMENT

by and among

LODGENET ENTERTAINMENT CORPORATION

and

LIBERTY SATELLITE & TECHNOLOGY, INC.

and

LIBERTY MEDIA CORPORATION

December 13, 2006

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS			1
Section 1.1.	Definitions.		1
Section 1.2.	Tax Terms.		8
Section 1.3.	Terms Generally.		8
ARTICLE II PURCHASE AND SALE OF SHARES; CLOSING			9
Section 2.1.	Purchase and Sale of Shares.		9
Section 2.2.	Purchase Price.		9
Section 2.3.	Adjustment.		9
Section 2.4.	Closing.		11
Section 2.5.	Closing Deliveries.		11
Section 2.6.	Stock Adjustment.		12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND LIBERTY REGARDING THE COMPANY AND ITS SUBSIDIARIES			12
Section 3.1.	Organization, Qualification and Corporate Power.		12
Section 3.2.	Capitalization.		12
Section 3.3.	Subsidiaries and Equity Affiliates.		13
Section 3.4.	Financial Statements.		13
Section 3.5.	Assets and Liabilities of the Company.		14
Section 3.6.	No Undisclosed Liabilities.		15
Section 3.7.	Noncontravention; Consents.		15
Section 3.8.	Compliance with Legal Requirements.		15
Section 3.9.	Title to Assets.		15
Section 3.10.	Intellectual Property.		16
Section 3.11.	Real Property; Real Property Leases.		16
Section 3.12.	Contracts.		17
Section 3.13.	Litigation.		19
Section 3.14.	Environmental, Health, and Safety Matters.		19
Section 3.15.	Employees.		20
Section 3.16.	Labor Relations.		20
Section 3.17.	Employee Benefits.		20
Section 3.18.	Insurance.		21
Section 3.19.	Related Party Transactions.		22
Section 3.20.	Brokers’ Fees.		22
Section 3.21.	Absence of Certain Changes or Events.		22
ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES			22
Section 4.1.	Organization of Seller.		22
Section 4.2.	Authorization; Binding Effect.		23
Section 4.3.	Noncontravention; Consents.		23
Section 4.4.	Shares.		23
Section 4.5.	Brokers’ Fees.		23

i

		Page
Section 4.6.	Investment Intent.		23
Section 4.7.	Disclosure of Information.		24
Section 4.8.	Accredited Investor.		24
Section 4.9.	Restricted Securities.		24
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER			24
Section 5.1.	Organization of Buyer.		24
Section 5.2.	Authorization; Binding Effect; Financial Capability.		24
Section 5.3.	Noncontravention; Consents.		24
Section 5.4.	Investment Intent.		25
Section 5.5.	Disclosure of Information.		25
Section 5.6.	Accredited Investor.		25
Section 5.7.	Restricted Securities.		25
Section 5.8.	Certain Proceedings.		25
Section 5.9.	Brokers’ Fees.		25
Section 5.10.	Delivery of Share Consideration.		25
Section 5.11.	SEC Filings; Financial Information.		26
ARTICLE VI PRE-CLOSING COVENANTS			26
Section 6.1.	Commercially Reasonable Efforts.		26
Section 6.2.	Notices and Consents.		27
Section 6.3.	Operation of Business.		27
Section 6.4.	Access and Investigation.		28
Section 6.5.	Notification.		29
Section 6.6.	Subsequent Financial Statements.		29
Section 6.7.	Subsequent Filings.		29
Section 6.8.	Non-Solicitation.		29
Section 6.9.	Assistance with Financing.		30
Section 6.10.	Assistance with Acquisition of Minority Ownership of THN.		30
ARTICLE VII OTHER MATTERS			31
Section 7.1.	Understanding Regarding Disclaimer of Warranties of Buyer.		31
Section 7.2.	Understanding Regarding Disclaimer of Warranties of Seller.		31
Section 7.3.	HSR Act Filings.		32
Section 7.4.	Special Actions.		32
Section 7.5.	Confidentiality.		32
Section 7.6.	Employee Matters.		33
Section 7.7.	Further Cooperation.		36
Section 7.8.	Non-Disparagement.		36
Section 7.9.	Company Audited Financial Statements.		37
ARTICLE VIII CONDITIONS TO CLOSING			37
Section 8.1.	Conditions to Obligation of Buyer.		37
Section 8.2.	Conditions to Obligation of Seller.		39
ARTICLE IX TAX MATTERS			40
Section 9.1.	Tax Definitions.		40
Section 9.2.	Tax Representations.		41
Section 9.3.	Tax Covenants.		43

ii

		Page
Section 9.4.	Tax Sharing Agreements.		43
Section 9.5.	Tax Refunds and Credits.		43
Section 9.6.	Cooperation on Tax Matters.		43
Section 9.7.	Certain Taxes and Fees.		44
ARTICLE X TERMINATION			44
Section 10.1.	Termination of Agreement.		44
Section 10.2.	Termination Date.		45
Section 10.3.	Effect of Termination.		45
ARTICLE XI INDEMNIFICATION			46
Section 11.1.	Survival.		46
Section 11.2.	General Indemnification.		47
ARTICLE XII MISCELLANEOUS			52
Section 12.1.	Public Announcements.		52
Section 12.2.	No Third-Party Beneficiaries.		52
Section 12.3.	Successors and Assigns.		52
Section 12.4.	Entire Agreement.		53
Section 12.5.	Notices.		53
Section 12.6.	Governing Law; Jurisdiction.		54
Section 12.7.	Amendments and Waivers.		54
Section 12.8.	Severability.		54
Section 12.9.	Expenses.		54
Section 12.10.	Construction.		54
Section 12.11.	Incorporation of Exhibits and Schedules.		55
Section 12.12.	Headings.		55
Section 12.13.	Facsimile; Counterparts Signatures.		55

iii

LIST OF SCHEDULES

Schedules

3.3 Subsidiaries and Equity Affiliates

3.7 Notices and Consents

3.9 Permitted Encumbrances

3.10 Intellectual Property

3.11 Real Property Leases

3.12 Contracts

3.17(a) Employee Benefit Plans

3.17(c) Multiemployer Plans

3.17(g) Non-US Plans

3.18 Insurance

3.19(a) Contracts and Arrangements Involving Related Parties

3.19(b) Master Purchasing Arrangements

5.11 Current Filings

6.3 Permitted Actions by Seller, the Company and its Subsidiaries

7.6 Employee Matters

8.1(j) Required Content Agreements

9.2(c) Tax Consolidated Groups

9.4 Tax Sharing Agreements

Disclosure Schedule

iv

STOCK PURCHASE AGREEMENT

     This STOCK PURCHASE AGREEMENT (the “Agreement”) is entered into as of December 13, 2006 (the “Agreement Date”), by and among LodgeNet Entertainment Corporation, a Delaware corporation (“Buyer”), Liberty Satellite & Technology, Inc., a Delaware corporation (“Seller”), and Liberty Media Corporation, a Delaware corporation (“Liberty”). Buyer, Liberty and Seller are referred to individually as a “Party” and collectively as the “Parties.”

RECITALS

     A. Liberty owns 100% of the issued and outstanding shares of capital stock of Seller. Seller owns 100% of the issued and outstanding shares of capital stock of Ascent Entertainment Group, Inc., a Delaware corporation (the “Company”). The Company owns 100% of the issued and outstanding shares of capital stock of On Command Corporation, a Delaware corporation (“ONCO”).

     B. Seller desires to sell, and Buyer desires to purchase, 100% of the issued and outstanding shares (the “Shares”) of capital stock of the Company, for the consideration and on the terms and conditions set forth in this Agreement.

     C. Seller, Buyer and Liberty are concurrently executing the Stockholders Agreement between Seller, Buyer and Liberty, dated as of the date hereof.

     NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, and intending to be legally bound, the parties agree as follows:

ARTICLE I
DEFINITIONS

     Section 1.1.      Definitions. The following terms have the following meanings for purposes of this Agreement:

     “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, Controls or is Controlled by or is under common Control with such Person.

     “Agreement” has the meaning set forth in the preamble.

     “Agreement Date” has the meaning set forth in the preamble.

     “Antitrust Division” has the meaning set forth in Section 7.3.

     “Antitrust Law” means the Sherman Act, the Clayton Act, the HSR Act, the Federal Trade Commission Act, and all other federal, state and foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition.

1

     “Ascent Intercompany Indebtedness” means accounts or other Liabilities between the Company and any Subsidiary of the Company or between any Subsidiaries of the Company.

     “Authorized Representatives” has the meaning set forth in Section 7.5.

     “Balance Sheet” has the meaning set forth in Section 3.4.

     “Balance Sheet Date” has the meaning set forth in Section 2.3(d).

     “Bank Commitment Letter” means the amended and restated bank facilities commitment letter, dated as of December 6, 2006, among Bear Stearns, Credit Suisse and Credit Suisse Securities (USA) LLC and Buyer, pursuant to which Bear Stearns, Credit Suisse and Credit Suisse Securities (USA) LLC have agreed, subject to the terms and conditions set forth therein, to provide or cause to be provided an aggregate of up to $475 million in financing under senior secured credit facilities of Buyer comprised of a revolving credit facility in a maximum principal amount of $50 million and $425 million in term loans, as it may be amended from time to time.

     “Bank Financing” has the meaning set forth in Section 6.9.

     “Bear Stearns” means, collectively, Bear, Stearns & Co. Inc and Bear Stearns Corporate Lending Inc.

     “Benefit Plans” has the meaning set forth in Section 3.17(a).

     “Business Day” means any day other than Saturday, Sunday or a day on which banking institutions in Denver, Colorado or Sioux Falls, South Dakota are required or authorized to be closed.

     “Buyer” has the meaning set forth in the preamble.

     “Buyer 401(k) Plan” has the meaning set forth in Section 7.6(f).

     “Buyer’s Fundamental Representations” has the meaning set forth in Section 11.1(a).

     “Buyer Indemnified Parties” has the meaning set forth in Section 11.2(a).

     “Buyer Tax Loss” has the meaning set forth in Section 11.2(a).

     “Cafeteria Plan” has the meaning set forth in Section 7.6(d).

     “Cash Consideration” has the meaning set forth in Section 2.2.

     “Closing” has the meaning set forth in Section 2.4.

     “Closing Date” has the meaning set forth in Section 2.4.

     “Closing Date Calculations” has the meaning set forth in Section 2.3(e).

     “Closing Purchase Price Adjustment” has the meaning set forth in Section 2.3(a).

2

     “Closing Working Capital” means the consolidated current assets of the Company and its Subsidiaries on the Closing Date (including cash) minus consolidated current liabilities of the Company and its Subsidiaries on the Closing Date, determined as set forth on Exhibit A attached hereto and in accordance with GAAP and consistent with the Financial Statements (except as set forth on Exhibit A).

     “COBRA” has the meaning set forth in Section 7.6(b).

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Company” has the meaning set forth in Recital A.

     “Company Group” has the meaning set forth in Section 3.19.

     “Company Audited Financial Statements” has the meaning set forth in Section 6.6(b).

     “Company Unaudited Financial Statements” has the meaning set forth in Section 3.4.

     “Contracts” has the meaning set forth in Section 3.12.

     “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or partnership, membership or other ownership interests, by contract or otherwise.

     “Current Filings” has the meaning set forth in Section 5.11(b).

     “Disclosing Party” has the meaning set forth in Section 7.5.

     “Disclosure Schedule” has the meaning set forth in the introductory paragraph of Article III.

     “Encumbrance” means any charge, claim, community property interest, condition, equitable interest, mortgage, lien, option, pledge, security interest, right of first refusal, or other charge or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.

     “Environmental, Health, and Safety Requirements” means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation.

3

     “Equity Affiliates” means all Persons in which the Company or any Subsidiaries of the Company hold an equity interest that are not Subsidiaries of the Company that are accounted for under the equity method of accounting in accordance with GAAP.

     “ERISA” has the meaning set forth in Section 3.17(a).

     “ERISA Affiliate” has the meaning set forth in Section 3.17(a).

     “ERISA Plans” has the meaning set forth in Section 3.17(a).

     “Estimated Closing Working Capital” has the meaning set forth in Section 2.3(a).

     “Existing NDA” has the meaning set forth in Section 6.4.

     “Final Purchase Price Adjustment” has the meaning set forth in Section 2.3(b).

     “Financial Information” has the meaning set forth in Section 6.9.

     “Financial Statements” has the meaning set forth in Section 3.4.

     “FTC” has the meaning set forth in Section 7.3.

     “GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board (and its predecessors), the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination, consistently applied.

     “Governmental Authority” means any court, arbitrator, administrative or other governmental department, agency, political subdivision, commission, authority or instrumentality in the United States or elsewhere.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “Income Tax” has the meaning set forth in Section 9.1.

     “Indebtedness” means, with respect to any Person, without duplication (a) every Liability of such Person (excluding any Ascent Intercompany Indebtedness) (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments (whether or not negotiable), (iii) any amounts owing as deferred purchase price for property acquired, other than accounts payable on commercial terms, or (iv) any reimbursement of amounts actually drawn under letters of credit or similar facilities issued for the account of such Person, and (b) every Liability of any other Person of the kind described in the preceding clause (a) that such Person has guaranteed (other than any guarantee by the Company of any Liability of any Subsidiary of the Company and any guarantee by any Subsidiary of the Company of any Liability of any other Subsidiary of the Company), in each case only to the extent required pursuant to GAAP to be set forth as a liability on a balance sheet of such Person.

4

     “Indemnified Party” has the meaning set forth in Section 11.2(g).

     “Independent Accounting Firm” has the meaning set forth in Section 2.3(g).

     “Information Memorandum” has the meaning set forth in Section 9.1.

     “Intellectual Property” means (a) all patents and patent applications (including all provisional, divisionals, continuations, continuations in part, and reissues), inventions (patentable or unpatentable and whether or not reduced to practice), and business methods; (b) all registered and unregistered fictional business names, trade names, trademarks, service marks, trade dress, brands, slogans, logos, and registered domain names and all applications with respect to any of the foregoing; (c) all registered and unregistered copyrights in both published works and unpublished works and copyrightable subject matter, including software; and (d) all know-how, trade secrets, customer and vendor lists, software, technical information, data, process technology, plans, drawings, blueprints, processes, methods and techniques, research and development information, industry analyses, drawings, algorithms, source code and object code, etherware, specifications, designs, proposals, models, financial and accounting data, business and marketing plans, and all other confidential or proprietary information.

     “Interim Financial Statements” has the meaning set forth in Section 3.4.

     “Legal Requirement” means any federal, state, provincial, local, international, or other administrative order, law, ordinance, principle of common law, rule, regulation, statute or code.

     “Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, and whether liquidated or unliquidated), including any liability for Taxes.

     “Liberty” has the meaning set forth in the preamble.

     “Liberty 401(k) Plan” has the meaning set forth in Section 7.6(f).

     “Liberty Benefit Plans” has the meaning set forth in Section 7.6(a).

     “Liberty Group” has the meaning set forth in Section 3.19.

     “Liberty Intercompany Debt” has the meaning set forth in Section 8.1(f).

     “Losses” means any loss, Liability, action, cause of action, cost, damage or expense, Tax, penalty, or fine, in each case whether or not arising out of third party claims and including any interest, penalties, attorneys’, consultants’ and experts’ fees and expenses (including such attorneys’, consultants’ and experts’ fees and expenses incurred in connection with the enforcement of a party’s rights under this Agreement) and all amounts paid in investigation, defense or settlement of any of the foregoing after taking into account any monies actually received in respect thereof under a policy of insurance, under a contractual right of set-off or indemnity or otherwise.

5

     “Material Adverse Effect” means a material adverse effect on the financial condition, assets, business or results of operations of the Company and its Subsidiaries, taken as a whole, other than any such effect attributable to or resulting from (a) any matter contemplated by or disclosed in this Agreement, (b) the public announcement or consummation of the transactions contemplated by this Agreement, including loss of vendors, customers or employees resulting therefrom, or the compliance by any Party with its obligations under this Agreement, (c) any change in general economic conditions, financial market conditions or in conditions affecting the on premises telecommunications industry or hotel industry generally, whether locally, regionally or nationally, or (d) any act or omission taken with the prior written consent or at the specific written request of Buyer.

     “MFN Clause” has the meaning set forth in Section 3.12(b).

     “Non-US Plans” has the meaning set forth in Section 3.17(g).

     “Notifying Party” has the meaning set forth in Section 6.5.

     “Objection Notice” has the meaning set forth in Section 2.3(f).

     “ONCO” has the meaning set forth in Recital A.

     “ONCO Stock Plan” has the meaning set forth in Section 7.6(i).

     “Ordinary Course of Business” means the ordinary course of business of the Company or any Subsidiary, as applicable, consistent with past custom and practice and assuming rational decision-making based on the continued operations and capital investment decisions of the Company and its Subsidiaries as if ownership of the Company and its Subsidiaries were not being sold.

     “Party” or “Parties” has the meaning set forth in the preamble.

     “Permits” means all permits, licenses, authorizations, registrations, franchises, approvals, consents, certificates, variance and similar rights obtained or required to be obtained from any Governmental Authority.

     “Permitted Encumbrances” means (a) any restrictions under the Securities Act or any applicable state or foreign securities laws; (b) any Encumbrance for Taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith and for which the Company or any Subsidiary maintains adequate reserves on its books and records; (c) licenses or sublicenses granted or entered into in the Ordinary Course of Business and any interest or title of a licensor or licensee under any such license or sublicense; (d) leases or subleases entered into in the Ordinary Course of Business, including in connection with the leased personal property of the Company or any Subsidiary or Real Property Leases; (e) Encumbrances of carriers, warehousemen, mechanics, materialmen and landlords incurred in the Ordinary Course of Business for sums not overdue or being contested in good faith and for which the Company or any applicable Subsidiary maintains adequate reserves on its books and records; (f) Encumbrances incurred in the Ordinary Course of Business in connection with worker’s compensation, unemployment insurance or other forms of governmental insurance or

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benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the Ordinary Course of Business or to secure obligations on surety or appeal bonds; (g) to the extent described on Schedule 3.9, purchase money security interests or Encumbrances on property acquired or held by the Company or any Subsidiary in the Ordinary Course of Business to secure the purchase price of such property or to secure indebtedness incurred solely for the purpose of financing the acquisition of such property; and (h) easements, restrictions and other exceptions to or defects of title that are not, in the aggregate, material and that do not, individually or in the aggregate, materially and adversely affect the use or occupancy of the property affected thereby.

     “Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other entity, or a Governmental Authority.

     “Proceeding” means any action, arbitration, mediation, audit, charge, claim, complaint, demand, notice, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority or any third-party arbitrator or mediator.

     “Purchase Price” has the meaning set forth in Section 2.2.

     “Real Property Leases” has the meaning set forth in Section 3.11.

     “Receiving Party” has the meaning set forth in Sections 6.5 and 7.5.

     “Representatives” has the meaning set forth in Section 11.1(c).

     “Responsible Party” has the meaning set forth in Section 11.2(g).

     “Retention Plan” has the meaning set forth in Section 7.6(h).

     “SEC” means the United States Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Seller” has the meaning set forth in the preamble.

     “Seller’s Financial Advisors” has the meaning set forth in Section 4.5.

     “Seller’s Fundamental Representations” has the meaning set forth in Section 11.1(a).

     “Seller Indemnified Parties” has the meaning set forth in Section 11.2(b).

     “Seller Tax Loss” has the meaning set forth in Section 11.2(b).

     “Share Consideration” means 2,050,000 shares of LodgeNet Entertainment Corporation common stock, $0.01 par value, as such number is adjusted pursuant to the provisions of Section 2.6.

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     “Share Consideration Value” means $47,867,500.

     “Shares” has the meaning set forth in Recital B.

     “Stockholders Agreement” means the Stockholders Agreement between Seller, Buyer and Liberty, dated as of the date hereof.

     “Subsidiaries” means all Persons that the Company directly or indirectly Controls.

     “Survival Period” has the meaning set forth in Section 11.1(a).

     “Target Working Capital” means an anticipated working capital amount set forth on Exhibit B.

     “Terminated ONCO 401(k) Plans” has the meaning set forth in Section 7.6(g).

     “Termination Date” has the meaning set forth in Section 10.2.

     “THN” means The Hotel Networks, Inc. f/k/a Hotelevision, Inc.

     “THN Balance Sheet” has the meaning set forth in Section 3.4.

     “THN Contracts” has the meaning set forth in Section 3.12(m).

     “THN Financial Statements” has the meaning set forth in Section 3.4.

     “THN Interim Financial Statements” has the meaning set forth in Section 3.4.

     “Threshold” has the meaning set forth in Section 11.2(c).

     “WARN Act” has the meaning set forth in Section 7.6(j).

     Section 1.2.     Tax Terms. Certain terms related to tax matters used in Article IX are defined in Section 9.1.

     Section 1.3.     Terms Generally. The definitions set forth or referenced in Section 1.1 apply equally to both the singular and plural forms of the terms defined. Any pronoun includes the corresponding masculine, feminine and neuter forms, as the context requires. The words “include,” “includes” and “including” will be deemed to be followed by the phrase “without limitation.” The word “or” is not exclusive. The words “shall” and “will” are used interchangeably and are intended to have, and will be deemed to have, the same meaning. The “knowledge” of a Party will mean the actual knowledge of any senior officer of such Party after due investigation and inquiry; provided, however, that the “knowledge” of Seller or Liberty also will be deemed to include the actual knowledge of any of the following officers of ONCO: The President and Chief Executive Officer; the Senior Vice President and Chief Financial Officer; the Senior Vice President, General Counsel and Secretary; the Senior Vice President, Operations; the Senior Vice President, Marketing and Programming; and Group Vice President of Sales, and (b) the President and Chief Executive Officer and Chief Financial Officer (or persons holding equivalent positions) of THN. The words “herein,” “hereof” and “hereunder” and words of

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similar import refer to this Agreement (including the Exhibits and Schedules) in its entirety and not to any part of this Agreement unless the context otherwise requires. All references to Articles, Sections, Exhibits and Schedules will be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context otherwise requires. Any references to any agreement or other document or instrument or to any statute or regulation are to it as amended and supplemented from time to time (and, in the case of a statute or regulation, to any successor provisions, and to any rules and regulations promulgated thereunder), unless the context otherwise requires. Any reference to a “day” or number of “days” (without the explicit qualifications of “business”) will be interpreted as a reference to a calendar day or number of calendar days. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action or notice will be deferred until, or may be taken or given on, the next Business Day. All references to dollar amounts will be references to United States Dollars.

ARTICLE II

PURCHASE AND SALE OF SHARES; CLOSING

     Section 2.1.     Purchase and Sale of Shares. Subject to the terms and conditions set forth in this Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Seller, free and clear of any Encumbrances, as set forth in this Article II.

     Section 2.2.     Purchase Price. The purchase price for the Shares will be $380,000,000.00, subject to adjustment as set forth in Section 2.3 (the “Purchase Price”), consisting of:

     Section      

     (a) cash in the amount of the difference between the Purchase Price and the Share Consideration Value (the “Cash Consideration”); and

     (b) the Share Consideration.

     Collectively the sum of the Cash Consideration (as such amount may be adjusted pursuant to Section 2.3) plus the Share Consideration are referred to as the Purchase Price. The Cash Consideration will be paid at the Closing by wire transfer of immediately available funds pursuant to wire instructions delivered by Seller to Buyer no later than two Business Days prior to the Closing Date. The Share Consideration will be paid at the Closing by delivery of a stock certificate or certificates registered in Seller’s name, the denominations of which Seller will request at least three (3) Business Days prior to Closing and which will evidence an aggregate number of shares of common stock of Buyer equal to the full Share Consideration.

     Section 2.3.     Adjustment. The Cash Consideration portion of the Purchase Price shall be subject to adjustment as follows:

     (a) If, as of the Closing Date, the Estimated Closing Working Capital is (i) less than the Target Working Capital, the Cash Consideration payable at the Closing will be reduced by the difference between the Estimated Closing Working Capital and the Target Working Capital or (ii) more than the Target Working Capital, the Cash Consideration payable at the Closing will be increased by the difference between the Estimated Closing Working Capital

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and the Target Working Capital such increase or decrease, (the “Closing Purchase Price Adjustment”). The Seller shall not less than three (3) Business Days prior to the Closing estimate the Closing Working Capital, based on the balance sheet of the Company and its Subsidiaries as of the prior month-end, but brought forward to include any known changes in the components of Closing Working Capital since such prior month-end, supporting documentation for all of which shall be provided to Buyer for its review concurrently with or prior to the delivery of the estimated Closing Working Capital calculation (the “Estimated Closing Working Capital”).

     (b) If the Closing Working Capital is (i) less than the Estimated Closing Working Capital, the Cash Consideration will be reduced by the difference between the Estimated Closing Working Capital and the Closing Working Capital or (ii) more than the Estimated Closing Working Capital, the Cash Consideration will be increased by the difference between the Estimated Closing Working Capital and the Closing Working Capital, provided that if no Closing Purchase Price Adjustment was made at Closing as a result of clause (c) below, then the foregoing calculation shall be made by comparing the Closing Working Capital to the Target Working Capital rather than the Estimated Closing Working Capital (the “Final Purchase Price Adjustment”). Any Final Purchase Price Adjustment shall be paid in accordance with Section 2.3(d) below.

     (c) Notwithstanding clauses (a) and (b) above, no adjustment to the Purchase Price shall be made if the aggregate adjustment would be in an amount less than $1,000,000.

     (d) In the event of a reduction to the Purchase Price pursuant to Section 2.3(b)(i), Seller and Liberty will be jointly and severally liable for the amount of the reduction and will pay to Buyer, within five (5) Business Days of the Closing Date Calculations being declared final pursuant to Section 2.3(f) and (g) (the “Balance Sheet Date”), the amount of such reduction plus interest accruing on such amount at a rate of six percent (6)% per annum from the Closing Date until such amount is paid, in immediately available funds. In the event of an increase to the Purchase Price pursuant to Section 2.3(b)(ii), the Buyer will pay to Seller, within five (5) Business Days of the Balance Sheet Date, the amount of such increase plus interest accruing on such amount at a rate of six (6)% per annum from the Closing Date until such amount is paid, in immediately available funds. Any amount paid pursuant to this Section 2.3 will be treated as an adjustment to the Purchase Price for all purposes.

     (e) The Buyer shall prepare and distribute to Seller, within sixty (60) days after the Closing Date, a written calculation of the proposed Final Purchase Price Adjustment and the Closing Working Capital (the “Closing Date Calculations”), as determined by reference to the relevant provisions of this Agreement.

     (f) On or prior to the thirtieth (30^th) day after Buyer gives Seller notice of the Closing Date Calculations, Seller may give Buyer a written notice that it objects (an “Objection Notice”) to the Closing Date Calculations. Any Objection Notice shall specify the dollar amount of any objection and a reasonably detailed summary of the basis for objection. Except to the extent Seller timely objects to a specific determination set forth in the Closing Date Calculations pursuant to an Objection Notice delivered to Buyer within such thirty (30) day period, the Closing Date Calculations will be conclusive and binding upon the Parties.

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     (g) If Seller delivers a timely Objection Notice as described in Section 2.3(f), then Buyer and Seller shall negotiate in good faith to resolve their disputes raised pursuant to a timely Objection Notice. If Buyer and Seller are unable to resolve all disputes regarding the Closing Date Calculations on or prior to the thirtieth (30^th) day after the date the Objection Notice was delivered, then Buyer shall retain a “big four” accounting firm (after eliminating any such firm which is conflicted or otherwise unable to participate) (the “Independent Accounting Firm”) to resolve the dispute as soon as practicable, and in any event within thirty (30) days after Buyer retains such firm. The Independent Accounting Firm shall only decide the specific items under dispute by the parties, and shall make its determinations solely in accordance with this Section 2.3. The Independent Accounting Firm’s determination regarding the matters in dispute will be conclusive and binding upon the Parties hereto and will constitute (or, if applicable, will be used in the calculation of) the Final Purchase Price Adjustment and the Closing Working Capital for all purposes of this Section 2.3. The fees and expenses of the Independent Accounting Firm in connection with its review of the Closing Date Calculations shall be paid one-half (1/2) by the Company and one-half (1/2) by Seller.

     Section 2.4.     Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) will take place at the offices of Sherman & Howard L.L.C. in Denver, Colorado at 10:00 a.m. Mountain Time on the date that is five Business Days after the satisfaction or waiver of the closing conditions contained in Article VIII, or at such other time and place as the Parties may agree in writing (the “Closing Date”), provided that if the conditions to Closing set forth in Article 8 are satisfied prior to January 1, 2007, then Buyer shall have the option to extend the Closing Date for up to sixty (60) days assuming that Buyer is diligently proceeding to obtain its financing for the transactions contemplated by this Agreement.

     Section 2.5.     Closing Deliveries. At the Closing:

     (a) Seller and Liberty will deliver to Buyer:

     (i) one or more stock certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer, which Shares shall be free and clear of any Encumbrances except Encumbrances arising out of any action taken by Buyer or any of its Affiliates or under the Securities Act; and

     (ii) one or more officer’s certificates, dated the Closing Date, executed by duly authorized executive officers of Seller and Liberty, attesting to matters in Sections 8.1(a) and (b); and

     (iii) possession of all documents, books, records agreements and financial data relating to the Company and its Subsidiaries held by Liberty, the Company and its Subsidiaries.

     (b) Buyer will deliver to Seller:

     (i) the Cash Consideration (as adjusted pursuant to Section 2.3(a), if applicable) by wire transfer of immediately available funds to an account designated by Seller; and

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     (ii) a stock certificate or certificates representing the Share Consideration; and

     (iii) a certificate, dated the Closing Date, executed by a duly authorized executive officer of Buyer, attesting to matters in Sections 8.2(a) and 8.2(b).

     Section 2.6.     Stock Adjustment. If, after the Agreement Date and prior to the Closing Date, the Buyer is recapitalized or reclassified or Buyer effects any stock dividend, stock split, or reverse stock split or otherwise effects any transaction that changes its common stock into any other securities (including securities of another corporation), then the Share Consideration to be delivered to Seller under this Agreement will be appropriately and equitably adjusted to the kind and amount of shares of stock and other securities and property which the Seller would have been entitled to receive had the shares comprising the Share Consideration been issued and outstanding as of the record date for determining stockholders entitled to participate in such corporate event.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND LIBERTY
REGARDING THE COMPANY AND ITS SUBSIDIARIES

     The disclosures in any section or paragraph of the disclosure schedule accompanying this Agreement (the “Disclosure Schedule”) shall qualify as disclosures by the Seller and Liberty with respect to any other portion of the numbered and lettered paragraphs of such Disclosure Schedule and the related representations and warranties to the extent that the relevance of such disclosure is readily apparent to the disclosure called for in such other section or paragraph of the Disclosure Schedule or the related representations and warranties. Notwithstanding the foregoing or anything to the contrary in this Agreement, the information contained in any specific document referenced in the Disclosure Schedule shall qualify the representations and warranties only to the extent the reason such document is relevant to the applicable section or paragraph of the Disclosure Schedule or the related representations and warranties is specifically described in the Disclosure Schedule. Except as set forth in the Disclosure Schedule, Seller and Liberty hereby jointly and severally represent and warrant to Buyer as follows:

     Section 3.1.     Organization, Qualification and Corporate Power. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own its assets and to conduct its business as it is currently being conducted. The Company is duly qualified and authorized to transact business and is in good standing in each jurisdiction where such qualification is required, except where the failure to be so qualified would not have, individually or in the aggregate, a Material Adverse Effect.

     Section 3.2.     Capitalization. The authorized capital stock of the Company consists of 50,000 shares of common stock, par value $0.01 per share, of which 1,000 shares are issued and outstanding and constitute the “Shares.” The Shares are the only shares of capital stock or other ownership interests in the Company outstanding. All of the Shares have been duly and validly authorized and issued, are fully paid and non-assessable, are free and clear of all Encumbrances and are held beneficially and of record by Seller. The transfer and delivery of the Shares by

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Seller to Buyer as contemplated by this Agreement will transfer good and valid title to the Shares to Buyer free and clear of all Encumbrances, except Encumbrances arising as a result of any action taken by the Buyer or any of its subsidiaries. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, pre-emptive rights or other rights, contracts or commitments that could require the Company to issue, sell or otherwise cause to become outstanding any of its capital stock or any other securities exercisable or exchangeable for or convertible into such capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock or Control of the Company.

     Section 3.3.     Subsidiaries and Equity Affiliates. The Company directly owns all of the issued and outstanding shares of capital stock of ONCO, and the Company does not have any assets or Liabilities other than those related to its ownership of ONCO and other than Liberty Intercompany Debt of the Company and its Subsidiaries that will be eliminated prior to the Closing in accordance with Section 8.1(f) or Ascent Intercompany Indebtedness. Schedule 3.3 sets forth a complete list of all Subsidiaries and Equity Affiliates of ONCO and the direct or indirect ownership interest of ONCO in each such Subsidiary and Equity Affiliate. Except as set forth on Schedule 3.3, ONCO does not own, directly or indirectly, any equity interest in any other Person including any general or limited partnership interest, limited liability company interest or other form of joint venture. All issued and outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and, at Closing, will be free and clear of all Encumbrances other than Permitted Encumbrances. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, pre-emptive rights, or other rights, contracts or commitments that could require any Subsidiary to issue, sell or otherwise cause to become outstanding any of its capital stock or any other securities exercisable or exchangeable for or convertible into such capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock or Control of any Subsidiary. Each Subsidiary is a Person duly organized, validly existing and in good standing under the laws of its place of formation. Each Subsidiary has all requisite power and authority to own its assets and to conduct its business as it is currently being conducted. Each Subsidiary is duly qualified and authorized to transact business and is in good standing in each jurisdiction where such qualification is required, except where the failure to be so qualified would not have, individually or in the aggregate, a Material Adverse Effect.

     Section 3.4.     Financial Statements. Seller has delivered to Buyer the following financial statements of the Company and ONCO and its subsidiaries on a consolidated basis (collectively, the “Financial Statements”): (a) audited financial statements of ONCO, including the balance sheets as at December 31, 2005, 2004 and 2003 and the statement of operations, changes in stockholders’ equity, and cash flows for the fiscal years ended December 31, 2005, 2004 and 2003; (b) unaudited financial statements of the Company, including the balance sheets as at December 31, 2005 and 2004 and the statement of operations, changes in stockholders’ equity, and cash flows for the fiscal years ended December 31, 2005 and 2004 (the “Company Unaudited Financial Statements”); and (c) unaudited financial statements of ONCO and the Company, including the balance sheet as at September 30, 2006 (the “Balance Sheet”) and the

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statement of operations, changes in stockholders’ equity, and cash flows for the nine months ended September 30, 2006 (collectively including the Balance Sheet, the “Interim Financial Statements”). The Financial Statements and the Company Unaudited Financial Statements (including any notes thereto) (i) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, (ii) present fairly in all material respects the financial position of the Company and its Subsidiaries and ONCO and its Subsidiaries, as applicable, on a consolidated basis as of such dates and the results of operations and cash flows of the Company and its Subsidiaries and ONCO and its Subsidiaries, as applicable, on a consolidated basis for such periods, and (iii) are consistent with the books and records of the Company and its Subsidiaries and ONCO and its Subsidiaries, as applicable; provided, however, that the Interim Financial Statements are subject to normal year-end adjustments (that are not material, either individually or in the aggregate) and that the Interim Financial Statements and the Company Unaudited Financial Statements do not contain footnotes required by GAAP. Seller has delivered to Buyer the following financial statements of THN (collectively, the “THN Financial Statements”); (a) unaudited financial statements, including the balance sheet as at December 31, 2005 and the statement of operations, changes in stockholders’ equity, and cash flows for the fiscal year ended December 31, 2005; and (b) unaudited financial statements, including the balance sheet as at September 30, 2006 (the “THN Balance Sheet”) and the statement of operations, changes in stockholders’ equity, and cash flows for the nine months ended September 30, 2006 (collectively including the THN Balance Sheet, the “THN Interim Financial Statements”). The THN Financial Statements (i) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, (ii) present fairly in all material respects the financial position of THN as of such dates and the results of operations and cash flows of THN for such periods and (iii) are consistent with the books and records of THN; provided, however, that the THN Interim Financial Statements are subject to normal year-end adjustments (that are not material, either individually or in the aggregate (except as set forth in the Disclosure Schedule)) and the THN Financial Statements do not contain footnotes required by GAAP. Except as described on the Disclosure Schedule, neither ONCO’s nor the Company’s independent auditors have identified (i) since the adoption of rules promulgated by the SEC pursuant to the Section 404 of the Sarbanes-Oxley Act of 2002, any control deficiency, significant deficiency or material weakness in the system of internal control over financial reporting (each term as defined in Auditing Standard No. 2 of the Public Company Accounting Oversight Board) utilized by the Company and its Subsidiaries or (ii) any fraud, whether or not material, that involves the Company’s management or other employees who have a role in the preparation of financial statements or the internal control over financial reporting utilized by the Company and its Subsidiaries. To the knowledge of Seller or Liberty, (i) none of the principal executive officer or principal financial officer of Seller, Liberty, ONCO or the Company has concluded that a material weakness currently exists, other than what is described on the Disclosure Schedule and (ii) no claim or allegation has been made that a material weakness exists or that there has been any fraud with respect to the preparation of ONCO’s or the Company’s financial statements or the internal control over financial reporting utilized by the Company and its Subsidiaries.

     Section 3.5.     Assets and Liabilities of the Company. Except for its interest in ONCO and its liability for income taxes, the Company has no assets and no Liabilities of a nature required to be disclosed on an unconsolidated balance sheet of the Company or in the footnotes to the Financial Statements or any liabilities that would be required to be disclosed by SEC rules

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and regulations if the Company were an unconsolidated public company registered with the SEC. Except as set forth on the Disclosure Schedule, the Company and its Subsidiaries do not have any contingent reimbursement obligations or amounts outstanding pursuant to any letters of credit or similar facilities issued for the account of the Company and its Subsidiaries.

     Section 3.6.     No Undisclosed Liabilities. Neither the Company nor any Subsidiary has any Liability of a type that would be required to be disclosed in the financial statements, including the footnotes, under generally accepted accounting principles or liabilities described in Items 103, 303(a)(4), or 305 of Regulation S-K, except for (a) Liabilities set forth on the Balance Sheet or disclosed in the Notes to the 2005 Financial Statements referred to in Section 3.4(a), (b) Liabilities that have arisen after the date of the Balance Sheet in the Ordinary Course of Business, or (c) Liabilities that would not be material to the Company and its Subsidiaries taken as a whole.

     Section 3.7.     Noncontravention; Consents. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement, will (a) violate any Legal Requirement to which the Company or any Subsidiary is subject or any provision of the certificate of incorporation or bylaws (or comparable constituent documents) of the Company or any Subsidiary or (b) result in a breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify, or cancel, any contract or obligation with respect to Indebtedness to which the Company or any Subsidiary is a party or by which it is bound or to which its assets are subject, except where any such violation, breach, default or other matter would not have, individually or in the aggregate, a Material Adverse Effect. Schedule 3.7 sets forth all notices and filings required to be made and all authorizations, consents, or approvals of any Governmental Authority or other Person required to be obtained by Seller in order for Buyer and Seller to consummate the transactions contemplated by this Agreement.

     Section 3.8.     Compliance with Legal Requirements. To Seller’s knowledge, the Company and its Subsidiaries are in compliance with all applicable Legal Requirements, except where the failure to be in compliance would not have individually or in the aggregate, a Material Adverse Effect. No Proceeding has been filed or commenced against the Company or any Subsidiary alleging any failure to so comply with applicable Legal Requirements, and to Seller’s knowledge no such Proceeding has been threatened. Each of the Company and its Subsidiaries holds all Permits used or necessary in the conduct of its business or the ownership of its property and assets. Such Permits are valid and in full force and effect, and no written notice has been received by the Company or its Subsidiaries alleging the failure to hold any such Permit. The Company and its Subsidiaries are in material compliance with the terms and conditions of such Permits, and all of such Permits will be available for use on the same terms by the Company and its Subsidiaries immediately after the Closing, except where the failure to be in compliance or the unavailability for use would not have, individually or in the aggregate, a Material Adverse Effect.

     Section 3.9.     Title to Assets. Except as set forth on Schedule 3.9, each of the Company and each Subsidiary has good title to, or a valid leasehold interest in, the properties and assets used by the Company or such Subsidiary in its business as it is presently being conducted as set forth on the Balance Sheet or acquired after the date of the Balance Sheet, free and clear of all

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Encumbrances (other than Permitted Encumbrances), except for properties and assets disposed of in the Ordinary Course of Business since the date of the Balance Sheet. Neither the Company nor any Subsidiary has received any notice of violation or default under any Legal Requirement or Contract relating to its owned or leased properties and assets that remains uncured or has not been dismissed, except where any such violation or default would not have, individually or in the aggregate, a Material Adverse Effect. All leases and licenses pursuant to which the Company or any Subsidiary leases or licenses tangible or intangible property from others, including without limitation licenses for rights to music from music licensing associations, are valid and effective in accordance with their respective terms, and there is not, with respect to the Company or any Subsidiary under any of such leases or licenses, any existing default (or event that with notice or lapse of time, or both, would constitute a default), except where any such default would not have, individually or in the aggregate, a Material Adverse Effect.

     Section 3.10.     Intellectual Property. The Company and its Subsidiaries own or have the right to use, pursuant to a valid and enforceable license, the Intellectual Property currently used in and necessary for the operation of their respective businesses and shall continue to have the right to use such Intellectual Property immediately following the Closing. Schedule 3.10 sets forth a list of (i) all the Company’s and each Subsidiary’s registered Intellectual Property and all material unregistered Intellectual Property (other than those items listed in subsection (d) of the definition of Intellectual Property and other than “inventions” and “business methods” listed in subsection (a) of said definition, “trade dress,” “brands,” “slogans,” and “logos” listed in subsection (b) of such definition and “copyrightable subject matter” listed in subsection (c) of said definition) owned by or used by the Company or its Subsidiaries in their respective businesses, and (ii) all written licenses (other than off-the-shelf commercial computer software) with an anticipated annual license fee of greater than $50,000 pursuant to which the Company or its Subsidiaries have the right to use Intellectual Property. To the knowledge of Seller, the Company’s and its Subsidiaries’ use of all such Intellectual Property as currently used in the operation of their respective businesses does not violate or infringe upon any Intellectual Property or other rights of any other Person and to the knowledge of Seller, no allegation of such violations or infringement of any such Intellectual Property rights has been asserted or threatened, except as listed on Schedule 3.10.

     Section 3.11.     Real Property; Real Property Leases. Neither the Company nor any Subsidiary owns any real property. Schedule 3.11 sets forth all leases and subleases under which either the Company or any Subsidiary is lessor or lessee or sublessor or sublessee of any real property (the “Real Property Leases”). The Company has provided true, correct and complete copies of all such Real Property Leases, including any amendments to such Real Property Leases, to the Buyer. The Real Property Leases are in full force and effect and constitute binding and enforceable agreements of the Company or the Subsidiary and, to Seller’s knowledge, the landlords or lessors party thereto. The Company or the Subsidiary that is a party to any Real Property Lease is not in breach or default thereunder and, to the knowledge of Seller no landlord is in breach or violation of any such Real Property Lease and no event has occurred that with notice or lapse of time, or both, would constitute a breach or default thereunder by the Company or the Subsidiary that is a party thereto, except where any such Company or Subsidiary breach or default would not have, individually or in the aggregate, a Material Adverse Effect.

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     Section 3.12.     Contracts. Schedule 3.12 sets forth the following contracts and other agreements to which the Company or any Subsidiary is a party and under which the Company or any Subsidiary has ongoing rights or obligations as of the Agreement Date (the “Contracts”):

     (a) any agreement for the lease of personal property to or from any Person (not including any Real Property Leases) providing for calendar year lease payments in excess of $100,000;

     (b) any agreement with a customer, including any master agreement pursuant to which the Company or any Subsidiary has entered into multiple service agreements covering individual hotels, pursuant to which the Company or any such Subsidiary either received revenue in excess of $500,000 during 2005 or reasonably expects to receive revenue in excess of such amount during 2006 or pursuant to which the Company or any Subsidiary (i) either paid fees in excess of $500,000 during 2005 or reasonably expects to pay fees in excess of such amount during 2006 (provided, however, 2006 revenue amounts and fees are forecasts only subject to uncertainties, and neither Seller, the Company nor any Subsidiary guarantees such results) or (ii) has agreed to provide such customer more favorable terms with respect to the price charged or any other financial matter, or with respect to the technological capabilities of equipment utilized by the Company and its Subsidiaries in providing services to such customer, in each case, to the extent such terms have been provided by the Company or its Subsidiaries to other customers of the Company or its Subsidiaries (any such clause being hereinafter referred to as an “MFN Clause”);

     (c) any agreement with a content provider pursuant to which the Company or any Subsidiary either made payments (including variable royalty payments) in excess of $250,000 during 2005 or has a firm commitment to make minimum payments in excess of such amount during 2006 or has a firm commitment to make minimum payments in excess of such amount in any single year after 2006;

     (d) any agreement with any third party (other than those described elsewhere in this Article III), including any affiliates of Seller or Liberty, pursuant to which the Company or any Subsidiary either made payments in excess of $500,000 during 2005 or has a firm commitment to make payments in excess of such amount during 2006, excluding purchase orders;

     (e) any purchase order or group of purchase orders or binding commitments payable to the same payee outstanding as of September 30, 2006 pursuant to which the amount payable by the Company or any Subsidiary exceeds $500,000;

     (f) any agreement governing a general or limited partnership, limited liability company or other form of joint venture;

     (g) any agreement under which the Company or any Subsidiary has created, incurred, assumed, or guaranteed any, Indebtedness or any capitalized lease obligation, in an amount in excess of $100,000 or under which the Company or any Subsidiary has imposed an Encumbrance (other than a Permitted Encumbrance) on any of the Company’s or any

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Subsidiary’s assets, tangible or intangible, other than any such agreement described in Section 3.19;

     (h) any agreement, arrangement or commitment governing Ascent Intercompany Indebtedness;

     (i) any agreement, arrangement or commitment under which the Company or any Subsidiary has agreed or committed to advance or loan or has advanced or loaned any amount to any of its directors, officers, or employees, other than advances with respect to expenses incurred in the Ordinary Course of Business;

     (j) any agreement, arrangement or commitment entered into outside the Ordinary Course of Business and pursuant to which any material obligations or liabilities (whether absolute, contingent or otherwise) remain outstanding;

     (k) any employment, bonus, consulting or independent contractor agreement pursuant to which the Company or any Subsidiary reasonably expects to make future payments in excess of $100,000 in any calendar year;

     (l) any agreements that provide that the Company or any of its Subsidiaries are required to pay for goods or services to a Person whether or not such Person provides such goods or services under such Contract;

     (m) any of the following agreements of THN (collectively, the “THN Contracts”):

     (i) agreements for advertising revenue pursuant to which THN reasonably expects to receive revenue in excess of $25,000 in any calendar year;

     (ii) agreements pursuant to which THN made payments in excess of $50,000 during 2005 or has a firm commitment to make payments in excess of such amount during 2006, excluding purchase orders;

     (iii) programming agreements or any agreement with a content provider;

     (iv) any agreement with a hotel customer, including any master agreement pursuant to which THN has entered into multiple service agreements covering individual hotels covering more than 5,000 rooms;

     (v) any agreement under which THN has created, incurred, assumed, or guaranteed any, Indebtedness or any capitalized lease obligation, or under which THN has imposed an Encumbrance (other than a Permitted Encumbrance) on any of THN’s assets, tangible or intangible;

     (vi) any agreements for the issuance of any securities by THN; or

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     (vii) agreements between or among the stockholders of THN, including any agreement whereby the Company or any of its Subsidiaries is obligated to provide funds to THN.

None of THN, the Company or the other stockholders of THN have any verbal or oral agreements or understanding that would be required to be disclosed in (m)(i) through (vii) above, other than as set forth in the THN Contracts.

     (n) any agreement that restricts the right or ability of the Company or any Subsidiary or, to Seller’s and Liberty’s knowledge, any Equity Affiliate, to conduct their respective businesses subsequent to the Closing in a manner that is substantially the same as such businesses are conducted prior to Closing whether as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, and

     (o) any agreements or licenses with music licensing associations.

With respect to each such Contract: (i) the Contract is in full force and effect and constitutes a binding obligation of the Company or the Subsidiary (other than any such Contract whose term has terminated or expired in accordance with its stated term), and (ii) the Company or the Subsidiary that is a party to the Contract is not in breach or default thereunder and, (iii) to the knowledge of Seller, the Contract constitutes a binding obligation on the other parties to the Contract, and (iv) to the knowledge of Seller, no event has occurred that with notice or lapse of time, or both, would constitute a breach or default thereunder by the Company or the Subsidiary that is a party thereto or, to the knowledge of Seller, any other party to each such Contract, except where any such breach or default would not have, individually or in the aggregate, a Material Adverse Effect. The Company has provided true, correct and complete copies of all Contracts, including any amendments to such Contracts, to the Buyer, except for those Contracts as to which the parties have agreed to an alternative review process. As of the date hereof, the aggregate amount owed by the Company and its Subsidiaries pursuant to any leases that are required to be capitalized under GAAP does not exceed $2,000,000 and all such leases will remain in full force and effect immediately following the Closing without any modification of their terms.

     Section 3.13.     Litigation. Neither the Company nor any Subsidiary is (a) subject to any outstanding injunction, judgment, order, decree, ruling, conciliation agreement or settlement agreement, or charge requiring the future payment of money by it or requiring it to take or preventing it from taking any future action the effect of which would have a Material Adverse Effect on the Company or (b) a party, or to the knowledge of Seller and Liberty, threatened in writing to be made a party, to any Proceeding.

     Section 3.14.     Environmental, Health, and Safety Matters.

     (a) To the knowledge of Seller, the Company and its Subsidiaries have complied in all material respects and are in compliance in all material respects with all Environmental, Health, and Safety Requirements.

     (b) Without limiting the generality of the foregoing, the Company and its Subsidiaries have obtained, and have complied in all material respects and are in compliance in

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all material respects with, all Permits that are required pursuant to Environmental, Health, and Safety Requirements for the occupation of their respective facilities and the operation of their respective businesses.

     (c) Neither the Company nor any Subsidiary has received any written notice, report or other information regarding any actual or alleged material violation of Environmental, Health, and Safety Requirements or any outstanding material Liabilities arising therefrom or, to its knowledge, any threat of material Liabilities under any Environmental, Health and Safety Requirements.

     (d) Neither the Company nor any Subsidiary has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including any hazardous substance, or owned or operated any property or facility in a manner, that has given, or to the knowledge of Seller would give, rise to any material Liabilities pursuant to any Environmental, Health, and Safety Requirements.

     (e) The Company has provided to the Buyer true and complete copies of all environmental audits, reports, permits and other material environmental documents relating to the past or current properties, facilities or operations of the Company or its Subsidiaries or their respective predecessors or Affiliates which are in its possession or under its reasonable control and dated within the past seven (7) years.

     Section 3.15.     Employees. The Company has provided to the Buyer a true and complete list, setting forth each employee of the Company or any Subsidiary, together with such employee’s job title; location in which employed; current compensation rate; and service credited for purposes of vesting and eligibility to participate under any pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, restricted stock, stock appreciation right, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), retention, severance pay, insurance, medical, welfare, or other Benefit Plan. The Company and each Subsidiary has complied with all provisions of applicable law pertaining to the employment of employees, including, without limitation, all such laws relating to labor relations, equal employment, fair employment practices, entitlements, prohibited discrimination or other similar employment practices or acts, except where any failure so to comply would not have, individually or in the aggregate, a Material Adverse Effect.

     Section 3.16.     Labor Relations. Neither the Company nor any Subsidiary is a party to any collective bargaining or other labor contract. There is not presently pending or existing and, to the knowledge of Seller, there is not threatened (a) any strike, slowdown, picketing, work stoppage, or employee grievance process, or (b) any effort to organize any employees into a collective bargaining unit.

     Section 3.17.     Employee Benefits.

     (a) Schedule 3.17(a) sets forth each bonus, deferred compensation, incentive compensation, stock purchase, stock option, retention, severance or termination pay, hospitalization or other medical, life, or other insurance, supplemental unemployment benefits, profit-sharing, 401(k), pension or retirement plan, program, agreement, or arrangement, and each

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other employee benefit plan, program, agreement, or arrangement, written or verbal, that currently is sponsored, maintained, or contributed to or required to be contributed to by the Company or any Subsidiary or by any trade or business, whether or not incorporated (an “ERISA Affiliate”), that together with the Company or any Subsidiary would be deemed a “single employer” within the meaning of Section 4001(b) (l) of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder (“ERISA”), for the benefit of any U.S.-based employee or former employee of the Company or any Subsidiary (the “Benefit Plans”). Schedule 3.17(a) identifies each of the Benefit Plans that is an “employee welfare benefit plan” or “employee pension benefit plan” as such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being referred to collectively as the “ERISA Plans”).

     (b) Each of the Benefit Plans has been and is operated and administered in accordance with its terms in all material respects and in material compliance with applicable requirements of the Code, ERISA, and other applicable Legal Requirements and may in accordance with its terms be amended or terminated at any time.

     (c) Except as set forth on Schedule 3.17(c), none of the Company, any Subsidiary or any ERISA Affiliate contributes, is obligated to contribute, or has been obligated to contribute to a “multiemployer plan” within the meaning of Section 3(37) of ERISA during the five years preceding the Closing Date.

     (d) Neither the Company nor any Subsidiary maintains, contributes to, or has any liability or obligation with respect to an employee welfare benefit plan that provides health or life insurance or other benefits for current or future retired or terminated employees or directors (or any spouse or dependents thereof) of the Company or any ERISA Affiliate, except as may be required under Section 4980 of the Code.

     (e) No Benefit Plan is (i) a “defined benefit plan” (within the meaning of Section 3(35) of ERISA), (ii) subject to the minimum funding requirements of Section 412 of the Code or Part 3 of Title I of ERISA, or (iii) subject to Title IV of ERISA.

     (f) Other than claims in the ordinary course for benefits with respect to the Benefit Plans, there are no Proceedings pending or, to the knowledge of Seller, threatened in writing with respect to any Benefit Plan.

     (g) Schedule 3.17(g) sets forth each employee benefit plan, program or arrangement for retirement or welfare benefits currently covering employees or former employees of the Company or any Subsidiary who are not employed in the United States (the “Non-US Plans”). Each Non-US Plan has been operated and administered in material compliance with all applicable Legal Requirements.

     Section 3.18.     Insurance. Schedule 3.18 sets forth all policies of insurance to which the Company or any Subsidiary is a party or under which the Company or any Subsidiary is covered as of the Agreement Date. With respect to each such insurance policy: (i) the policy is valid, binding, and in full force and effect; and (ii) neither the Company nor any Subsidiary is in breach or default, and to the knowledge of Seller, no event has occurred that with notice or the lapse of

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time, or both, would constitute a breach or default under the policy, except where any such breach or default would not have, individually or in the aggregate, a Material Adverse Effect.

     Section 3.19.     Related Party Transactions. Schedule 3.19(a) sets forth all contracts or arrangements involving the Company or any of its Subsidiaries and Equity Affiliates, on the one hand (the “Company Group”), and Seller, Liberty or any Affiliate of Liberty, including Ascent Media Group, LLC (other than members of the Company Group), on the other hand (the “Liberty Group”), including a description of all goods and services provided by the Liberty Group to the Company Group (all of which will be terminated as of the Closing Date unless otherwise noted on Schedule 3.19(a)). Schedule 3.19(b) sets forth all contracts or arrangements for obtaining products or services by the Company Group that have been entered into by the Company Group, based in whole or in part on the relationship of the Company Group with the Liberty Group, indicating in each case whether such contract or arrangement will be terminated or modified as a result of the transactions contemplated by this Agreement. There is no contract or arrangement in effect entered into by the Company or any Subsidiary with any officer or director of the Company or any Subsidiary, other than compensation, benefits and expense reimbursements paid or made in the Ordinary Course of Business.

     Section 3.20.     Customers. The MFN Clauses in the Company’s and its Subsidiaries’ hotel customer contracts were granted based on total packages, and Seller has reasonable grounds to believe no such MFN Clauses have been triggered. No hotel customer of the Company and its Subsidiaries has given any notice to the Company and its Subsidiaries that it believes the MFN Clauses in its agreement has been triggered.

     Section 3.21.     Brokers’ Fees. Except as provided in Section 4.5, neither the Company nor any Subsidiary has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

     Section 3.22.     Absence of Certain Changes or Events. Since December 31, 2005, (a) there has occurred no fact, event or circumstance which has had or could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) none of Seller or its Subsidiaries has taken, and have not caused or permitted the Company or any Subsidiary to take, any action that would have been prohibited without the consent or approval of Buyer if Section 6.3 of this Agreement had been in effect since December 31, 2005 and (c) none of Seller, Liberty, the Company nor any Subsidiary has entered into any contract or agreement to take any action that would have been prohibited without the consent or approval of Buyer if Section 6.3 of this Agreement had then been in effect since such date.

ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES

     Except as set forth in the Disclosure Schedule or in any of the documents referred to in the Disclosure Schedule, Seller and Liberty hereby jointly and severally represent and warrant to Buyer as follows:

     Section 4.1.     Organization of Seller. Each of Seller and Liberty is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.

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     Section 4.2.     Authorization; Binding Effect. Each of Seller and Liberty has all requisite corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations under this Agreement and the Stockholders Agreement, and this Agreement and the Stockholders Agreement has been duly executed and delivered by Seller and Liberty. All consents or approvals of any stockholder of Seller or Liberty required for Seller’s or Liberty’s execution, delivery and performance of this Agreement have been obtained and are in full force and effect, without any conditions or qualifications thereto. No further or other corporate or stockholder consents or approvals are or will be required to be obtained by Seller or Liberty in order for Seller to consummate the transactions contemplated in accordance with the terms hereof. This Agreement and the Stockholders Agreement constitute the legal, valid, and binding obligation of each of Seller and Liberty, enforceable against Seller and Liberty in accordance with its terms, except insofar as enforcement may be limited by bankruptcy, insolvency, or other laws affecting generally the enforceability of creditors’ rights and by limitations on the availability of equitable remedies.

     Section 4.3.     Noncontravention; Consents. Neither the execution and delivery of this Agreement and the Stockholders Agreement, nor the consummation of the transactions contemplated by this Agreement and the Stockholders Agreement, will (a) violate any material Legal Requirement to which Seller or Liberty is subject or any provision of the certificate of incorporation or bylaws of Seller or Liberty or (b) result in a material breach of, constitute a material default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify or cancel, any contract, agreement, lease, license or other arrangement to which Seller or Liberty is a party or by which it is bound or to which its assets are subject. Except as set forth on Schedule 3.7, neither Seller nor Liberty is required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority or other Person in order for Buyer, Seller and Liberty to consummate the transactions contemplated by this Agreement.

     Section 4.4.     Shares. Seller holds beneficially and of record all of the Shares free and clear of any Encumbrances other than Permitted Encumbrances, all of which will be released or removed prior to the transfer of the Shares at the Closing, other than Encumbrances under the Securities Act. Neither Seller nor Liberty is a party to any contract or commitment that could require either Seller or Liberty to sell, transfer, or otherwise dispose of any capital stock of the Company (other than this Agreement). Neither Seller nor Liberty is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock or Control of the Company or any Subsidiary or Equity Affiliate.

     Section 4.5.     Brokers’ Fees. Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement, except that Seller’s parent, Liberty, has retained Lehman Brothers Inc. and Daniels & Associates, L.P. as its financial advisors (collectively, “Seller’s Financial Advisors”). Seller or Liberty will be responsible for all fees and commissions payable to Seller’s Financial Advisors with respect to the transactions contemplated by this Agreement.

     Section 4.6.     Investment Intent. Seller is acquiring the shares of Buyer’s capital stock comprising the Share Consideration for its own account, not as a nominee or agent, and not with

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a view to the resale or distribution of any part thereof within the meaning of Section 2(11) of the Securities Act.

     Section 4.7.     Disclosure of Information. Seller has been furnished all information it considers necessary or appropriate for deciding whether to accept the shares of Buyer’s capital stock comprising the Share Consideration. Seller has had an opportunity to ask questions and receive answers from Buyer regarding the business, properties, financial condition and prospects of the Buyer and its subsidiaries, and all such questions have been answered to the full satisfaction of Seller.

     Section 4.8.     Accredited Investor. Seller is an “accredited investor” within the meaning of SEC Rule 501 of Regulation D under the Securities Act.

     Section 4.9.     Restricted Securities. Seller understands that the shares of Buyer’s capital stock comprising the Share Consideration are characterized as “restricted securities” under the United States federal securities laws inasmuch as such shares are being acquired in a transaction not involving a public offering and that under such laws and applicable regulations such shares of Buyer’s capital stock may be resold without registration under the Securities Act only in certain limited circumstances. In the absence of an effective registration statement covering such shares of Buyer’s capital stock or an available exemption from registration under the Securities Act, such shares of Buyer’s capital stock must be held indefinitely.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Seller as follows:

     Section 5.1.     Organization of Buyer. Buyer is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its formation.

     Section 5.2.     Authorization; Binding Effect; Financial Capability.

     (a) Buyer has all requisite corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations under this Agreement and the Stockholders Agreement, and this Agreement and the Stockholders Agreement have been duly executed and delivered by Buyer.

     (b) This Agreement and the Stockholders Agreement constitute the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except insofar as enforcement may be limited by bankruptcy, insolvency, or other laws affecting generally the enforceability of creditors’ rights and by limitations on the availability of equitable remedies.

     (c) Buyer’s financial resources are sufficient to purchase the Shares pursuant to the terms and conditions set forth in this Agreement.

     Section 5.3.     Noncontravention; Consents. Neither the execution and the delivery of this Agreement and the Stockholders Agreement, nor the consummation of the transactions

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contemplated by this Agreement and the Stockholders Agreement, will (a) violate any material Legal Requirement to which Buyer is subject or any provision of the certificate of incorporation or bylaws (or comparable constituent documents) of Buyer or (b) result in a material breach of, constitute a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, any contract, agreement, lease, license, or other arrangement to which Buyer is a party or by which it is bound or to which its assets are subject. Except for the filing required under the HSR Act, Buyer does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority or other Person in order for Buyer and Seller to consummate the transactions contemplated by this Agreement.

     Section 5.4.     Investment Intent. Buyer is acquiring the Shares for its own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof within the meaning of Section 2(11) of the Securities Act.

     Section 5.5.     Disclosure of Information. Buyer has been furnished all information it considers necessary or appropriate for deciding whether to purchase the Shares. Buyer has had an opportunity to ask questions and receive answers from Seller regarding the business, properties, financial condition and prospects of the Company and its Subsidiaries, and all such questions have been answered to the full satisfaction of Buyer.

     Section 5.6.     Accredited Investor. Buyer is an “accredited investor” within the meaning of SEC Rule 501 of Regulation D under the Securities Act.

     Section 5.7.     Restricted Securities. Buyer understands that the Shares are characterized as “restricted securities” under the United States federal securities laws inasmuch as the Shares are being acquired in a transaction not involving a public offering and that under such laws and applicable regulations such Shares may be resold without registration under the Securities Act only in certain limited circumstances. In the absence of an effective registration statement covering the Shares or an available exemption from registration under the Securities Act, the Shares must be held indefinitely.

     Section 5.8.     Certain Proceedings. There is no Proceeding against or involving Buyer or any Affiliate of Buyer that has been commenced or, to Buyer’s knowledge, threatened against or involving Buyer or any Affiliate of Buyer that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement.

     Section 5.9.     Brokers’ Fees. Other than Bear, Stearns & Co. Inc., Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. Buyer will be responsible for all fees and commissions payable to any such broker, finder, or agent retained by Buyer or any of its Affiliates with respect to the transactions contemplated by this Agreement.

     Section 5.10.     Delivery of Share Consideration. The Share Consideration being issued and delivered hereunder, when issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized, validly issued, fully

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paid and non-assessable. The transfer and delivery of such Share Consideration by Buyer to Seller against the transfer of the Shares as contemplated by this Agreement will transfer good and valid title to the shares of capital stock comprising such Share Consideration, free and clear of all Encumbrances, except Encumbrances under the Securities Act or Encumbrances arising as a result of any action taken by Seller or Liberty or any of their Affiliates.

     Section 5.11.     SEC Filings; Financial Information.

     (a) Buyer is a publicly traded company that is listed on The NASDAQ Stock Market LLC under the ticker symbol “LNET” and files reports, registration and proxy statements and other information with the SEC on its EDGAR System, all of which are available to Seller over the internet at the SEC’s web site at http://www.sec.gov.

     (b) Buyer has delivered or made available to Seller (i) Buyer’s Form 10-Q for the quarter ended June 30, 2006, (ii) all Form 8-Ks filed subsequent to June 30, 2006, (iii) Form 10-K for the year ended December 31, 2005, (iv) any Proxy Statements for Annual Meetings of Stockholders held in 2005 and 2006 and (v) any Registration Statements filed by Buyer including the prospecti contained therein and all amendments and prospectus supplements thereto, specified on Schedule 5.11 (collectively, the “Current Filings”) in which information, risks and facts about Buyer are set forth.

     (c) The Current Filings, as of the date of the filing thereof did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and taking into account any subsequent filings made to amend, supplement or that had the effect of superceding any information included in a prior Current Filing.

     (d) The financial information for Buyer and its subsidiaries contained in the Current Filings fairly present in all material respects, as of the dates thereof and for the periods then ended, the financial position and results of operations of Buyer and its consolidated subsidiaries in conformity with GAAP (except as indicated in the notes thereto), subject to normal year-end adjustments (that are not material, either individually or in the aggregate) with respect to unaudited financial statements.

ARTICLE VI
PRE-CLOSING COVENANTS

     The Parties agree as follows with respect to the period between the Agreement Date and the Closing Date (inclusive):

     Section 6.1.     Commercially Reasonable Efforts. Except where a different standard of conduct is specifically contemplated by this Agreement (in which event such standard will apply), each of the Parties will use its commercially reasonable efforts in good faith to take all actions and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement in the most expeditious manner practicable (including using commercially reasonable efforts to cause the conditions to Closing set forth in Article VIII for which such Party is responsible to be satisfied as soon as reasonably

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practicable and to prepare, execute and deliver such documents and instruments and take or cause to be taken such other and further action as any other Party may reasonably request).

     Section 6.2.     Notices and Consents. Seller and Liberty will or will cause the Company or a Subsidiary, as applicable, to give any notices to third parties, and Seller and Liberty will or will cause the Company or a Subsidiary, as applicable, to use its commercially reasonable efforts to obtain any third-party consents, necessary to consummate the transactions contemplated by this Agreement as promptly as reasonably practicable. Buyer will give any notices to third parties and will use its commercially reasonable efforts to obtain any third-party consents necessary to consummate the transactions contemplated by this Agreement as promptly as reasonably practicable. Each of the respective Parties will give any notices to, make any filings with, and use their commercially reasonable efforts to obtain any authorizations, consents, and approvals of any Governmental Authority required to be given or obtained by such respective Parties in connection with the transactions contemplated by this Agreement as promptly as reasonably practicable.

     Section 6.3.     Operation of Business. Except as contemplated by this Agreement, Seller will cause the Company and its Subsidiaries to conduct the business of the Company and its Subsidiaries in the Ordinary Course of Business, including in compliance in all material respects with applicable Legal Requirements and all Contracts. Without limiting the generality of the foregoing, except as set forth on Schedule 6.3 or as otherwise contemplated by the terms of this Agreement and except as may be required by applicable Legal Requirements or any binding contract in effect on the Agreement Date, without the consent of Buyer (which consent will not be unreasonably withheld, delayed or conditioned), Seller will not, and will not cause or permit the Company or any Subsidiary to, take any of the following actions:

     (a) (i) change the authorized or issued capital stock of the Company or any Subsidiary; (ii) grant any stock option or right to purchase or receive shares of capital stock of the Company or any Subsidiary; (iii) issue any security convertible into the capital stock of the Company or any Subsidiary; (iv) grant any registration rights with respect to the capital stock of the Company or any Subsidiary; or (v) purchase, redeem, retire, or otherwise acquire any shares of its capital stock;

     (b) sell, lease, transfer, or assign any material assets of the Company or any Subsidiary other than in the Ordinary Course of Business;

     (c) enter into any agreement, contract, lease, or license by the Company or such Subsidiary that is outside the Ordinary Course of Business;

     (d) accelerate, terminate, modify, or cancel any agreement, contract, lease, or license to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound outside the Ordinary Course of Business;

     (e) enter into any agreement, contract, lease or license with terms that are materially different than those agreed to in the Ordinary Course of Business;

     (f) issue any note, bond, or other debt security or create, incur, assume, or guarantee any Indebtedness (other than any Indebtedness that will be repaid at Closing);

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     (g) make a material change in the accounting methods used by the Company or any Subsidiary;

     (h) cancel, compromise, waive, settle or release any right or claim outside the Ordinary Course of Business;

     (i) grant any license or sublicense of any rights under or with respect to the Intellectual Property of the Company or any Subsidiary, or permit the lapse or termination of any such license or sublicense, other than in the Ordinary Course of Business;

     (j) authorize or make any material change in the certificate of incorporation or bylaws (or comparable constituent documents) of the Company or any Subsidiary;

     (k) declare, set aside, or pay any dividend or make any distribution with respect to the capital stock of the Company;

     (l) make any loan to, or enter into any other transaction with, any of its directors, officers, or employees, or members of the Liberty Group other than in the Ordinary Course of Business;

     (m) enter into any employment contract, independent contractor agreement or arrangement, or collective bargaining agreement or modify the terms of any existing such contract or agreement other than in the Ordinary Course of Business;

     (n) adopt, amend, modify, (including, without limitation, the modification of vesting provisions), or terminate any bonus, profit-sharing, incentive, retention, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, employees, independent contractors or consultants (or take any such action with respect to any other Benefit Plan), except that this shall not prevent (i) Liberty from taking action to vest any accounts in the Liberty Media 401(k) Savings Plan in its sole discretion or any amendment or modification to increase or revise any benefits to the extent such increase or revision is solely the obligation of a member of the Liberty Group; or (ii) ONCO or its Subsidiaries from modifying the annual officer and employee incentive plans (including bonus criteria) in the Ordinary Course of Business; or

     (o) make or grant any increase in, or accelerate the vesting of any bonus, wage or salary paid or payable to any officer, employee or group of employees (other than general employee wage increases in the Ordinary Course of Business).

     In addition to the foregoing, beginning January 2007, the Seller shall cause the Company or its Subsidiaries to make capital expenditures for new and conversion rooms and capital maintenance expenditures consistent with its plan, but (x) not less than $2,500,000 in any given month and (y) not less than $8,000,000 in any given calendar quarter. In addition, beginning January 2007, if Seller has not entered into a new license agreement as of January 1, 2007 with Acacia Media Technologies Corporation (“Acacia”), the Company and its Subsidiaries shall continue to pay Acacia at the current license rate or, in the alternative, accrue a monthly amount based on the current license rate.

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     Section 6.4.     Access and Investigation. Subject to the provisions of the Confidentiality Agreement dated as of November 9, 2005 (the “Existing NDA”) and to applicable Legal Requirements, Seller will, and will cause the Company and its Subsidiaries to, after receiving reasonable advance notice from Buyer, give Buyer reasonable access (during normal business hours) to the books, records and appropriate personnel of the Company and its Subsidiaries for the purpose of enabling Buyer to further investigate and inspect, at Buyer’s sole expense, the business and operations of the Company and its Subsidiaries; provided, however, that such access may be limited to the extent that antitrust counsel reasonably determines that such limitation is required under any applicable Antitrust Law after discussing such determination with Buyer’s antitrust counsel. In conducting its investigation of the business and operations of the Company and its Subsidiaries, Buyer will not interfere in any manner with the normal business or operations of the Company or its Subsidiaries, with the performance of the employees of the Company or its Subsidiaries or with the customer, vendor or other business relationships of the Company or its Subsidiaries.

     Section 6.5.     Notification. Each Party will give prompt written notice to the other Party of any fact or condition known to such first Party that causes or constitutes a breach of any of the representations, warranties, covenants or commitments made by such first Party in this Agreement. Should any such fact or condition require any change in the Schedules to this Agreement (including the Disclosure Schedule) if the Schedules were dated the date of the occurrence or discovery of any such fact or condition, Buyer or Seller, as applicable, (the “Notifying Party”) will promptly deliver to the other Party (the “Receiving Party”) a supplement to the Schedules specifying such change. Any such notification shall set out particulars of each untrue, incomplete, incorrect or misleading representation or warranty and the basis for any alleged breach of covenant, agreement or obligation, and details of any actions being taken by the Notifying Party to rectify the same. The giving or acceptance of any such notification shall not constitute a waiver of such breach and shall not prejudice the rights of the Receiving Party under this Agreement.

     Section 6.6.     Subsequent Financial Statements. Seller shall cause the Company and its Subsidiaries to prepare and deliver to Buyer monthly management reports and financial statements regarding ONCO and its Subsidiaries and THN for each month after the date of the Interim Financial Statements and the THN Interim Financial Statements no later than twenty (20) days after the end of each month until the Closing or until the earlier termination of this Agreement as provided herein. Such monthly reports and financial statements shall be consistent with past practice and such financial statements shall foot to net income. Seller shall cause the Company and its Subsidiaries to prepare and deliver to Buyer unaudited consolidated and consolidating financial statements of the Company and its Subsidiaries and THN for each quarter after the date of the Interim Financial Statements and the THN Interim Financial Statements no later than forty (40) days after the end of each quarter until the Closing or until the earlier termination of this Agreement as provided herein. Such quarterly statements shall not include notes and shall be subject to normal year-end adjustments (which shall not be material, individually or in the aggregate), and shall be prepared in accordance with GAAP.

     Section 6.7.     Subsequent Filings. Buyer shall make available to Seller any subsequent Current Filings as and when filed up to the Closing Date.

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     Section 6.8.     Non-Solicitation. Seller shall, and Seller shall cause its respective agents, representatives and Affiliates (and any agents and representatives of such Affiliates) not to, during the period commencing on the Agreement Date and ending with the earlier to occur of the Closing or the termination of this Agreement in accordance with its terms, directly or indirectly; (a) solicit, encourage or initiate the submission of proposals or offers from any Person or entity for, or enter into any agreement for, (b) participate in any discussions pertaining to, or (c) furnish any information to any Person, other than Buyer and its representatives, relating to (i) any acquisition or purchase of the capital stock or other equity interests of or in the Company or its Subsidiaries or (ii) any acquisition or purchase of any assets or the business of the Company or any of its Subsidiaries, or (iii) any merger, consolidation or business combination involving the Company or any of its Subsidiaries. Seller agrees to promptly notify Buyer in writing of any offers or proposals received from any Person (other than Buyer) after the date hereof regarding any of the matters described in clauses (i), (ii) or (iii) above, which notice will include the identity of such Person (including the ultimate beneficial owner(s) thereof, if known) and the terms of such offer or proposal in reasonable detail. Because of the difficulty of measuring the economic loss that may be incurred as a result of the breach of the covenant above, and because of the immediate and irreparable damage that would be caused for which the injured party would have no other adequate remedy, Seller agrees that the Buyer may enforce the provisions of this Section by specific performance, obtaining temporary or permanent restraining orders or injunctions, or other equitable means, in addition to any other rights available at law.

     Section 6.9.     Assistance with Financing. Prior to the Closing, Seller shall (and shall cause the Company and its and their respective officers, managers, employees, auditors and agents to) cooperate with Buyer and take such actions as Buyer may reasonably request in connection with obtaining the financing necessary for Buyer to consummate the transactions contemplated by the Bank Commitment Letter (the “Bank Financing”). In connection with the Bank Financing, Buyer (or an affiliate of Buyer) may seek to prepare an information memorandum (the “Information Memorandum”), which Information Memorandum may include the consolidated financial statements of Seller or ONCO and other customary financial information (the “Financial Information”). Accordingly, Seller shall (and shall cause the Company and its and their respective officers, managers, employees, auditors and agents to) furnish to Buyer any Financial Information or information or documents necessary for the completion of the Information Memorandum (including any customary representation letters) and the Bank Financing, to the extent reasonably necessary. In addition, Seller shall (and shall cause the Company to) make available its Chief Executive Officer, Chief Financial Officer and General Counsel in connection with the preparation of the Information Memorandum and the Financial Information and make available the Chief Executive Officer, Chief Financial Officer and General Counsel in connection with the raising of financing for Buyer, in each case, to the extent reasonably requested by Buyer, including (i) making the Chief Executive Officer, the Chief Financial Officer and the General Counsel of each of Seller and the Company available to participate in diligence sessions and (ii) furnishing to Buyer and its financing sources such other financial and pertinent information regarding the Company and access to the data room (subject to agreement by such entities to be bound by customary non-disclosure agreements).

     Section 6.10.     Assistance with Acquisition of Minority Ownership of THN. Prior to the Closing, if so requested by Buyer, Seller and Liberty shall (and shall cause the Company and its and their respective officers, managers, employees and agents to) cooperate with Buyer and take

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such actions as Buyer may reasonably request in connection with the acquisition of the minority stockholder’s shares of THN in conjunction with the transactions contemplated hereby, including but not limited to, amending this Agreement and the exercise of any drag-along rights; provided, however, that such cooperation does not require Liberty, Seller, the Company or their respective officers, managers, employees and agents (a) to incur material expense for which Buyer does not agree to pay or reimburse Liberty, Seller, the Company or their respective officers, mangers, employees and agents, (b) to assume any liability, or (c) to undertake any action that in the reasonable judgment of Seller and Liberty would cause Liberty, Seller, the Company or their respective officers, managers, employees and agents to incur any financial risk.

ARTICLE VII
OTHER MATTERS

     Section 7.1.     Understanding Regarding Disclaimer of Warranties of Buyer. Seller understands and agrees that neither Buyer nor any of its Affiliates (or any officers or representatives of any of them) has made any representation or warranty, whether express or implied, of any kind or character, except as expressly set forth herein, including any representation or warranty as to the accuracy or completeness of any projections, estimates or budgets of future performance of Buyer or any of its Subsidiaries (including the underlying assumptions, or any other information or documents), delivered to or made available to Seller, and Seller hereby waives and relinquishes any right, claim, action or remedy based on any of such projections or assumptions, other than claims arising from fraud or intentional misrepresentations made by Buyer or any of its Subsidiaries. Seller acknowledges that it has conducted due diligence regarding the Buyer and its subsidiaries and their businesses and as a result of such due diligence, it is familiar with the businesses of the Buyer and its subsidiaries. Seller has no knowledge that any of Buyer’s representations and warranties contained in this Agreement is untrue or incomplete or of any fact or circumstance that could reasonably be expected to render any of Buyer’s representations and warranties contained in this Agreement untrue or incomplete.

     Section 7.2.     Understanding Regarding Disclaimer of Warranties of Seller. Buyer understands and agrees that neither Seller nor any of its Affiliates (or any officers or representatives of any of them) has made, or shall be deemed to have made, any representation or warranty, whether express or implied, of any kind or character, except as expressly set forth herein or in the Disclosure Schedule, including any representation or warranty as to the accuracy or completeness of any projections, estimates or budgets of future performance of the Company or any of its Subsidiaries (including the underlying assumptions, or any other information or documents) delivered to or made available to Buyer, and Buyer hereby waives and relinquishes any right, claim, action or remedy based on any of such projections or assumptions, other than claims arising from fraud or intentional misrepresentations made by Seller, Liberty, the Company or any of its Subsidiaries. Buyer acknowledges that it has conducted due diligence regarding the Company and its Subsidiaries and their businesses and as a result of such due diligence, it is familiar with the businesses of the Company and its Subsidiaries. Buyer has no knowledge that any of Seller’s or Liberty’s representations and warranties contained in this Agreement is untrue or incomplete or of any fact or circumstance that could reasonably be expected to render any of Seller’s representations and warranties contained in this Agreement untrue or incomplete.

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     Section 7.3.     HSR Act Filings. Each of Seller and Buyer will cause to be made an appropriate filing of all pre-merger notification and report forms pursuant to the HSR Act no later than eighteen Business Days after the Agreement Date. Each such filing will request early termination of the waiting period imposed by the HSR Act. Prior to making any filing pursuant to the HSR Act, each Party will provide the other Party with all drafts of the transaction specific information contained therein and afford the other Party a reasonable opportunity to comment on such drafts. Seller and Buyer will use their respective commercially reasonable efforts to respond as promptly as reasonably practicable to any inquiries received from the Federal Trade Commission (the “FTC”) or the Antitrust Division of the Department of Justice (the “Antitrust Division”) for additional information or documentation and to respond as promptly as reasonably practicable to all inquiries and requests received from any other Governmental Authority in connection with antitrust matters; provided, however, that nothing contained in this Agreement will be deemed to preclude either Seller or Buyer from negotiating reasonably and in good faith with any Governmental Authority regarding the scope and content of any such requested information or documentation, provided that such negotiations are conducted promptly and diligently. Seller and Buyer will use their respective commercially reasonable efforts to overcome any objections that may be raised by the FTC, the Antitrust Division or any other Governmental Authority having jurisdiction over antitrust matters. Each Party will keep the other Party promptly apprised of any communications with, and inquiries or requests for information from, any such Governmental Authority, including promptly providing to the other Party copies of any such written communications, and will take reasonable steps to consult with the other Party in advance of any meeting or conference with any such Governmental Authority (and to the extent permitted by the applicable Governmental Authority, give the other Party the opportunity to attend and participate in any such meeting or conference). Notwithstanding anything to the contrary in this Section 7.3 or elsewhere in this Agreement, no Party is or will be required to agree to divest or license any material assets or agree to any material limitations or restrictions on the conduct of its business as a condition of resolving any such objections. Special Actions. Each of the Parties will use its commercially reasonable efforts to resolve any objections that may be asserted by any Person with respect to the transactions contemplated by this Agreement under any Antitrust Law, provided that no party will be required to agree to divest or license any material assets or agree to any material limitations or restrictions on the conduct of its business as a condition of resolving any such objections. In connection with the foregoing, if any Proceeding is instituted or threatened to be instituted challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, each of the Parties will cooperate in good faith in all respects with each other and use its respective commercially reasonable efforts to contest and resist any such Proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement, including vigorously defending on the merits any claim asserted in any forum by any Person through a final and nonappealable judgment, provided that no party will be required to agree to divest or license any material assets or agree to any material limitations or restrictions on the conduct of its business as a condition of resolving any such objections.

     Section 7.5.     Confidentiality. Subject to the obligations of Buyer to provide disclosure to comply with federal securities laws, Buyer on the one hand, and the Company, Seller and Liberty, on the other hand, (the Party receiving confidential information and its Authorized

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Representatives, the “Receiving Party”) will maintain in strict confidence, and will cause its directors, officers, employees, subsidiaries, agents, and advisors (collectively, “Authorized Representatives”) to maintain in strict confidence, any confidential information disclosed by any other Party or its Authorized Representatives (the Party disclosing confidential information, the “Disclosing Party”) pursuant to the Existing NDA or this Agreement unless (a) such information was already known to the Receiving Party prior to its disclosure or becomes generally available to the public other than, in either case, as a result of a disclosure in violation of the Existing NDA or this provision or a disclosure by a Person with a confidentiality obligation or fiduciary duty or obligation to the Disclosing Party that the Receiving Party knows is in violation of such duty or obligation, (b) the use of such confidential information is necessary to make a required filing or obtain any consent or approval required for the consummation of the transactions contemplated by this Agreement, (c) such information is disclosed to the Receiving Party’s financial and legal advisors, lenders and investors, solely for the purpose of assisting in the consummation of the transactions contemplated by this Agreement or any future financing and such Persons are advised prior to such disclosure of the confidential nature of the information disclosed, or (d) the furnishing or use of such information is required by or necessary in connection with any Proceeding, applicable requirements of any stock exchange, or applicable Legal Requirement; provided, however that if the terms of this Agreement and the transactions contemplated by this Agreement or any confidential information furnished by Seller or the Company or any of its Subsidiaries must, in the reasonable judgment of Buyer’s counsel, be disclosed pursuant to clause (b) or (d) above, then (i) the Party proposing to disclose or cause the disclosure of such information will notify the Disclosing Party within a reasonable period of time prior to such disclosure being made, (ii) the Party proposing to disclose such information will take all actions necessary or reasonably requested by the Disclosing Party to ensure that such information is maintained confidential to the maximum extent possible, (iii) the Disclosing Party will be given a reasonable opportunity to participate in any process or Proceeding for the purpose of ensuring that such information is maintained confidential to the maximum extent possible, and (iv) the Party proposing to disclose such information will reasonably cooperate with the Disclosing Party in any such process or Proceeding, and otherwise take such actions as reasonably are requested to the end that such information is maintained confidential to the maximum extent possible. The provisions of this Section 7.5 are intended to supplement and not to supersede or replace the provisions of the Existing NDA. All provisions of the Existing NDA remain in full force and effect except as modified above. In addition, following Closing, Seller and Liberty agree to maintain in strict confidence, and will cause their Authorized Representatives to maintain in strict confidence, any confidential information of the Company and its Subsidiaries and agree not to solicit employees of the Company and its Subsidiaries for one year following the Closing Date.

     Section 7.6.     Employee Matters.

          (a) Except as set forth on Schedule 7.6, all Benefit Plans are maintained by Liberty (the “Liberty Benefit Plans”), and, subject to the requirements of ERISA or any other applicable Legal Requirements, from and after the Closing Date, employees of the Company or any of its Subsidiaries will no longer be entitled to participate in any of the Liberty Benefit Plans and neither Buyer nor the Company or any of its Subsidiaries will be required to maintain or will assume any Liabilities under any of the Liberty Benefit Plans from and after the Closing Date. From the Closing Date at least through the first anniversary of the Closing Date, Buyer will

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provide employee Benefit Plans with aggregate employee benefits and cash compensation to employees of the Company and its Subsidiaries that are no less favorable in the aggregate than the benefits and cash compensation provided to them under such plans immediately prior to the Closing; provided, however, that in the alternative Buyer at its option may provide employee benefits to employees of the Company and its Subsidiaries that, in the aggregate, are no less favorable than those applicable to similarly situated employees of Buyer.

           (b) Liberty and its Affiliates (other than the Company and Subsidiaries) will retain responsibility for offering and providing “continuation coverage” to any “qualified beneficiary” who is covered by a “group health plan” sponsored, maintained or contributed to by Liberty or its Affiliates (other than the Company and Subsidiaries) and who has experienced a “qualifying event” or is receiving such “continuation coverage” prior to or on the Closing Date, regardless of whether such “qualified beneficiary” is offered “group health plan” coverage by Buyer from and after the Closing Date. “Continuation coverage,” “qualified beneficiary,” “qualifying event” and “group health plan” will have the meanings given to such terms under Section 4980B of the Code and Section 601 et seq. of ERISA (“COBRA”). Liberty and its Affiliates (other than the Company and Subsidiaries) will defend, indemnify and hold harmless Buyer and the Company and its Subsidiaries after the Closing Date from and against any successor liability that any of them may incur under COBRA with respect to any “group health plan” sponsored, maintained or contributed to by Liberty or its Affiliates.

           (c) With respect to any employee benefits plans maintained or sponsored by Buyer (either directly or through the Company or any of its Subsidiaries) on the Closing Date, each employee of the Company and its Subsidiaries will be entitled to participate in such plans to the same extent as similarly situated employees of Buyer and will receive credit for such employee’s past service with the Company or any of its Subsidiaries as of the Closing Date for purposes of eligibility to participate and vesting under such plans to the same extent that such service was credited under the Benefit Plans on the Closing Date.

           (d) Employees of the Company and any of its Subsidiaries shall be eligible to receive benefits maintained for similarly situated employees of Buyer, consistent with Buyer’s applicable human resources policies, and shall become eligible for health and welfare plan benefits upon the later of (i) the Closing Date, or (ii) the loss of eligibility for benefits under Seller’s or Liberty’s health and welfare plans. Buyer agrees to cause each of the welfare plans of Buyer to (i) waive any preexisting conditions, waiting periods actively at work requirements under such plans (except to the extent that such conditions, waiting periods and requirements exist and apply to an employee under the Benefit Plans), and (ii) cause such plans to honor any expenses incurred by employees of the Company and Subsidiaries prior to the Closing Date for purposes of satisfying applicable deductibles, co-pays and maximum out-of-pocket amounts. Buyer shall accept or cause to be accepted transfers from the Liberty medical reimbursement plan and dependent care assistance plan (“Cafeteria Plan”) of each employee’s unused account balance as of the closing Date and credit such employee with such amounts under a Cafeteria Plan of Buyer, but only if Liberty transfers to Buyer the amount so credited under the Benefit Plans.

          (e) The Company will maintain the 2001 Severance Pay Plan and 2002 Executive Severance Pay Plan through Closing; thereafter Buyer will maintain the 2001

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Severance Pay Plan and 2002 Executive Severance Pay Plan covering any employees of the Company or any of its Subsidiaries entitled to benefits thereunder as in effect on the Agreement Date for a period of two years from the Closing Date, without adverse amendment, for the benefit of employees of the Company and its Subsidiaries.

          (f) Buyer will cause to be made available from and after the Closing Date to employees of the Company and its Subsidiaries who were eligible to participate in the Liberty Media 401(k) Savings Plan (the “Liberty 401(k) Plan”) a 401(k) plan sponsored by Buyer (either directly or through the Company or any of its Subsidiaries) (the “Buyer 401(k) Plan”). The Buyer 401(k) Plan will accept direct and indirect rollovers of such employees’ account balances in the Liberty 401(k) Plan, including direct rollovers of any outstanding employee loans under the Liberty 401(k) Plan in kind.

          (g) On Command Corporation previously sponsored or maintained two 401(k) plans, one through Fidelity and the other through Nationwide (collectively, the “Terminated ONCO 401(k) Plans”). All account balances in the Terminated ONCO 401(k) Plans have been distributed and only final reporting matters (IRS Form 5500 and IRS Forms 1099R) remain to be completed after the Closing Date. Liberty will defend, indemnify and hold harmless Buyer and the Company and its Subsidiaries after the Closing Date with respect to any claims that may be made or disputes that may arise relating to the Terminated ONCO 401(k) Plans.

          (h) In connection with the transactions contemplated by this Agreement, certain employees of the Company and its Subsidiaries may be entitled to receive payments under the On Command Corporation Retention Bonus Plan (the “Retention Plan”). All payments required to be made under the Retention Plan shall be solely Liabilities of Liberty. Liberty will defend, indemnify and hold harmless Buyer and the Company and its Subsidiaries after the Closing Date with respect to any payments required to be made under the Retention Plan and with respect to any loss, cost, expense, liability, claim or cause of action (including attorneys fees and costs of preparation suffered or incurred by the Company or any Subsidiary) that may be made or disputes that may arise relating to the Retention Plan. Seller agrees to use commercially reasonable efforts to retain the employees of the Company and its Subsidiaries covered by the Retention Plan through thirty (30) days after the Closing, including by way of adopting an amendment or supplement to the Retention Plan, but Buyer acknowledges that there is no guarantee that any employee of the Company or its Subsidiaries will agree to continue employment with the Company or any Subsidiary. Payments under any such amendment, supplement or plan shall be solely Liabilities of Liberty.

          (i) All options granted to employees under the Amended and Restated On Command Corporation 1996 Key Employee Stock Plan (the “ONCO Stock Plan”) have been converted into options to acquire shares of Liberty Series A Common Stock. Prior to the Closing, Seller will cause the ONCO Stock Plan to be terminated. Liberty will defend, indemnify and hold harmless Buyer and the Company and its Subsidiaries after the Closing Date with respect to any claims that may be made or disputes that may arise relating to the ONCO Stock Plan.

          (j) Buyer will not terminate the employment of any employees of the Company or any of its Subsidiaries if or to the extent that any such terminations of employment

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would require Seller or any of its Affiliates to take any actions in order to comply with the provisions of the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, et seq. (the “WARN Act”). Buyer will defend, indemnify and hold harmless Seller and its Affiliates from and against loss, cost, expense, liability, claim or cause of action (including attorneys fees and costs of preparation suffered or incurred by the Company or any Subsidiary) that may arise from noncompliance with the WARN Act as it may relate to the transactions contemplated by this Agreement.

          (k) Nothing expressed or implied in this Section 7.6 is intended to confer upon any employee of the Company or any of its Subsidiaries any rights or remedies of any nature or kind whatsoever under or by reason of any of the provisions of this Section 7.6, including any rights of employment or continued employment.

     Section 7.7.     Further Cooperation. If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party. Liberty and Seller acknowledges and agrees that from and after the Closing Buyer will be entitled to possession of all documents, books, records, agreements, and financial data of any sort relating to the Company and its Subsidiaries and Liberty and Seller shall deliver custody or constructive possession of such items at the Closing; provided that Seller will be entitled to retain copies of any such items (provided such items are maintained in strict confidence to the same extent that Seller and Liberty protects their own such books, record, data and confidential or proprietary information in the ordinary course of their respective business) and will be entitled to subsequently obtain from Buyer copies of such financial and other information related to the Company and its Subsidiaries for periods prior to the Closing Date as Seller may reasonably request in connection with any Proceeding, including any audit with respect to Taxes, subject to agreeing to reasonable confidentiality and non-disclosure protections with respect to any such information subsequently provided. Seller shall provide to Buyer audited consolidated financial statements of the Company and its Subsidiaries for fiscal years ended December 31, 2005 and 2004. Liberty and Seller shall cooperate with Buyer and each shall use their commercially reasonable efforts to cause their independent registered public accounting firm to deliver all necessary consents for inclusion of such firm’s audit report on the Company’s historical consolidated financial statements to be included to the extent required in Buyer’s SEC filings from time to time.

     Section 7.8.     Non-Disparagement. Neither Party will disparage or in any way portray in a negative light the other Party or its Affiliates or any of such Person’s products, services or businesses, either directly or indirectly, in the form of oral statements, written statements, electronic communications or otherwise. Neither Party will take any action to intentionally and improperly interfere with the existing contractual or economic relationships of the other Party or its Affiliates by encouraging or inducing any Person not to perform their existing contracts with or otherwise conduct business with the other Party or its Affiliates, provided, however, that nothing herein shall be deemed to prohibit or change normal and customary sales and marketing activities.

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     Section 7.9.     Company Audited Financial Statements. Seller shall deliver to Buyer as soon as practicable after December 31, 2006, but in no event later than April 16, 2007 if Closing has not occurred by such date, audited consolidated financial statements of the Company and its Subsidiaries, including an unqualified audit report and balance sheet as of December 31, 2006 and the statement of operations, changes in stockholders’ equity, and cash flows for the year then ended (collectively, the “Company Audited Financial Statements”) if such Company Audited Financial Statements were not required to be provided pursuant to Section 8.1(k). Seller shall take all steps to have the Company’s December 31, 2006 financial statements audited as soon as practicable. If Closing occurs prior to such time as the Company’s audited December 31, 2006 financial statements are needed under Section 8.1(k) and such audit is not completed, Seller and Buyer shall cooperate to complete such audit and allocates costs based on chargeable hours completed as of Closing. Seller shall cooperate with Buyer and shall use its commercially reasonable efforts to cause the Company’s independent accounting firm to deliver all necessary consents for inclusion of such firm’s audit report on the Company Audited Financial Statements and the financial statements required by Section 8.1(k) to be included, to the extent required, in Buyer’s SEC filings (including registration statements) from time to time. Seller shall also provide unaudited interim consolidated financial statements for periods prior to the Closing for the Company and its Subsidiaries necessary to allow Buyer to timely complete and file required reports and filings necessary to comply with SEC reporting obligations or necessary for the filing of registration statements that are required by Rule 3-05 of Regulation S-X (including the corresponding period for the prior year) if such interim financial statements were not required to be provided pursuant to Section 8.1(k).

ARTICLE VIII
CONDITIONS TO CLOSING

     Section 8.1.     Conditions to Obligation of Buyer. The obligation of Buyer to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

     (a) the representations and warranties set forth in Articles III and IV and in Section 9.2 shall be true and correct in all material respects as of the Closing Date (except that those that relate to an earlier specified date shall be true and correct as of such date), provided that notwithstanding the foregoing any representation and warranty set forth in Articles III and IV and in Section 9.2 containing a materiality qualifier (including terms such as “material” and “Material Adverse Effect”) shall be true and correct in accordance with their express terms;

     (b) the Company, Seller and Liberty shall have performed and complied with all of their respective covenants and obligations under this Agreement to be performed at or prior to the Closing in all material respects as of the Closing, provided that notwithstanding the foregoing any covenants and obligations of the Company, Seller or Liberty under this Agreement containing a materiality qualifier (including terms such as “material” and “Material Adverse Effect”) shall have been complied within accordance with their express terms, provided, that any breach of covenant in Section 6.9 or failure to deliver audited financial statements for the year ended December 31, 2006 under Section 7.9, to the extent it adversely affects Buyer’s ability to finance this transaction on terms set forth in the Bank Commitment Letter, shall be material;

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     (c) Liberty or Seller, as applicable, (or the Company or any of its Subsidiaries) shall have given notice to the third parties and procured all of the material third-party consents (which are designated by an asterisk (*) to indicate that such consents are material and are a condition to Closing) set forth on Schedule 3.7;

     (d) the waiting period under the HSR Act shall have expired or been terminated and any applicable foreign antitrust approvals required by applicable Antitrust Law shall have been obtained without any Governmental Authority taking any action to prevent the consummation of the transactions contemplated by this Agreement;

     (e) no Proceeding shall be pending before any Governmental Authority and the Canadian Commissioner of Competition shall not have threatened to make an application to commence a Proceeding before the Canadian Competition Tribunal, and no statute, judgment, order, decree, ruling, injunction, or charge shall be in effect, which reasonably could (i) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation;

     (f) no Indebtedness of any member of the Company Group (other than Equity Affiliates) to third parties (other than capital lease obligations with respect to which the remaining principal payment obligations do not exceed $2,000,000 in the aggregate), or Indebtedness under any convertible notes or intercompany accounts or amounts due or owed by any member of the Company Group to Liberty or any Affiliate of Liberty that is not a member of the Company Group (“Liberty Intercompany Debt”) shall remain outstanding and the extinguishment, conversion or payment of the Liberty Intercompany Debt or any such other Indebtedness shall not result in any Liability or obligations, including Tax, to Buyer, the Company or any Subsidiary;

     (g) each item required to be delivered by Seller pursuant to Section 2.5(a) shall have been delivered by Seller;

     (h) the officers and directors of each of the Company and its Subsidiaries, except Jay Regan, shall have tendered their resignation as an officer or director, as applicable, of each such entity, provided that such persons shall not be required to tender their resignation as an employee;

     (i) any shareholder holding any shares (including director-qualifying shares) of any Subsidiary shall deliver such shares to Buyer or Buyer’s designee (other than the sole minority shareholder of THN or the minority shareholders of Digital Media Network, Inc. d/b/a Instant Media Network);

     (j) None of Liberty, Seller, the Company or its Subsidiaries shall have received notice of termination by any third party of (i) any agreement, contract or groups of related agreements or contracts representing in excess of 25,000 rooms serviced by the Company or its Subsidiaries, other than due to normal expiration of any such agreements or contracts or due to breach by the third party to any such agreements or contracts, or (ii) any Contract listed on Schedule 8.1(j) provided that, in the case of clause (ii) above, if such agreement has been

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replaced by the Company with an agreement providing comparable services with the same or another provider or licensor, or the Company or its Subsidiaries are negotiating an extension of such terminated agreement and such extension is reasonably likely to be obtained the condition to closing shall be deemed met;

     (k) Buyer shall have received audited (including an audit report with no qualifications) and unaudited consolidated financial statements of the Company and its Subsidiaries necessary for Buyer to comply with any applicable requirements for filings under the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission, promulgated thereunder, which shall be certified by the Chief Financial Officer of the Company as fairly presenting in all material respects the matters presented therein and otherwise as materially consistent with the Financial Statements previously provided to Buyer and which shall disclose that the Company has no assets or Liabilities other than its interest in ONCO;

     (l) The Company and its Subsidiaries shall be qualified to do business as foreign corporation in all states in which each of them conducts business; and

     (m) since the date of this Agreement there shall not have occurred a Material Adverse Effect nor shall there exist any facts or circumstances that could reasonably be expected to cause a Material Adverse Effect.

     Section 8.2.     Conditions to Obligation of Seller. The obligation of Seller to sell the Shares and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part):

     (a) the representations and warranties set forth in Article V shall be true and correct in all material respects as of the Closing Date (except that those that relate to an earlier specified date shall be true and correct as of such date), provided that notwithstanding the foregoing any representation and warranty set forth in Article V containing a materiality qualifier (including terms such as “material”) shall be true and correct in accordance with their express terms;

     (b) Buyer shall have performed and complied with all of its covenants and obligations under this Agreement to be performed at or prior to the Closing in all material respects as of the Closing, provided that notwithstanding the foregoing any covenants and obligations of Buyer under this Agreement containing a materiality qualifier (including terms such as “material”) shall have complied with in accordance with their express terms;

     (c) the waiting period under the HSR Act shall have expired or been terminated and any applicable foreign antitrust approvals shall have been obtained without any Governmental Authority taking any action to prevent the consummation of the transactions contemplated by this Agreement;

     (d) no Proceeding shall be pending before any Governmental Authority, and no statute, judgment, order, decree, ruling, injunction, or charge shall be in effect, which reasonably could (i) prevent or materially delay the consummation of any of the transactions

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contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; and

     (e) each item required to be delivered by Buyer pursuant to Section 2.5(b) shall have been delivered by Buyer or shall be delivered at Closing.

ARTICLE IX
TAX MATTERS

     Section 9.1.     Tax Definitions. The following terms, as used in this Article IX and to the extent used elsewhere in this Agreement, have the following meanings:

     “Combined Tax” means any Income Tax or franchise Tax payable to any state, local or foreign Taxing Authority with respect to any Tax Return that includes any of the Company or any of its Subsidiaries and is filed on, or will be filed on, an affiliated, consolidated, combined or unitary basis.

     “Federal Tax” means any Income Tax with respect to any Tax Return that includes any of the Company or any of its Subsidiaries with respect to United States federal income tax.

     “Final Determination” means (i) any final determination of Liability in respect of a Tax that, under applicable Legal Requirements, is not subject to further appeal, review or modification through any Proceeding or otherwise (including the expiration of a statute of limitations or a period for the filing of claims for refunds, amended Tax Returns or appeals from adverse determinations), including a “determination” as defined in Section 1313(a) of the Code or execution of an Internal Revenue Service Form 870AD or (ii) the payment of Tax by Buyer, Seller, or any of their respective Affiliates, whichever is responsible for payment of such Tax under applicable Legal Requirements, with respect to any item disallowed or adjusted by a Taxing Authority, provided that such responsible Party determines that no action should be taken to recoup such payment and the other Party agrees.

     “Income Tax” means any Tax imposed on or measured by income or profits.

     “Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date and, with respect to a Tax period that begins on or before the Closing Date and ends after the Closing Date, the portion of such Tax period ending on and including the Closing Date. With respect to any Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax related to the portion of such Tax period ending on and including the Closing Date will (i) in the case of any Tax other than sales or use Tax and Income Tax, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction the numerator of which is the number of days in the Tax period ending on and including the Closing Date and the denominator of which is the number of days in the entire Tax period, and (ii) in the case of any Income Tax and any sales or use Tax, be deemed equal to the amount that would be payable if the relevant Tax period ended on and included the Closing Date. All determinations necessary to give effect to the allocation set forth in the foregoing clause (ii) will be made in a manner consistent with prior practice of Seller and its Affiliates with respect to the Company and its Subsidiaries.

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     “Tax” means (i) any federal, state, provincial, local, or foreign income, duties, levies, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, paid-up capital, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, goods and services, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and any Liability for any of the foregoing as transferee, (ii) in the case of the Company or any Subsidiary, Liability for the payment of any amount of the type described in clause (i) as a result of having been on or before the Closing Date a member of an affiliated, consolidated, combined or unitary group, and (iii) Liability of any of the Company or any Subsidiary for the payment of any amount as a result of being a party to any Tax Sharing Agreement (other than this Agreement) on or before the Closing Date.

     “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to, or required to be filed in connection with, any Taxes, including any schedule or attachment thereto.

     “Tax Sharing Agreements” means all existing agreements or arrangements (whether or not written) binding the Company or any of its Subsidiaries that provide for the allocation, apportionment, sharing or assignment of any Tax Liability or benefit, each of which is listed on Schedule 9.4.

     “Taxing Authority” means any applicable Governmental Authority responsible for the imposition of any Tax.

Section 9.2.     Tax Representations. Except as set forth in the Disclosure Schedule,

     (a) All material Tax Returns required to be filed with any Taxing Authority with respect to the Pre-Closing Tax Period by or on behalf of the Company or any Subsidiary have been, to the extent required to be filed on or before the Agreement Date, or will have been, to the extent required to be filed on or before the Closing Date (in each case taking into account any extension of time within which to file), as applicable, filed when due in accordance with all applicable Legal Requirements, and all such Tax Returns were correct and complete in all material respects. All material Taxes due and payable on or before the Agreement Date or the Closing Date, as applicable, by the Company or any Subsidiary with respect to the Pre-Closing Tax Period (whether or not shown on any filed Tax Return) have been, or will have been, as applicable, timely paid, or withheld and remitted, to the appropriate Taxing Authority. No written claim has been made by a Taxing Authority in a jurisdiction where either the Company or any Subsidiary does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Encumbrances (other than Permitted Encumbrances) on any of the assets of the Company or any Subsidiary that arose in connection with any failure (or alleged failure) to pay any Tax.

     (b) Neither Seller nor any Affiliate of Seller has received any written notice from any Taxing Authority assessing any additional Taxes against the Company or any Subsidiary for any period for which Tax Returns have been filed that has not been resolved. No dispute or claim concerning any Tax Liability of the Company or any Subsidiary has been

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claimed or raised by any Taxing Authority in writing that has not been resolved. No audits or administrative or judicial Tax proceedings are pending or being conducted by any Taxing Authority with respect to the Company or any Subsidiary or any consolidated, combined or unitary group of which the Company or any Subsidiary is or has been a member since December 31, 2001. Neither the Company, any Subsidiary, nor any consolidated, combined or unitary group of which the Company or any Subsidiary is or has been a member since December 31, 2001 has received from any taxing Authority (including jurisdictions where the Company or any Subsidiary or any consolidated, combined or unitary group of which the Company or any Subsidiary is or has been a member since December 31, 2001 has not filed a Tax Return) any (i) written notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) written notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Taxing Authority against the Company or any Subsidiary or any consolidated, combined or unitary group of which the Company or any Subsidiary is or has been a member since December 31, 2001.

     (c) Schedule 9.2(c) sets forth the common parent company of each affiliated, consolidated, combined or unitary group of which the Company or any Subsidiary has been a member for purposes of any Federal Tax Return or Combined Tax Return and the relevant time period during which such Person was a member of such group after tax year ended December 31, 2000.

     (d) Neither the Company nor any Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency that has not expired.

     (e) Neither the Company nor any Subsidiary is a party to any contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state, local or foreign Tax law) solely because of the transaction contemplated by this Agreement and there are no tax gross-ups associated with any such contract arrangement or plan.

     (f) The Company and each Subsidiary has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of Federal Tax within the meaning of Section 6662 of the Code. Any Taxes of the Company or any Subsidiary or any consolidated, combined or unitary group of which the Company or any Subsidiary is now or has ever been a member with respect to any Pre-Closing Tax Period that remain unpaid on the Closing Date will not exceed the reserve for Taxes (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Financial Statements (rather than in any notes thereto).

     (g) Neither the Company nor any Subsidiary has engaged in any “reportable transaction” as defined in the Treasury Regulations promulgated under Section 6011 of the Code except as described on Schedule 9.2(g).

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     Section 9.3.     Tax Covenants.

     (a) All Tax Returns for Income Taxes required to be filed by Seller or any of its Affiliates on or after the Closing Date with respect to the Company and each Subsidiary with respect to any Pre-Closing Tax Period (i) will be filed when due in accordance with all applicable Legal Requirements and (ii) will be correct and complete in all material respects.

     (b) The Company and each Subsidiary will be included in the consolidated Federal Tax Return of which Liberty is the parent company through the close of business on the Closing Date and in any Combined Tax Return of which either Liberty or ONCO, as applicable and consistent with past practices, is the parent company through the close of business on the Closing Date.

     (c) Neither Buyer nor any of its Affiliates will make any actual or deemed election under Code Section 338(h)(10) (or any similar provisions of state law or the law of any other taxing jurisdiction) with respect to any of the Company or any of its Subsidiaries in connection with any of the transactions contemplated by this Agreement.

     (d) The Parties will cooperate in making any determination, including any Tax election, that is reasonably necessary in making the allocation of Taxes set forth in the definition of “Pre-Closing Tax Period” in Section 9.1, provided that any such determination or Tax election does not adversely affect the tax attributes of such Party or result in significant costs or expenses of such Party.

     Section 9.4.     Tax Sharing Agreements. Any and all existing Tax Sharing Agreements (other than this Agreement) will be terminated with respect to the Company and each Subsidiary as of the Closing Date, and none of the Company or any of its Subsidiaries will be bound by or will have any further rights or liabilities thereunder after the Closing Date.

     Section 9.5.     Tax Refunds and Credits. Seller and its Affiliates (not including for this purpose any of the Company or any of its Subsidiaries) will be entitled to any refund or credit of any Income Tax of the Company or any Subsidiary to the extent related to a Pre-Closing Tax Period and to any refund or credit of any Tax described in clause (ii) or clause (iii) of the definition of Tax (in each case whether such refund or credit is received or receivable before, on or after the Closing Date). Buyer will pay to Seller the full amount of any refund or credit of any Tax to which Seller and its Affiliates are entitled pursuant to this Section 9.5 that is received by Buyer or any of its Affiliates or the benefit of which is made available to Buyer or any of its Affiliates within five business days after such refund or credit is received by, or the benefit of which is realized by, Buyer or any of its Affiliates. Any amounts not paid when due pursuant to this Section 9.5 will bear interest from the date such payment is due until the date paid at a rate equal to LIBOR plus three percent, with LIBOR determined in accordance with the last sentence of Section 10.3(e).

     Section 9.6.     Cooperation on Tax Matters.

     (a) Buyer and Seller will cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the preparation and filing of Tax Returns pursuant to this Article IX and any Proceeding (including any Tax audit) with respect to Taxes.

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Such cooperation will include (i) preparation by ONCO of all Tax Returns for Income Taxes with respect to any Pre-Closing Tax Period (subject to review and comment by Liberty) consistent with past practices (which preparation by ONCO will not be deemed to affect Seller’s responsibility for Income Taxes of the Company or any Subsidiary to the extent related to any Pre-Closing Tax Period as provided in this Article IX), (ii) causing any Tax Return that is prepared by or on behalf of the other Party pursuant to the terms of this Agreement to be signed on behalf of the Person filing such Tax Return by an authorized signatory at the time of filing or making available (upon the other Party’s request) records and information that are reasonably relevant to any such Proceeding with respect to Taxes (including any Tax audit). Buyer and Seller agree (i) to retain all books and records with respect to Tax matters pertinent to the Company or any Subsidiary relating to any Pre-Closing Tax Period until the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective Tax periods, and to abide by all record retention agreements entered into with any Taxing Authority, and (ii) to give the other Party reasonable written notice prior to destroying or discarding any such books and records and, if the other Party so requests, to allow the other Party to take possession of such books and records.

     (b) Upon the request of the other Party, Buyer and Seller will use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated by this Agreement).

     Section 9.7.     Certain Taxes and Fees. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with the transactions contemplated by this Agreement will be paid by Buyer when due, and Buyer will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees.

ARTICLE X
TERMINATION

     Section 10.1.     Termination of Agreement. This Agreement may be terminated at any time prior to the Closing as follows:

     (a) Buyer and Seller may terminate this Agreement by mutual written consent;

     (b) Buyer may terminate this Agreement by giving written notice to Seller (i) if Seller or Liberty has breached any representation, warranty, or covenant contained in this Agreement in any material respect and such breach has not been cured by Seller or Liberty within 30 days after written notice of such breach is delivered by Buyer to Seller, or (ii) if any of the conditions in Section 8.1 has not been satisfied as of 5:00 p.m. Mountain Time on the Termination Date, or if satisfaction of such a condition is or becomes impossible (other than as a result of the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before such date; or

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     (c) Seller may terminate this Agreement by giving written notice to Buyer (i) if Buyer has breached any representation, warranty, or covenant contained in this Agreement in any material respect and such breach has not been cured by Buyer within 30 days after written notice of such breach is delivered by Seller to Buyer, or (ii) if any of the conditions in Section 8.2 has not been satisfied as of the Termination Date or if satisfaction of such a condition is or becomes impossible (other than in whole or in part as a result of the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before such date.

     Section 10.2.     Termination Date. The Termination Date shall be July 11, 2007; as such date is extended as follows:

     (a) Seller may unilaterally extend the Termination Date by up to 90 days plus the number of days that Buyer’s response to any request for information from any Governmental Authority with respect to the transactions contemplated by this Agreement lags behind the date of Seller’s response to such Governmental Authority.

     (b) If Seller has not unilaterally extended the Termination Date as provided in Section 10.2(a), Buyer may unilaterally extend the Termination Date by up to 60 days plus the number of days that Seller’s response to any request for information with respect to the transactions contemplated by this Agreement from any Governmental Authority lags behind the date of Buyer’s response to such Governmental Authority.

     (c) Additional extensions of the Termination Date shall require the written consent of Seller and Buyer. Neither party will unreasonably withhold consent for up to two requests for a further extension for a period of no longer than 30 days after the end of the extension period under Section 10.2(a) or (b) so long as the party requesting the extension is continuing to pursue obtaining Governmental Authority approval with respect to the transactions contemplated by this Agreement diligently and in good faith.

     (d) Any extension of the Termination Date under Section 10.2(a) or (b) will be made by giving written notice to the other party at least five Business Days prior to the initial Termination Date, and a request by either party for an extension of the Termination Date under Section 10.2(c) will be made in writing to the other party at least five Business Days prior to the end of the extension period under Section 10.2(a) or (b), as applicable.

     Section 10.3.     Effect of Termination.

     (a) Buyer will promptly cause to be returned to Seller all documents and information obtained in connection with this Agreement and the transactions contemplated by this Agreement and all documents and information obtained in connection with Buyer’s investigation of the business, operations and financial and legal affairs of the Company and its Subsidiaries, including any copies made by Buyer or any of Buyer’s agents of any such documents or information.

     (b) Buyer’s and Seller’s right of termination under Section 10.1 is in addition to any other rights or remedies it may have under this Agreement or otherwise, and the exercise of a right of termination will not be deemed an election of remedies. If this Agreement is

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terminated pursuant to Section 10.1, all further obligations of the Parties under this Agreement automatically will terminate, except that the provisions of this Section 10.3 and Section 7.5 and Articles XI and XII will survive such termination; provided, however, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal and equitable remedies for such breach will survive such termination unimpaired.

     (c) If either Buyer or Seller terminates this Agreement for failure to obtain HSR Act clearance, Buyer will pay Seller a breakup fee of $5,000,000, by wire transfer of immediately available funds within five Business Days after termination of this Agreement, provided that Buyer will not be obligated to pay Seller the breakup fee if (i) Seller has breached its obligations under this Agreement in any material respect that was a cause of the failure to obtain HSR Act clearance by the Termination Date, or (ii) the failure to obtain HSR Act clearance is due in material part to documentation produced by Seller to a Governmental Authority in connection with the transactions contemplated by this Agreement, with the burden of proof on Buyer to establish by reasonable evidence that the conditions specified in either clause (i) or (ii) has occurred if Buyer maintains that it is not obligated to pay the breakup fee.

     (d) The Parties agree that the provisions contained in Section 10.3(c) are an integral part of the transactions contemplated by this Agreement, that the damages resulting from the termination of this Agreement for any of the reasons set forth in Section 10.3(c) are uncertain and incapable of accurate calculation and that the amounts payable pursuant to Section 10.3(c) are reasonable forecasts of the actual damages that may be incurred by Seller under such circumstances. The amounts payable pursuant to Section 10.3(c) constitute liquidated damages and not a penalty and will be the sole and exclusive remedy of Seller and Liberty in the event of termination of this Agreement on the basis specified in Section 10.3(c). If Buyer fails to pay to Seller any amounts due under Section 10.3(c) in accordance with the terms thereof, Buyer will pay the costs and expenses (including legal fees and expenses) of Seller in connection with any action, including the filing of any Proceeding, taken to collect payment.

     (e) Any amounts not paid when due pursuant to Section 10.3(c) will bear interest from the date such payment is due until the date paid at a rate equal to LIBOR plus three percent. For purposes of this Agreement, LIBOR will mean the current LIBOR rate as quoted by Citibank, N.A., adjusted for reserve requirements, if any, and subject to customary change of circumstance provisions, for interest periods of six months.

ARTICLE XI
INDEMNIFICATION

     Section 11.1. Survival.

     (a) The representations and warranties of the Parties contained in this Agreement or in any certificate or other writing delivered in connection with the Closing shall survive either (i) until June 30, 2008 if Closing occurs on or before June 30, 2007 or (ii) until April 15, 2009 if Closing occurs after June 30, 2007 (the “Survival Period”), except that (i) the

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representations and warranties set forth in Section 3.14 (Environmental, Health and Safety Matters) shall survive until 30 days after the expiration of the statute of limitations with respect to such matters (giving effect to any waiver, migration or extension thereof); (ii) the representations and warranties set forth in Section 3.17 (Employee Benefits) shall survive until the three (3) year anniversary of Closing Date; (iii) the representations and warranties made by Seller set forth in Article IX (Tax Matters) shall survive until thirty (30) days after the expiration of the applicable statutes of limitations (giving effect to any permissible waiver, migration or extension thereof); (iv) the representations and warranties set forth in Section 3.1 (Organization; Qualification and Corporate Power), Section 3.2 (Capitalization), Section 3.3 (Subsidiaries and Equity Affiliates), Section 3.20 (Brokers’ Fees), Section 4.1 (Organization of Seller), Section 4.2 (Authorization; Binding Effect); Section 4.4 (Shares), and Section 4.5 (Brokers’ Fees) shall survive forever (the representations and warranties made by Seller and described in clauses (iii) and (iv), collectively, the “Seller’s Fundamental Representations”); and (v) the representations and warranties set forth in Section 5.1 (Organization of Buyer), Section 5.2(a) and (b) (Authorization; Binding Effect), Section 5.9 (Brokers’ Fees) (collectively, the “Buyer’s Fundamental Representations”) shall survive forever. Notwithstanding the foregoing provisions or anything to the contrary in this Agreement, the Parties’ rights to bring legal and equitable claims for fraud or intentional misrepresentation shall survive for 30 days after the expiration of the statute of limitations applicable to (A) such fraud or intentional misrepresentation itself or (B) the underlying matters with respect to which fraud or intentional misrepresentation was committed, whichever is later.

     (b) Any representation or warranty in respect of which indemnity may be sought under this Article XI, and the indemnity rights and obligations with respect thereto, shall survive the time at which the representation and warranty would otherwise terminate pursuant to this Section 11.1 if written notice of the inaccuracy or breach or potential inaccuracy or breach thereof giving rise to such right or potential right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time, and in any such case such representation or warranty shall survive until any claim for indemnity related to such inaccuracy or breach or potential inaccuracy or breach is resolved.

     (c) The representations and warranties contained in this Agreement or in any certificate or other writing delivered in connection with this Agreement shall survive for the period set forth in this Section 11.1 and, subject to the last sentence of each Section 7.1 and Section 7.2, shall in no event be affected by any investigation, inquiry or examination made for or on behalf of any Party, or the knowledge of any Party’s officers, directors, employees, representatives, consultants, agents, or advisors (collectively, “Representatives”) or the acceptance by any Party of any certificate or opinion hereunder.

     Section 11.2.     General Indemnification.

     (a) Indemnification Obligations of Seller and Liberty. Seller and Liberty agree to jointly and severally indemnify the Buyer and its Affiliates, and their respective shareholders, partners, representatives, successors and permitted assigns and the Company and its Subsidiaries (collectively, the “Buyer Indemnified Parties”) and save and hold each of the Buyer Indemnified Parties harmless against, and pay on behalf of or reimburse such Buyer Indemnified Party as and when incurred for, any Losses which any such Buyer Indemnified

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Party may suffer, incur, sustain or become subject to, as a result of, in connection with, relating or incidental to or by virtue of:

     (i) any facts or circumstances which constitute a breach of any representation or warranty regarding the Company or any Subsidiary or of Seller or Liberty contained in this Agreement or in any certificate delivered by or on behalf of Seller or Liberty in connection with the Closing; or

     (ii) any breach of any covenant, agreement or other provision by the Company or any Subsidiary or Seller or Liberty under this Agreement or in any certificate or other writing delivered by or on behalf of Seller or Liberty in connection with the Closing other than those covered in clause (iii) of this Section 11.2(a); or

     (iii) any (w) Income Tax of Liberty, the Company or any Subsidiary to the extent related to a Pre-Closing Tax Period whether such Income Tax is due before, on or after the Closing Date, and any Income Tax with respect to income, gain or loss from the sale of the Shares pursuant to this Agreement, (x) Tax described in clause (ii) or clause (iii) of the definition of Tax, (y) Tax of Liberty, the Company or any Subsidiary attributable to or resulting from or constituting a breach of the provisions of Section 9.2, Section 9.3(a) or (b) or Section 9.4 and (z) Liabilities, costs, expenses (including reasonable expenses of investigation and attorneys’, accountants’ and other experts’ fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment, assertion or claim of any Tax described in clause (w), (x) or (y) above in this Section 11.2(a)(iii) or attributable to or resulting from a breach by Seller of its obligations in Section 9.6 (the sum of the amounts determined pursuant to clauses (w), (x), (y) and (z) of this Section 11.2(a)(iii) being referred to as a “Buyer Tax Loss”); or

     (iv) any Taxes, Liabilities, costs, expenses (including reasonable expenses of investigation and attorneys’, accountants’, and other experts’ fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the items identified on Section 3.6 of the Disclosure Schedule or Section 9.2(a) of the Disclosure Schedule.

If and to the extent any provision of this Section 11.2(a) is unenforceable for any reason, Seller hereby agrees to make the maximum contribution to the payment and satisfaction of any Loss for which indemnification is provided under this Section 11.2(a) which is permissible under applicable Laws. Any claims for indemnification made under this Section 11.2(a) may only be made by the Buyer on behalf of the Buyer Indemnified Parties.

     (b) Indemnification Obligations of the Buyer. The Buyer shall indemnify Seller and Liberty and their Affiliates (which shall not include the Company or any of its Subsidiaries) (collectively, the “Seller Indemnified Parties”) and save and hold each of them harmless against and pay on behalf of or reimburse such Seller Indemnified Parties as and when incurred for any Losses which any Seller Indemnified Party may suffer, incur, sustain or become subject to, as a result of, in connection with, relating or incidental to or by virtue of:

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     (i) any facts or circumstances which constitute a breach of any representation or warranty regarding the Buyer under this Agreement or in any certificates or other writing delivered by or on behalf of Buyer in connection with the Closing;

     (ii) any breach of any covenant, agreement or other provision by the Buyer under this Agreement or in any certificate delivered by or on behalf of Buyer in connection with the Closing;

     (iii) any claims or causes of action asserted against any Seller Indemnified Party after the Closing in connection with the operation of the Company’s and its Subsidiaries’ businesses following the Closing Date, but not including any claims or causes of action disclosed by Seller pursuant to this Agreement or any Losses which arise out of, or relate to, any matters with respect to which Seller is obligated to indemnify the Buyer Indemnified Parties pursuant to Section 11.2(a) hereof; or

     (iv) any (v) Tax of the Company or any Subsidiary other than any Buyer Tax Loss for which Seller is obligated to indemnify the Buyer Indemnified Parties pursuant to Section 11.2(a)(iii), (w) Tax resulting from transactions or actions taken by Buyer or any of its Affiliates (including for this purpose the Company and each of its Subsidiaries) that occur on the Closing Date but after the Closing and that are not in the Ordinary Course of Business, (x) Tax resulting from an actual or deemed election by Buyer under Code Section 338 (or any similar provision of state law or the law of any other taxing jurisdiction) with respect to the Company or any Subsidiary in connection with any of the transactions contemplated by this Agreement, (y) Tax that is the obligation of Buyer pursuant to Section 9.7, and (z) Liabilities, costs, expenses (including reasonable expenses of investigation and attorneys’, accountants’ and other experts’ fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assertion or assessment of any Tax described in clause (v), (w), (x) or (y) above in this Section 11.2(b)(iv) or attributable to or resulting from a breach by Seller of its obligations in Section 9.6 (the sum of the amounts determined pursuant to clauses (v), (w), (x), (y) and (z) of this Section 11.2(b)(iv) being referred to as a “Seller Tax Loss”).

If and to the extent any provision of this Section 11.2(b) is unenforceable for any reason, the Buyer hereby agrees to make the maximum contribution to the payment and satisfaction of any Loss for which indemnification is provided under this Section 11.2(b) which is permissible under applicable Laws. Any claims for indemnification made under this Section 11.2(b) may only be made by a Seller on behalf of Seller Indemnified Parties.

(c) Limitations on Indemnification

     (i) Notwithstanding anything to the contrary in this Article XI, neither Seller nor Liberty shall be required to indemnify the Buyer Indemnified Parties in respect of any Losses for which indemnity is claimed under Section 11.2(a)(i) and (iii) unless and until the aggregate of all such Losses exceeds one percent (1%) of Purchase Price (the “Threshold”); provided, that if the aggregate of such Losses claimed exceeds the

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Threshold then Seller and Liberty shall be obligated to indemnify the Buyer Indemnified Parties for only the amount of such Losses in excess of the Threshold; provided, further, that the Threshold shall not limit indemnification with respect to Losses relating to breaches of the Seller’s Fundamental Representations or any facts or circumstances which constitute fraud, or intentional misrepresentation. Notwithstanding anything to the contrary in this Article XI, Buyer shall not be required to indemnify the Seller Indemnified Parties in respect of any Losses for which indemnity is claimed under Section 11.2(b)(i) and (iv) unless and until the aggregate of all such Losses exceeds the Threshold; provided, that if the aggregate of such Losses claimed exceeds the Threshold then Buyer shall be obligated to indemnify the Seller Indemnified Parties for only the amount of such Losses in excess of the Threshold; provided, further, that the Threshold shall not limit indemnification with respect to Losses relating to breaches of the Buyer’s Fundamental Representations or any facts or circumstances which constitute fraud, or intentional misrepresentation.

     (ii) Notwithstanding anything to the contrary in this Article XI, the maximum amount of Losses that the Buyer Indemnified Parties will be entitled to recover pursuant to Section 11.2(a)(i) and (iii) (to the extent that such Losses under Section 11.2(a)(iii) relate solely to a breach of a representation or warranty and do not relate in whole or in part to a breach of a covenant) for breaches of representations and warranties is twelve and one-half percent (12.5%) of the Purchase Price, provided that such limitation shall not apply to breaches of the Seller’s Fundamental Representations and/or to any facts or circumstances which constitute fraud or intentional breach or omission with respect to any representation or warranty of the Company, its Subsidiaries, Seller and Liberty. Notwithstanding anything to the contrary in this Article XI, the maximum amount of Losses that the Seller Indemnified Parties will be entitled to recover pursuant to Section 11.2(b)(i) and (iv) (to the extent that such Losses under Section 11.2(b)(iv) relate solely to a breach of a representation or warranty and do not relate in whole or in part to a breach of a covenant) for breaches of representations and warranties is twelve and one-half percent (12.5%) of the Purchase Price, provided that such limitation shall not apply to breaches of the Buyer’s Fundamental Representations and/or to any facts or circumstances which constitute fraud or intentional breach or omission with respect to any representation or warranty of the Buyer.

     (d) Manner of Calculation. If any representation, warranty or covenant which is qualified by materiality or Material Adverse Effect is breached in accordance with its terms (which shall take into account any such materiality qualifiers), the amount of any Loss related to a breach of any such representation or warranty or covenant shall be determined without regard to any materiality qualification (including terms such as “material” and “Material Adverse Effect”) set forth therein.

     (e) Exclusive Remedy. The remedies provided by this Article XI, subject to the limitations set forth in this Agreement, shall be the sole and exclusive remedies of the Buyer Indemnified Parties and Seller Indemnified Parties after Closing for the recovery of Losses resulting from, relating to or arising out of this Agreement, except for (i) in the case of fraud, intentional breach or omission and (ii) any other remedies expressly set forth in this Agreement other than in this Article XI.

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     (f) Manner of Payment. Any indemnification of the Buyer Indemnified Parties or Seller Indemnified Parties, as the case may be, pursuant to this Section 11.2 shall be effected by wire transfer of immediately available funds from Seller or Liberty or the Buyer, as the case may be, to an account designated in writing by the applicable Buyer Indemnified Party or Seller Indemnified Party, as the case may be, within fifteen (15) days after the determination thereof. Any indemnification payments shall be made together with interest accruing thereon from the date written notice of the indemnification claim is made to the date of payment at five percent (5%) per annum.

     (g) Third Party Claims and Notice of Tax Loss. A Buyer Indemnified Party will give timely written notice to Seller of any Buyer Tax Loss, and a Seller Indemnified Party will give timely written notice to Buyer of any Seller Tax Loss, or, if a Proceeding is initiated by any third party against any Person entitled to seek indemnification under this Article XI (an “Indemnified Party”), and if an Indemnified Party intends to seek indemnification with respect thereto under this Article XI, such Indemnified Party shall promptly, after receipt of written notice of such Proceeding, provide written notice of such Proceeding to the party or parties from whom the Indemnified Party intends to seek indemnification from (the “Responsible Party”), which notice shall describe such Proceeding in reasonable detail and the amount thereof (if known and quantifiable); provided, that the failure to so notify a Responsible Party shall not relieve such Responsible Party of its obligations hereunder unless and only to the extent the Responsible Party shall be actually and materially prejudiced by such failure to so notify. A Responsible Party shall be entitled to participate in the defense of such Proceeding giving rise to an Indemnified Party’s claim for indemnification at such Responsible Party’s expense, and at its option (subject to the limitations set forth below) shall be entitled to assume the defense thereof by appointing a reputable counsel reasonably acceptable to the Indemnified Party to be the lead counsel in connection with such defense within thirty (30) days of its receipt of notice of the Proceeding; provided, that prior to the Responsible Party assuming control of such defense, it shall (x) demonstrate to the Indemnified Party in writing such Responsible Party’s financial ability to provide full indemnification to the Indemnified Party with respect to such Proceeding (including the ability to post any bond required by the court or adjudicative body before which such Proceeding is taking place), and (y) agree in writing to be fully responsible for all Losses relating to such Proceeding; provided, further, that:

     (i) the Indemnified Party shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose;

     (ii) the Responsible Party shall not be entitled to assume control of such defense if (a) the claim for indemnification relates to or arises in connection with any criminal proceeding, action, indictment, allegation or investigation, (b) the Indemnified Party reasonably believes an adverse determination with respect to the Proceeding, giving rise to such claim for indemnification would be materially detrimental to or materially injure the Indemnified Party’s reputation or future business prospects, (c) such claim seeks an injunction or equitable relief against the Indemnified Party, (d) a conflict of interest exists between the Responsible Party and the Indemnified Party, or (e) the Responsible Party failed or is failing to vigorously prosecute or defend such claim; and

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     (iii) if the Responsible Party shall control the defense of any such claim, the Responsible Party shall obtain the prior written consent of the Indemnified Party before entering into any settlement of Proceeding or ceasing to defend such Proceeding if, pursuant to or as a result of such settlement or cessation, injunctive or other equitable relief will be imposed against the Indemnified Party or if such settlement does not expressly and unconditionally release the Indemnified Party from all Liabilities and obligations with respect to such claim and does not include any admission of liability for the underlying claims (even if no Liabilities accrue therefrom).

     (h) Adjustment Treatment. All indemnification payments made pursuant to this Article XI shall be treated as adjustments to the Purchase Price unless a Final Determination or change in applicable Legal Requirements (including a revenue ruling or other similar announcement) causes any such amount not to constitute an adjustment to the Purchase Price for any applicable Tax purposes.

     (i) Insurance, Set-Off. The Indemnified Party shall use commercially reasonable efforts to pursue any claims for Insurance, set-off or indemnification to the extent applicable in connection with any claim for which it seeks indemnification pursuant to this Article 11.

ARTICLE XII
MISCELLANEOUS

     Section 12.1.     Public Announcements. Subject to the obligations of Buyer to provide disclosure to comply with federal securities laws, any public announcement, press release or similar publicity with respect to this Agreement or the transactions contemplated by this Agreement will be issued, if at all, at such time and in such manner as mutually agreed by Buyer and Seller. Seller and Buyer will consult with each other concerning the means by which the employees, customers, and suppliers of the Company or any of its Subsidiaries and others having dealings with the Company or any of its Subsidiaries will be informed of the transactions contemplated by this Agreement and any such communication will be made only as mutually agreed by Buyer and Seller. The provisions of this Section 12.1 are intended to supplement and not to supersede or replace the provisions of the Existing NDA.

     Section 12.2.     No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

     Section 12.3.     Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties, provided that the Buyer may without the prior written consent of Seller, assign this Agreement or any of its rights, interests or obligations to an Affiliate of Buyer and provided further that Buyer may make a collateral assignment of its rights, but not its obligations, under this Agreement to any of its financing sources.

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     Section 12.4.     Entire Agreement. This Agreement (including the Exhibits and Schedules hereto and any other agreements and documents referred to in this Agreement) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they are related in any way to the subject matter hereof, other than the Existing NDA.

     Section 12.5.     Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and telecopier numbers as a Party may designate by notice to the other Parties, provided that any such change shall be effective only upon receipt by the other Parties):

If to Seller or to

Liberty: Liberty Satellite & Technology, Inc.
c/o Liberty Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
Attention: William R. Fitzgerald and Charles Y. Tanabe
Facsimile: 720-875-5382

Copy (which shall not constitute notice) to:

Sherman & Howard L.L.C.
633 17^th Street, Suite 3000
Denver, CO 80202
Attention: Steven D. Miller, Esq.
Facsimile: 303-298-0940

If to Buyer, or to the Company after

Closing: LodgeNet Entertainment Corporation
3900 West Innovation Street
Sioux Falls, SD 57107
Attention: Scott C. Petersen and James G. Naro
Facsimile: 605-988-1715

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Copy (which shall not constitute notice) to:

Leonard, Street and Deinard, Professional Association
150 South Fifth Street, Ste. 2300
Minneapolis, MN 55402
Attention: Mark S. Weitz, Esq.
Facsimile: 612-335-1657

     Section 12.6.     Governing Law; Jurisdiction. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any Proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated by this Agreement may be brought by or against any Party in any court of competent jurisdiction located in the State of Delaware. Each Party irrevocably and unconditionally agrees to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware and not to object to the jurisdiction of such courts on the basis of inconvenience of forum or otherwise. Without limiting the generality of the foregoing, each Party agrees that service of process upon such Party at such Party’s address as set forth in Section 12.5, together with written notice of such service to such Party, will be deemed effective service of process upon such Party.

     Section 12.7.     Amendments and Waivers. No amendment of any provision of this Agreement will be valid unless the same is in writing and signed by Buyer, Liberty and Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant under this Agreement, whether intentional or not, will be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant under this Agreement or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

     Section 12.8.     Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

     Section 12.9.     Expenses. Except as otherwise expressly provided in this Agreement, each of Seller, Liberty and Buyer will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated by this Agreement, provided that Seller and Buyer shall each pay fifty (50%) percent of any filing fee related to the HSR Act.

     Section 12.10.     Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

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     Section 12.11.     Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

     Section 12.12.     Headings. The Article and Section headings contained in this Agreement are inserted for convenience only and will not affect in any way the meaning or interpretation of this Agreement.

     Section 12.13.     Facsimile; Counterparts Signatures. This Agreement may be executed by facsimile signature and in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the Parties have executed this Stock Purchase Agreement as of the date first written above.

BUYER: LODGENET ENTERTAINMENT CORPORATION
By:
	Name:	Scott C. Petersen
	Title:	President and Chief Executive Officer

SELLER: LIBERTY SATELLITE & TECHNOLOGY, INC.
By:	/s/ William R. Fitzgerald
	Name: William R. Fitzgerald
	Title: Senior Vice President

LIBERTY: LIBERTY MEDIA CORPORATION
By:	/s/ William R. Fitzgerald
	Name: William R. Fitzgerald
	Title: Senior Vice President

[Signature Page to Stock Purchase Agreement]

EXHIBIT A

DEFINITION OF CLOSING WORKING CAPITAL

Closing Working Capital shall be determined in accordance with GAAP, except as follows:

1. Closing Working Capital shall exclude (i) all Indebtedness (other than the current portions of capital lease obligations related to capital leases outstanding on the Agreement Date, to the extent that the recorded book value of such capital leases does not exceed an aggregate of $2,000,000 on the Agreement Date and the Closing Date), (ii) current Income Tax receivables and payables, (iii) deferred Tax amounts, and (iv) deferred revenue amounts.

2. Closing Working Capital shall be calculated as of immediately prior to the Closing and should not include the impact of any adjustments required by purchase accounting (revaluing assets and liabilities to fair value).

As an example, the working capital as of September 30, 2006 would be calculated as follows (all numbers are in thousands):

Current Assets

Cash $1,018

Accounts Receivable, net of reserve for doubtful accounts $29,636

Other Current Assets $3,235

Less: Current Liabilities

Accounts Payable $25,878

Accrued Compensation $2,739

Other Accrued Liabilities $3,714

Accrued sales, use and property taxes $3,788

Current portion of long-term debt (cap leases) $0

Net working capital $(2,230)

EXHIBIT B

TARGET WORKING CAPITAL

     The Target Working Capital (in thousands) amount shall be $3,500.

EX-10.35

Exhibit 10.35

Execution Copy

STOCKHOLDERS AGREEMENT

     This Stockholders Agreement (this “Agreement”) is entered into as of December 13, 2006, by and among LodgeNet Entertainment Corporation, a Delaware corporation (“LodgeNet”), Liberty Satellite & Technology, Inc., a Delaware corporation (“Liberty Satellite”), and Liberty Media Corporation, a Delaware corporation (“Liberty Media”).

BACKGROUND

     A. Pursuant to that certain Stock Purchase Agreement, dated December 11, 2006 (the “Purchase Agreement”), by and between LodgeNet, Liberty Satellite and Liberty Media, LodgeNet agreed to purchase 100% of the issued and outstanding shares of capital stock of Ascent Entertainment Group, Inc., a Delaware corporation. As part of the consideration for LodgeNet’s purchase, Liberty Satellite will receive the Share Consideration (as defined in the Purchase Agreement) in the form of 2,050,000 shares of common stock of LodgeNet.

     B. As required by the Purchase Agreement, the parties hereto are entering into this Agreement to provide for certain transfer and voting restrictions, as well as to grant certain registration rights, with respect to the LodgeNet Securities issued as the Share Consideration.

AGREEMENT

     In consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

     Section 1. Certain Definitions. In this Agreement, the following terms have the following meanings.

     Affiliate. When used with reference to a specified Person, any Person who directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, the Person specified.

     Agreement. As defined in the preamble.

     Beneficial Ownership and derivative terms. As determined pursuant to Rule 13d-3 and Rule 13d-5 under the Exchange Act and any successor regulation, except that in determining Beneficial Ownership, without duplication, equity securities that may be acquired pursuant to rights to acquire equity securities that are exercisable more than sixty days after a date shall nevertheless be deemed to be Beneficially Owned.

     Blackout Period. As defined in Section 6.10 below.

     Board. The Board of Directors of LodgeNet.

     Business Day. Any day, other than a Saturday or Sunday, on which national banking institutions are open.

     Closing Date. As defined in the Purchase Agreement.

     Control and derivative terms. The possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract or otherwise.

     Demand Registration. As defined in Section 6.1 below.

     Exchange Act. The Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

     Free Writing Prospectus. A free writing prospectus as defined in Rule 405 under the Securities Act.

     Hilton. As defined in Section 6.5 below.

     Hilton Warrant. As defined in Section 6.5 below.

     Issuer Free Writing Prospectus. An issuer free writing prospectus as defined in Rule 433 under the Securities Act.

     Law. Any U.S. federal, state or local or any foreign statute, code, ordinance, decree, rule, regulation or general principle of common or civil law or equity.

     Liberty. Liberty Media and Liberty Satellite, collectively, and any Affiliate of either Liberty Media or Liberty Satellite.

     Liberty Media. As defined in the preamble.

     Liberty Satellite. As defined in the preamble or a Person that is a transferee of LodgeNet Securities that constitute Share Consideration pursuant to a Permitted Transfer.

     LodgeNet. As defined in the preamble.

     LodgeNet Securities. The common stock and any other voting securities issued by LodgeNet.

     Losses. As defined in Section 6.15 below.

     Permitted Transfer. Any Transfer to a Person that is an Affiliate of Liberty Satellite at the time of such Transfer.

     Person. Any individual, firm, corporation, partnership, limited liability company, trust, joint venture, or other entity, and shall include any successor (by merger or otherwise) of such entity.

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     Piggyback Notice. As defined in Section 6.7 below.

     Piggyback Registration. As defined in Section 6.7 below.

     Prospectus. The prospectus included in the applicable Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all amendments (including post-effective amendments) and including all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

     Purchase Agreement. As defined under “Background” on the first page of this Agreement.

     Registrable Securities. Any LodgeNet Securities held by Liberty as the Share Consideration; provided, however, that as to any Registrable Securities, such securities will irrevocably cease to constitute Registrable Securities when: (i) the securities are disposed of pursuant to an effective registration statement under the Securities Act; (ii) to the extent such securities can be sold by Liberty, taking into consideration the volume limitations of Rule 144, such securities are eligible to be sold by Liberty to the public pursuant to Rule 144 (or any successor provision) under the Securities Act; (iii) such securities have been transferred to any Person other than Liberty; or (iv) such securities cease to be outstanding.

     Registration Expenses. As defined in Section 6.14 below.

     Registration Statement. Any registration statement of LodgeNet under the Securities Act that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement (including post-effective amendments), and all exhibits and all materials incorporated by reference or deemed to be incorporated by reference in such registration statement.

     Required Effective Period. The 180 days following the first day of effectiveness of a Registration Statement.

     Restricted Period. The period of time commencing on the Closing Date and ending on the date that is 12 months after the Closing Date.

     Rule 144. Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

     SEC. The United States Securities and Exchange Commission and any successor United States federal agency or governmental authority having similar powers.

     Securities Act. The Securities Act of 1933, as amended, and the rules and regulations thereunder.

     Share Consideration. As defined in the Purchase Agreement, and including, for purposes

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of this Agreement, any securities paid, issued or distributed in respect of any such shares by way of stock dividend, stock split or distribution, or in connection with a combination of shares or recapitalization, or merger where LodgeNet is the surviving entity.

     Transfer. As defined in Section 3.1 below.

     Underwritten Registration or Underwritten Offering. A registration in which LodgeNet Securities are sold to an underwriter for reoffering to the public.

     Section 2. Acquisition of LodgeNet Securities. Except for the Share Consideration, Liberty has not acquired and shall not, during the Restricted Period, acquire Beneficial Ownership of any LodgeNet Securities.

     Section 3. Dispositions of LodgeNet Securities.

     3.1 Transfer Prohibited. During the Restricted Period, Liberty will not Transfer any LodgeNet Securities that constitute the Share consideration. For purposes of this Agreement, “Transfer” means any attempt by Liberty to take any of the following actions:

     (a) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act other than (i) a Permitted Transfer and (ii) as permitted in (b) below;

     (b) enter into any swap or other arrangement that transfers to another Person, in whole or in part, any of the economic consequences of ownership of LodgeNet Securities or any securities convertible into or exchangeable or exercisable for LodgeNet Securities, or other rights to purchase LodgeNet Securities, whether any such transaction is to be settled by delivery of LodgeNet Securities or such other securities, in cash or otherwise, other than a variable forward sale or collar or similar transaction involving a put and/or call option settled in cash or securities; or

     (c) publicly announce an intention to effect any transaction prohibited by this Section.

     3.2 Attempted Transfers Void. Any attempted Transfer by Liberty of LodgeNet Securities in violation of this Agreement is void.

     Section 4. Voting.

     4.1 Voting. Until the beginning of the 19th month after the Closing Date, Liberty shall cause all Registrable Securities held by it to be present at all meetings of the stockholders of LodgeNet at which such shares are entitled to vote, or shall cause proxies to be present at all such meetings, so as to enable all of such securities to be counted for quorum purposes. Liberty will vote its Registrable Securities with respect to any matter submitted for approval of

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stockholders of LodgeNct in the same proportion for and against each such matter as the other LodgeNet Securities are voted with the intent of this provision being that the proportion voted for and against each such matter will not be changed by Liberty’s voting of Registrable Securities.

     Section 5. Control of LodgeNet. Until the beginning of the 19th month after the Closing Date, Liberty shall not take any actions to attempt directly or indirectly to influence or control the management and policies of LodgeNet, including the following:

     (a) soliciting proxies or participating in a proxy contest in any matter not approved by a majority of the Board;

     (b) initiating or participating in stockholder proposals,

     (c) seeking to nominate a candidate for, or to remove any member of, the Board;

     (d) calling a special meeting of stockholders;

     (e) acting in concert with anyone with respect to LodgeNet or LodgeNet Securities;

     (f) depositing LodgeNet Securities in a voting trust or subjecting them to any voting arrangement or agreement, except as expressly provided for herein; or

     (g) soliciting, seeking to effect, or making any public statement regarding any business combination, restructuring, recapitalization or any proposal to amend or modify, or otherwise inconsistent with, the provisions of this Agreement.

     Section 6. Registration Rights.

     6.1 Right to Demand Registration. At any time commencing on the 19th month after the Closing Date, Liberty Satellite may request in writing that LodgeNet effect the registration (a “Demand Registration”) of all or part of the Registrable Securities held by Liberty Satellite with the SEC under and in accordance with the provisions of the Securities Act (which written request will specify (i) the then current name and address of Liberty Satellite, (ii) the aggregate number of shares of Registrable Securities requested to be registered, (iii) the total number of shares of LodgeNet Securities then held by Liberty Satellite, and (iv) the intended means of distribution). Liberty Satellite shall have the right to two Demand Registrations, one of which may be an Underwritten Registration. LodgeNet will file a Registration Statement covering such Registrable Securities requested to be registered as promptly as practicable after receipt of such request; provided, however, that LodgeNet will not be required to effect any Demand Registration:

     (a) if the request is for an Underwritten Registration and either (i) prior to the date of such request LodgeNet has effected one Demand Registration as an Underwritten Registration or (ii) the Registrable Securities requested to be registered have an aggregate then-current market value of less than $30 million (before deducting underwriting discounts and commission);

     (b) if the request is for a registration which will not be underwritten and either (i) prior to the date of such request LodgeNet has effected two Demand Registrations or (ii) the

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Registrable Securities requested to be registered have an aggregate then-current market value of less than $10 million;

     (c) if within the six-month period preceding such request LodgeNet has effected either (i) a Demand Registration or (ii) a registration pursuant to which Liberty Satellite was entitled to Piggyback Registration rights;

     (d) if a Registration Statement is effective at the time such request is made and such Registration Statement may be utilized for the offering and sale of the Registrable Securities requested to be registered and LodgeNet allows or causes such Registrable Securities to be registered under such Registration Statement; or

     (e) during the pendency of any Blackout Period as set forth in Section 6.10.

     6.2 Effective Demand Registrations. LodgeNet may satisfy its obligations under Section 6.1 by amending (to the extent permitted by applicable law) any registration statement previously filed by LodgeNet under the Securities Act so that such amended registration statement will permit the disposition of all of the Registrable Securities for which a demand for registration has been properly made under Section 6.1. If LodgeNet so amends a previously filed registration statement, it will be deemed to have effected a Demand Registration; provided that the date such registration statement is amended pursuant to this Section shall be the “the first day of effectiveness” of such registration statement for purposes of determining the Required Effective Period with respect to such registration statement.

     6.3 Continuous Effectiveness of Registration Statement.

     (a) LodgeNet will use its reasonable efforts to keep a Registration Statement that has become effective continuously effective, and not subject to any stop order, injunction or other similar order or requirement of the SEC, until the earlier of (a) the expiration of the Required Effective Period and (b) the date on which all Registrable Securities covered by such Registration Statement (i) have been disposed of pursuant to such Registration Statement or (ii) cease to be Registrable Securities; provided, however, that in no event will such period expire prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 promulgated thereunder.

     (b) In the event of any stop order, injunction or other similar order or requirement of the SEC relating to any Registration Statement, the Required Effective Period for such Registration Statement will be extended by the number of days during which such stop order, injunction or similar order or requirement is in effect.

     6.4 Underwritten Demand Registration. In the event that a registration requested pursuant to Section 6.1 is to be an Underwritten Registration, LodgeNet shall select one or more investment banking firms of national standing to be the managing underwriter for the Underwritten Offering relating thereto. Liberty Satellite agrees to enter into an underwriting agreement with the underwriters, provided that the underwriting agreement is in customary form and reasonably acceptable to Liberty Satellite.

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     6.5 Priority on Demand Registrations. If a Demand Registration is to be an Underwritten Registration and the managing underwriter of the Underwritten Offering relating thereto advises Liberty Satellite that the total amount of Registrable Securities requested to be registered, together with such other securities that LodgeNet and any stockholders propose to include in such offering is such as to adversely affect the success of such offering, then LodgeNet will include in such registration all Registrable Securities requested to be included therein, up to the full amount that, in the view of such managing underwriter, can be sold without adversely affecting the success of such offering, before including any securities of any Person (including LodgeNet) other than Liberty Satellite. Notwithstanding the foregoing, in the event that Hilton Hotels Corporation or its assignee (“Hilton”), has demanded registration of its LodgeNet Securities pursuant to the registration rights contained in that certain Warrant No. W-17, dated October 9, 2000 (the “Hilton Warrant”), and that request was postponed by LodgeNet due to its contemplation of filing the Demand Registration under Section 6.1 hereof, the number of shares to be included in the Underwritten Offering shall be allocated first to Liberty Satellite and Hilton based upon the respective number of shares sought by each to be included in the offering.

     6.6 Revocation of Demand Registration. At any time prior to the effective date of the Registration Statement, Liberty Satellite may revoke its request to have Registrable Securities included therein by providing a written notice to LodgeNet. In the event Liberty Satellite revokes such request, either (a) Liberty Satellite shall reimburse LodgeNet for all of its out-of-pocket expenses incurred in the preparation, filing and processing of the Registration Statement or (b) the requested registration that has been revoked will be deemed to have been a Demand Registration effected for purposes of Section 6.1, as determined by LodgeNet.

     6.7 Right to Piggyback Registration. If at any time after the Restricted Period LodgeNet proposes to file a registration statement under the Securities Act with respect to an offering of LodgeNet Securities (other than a registration statement (a) on Form S-8 or any successor form thereto, (b) on Form S-4 or any successor form thereto relating solely to the sale of securities to employees, directors, officers, consultants or advisors of LodgeNet or its Affiliates pursuant to a stock option, stock purchase or similar benefit plan or (c) relating to a transaction under Rule 145 under the Securities Act), whether or not for its own account, on a form that would permit registration of Registrable Securities for sale to the public under the Securities Act, then LodgeNet will give written notice (the “Piggyback Notice”) of such proposed filing to Liberty Satellite at least 10 days before the anticipated filing date. Such notice will include the number and class of equity securities proposed to be registered, the proposed date of filing of such registration statement, any proposed means of distribution of such equity securities, any proposed managing underwriter of such equity securities, the name of the holders whose LodgeNet Securities are being registered if the registration is a secondary offering, to the extent then known to LodgeNet, and a good faith estimate by LodgeNet of the proposed maximum offering price of such equity securities as such price is proposed to appear on the facing page of such registration statement, and will offer Liberty Satellite the opportunity to register such amount of Registrable Securities as it may request on the same terms and conditions as the registration of LodgeNet’s or other Person’s securities, as the case may be (a “Piggyback Registration”). LodgeNet will include in each Piggyback Registration all Registrable Securities for which LodgeNet has received written requests for inclusion within 5 days after delivery of

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the Piggyback Notice, subject to Section 6.8. With respect to Piggyback Registration effected under the Hilton Warrant, Liberty Satellite must also send written requests for inclusion to both LodgeNet and the holder whose LodgeNet Securities are being registered, and Liberty Satellite shall comply with the requirements set forth in the Hilton Warrant as well as this Agreement.

     6.8 Priority on Piggyback Registrations.

     (a) If the Piggyback Registration is an Underwritten Offering, LodgeNet will cause the managing underwriter of that proposed offering to permit Liberty Satellite’s requested Registrable Securities to be included in the Piggyback Registration and to include all such Registrable Securities on the same terms and conditions as any similar LodgeNet Securities. Notwithstanding the foregoing, if the managing underwriter of such Underwritten Offering advises LodgeNet that, in its view, the total amount of securities that LodgeNet, Liberty Satellite and any other holders propose to include in such offering is such as to adversely affect the success of such Underwritten Offering, then:

(i) if such Piggyback Registration is a primary registration by LodgeNet for its own account, LodgeNet will include in such Piggyback Registration: (A) first, all securities to be offered by LodgeNet and all securities requested to be included by Hilton, to the extent Hilton’s previously demanded registration has been postponed pursuant to clause (i) of the last paragraph of Section 2.1 of the Hilton Warrant and Hilton is entitled to include its shares on a pro rata basis under the terms of the Hilton Warrant; (B) second, up to the full amount of securities requested to be included in such Piggyback Registration by Hilton, to the extent not already included above, and (C) third, up to the full amount of securities requested to be included in such Piggyback Registration by Liberty Satellite and all other holders having registration rights, allocated pro rata among such holders, on the basis of the amount of securities requested to be included therein by each such holder, so that the total amount of securities to be included in such Underwritten Offering is the full amount that, in the view of such managing underwriter, can be sold without adversely affecting the success of such Underwritten Offering; and

(ii) if such Piggyback Registration is an underwritten secondary registration for the account of holders of securities of LodgeNet, LodgeNet will include in such registration: (A) first, all securities of the Persons exercising “demand” registration rights requested to be included therein and all securities requested to be included by Hilton, to the extent Hilton’s previously demanded registration has been postponed pursuant to clause (i) of the last paragraph of Section 2.1 of the Hilton Warrant and Hilton is entitled to include its shares on a pro rata basis under the terms of the Hilton Warrant; (B) second, up to the full amount of securities requested to be included in the registration by Hilton, to the extent not already included above; and (C) third, up to the full amount of securities requested to be included therein by Liberty Satellite and all other holders having registration rights, allocated pro rata among such holders, on the basis of the amount of securities requested to be included therein by each such holder, so that the total amount of securities to be included in such Underwritten Offering is the full amount that, in the view of such managing underwriter, can be sold without adversely affecting the success of such Underwritten Offering.

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     (b) If so requested (pursuant to a timely notice) by the managing underwriter in any Underwritten Offering, whether or not Liberty Satellite participates in such offering, Liberty Satellite will agree not to effect any public sale or distribution (or any other type of sale or hedging activity as the managing underwriter reasonably determines is appropriate in order to not adversely affect the Underwritten Offering) of any such Registrable Securities, including a sale pursuant to Rule 144 (but excluding any Registrable Securities included in such Underwritten Offering), during the 10 days prior to, and during a period specified by the managing underwriter not to exceed 90 days (or such additional period as the managing underwriter reasonably determines is appropriate in order to not adversely affect the Underwritten Offering) following, the closing date of such Underwritten Offering. In the event of such a request, LodgeNet may impose, during such period, appropriate stop-transfer instructions with respect to the Registrable Securities subject to such restrictions.

     6.9 Withdrawal of Piggyback Registration.

     (a) If at any time after giving the Piggyback Notice and prior to the effective date of the Registration Statement filed in connection with the Piggyback Registration, LodgeNet determines for any reason not to register or to delay the Piggyback Registration, LodgeNet may, at its election, give notice of its determination to Liberty Satellite, and in the case of a determination not to register, will be relieved of its obligation to register any Registrable Securities in connection with the abandoned Piggyback Registration, without prejudice, provided, however, that such Registration Statement will not be counted for purposes of Section 6.1.

     (b) Liberty Satellite may withdraw its request to be included in a Piggyback Registration by giving written notice to LodgeNet of its intention to withdraw from that registration, provided, however, that (i) Liberty Satellite’s request be made in writing, (ii) the withdrawal must be made during the time period and on the terms determined by LodgeNet and the underwriters, if any, and (iii) the withdrawal will be irrevocable and, after making the withdrawal, Liberty Satellite will no longer have any right to include its Registrable Securities in that Piggyback Registration.

     (c) An election by LodgeNet to withdraw a Piggyback Registration under this Section shall not be deemed to be a breach of LodgeNet’s obligations with respect to such Piggyback Registration.

     6.10 Blackout Periods.

     (a) For purposes of this Agreement, “Blackout Periods” means the periods described in this Section 6.10(a):

(i) Notwithstanding anything contained in Sections 6.1 to 6.6 to the contrary, if any request for a Demand Registration is delivered at a time when LodgeNet is planning to file a registration statement with respect to an underwritten offering of LodgeNet Securities, LodgeNet may require Liberty Satellite to postpone a request for Demand

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Registration until the expiration of the 90-day period following the effective date of such registration.

(ii) Notwithstanding anything contained in Sections 6.1 to 6.9 to the contrary, if the Board determines in good faith that the registration and distribution of Registrable Securities (A) would require premature disclosure of a matter the Board has determined would not be in the best interest of LodgeNet to be disclosed at such time, (B) would materially adversely affect or interfere with in any material respect any financing, acquisition, corporate reorganization or other material transaction or development involving LodgeNet, then LodgeNet will promptly give Liberty Satellite notice of such determination and will be entitled to postpone the preparation, filing or effectiveness or suspend the effectiveness of a Registration Statement for a reasonable period of time not to exceed 90 days, provided, however, that LodgeNet may extend one such postponement for up to 120 days.

     (b) Notwithstanding anything contained in this Section 6.10 to the contrary, in no event will the number of days included in all Blackout Periods during any consecutive 12-month period exceed an aggregate of 180 days.

     6.11 Registration Procedures. In connection with LodgeNet’s registration obligations herein, LodgeNet will use its reasonable efforts to effect such registrations to permit the sale of Registrable Securities by Liberty Satellite in accordance with the intended method or methods of disposition thereof, and pursuant thereto LodgeNet will as promptly as reasonably practicable:

     (a) prepare and file with the SEC a Registration Statement on an appropriate form under the Securities Act available for the sale of the Registrable Securities by Liberty Satellite in accordance with the intended method or methods of distribution thereof;

     (b) furnish, at its expense, to Liberty Satellite such number of conformed copies of the Registration Statement and each amendment thereto, of the Prospectus and each supplemental thereto, and of such other documents as Liberty Satellite reasonably may request from time to time;

     (c) subject to Section 6.3, prepare and file with the SEC any amendments and post-effective amendments to the Registration Statement as may be necessary and any supplements to the Prospectus as may be required or appropriate, in the view of LodgeNet and its counsel, by the rules, regulations or instructions applicable to the registration form used by LodgeNet or by the Securities Act to keep the Registration Statement effective until the earlier of (i) such time as all Registrable Securities covered by the Registration Statement are sold in accordance with the intended plan of distribution set forth in the Registration Statement or supplement to the Prospectus and (ii) the termination of the Required Effective Period (giving effect to any extensions thereof pursuant to Section 6.3(b) or Section 6.13);

     (d) promptly following its actual knowledge thereof, notify Liberty Satellite and the managing underwriter, if any:

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(i) when a Registration Statement, Prospectus, Issuer Free Writing Prospectus or any supplement or amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective;

(ii) of any request by the SEC or any other governmental authority for amendments or supplements to a Registration Statement, Prospectus or Issuer Free Writing Prospectus or for additional information;

(iii) of the issuance by the SEC or any other governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose;

(iv) of the receipt by LodgeNet of any written notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;

(v) of the occurrence of any event which makes any statement made in the Registration Statement or Prospectus or any Issuer Free Writing Prospectus untrue in any material respect or which requires the making of any changes in a Registration Statement, Prospectus, Issuer Free Writing Prospectus or other documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and

(vi) of LodgeNet’s reasonable determination that a post-effective amendment to a Registration Statement is necessary;

     (e) use its reasonable efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable date;

     (f) prior to any public offering of Registrable Securities, register or qualify and cooperate with Liberty Satellite, the managing underwriter, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as Liberty Satellite or the managing underwriter reasonably requests in writing and maintain each registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective; provided, however, that LodgeNet will not be required to qualify generally to do business in any jurisdiction in which it is not then so qualified or take any action which would subject it to general service of process or material taxation in any jurisdiction in which it is not then so subject;

     (g) as promptly as practicable upon the occurrence of any event contemplated by Sections 6.1l(d)(v) or 6.1l(d)(vi) hereof, prepare (and furnish, at its expense, to Liberty Satellite

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a reasonable number of copies of) a supplement or post-effective amendment to each Registration Statement or a supplement to the related Prospectus (including by means of an Issuer Free Writing Prospectus), or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus or Issuer Free Writing Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

     (h) in the case of an Underwritten Offering, enter into customary agreements (including an underwriting agreement) and take other actions reasonably necessary to expedite the disposition of the Registrable Securities, and in connection therewith:

(i) use its reasonable efforts to obtain opinions of counsel to LodgeNet and updates thereof covering matters customarily covered in opinions of counsel requested in Underwritten Offerings, addressed to Liberty Satellite and the managing underwriter;

(ii) use its reasonable efforts to obtain “comfort” letters and updates thereof from the independent certified public accountants of LodgeNet addressed to Liberty Satellite and the managing underwriter, if any, covering matters customarily covered in “comfort” letters in connection with Underwritten Offerings; and

(iii) provide officers’ certificates and other customary closing documents reasonably requested by the managing underwriter;

     (i) upon reasonable notice and at reasonable times during normal business hours, make available for inspection by a representative of Liberty Satellite and the managing underwriter, if any, participating in any disposition of Registrable Securities and any attorney or accountant retained by Liberty Satellite or any underwriter, all financial and other records, pertinent corporate documents and properties of LodgeNet that are reasonably necessary for a due diligence investigation by an underwriter or a selling stockholder, as applicable, in LodgeNet’s sole reasonable discretion, and cause the officers, directors and employees of LodgeNet to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with the Registration Statement;

     (j) use its reasonable efforts to comply with all applicable rules and regulations of the SEC relating to such registration and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act, provided that LodgeNet will be deemed to have complied with this Section 6.11(j) if it has satisfied the provisions of Rule 158 under the Securities Act (or any similar rule promulgated under the Securities Act); and

     (k) use its reasonable efforts to procure the cooperation of LodgeNet’s transfer agent in settling any offering or sale of Registrable Securities.

     6.12 Information from Liberty Satellite.

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     (a) Upon requested inclusion of its Registrable Securities in any Registration Statement, Liberty Satellite shall furnish to LodgeNet such information regarding Liberty Satellite and its plan and method of distribution of such Registrable Securities as LodgeNet may, from time to time, reasonably request. LodgeNet may refuse to proceed with the registration of Liberty Satellite’s Registrable Securities if Liberty Satellite unreasonably fails to furnish such information within a reasonable time after receiving such request.

     (b) Liberty Satellite will promptly (i) following its actual knowledge thereof, notify LodgeNet of the occurrence of any event that makes any statement made in a Registration Statement, Prospectus, Issuer Free Writing Prospectus or other Free Writing Prospectus regarding Liberty Satellite untrue in any material respect or that requires the making of any changes in a Registration Statement, Prospectus or Free Writing Prospectus so that, in such regard, it will not contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements not misleading and (ii) provide LodgeNet with such information as may be required to enable LodgeNet to prepare a supplement or post-effective amendment to any such Registration Statement or a supplement to such Prospectus or Free Writing Prospectus.

     (c) With respect to any Registration Statement for an Underwritten Offering, the inclusion of Liberty Satellite’s Registrable Securities therein will be conditioned, at the managing underwriter’s request, upon the execution and delivery by Liberty Satellite of an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings.

     6.13 Suspension of Disposition.

     (a) Upon receipt of any notice from LodgeNet of the occurrence of any event of the type described in Sections 6.1 l(d)(ii), 6.1 l(d)(iii), 6.1 l(d)(iv), 6.1l(d)(v) or 6.1l(d)(vi), Liberty Satellite will discontinue disposition of Registrable Securities covered by a Registration Statement, Prospectus or Free Writing Prospectus and suspend use of such Prospectus or Free Writing Prospectus until Liberty Satellite’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6.1 l(g) or until it is advised by LodgeNet that the use of the applicable Prospectus or Free Writing Prospectus may be resumed and have received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Free Writing Prospectus. In the event LodgeNet shall give any such notice, the period of time for which a Registration Statement must remain effective as set forth in Section 6.3 will be extended by the number of days during the time period from and including the date of the giving of such notice to and including the date when Liberty Satellite has received (i) the copies of the supplemented or amended Prospectus or Issuer Free Writing Prospectus contemplated by Section 6.11(g) or (ii) the advice referenced in this Section 6.13(a).

     (b) Upon receipt of any notice from LodgeNet of the happening of an event specified in Section 6.10(a)(ii), Liberty Satellite will discontinue disposition of Registrable Securities covered by a Registration Statement, Prospectus or Free Writing Prospectus and suspend use of such Prospectus or Free Writing Prospectus until the earlier to occur of Liberty Satellite’s receipt of (i) copies of a supplemented or amended Prospectus or Issuer Free Writing Prospectus describing the event giving rise to the aforementioned suspension and (ii) (A) notice from

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LodgeNet that the use of the applicable Prospectus or Issuer Free Writing Prospectus may be resumed and (B) copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Issuer Free Writing Prospectus. In the event LodgeNet gives any such notice, the period of time for which a Registration Statement must remain effective as set forth in Section 6.3 will be extended by the number of days during the time period from and including the date of giving of such notice to and including the date when Liberty Satellite receives (i) a supplemented or amended Prospectus or Issuer Free Writing Prospectus describing the event giving rise to the aforementioned suspension or (ii) notice from LodgeNet that use of the applicable Prospectus or Issuer Free Writing Prospectus may resume.

     6.14 Registration Expenses.

     (a) All fees and expenses incurred by LodgeNet in complying with Sections 6.1 to 6.9 and Section 6.11 (“Registration Expenses”) will be borne by LodgeNet. These fees and expenses will include without limitation (i) all registration, filing and qualification fees, (ii) printing, duplicating and delivery expenses, (iii) fees and disbursements of counsel for LodgeNet, (iv) fees and expenses of complying with state securities or “blue sky” laws (including the fees and expenses of any local counsel in connection therewith), and (v) fees and disbursements of all independent certified public accountants referred to in Section 6.11(h)(ii) (including the expenses of any special audit and “comfort” letters required by or incident to such performance).

     (b) Notwithstanding anything contained herein to the contrary, all underwriting fees, discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities will be borne by Liberty Satellite.

     6.15 Indemnification.

     (a) LodgeNet will indemnify and hold harmless Liberty Satellite, its Affiliates, officers, directors, managers, partners, stockholders, employers, advisors, agents and other representatives, and each Person who controls Liberty Satellite (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against all losses, claims, damages, liabilities, costs (including without limitation reasonable attorneys’ fees and disbursements) and expenses (collectively, “Losses”) arising out of or based upon any untrue or alleged untrue statement of a material fact contained or incorporated by reference in any Registration Statement, Prospectus or preliminary prospectus or Issuer Free Writing Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based solely upon information furnished in writing to LodgeNet by or on behalf of Liberty Satellite expressly for use therein; provided, however, that LodgeNet will not be liable to the extent that any Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if either (a) such untrue statement or alleged untrue statement or such omission or alleged omission was corrected in a Prospectus or Issuer Free Writing Prospectus provided to Liberty Satellite prior to the confirmation of the sale of Registrable Securities to the Person asserting the claim from which such Losses arose, and Liberty Satellite thereafter failed to send or deliver a copy of

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the Prospectus or Issuer Free Writing Prospectus with or prior to the delivery of written confirmation of such sale in any case in which such delivery is required under the Securities Act or (b) such untrue statement or alleged untrue statement or omission or alleged omission was corrected in an amendment or supplement to the Prospectus or Issuer Free Writing Prospectus previously furnished by or on behalf of LodgeNet and such Prospectus or Issuer Free Writing Prospectus as so amended or supplemented was provided to Liberty Satellite prior to the confirmation of the sale of Registrable Securities to the Person asserting the claim from such Losses arise, and Liberty Satellite thereafter failed to send or deliver such Prospectus or Issuer Free Writing Prospectus as so amended or supplemented with or prior to the delivery of written confirmation of such sale in any case in which such delivery is required under the Securities Act.

     (b) In the event of the filing of any registration statement relating to the registration of any Registrable Securities, Liberty Satellite will indemnify and hold harmless LodgeNet, its Affiliates, officers, directors, managers, partners, stockholders, employers, advisors, agents and other representatives, and each Person who controls LodgeNet (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained or incorporated by reference in any Registration Statement, Prospectus or preliminary prospectus or Issuer Free Writing Prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, and only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information so furnished in writing by or on behalf of Liberty Satellite to LodgeNet expressly for use in such Registration Statement, Prospectus or preliminary prospectus or Issuer Free Writing Prospectus.

     6.16 Rule 144. To the extent the following make available the benefits of certain rules and regulations of the SEC which may permit the sale of registered securities to the public without registration or pursuant to a registration on Form S-3, LodgeNet agrees to (a) make and keep public information available as those terms are understood and defined in Rule 144; (b) use its reasonable efforts to file with the SEC in a timely manner all reports and other documents required of LodgeNet under the Securities Act and the Exchange Act; (c) to the extent not available on EDGAR, furnish to Liberty Satellite promptly upon written request a written statement by LodgeNet as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of LodgeNet and such other reports and documents as Liberty Satellite reasonably may request in availing itself of any rule or regulation of the SEC allowing Liberty Satellite to sell any Registrable Securities without registration; and (d) take such other actions as may be reasonably required by LodgeNet’s transfer agent to consummate any sale of Registrable Securities in accordance with the terms and conditions of Rule 144.

     6.17 Participation in Underwritten Offerings. Notwithstanding anything contained herein to the contrary, Liberty Satellite may not participate in any Underwritten Offering pursuant to a registration hereunder unless Liberty Satellite (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of

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attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.

     Section 7. Legend.

     7.1 Legend. LodgeNet shall cause a legend substantially similar to the following effect to be placed on each certificate representing any LodgeNet Securities issued to Liberty or its Affiliates that constitute Share Consideration:

THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SALE AND TRANSFER IS EFFECTIVE UNDER THE ACT OR (II) THE TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT, AND IF THE ISSUER REQUESTS, AN OPINION SATISFACTORY TO THE ISSUER TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL LOCK-UP PERIOD, AS WELL AS CERTAIN OTHER RESTRICTIONS, PURSUANT TO THAT CERTAIN STOCKHOLDERS AGREEMENT AMONG THE ISSUER, LIBERTY SATELLITE & TECHNOLOGY, INC., AND LIBERTY MEDIA CORPORATION, IN ACCORDANCE WITH AND SUBJECT TO SUCH LOCK-UP PERIOD, SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, DISPOSED OF, ENCUMBERED OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER, PLEDGE, DISPOSAL, ENCUMBRANCE OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH ITS TRANSFER AGENT) WITH RESPECT TO SUCH SECURITIES THAT ARE NO LONGER BOUND BY THE STOCKHOLDERS AGREEMENT.

     7.2 Removal of Legend. Upon termination of this Agreement pursuant to Section 9 below and the surrender to LodgeNet by Liberty of any certificate representing LodgeNet Securities, LodgeNet shall cause to be issued to the holder of such LodgeNet Securities one or more certificates without the legend set forth in the second paragraph of Section 7.1.

     Section 8. Remedies. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the nonbreaching party would be irreparably harmed and could not be made whole by monetary damages. Accordingly, the parties to this Agreement, in addition to any other remedy to which they may be entitled hereunder or at law or in equity, shall be entitled to compel specific performance of this Agreement.

     Section 9. Termination. The provisions of this Agreement, other than Sections 6, 7.2, and 10, will expire on the date that is five years from the date first written above, or by the earlier mutual written consent of LodgeNet, Liberty Satellite and Liberty Media. Section 6 will expire on the date that is five years from the date first written above; provided, however, that Section 6.15 thereof will not so expire and will survive the termination of this Agreement. Sections 7.2

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and 10 will survive the termination of this Agreement. This Agreement will automatically terminate in its entirety in the event the Purchase Agreement is terminated.

     Section 10. Confidentiality. Liberty will, and will cause its officers, directors, employees, legal counsel, accountants, financial advisors and other representatives to, hold in confidence any material nonpublic information received by it pursuant to this Agreement, including without limitation any material nonpublic information included in any Registration Statement or Prospectus proposed to be filed with the SEC (until such Registration Statement or Prospectus has been filed). This Section shall not apply to any information which (a) is or becomes generally available to the public, (b) was already in Liberty’s possession from a non-confidential source prior to its disclosure by LodgeNet, (c) is or becomes available to Liberty on a non-confidential basis from a source other than LodgeNet, provided that such source is not known by Liberty to be bound by confidentiality obligations or (d) is required to be disclosed by law.

     Section 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing, shall be deemed to have been duly given when delivered personally or, sent by telecopy, or recognized service providing for guaranteed delivery, addressed as follows:

     (a) If to LodgeNet, to it at:

LodgeNet Entertainment Corporation
3900 West Innovation Street
Sioux Falls, SD57107
Attention: Scott C. Petersen and James G. Naro
Facsimile: 605-988-1715

          Copy (which shall not constitute notice) to:

Leonard, Street and Deinard, Professional Association
150 South Fifth Street, Ste. 2300
Minneapolis, MN 55402
Attention: Mark S. Weitz, Esq.
Facsimile: 612-335-1657

     (b) If to the Liberty Satellite, to:

Liberty Satellite & Technology, Inc.
c/o Liberty Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
Attention: William R. Fitzgerald and Charles Y. Tanabe
Facsimile: 720-875-5382

          Copy (which shall not constitute notice) to:

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Sherman & Howard L.L.C.
633 17^th Street, Suite 3000
Denver, CO 80202
Attention: Steven D. Miller, Esq.
Facsimile: 303-298-0940

     (c) If to the Liberty Media, to:

Liberty Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
Attention: William R. Fitzgerald and Charles Y. Tanabe
Facsimile: 720-875-5382

          Copy (which shall not constitute notice) to:

Sherman & Howard L.L.C.
633 17^th Street, Suite 3000
Denver, CO 80202
Attention: Steven D. Miller, Esq.
Facsimile: 303-298-0940

or to such other person or address or addresses as a party shall specify by notice in accordance with this Section. All notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery or on the first Business Day after delivery was guaranteed by a recognized delivery service, except that any change of address shall be effective only upon actual receipt. Written notice given by telecopy shall be deemed effective when confirmation is received by the sending party. Delivery shall be deemed to have been made to Liberty on the date that delivery is made to Liberty Media at the address specified above (as it may be changed as provided herein).

     Section 12. Entire Agreement. This Agreement, together with the Purchase Agreement and the ancillary documents contemplated thereby, contains all the terms and conditions agreed upon by the parties hereto, and no other agreements (except to the extent referenced hereby), oral or otherwise, regarding the subject matter hereof shall have any effect unless in writing and executed by the parties after the date of this Agreement.

     Section 13. Applicable Law. This Agreement shall be governed by Delaware law without regard to conflict of law rules.

     Section 14. Headings. The headings in this Agreement are for convenience only and are not to be considered in interpreting this Agreement.

     Section 15. Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which will constitute a

18

single agreement.

     Section 16. Parties in Interest. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto, and their permitted successors and assigns any benefits, rights or remedies. Neither this Agreement nor the rights or obligations of any party may be assigned or delegated, by operation of law or otherwise without the prior written consent of LodgeNet.

     Section 17. Severability. The invalidity or unenforceability of any provision of this Agreement in any application shall not affect the validity or enforceability of such provision in any other application or the validity or enforceability of any other provision.

     Section 18. Waivers and Amendments. No waiver of any provision of this Agreement shall be deemed a further or continuing waiver of that provision or a waiver of any other provision of this Agreement. This Agreement may not be amended except in a writing signed by LodgeNet, Liberty Satellite, and Liberty Media.

     Section 19. Interpretation. As used herein, except as otherwise indicated herein or as the context may otherwise require, the words “include,” “includes” and “including” are deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of like import; the words “hereof,” “herein,” “hereunder” and comparable terms refer to the entirety of this Agreement and not to any particular article, section or other subdivision hereof; any pronoun shall include the corresponding masculine, feminine and neuter forms; the singular includes the plural and vice versa; references to any agreement or other document are to such agreement or document as amended and supplemented from time to time; references to any statute or regulation are to it as amended and supplemented from time to time, and to any corresponding provisions of successor statutes or regulations; references to “Article,” “Section” or another subdivision are to an article, section or subdivision hereof; and all references to “the date hereof,” “the date of this Agreement” or similar terms (but excluding references to the date of execution hereof) refer to the date first above written, notwithstanding that the parties may have executed this Agreement on a later date. Any reference herein to a “day” or number of “days” (without the explicit qualification of “Business”) shall be deemed to refer to a calendar day or number of calendar days. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action or notice may be taken or given on the next succeeding Business Day.

     Section 20. Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

[Signature Page to Follow]

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     IN WITNESS WHEREOF, the Parties have executed this Stockholders Agreement as of the date first written above.

LODGENET:
LODGENET ENTERTAINMENT CORPORATION
By:	/s/ Scott C. Petersen
Name:	Scott C. Petersen
Title:	President and Chief Executive Officer
LIBERTY SATELLITE:
LIBERTY SATELLITE & TECHNOLOGY, INC.
By:	/s/ William R. Fitzgerald
Name:	William R. Fitzgerald
Title:	Senior Vice President
LIBERTY MEDIA:
LIBERTY MEDIA CORPORATION
By:	/s/ William R. Fitzgerald
Name:	William R. Fitzgerald
Title:	Senior Vice President

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EX-10.36

Exhibit 10.36

Execution Copy

STOCK PURCHASE AGREEMENT

by and between

LODGENET ENTERTAINMENT CORPORATION

and

PAR INVESTMENT PARTNERS, L.P.

December 7, 2006

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (the “Agreement”) is entered into as of December 7, 2006 (the “Agreement Date”), by and between LodgeNet Entertainment Corporation, a Delaware corporation (“Seller” or “LodgeNet”), and PAR Investment Partners, L.P., a Delaware limited partnership (“Buyer”; Buyer and Seller are referred to individually as a “Party” and collectively as the “Parties.”)

RECITALS

     A. Seller has entered into a Stock Purchase Agreement, of even date herewith, with Liberty Satellite & Technology, Inc. (“LS&T”) and Liberty Media Corporation (in the form attached hereto as Exhibit A, the “Liberty SPA”), pursuant to which Seller will acquire 100% of the issued and outstanding shares of capital stock of Ascent Entertainment Group, Inc. (the “Acquisition”), which prior to the Acquisition owned 100% of the issued and outstanding shares of capital stock of On Command Corporation, a Delaware corporation (“ONCO”).

     B. Pursuant to the Liberty SPA, at the closing of the Acquisition, and as part of the consideration for such Acquisition, Seller will issue 2,050,000 shares of its common stock to LS&T.

     C. Concurrently therewith, Seller desires to sell to the Buyer and Buyer desires to purchase from the Seller 1,000,000 shares of common stock, par value $.01 per share (the “Shares”) of the Seller, for the consideration and subject to the terms and conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, and intending to be legally bound, the parties agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1. Definitions. The following terms have the following meanings for purposes of this Agreement:

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, Controls or is Controlled by or is under common Control with such Person.

“Agreement” has the meaning set forth in the preamble.

“Agreement Date” has the meaning set forth in the preamble.

     “Buyer” has the meaning set forth in the preamble.

     “Closing” has the meaning set forth in Section 2.3.

     “Closing Date” has the meaning set forth in Section 2.34.

“Beneficial Ownership and derivative terms.” As determined pursuant to Rule 13d-3 and Rule 13d-5 under the Exchange Act and any successor regulation, except that in determining Beneficial Ownership, without duplication, equity securities that may be acquired pursuant to rights to acquire equity securities that are exercisable more than sixty days after a date shall nevertheless be deemed to be Beneficially Owned.

     “Blackout Period.” As defined in Section 7.6 below.

     “Board.” The Board of Directors of LodgeNet.

“Business Days” means any day other than Saturday, Sunday, or a day on which banking institutions of the State of New York are authorized by law or executive order to close.

“Current Filings” has the meaning set forth in Section 4.7.

“Encumbrance” means any mortgage, pledge, assignment, lien, charge, restriction, encumbrance or security interest of any kind or nature.

“Exchange Act.” The Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Free Writing Prospectus.” A free writing prospectus as defined in Rule 405 under the Securities Act.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board (and its predecessors), the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination, consistently applied.

     “Issuer Free Writing Prospectus.” An issuer free writing prospectus as defined in Rule 433 under the Securities Act.

     “LodgeNet” has the meaning set forth in the preamble.

     “LodgeNet Securities” means any equity securities of LodgeNet.

“PAR Shares” means the Shares and the 1,156,997 shares of LodgeNet common stock previously purchased and currently owned by Buyer on the date hereof.

“Party” or “Parties” has the meaning set forth in the preamble.

“Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other entity, or a Governmental Authority.

     “Piggyback Notice.” As defined in Section 7.3 below.

     “Piggyback Registration.” As defined in Section 7.3 below.

“Prospectus.” The prospectus included in the applicable Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all amendments (including post-effective amendments) and including all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

     “Purchase Price” has the meaning set forth in Section 2.2.

“Registrable Securities” means the Shares; provided, however, that as to any Registrable Securities, such securities will irrevocably cease to constitute Registrable Securities upon the earliest to occur: (i) the date on which the securities are disposed of pursuant to an effective registration statement under the Securities Act; (ii) the date on which all of such securities are eligible to be sold by Buyer to the public pursuant to Rule 144(k) (or any successor provision) under the Securities Act; (iii) the date on which the securities have been transferred to any Person other than Buyer, except in accordance with a Permitted Transfer; or (iv) the date on which the securities cease to be outstanding.

     “Registration Expenses.” As defined in Section 7.14 below.

“Registration Statement.” Any registration statement of LodgeNet under the Securities Act that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement (including post-effective amendments), and all exhibits and all materials incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Restricted Period.” The period of time commencing on the Closing Date and ending on the date that is six (6) months after the Closing Date.

“Rule 144.” Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

“SEC.” The United States Securities and Exchange Commission and any successor United States federal agency or governmental authority having similar powers.

“Securities Act.” The Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Seller” has the meaning set forth in the preamble.

“Shares” has the meaning set forth in Recital C.

“Shelf Registration.” As defined in Section 7.1 below.

“Subsidiaries” means all Persons that the Company directly or indirectly controls.

“Underwritten Registration” or “Underwritten Offering.” A registration in which LodgeNet Securities are sold to an underwriter for reoffering to the public.

ARTICLE II
PURCHASE AND SALE OF SHARES; CLOSING

     Section 2.1. Purchase and Sale of Shares. Subject to the terms and conditions set forth in this Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Seller, free and clear of any and all Encumbrances, as set forth in this Article II.

     Section 2.2. Purchase Price. The aggregate purchase price for the Shares will be $23,370,000 (the “Purchase Price”).

                    (a) The Purchase Price will be paid at the Closing by wire transfer of immediately available funds pursuant to wire instructions provided by Seller to Buyer no later than two (2) Business Days prior to the Closing Date, or by such other means as may be agreed between the Parties hereto. Seller shall deliver to Buyer a certificate or certificates representing the Shares to be purchased by, and sold to, the Buyer pursuant to Section 2.1 hereof, registered in the names and in the denominations designated and provided by the Buyer at least three (3) Business Days prior to the Closing Date.

     Section 2.3. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) will take place at the offices of Leonard, Street and Deinard in Minneapolis, Minnesota on the date on which the Acquisition is closed or at such other time and place as the Parties may mutually agree in writing (the “Closing Date”).

ARTICLE III
BUYER’S REPRESENTATIONS AND WARRANTIES

     Section 3.1. Organization of Buyer. Buyer is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware.

     Section 3.2. Authorization; Binding Effect. Buyer has all requisite partnership power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement, and this Agreement has been duly executed and delivered by Buyer. This Agreement constitutes and, when executed and delivered by Buyer at the Closing will constitute, a legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except insofar as enforcement may be limited

by bankruptcy, insolvency, or other laws affecting generally the enforceability of creditors’ rights and by limitations on the availability of equitable remedies.

     Section 3.3. Noncontravention; Consents. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement, will (a) violate any material legal requirement to which Buyer is subject or any provision of the certificate of limited partnership or governing documents of Buyer or (b) result in a material breach of, constitute a material default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify or cancel, any contract, agreement, lease, license or other arrangement to which Buyer is a party or by which it is bound or to which its assets are subject. Except for an filing required under the hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) (if any) Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority or other Person in order for Buyer to consummate the transactions contemplated by this Agreement.

     Section 3.4. Brokers’ Fees. Buyer has no obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

     Section 3.5. Investment Intent. Buyer is acquiring the Shares under this Agreement solely for the purpose of investment for its own account, not as a nominee or agent, and not with a view to, or for sale in connection with, any distribution of any part thereof within the meaning of Section 2(11) of the Securities Act or any applicable state securities or “blue sky laws”.

     Section 3.6. Disclosure of Information; Non-reliance. Buyer has been furnished all information it considers necessary or appropriate for deciding whether to accept the Shares. Buyer has had an opportunity to ask questions and receive answers from Seller regarding the business, properties, financial condition and prospects of the Seller, and all such questions have been answered to the full satisfaction of the Buyer. In making its decision to purchase the Shares, Buyer has relied solely on its own investigation of Seller and has not relied on any opinions, analyses, representations or warranties of Seller or any third party, except for the representations and warranties contained in Article IV hereof.

     Section 3.7. Accredited Investor. Buyer is an “accredited investor” as such term is defined in Rule 501 of Regulation D under the Securities Act.

     Section 3.8. Current Ownership. As of the Agreement Date, Buyer owns 1,156,997 shares of common stock of Seller.

     Section 3.9. Restricted Securities. Buyer understands that the Shares are characterized as “restricted securities” under the United States federal securities laws inasmuch as such Shares are being acquired in a transaction not involving a public offering and that under such laws and applicable regulations such Shares may be resold without registration under the Securities Act only in certain limited circumstances. In the

absence of an effective registration statement covering such Shares or an available exemption from registration under the Securities Act, such Shares must be held indefinitely.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller represents and warrants to Buyer as follows:

     Section 4.1. Organization of Seller. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.

     Section 4.2. Authorization; Binding Effect.

                    (a) Seller has all requisite corporate power and authority to execute and deliver this Agreement and such other documents as required to consummate the Acquisition and to perform its obligations under this Agreement and such other documents as required to consummate the Acquisition. As of the Closing Date, this Agreement has been duly executed and delivered by Seller.

                    (b) This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms, except insofar as enforcement may be limited by bankruptcy, insolvency, or other laws affecting generally the enforceability of creditors’ rights and by limitations on the availability of equitable remedies.

     Section 4.3. Noncontravention; Consents. Neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will (a) violate any material legal requirement to which Seller is subject or any provision of the certificate of incorporation or bylaws (or comparable constituent documents) of Seller or (b) result in a material breach of, constitute a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, any contract, agreement, lease, license, or other arrangement to which Seller is a party or by which it is bound or to which its assets are subject. Except for the filing of a Form D with the SEC (if required), Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority or other Person in order for Buyer and Seller to consummate the transactions contemplated by this Agreement.

     Section 4.4. Certain Proceedings. There is no proceeding against or involving Seller or any Affiliate of Seller that has been commenced or, to Seller’s knowledge, threatened against or involving Seller or any Affiliate of Seller that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement.

     Section 4.5. Brokers’ Fees. Seller has no obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

     Section 4.6. Delivery of Shares. The Shares being issued and delivered hereunder, when issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized, validly issued, fully paid and non-assessable. The transfer and delivery of such Shares by Seller to Buyer against the payment of the Purchase Price as contemplated by this Agreement will transfer good and valid title to the Shares, free and clear of all Encumbrances.

     Section 4.7. SEC Filings; Financial Information.

                    (a) Seller is a publicly traded company that is listed on The NASDAQ Global Market under the ticker symbol “LNET” and files reports, registration and proxy statements and other information with the SEC on its EDGAR System, all of which are available to Buyer over the internet at the SEC’s web site at http://www.sec.gov.

                    (b) Since January 1, 2006, Seller has filed in a timely manner all required reports, schedules, forms, statements, and other documents with the SEC that Seller was required to file under Section 13, 14(a), and 15(d) of the Exchange Act (the “SEC Filings”). As of their respective filing dates, (i) the SEC Filings complied in all material respects with requirements of the Securities Act or the Exchange Act, as the case may be and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Filings, and (ii) none of the SEC Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any SEC Filing has been revised or superseded by a later filed SEC Filing, none of the SEC Filings contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

                    (c) The financial information for Seller and its subsidiaries contained in the SEC Filings fairly present in all material respects, as of the dates thereof and for the periods then ended, the financial position and results of operations of Seller and its consolidated subsidiaries in conformity with GAAP (except as indicated in the notes thereto), subject to normal year-end adjustments (that are not material, either individually or in the aggregate) with respect to unaudited financial statements. Except as set forth in the SEC Filings, neither Seller nor any of its subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of Seller and its consolidated subsidiaries or in the notes thereto.

     Section 4.8. Capital Stock and Ownership of Seller.

                    (a) The authorized capital stock of Seller consists of 50,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, $.01 par value. As of the date hereof, Seller has (i) 18,690,073 issued and outstanding shares of Common Stock, all of which are validly issued, fully paid, and non-assessable; and (ii) no shares of issued or

outstanding Preferred Stock. No shares of Common Stock or Preferred Stock that have been issued are held by Seller in its treasury.

                    (b) As of the date hereof, Seller has (i) outstanding options to purchase a total of 2,175,775 shares of Common Stock under the LodgeNet Entertainment Corporation 2003 Stock Option and Incentive Plan and the LodgeNet Entertainment Corporation 1993 Stock Option Plan (collectively, the “Plans”) and (ii) 180,050 shares of unvested restricted stock outstanding. As of the date hereof, 696,638 additional shares of Common Stock are available for issuance under the Plans.

                    (c) Except for (x) options issued under and in accordance with the Plans; and (z) as contained in this Agreement and the Liberty SPA, there are no options, warrants, convertible securities, or other rights, agreements, arrangements, or commitments of any character obligating Seller to issue or sell any additional shares of capital stock of, or other equity interest in, Seller.

     Section 4.9. Liberty SPA. True, correct and complete copies of the Liberty SPA and the Stockholders Agreement, dated December 6, 2006, among LodgeNet, LS&T and Liberty Media Corporation are attached hereto as Exhibits A and B, respectively.

ARTICLE IVA

COVENANTS

     Section 4A.1. Taking of Necessary Action. (a) Seller and Buyer shall cooperate with each other and use their respective reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable on its part under this Agreement and applicable law to consummate and make effective the transactions contemplated by this Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary notices, reports and other filings and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or any governmental authority, including under the HSR Act.

     Section 4A.2. Notification Requirements. Seller shall promptly, but in no event later than five (5) Business Days, notify Buyer in writing if any of the events referred to in Sections 8.1(b), (c) or (d) shall have occurred or if Seller intends to take any of the actions referred to in Sections 8.1(b) or (c).

ARTICLE V
CONDITIONS TO CLOSING

     Section 5.1. Conditions to Obligation of Buyer. The obligation of Buyer to purchase the Shares and to take any other such actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

                    (a) the representations and warranties set forth in Article III shall be true and correct as of the date hereof and true and correct in all material respects as of the Closing Date;

                    (b) the closing of the Acquisition shall have occurred on the terms set forth in the Liberty SPA;

                    (c) if required, the waiting period under the HSR Act shall have expired or been terminated and any applicable foreign antitrust approvals required by applicable Antitrust Law shall have been obtained without any Governmental Authority taking any action to prevent the consummation of the transactions contemplated by this Agreement;

                    (d) no Proceeding against the Buyer shall be pending before any Governmental Authority and no statute, judgment, order, decree, ruling, injunction, or charge shall be in effect, which reasonably could (i) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; and

                    (e) the Shares to be issued to Buyer under this Agreement shall have been authorized for listing or quotation, as applicable, on the NASDAQ Stock Market upon official notice of issuance.

     Section 5.2. Conditions to Obligation of Seller. The obligation of Seller to sell the Shares and to take any other such actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part):

                    (a) the representations and warranties set forth in Article IV shall be true and correct in all material respects as of the Closing Date;

                    (b) if required, the waiting period under the HSR Act shall have expired or been terminated and any applicable foreign antitrust approvals shall have been obtained without any Governmental Authority taking any action to prevent the consummation of the transactions contemplated by this Agreement;

                    (c) no Proceeding against the Seller shall be pending before any Governmental Authority, and no statute, judgment, order, decree, ruling, injunction, or charge shall be in effect, which reasonably could (i) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; and

                    (d) the closing of the Acquisition shall have occurred.

ARTICLE VI
STANDSTILL PROVISIONS

     Section 6.1. Dispositions of LodgeNet Securities.

               (a) Transfer Prohibited. For a period of six (6) months following the Closing Date, Buyer will not Transfer any of the Shares acquired under this Agreement. For purposes of this Agreement, “Transfer” means any attempt by Buyer to take any of the following actions in connection with the Shares:

                    (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act other than a Permitted Transfer, defined herein;

                    (ii) enter into any swap or other arrangement that transfers to another Person, in whole or in part, any of the economic consequences of ownership of the Shares or any securities convertible into or exercisable for the Shares or other rights to purchase the Shares, whether any such transaction is to be settled by delivery of the Shares or such other securities, in cash or otherwise, other than a variable forward sale or collar or similar transaction involving a put and/or call option settled in cash or securities; or

                    (iii) publicly announce an intention to effect any transaction prohibited by this Section 6.1.

               (b) Attempted Transfers Void. Any attempted Transfer by Buyer of the Shares in violation of this Agreement is void.

     Section 6.2. Permitted Transfer. Notwithstanding anything herein to the contrary, the provisions of Sections 6.1 and 6.2 shall not apply to any Transfers by the Buyer to its limited partners (a “Permitted Transfer”); provided, however, that such limited partner, as Transferee, shall be bound by and subject to all provisions of this Agreement as if such Shares were still held by the Buyer.

ARTICLE VII
REGISTRATION RIGHTS.

     Section 7.1. Shelf Registration. Seller shall (i) cause a shelf registration statement on Form S-3 (or other appropriate form) covering the resale of all of the Registrable Securities to be filed with the SEC within six (6) months after the Closing Date, (ii) cause such registration statement to be declared effective by the SEC no later than six (6) months after the Closing Date and (iii) keep such registration statement continuously effective until Buyer no longer holds any Registrable Securities (the “Shelf Registration”).

     Section 7.2. Underwritten Offering. Buyer will have the right to request one Underwritten Offering of Registrable Securities under the Shelf Registration. In the event that Buyer requests an Underwritten Offering, LodgeNet shall, subject to Buyer’s

reasonable approval, select one or more investment banking firms of national standing to be the managing underwriter for the Underwritten Offering. Buyer agrees to enter into an underwriting agreement with the underwriters, provided that the underwriting agreement is in customary form and reasonably acceptable to Buyer.

     Section 7.3. Right to Piggyback Registration. If at any time after the Restricted Period, LodgeNet proposes to file a registration statement under the Securities Act with respect to an offering of LodgeNet Securities (other than a registration statement (a) on Form S-8 or any successor form thereto, (b) on Form S-4 or any successor form thereto relating solely to the sale of securities to employees, directors, officers, consultants or advisors of LodgeNet or its Affiliates pursuant to a stock option, stock purchase or similar benefit plan or (c) relating to a transaction under Rule 145 under the Securities Act), whether or not for its own account, on a form that would permit registration of Registrable Securities for sale to the public under the Securities Act, then LodgeNet will give written notice (the “Piggyback Notice”) of such proposed filing to Buyer at least ten (10) days before the anticipated filing date. Such notice will include the number and class of equity securities proposed to be registered, the proposed date of filing of such registration statement, any proposed means of distribution of such equity securities, any proposed managing underwriter of such equity securities, the name of the holders whose LodgeNet securities are being registered if the registration is a secondary offering, to the extent then known to LodgeNet, and a good faith estimate by LodgeNet of the proposed maximum offering price of such equity securities as such price is proposed to appear on the facing page of such registration statement, and will offer Buyer the opportunity to register such amount of Registrable Securities as it may request on the same terms and conditions as the registration of LodgeNet’s or other Person’s securities, as the case may be (a “Piggyback Registration”). LodgeNet will include in each Piggyback Registration all Registrable Securities for which LodgeNet has received written requests for inclusion within five (5) days after delivery of the Piggyback Notice, subject to Section 7.4.

     Section 7.4. Priority on Piggyback Registrations.

                    (a) If the Piggyback Registration is an Underwritten Offering, LodgeNet will cause the managing underwriter of that proposed offering to permit Buyer’s requested Registrable Securities to be included in the Piggyback Registration and to include all such Registrable Securities on the same terms and conditions as any similar LodgeNet Securities. Notwithstanding the foregoing, if the managing underwriter of such Underwritten Offering advises LodgeNet that, in its view, the total amount of securities that LodgeNet, Buyer and any other holders propose to include in such offering is such as to adversely affect the success of such Underwritten Offering, then:

                         (i) if such Piggyback Registration is a primary registration by LodgeNet for its own account, LodgeNet will include in such Piggyback Registration: (A) first, all securities to be offered by LodgeNet; and (B) second, up to the full amount of securities requested to be included in such Piggyback Registration by Buyer and all other holders having registration rights, allocated pro rata among such holders, on the basis of the amount of securities requested to be included therein by each such holder, so that the total amount of securities to be included in such Underwritten Offering is the

full amount that, in the view of such managing underwriter, can be sold without adversely affecting the success of such Underwritten Offering; and

                         (ii) if such Piggyback Registration is an underwritten secondary registration for the account of holders of securities of LodgeNet, LodgeNet will include in such registration: (A) first, all securities of the Persons exercising “demand” registration rights requested to be included therein; and (B) second, up to the full amount of securities requested to be included in the registration Buyer and all other holders having registration rights, allocated pro rata among such holders, on the basis of the amount of securities requested to be included therein by each such holder, so that the total amount of securities to be included in such Underwritten Offering is the full amount that, in the view of such managing underwriter, can be sold without adversely affecting the success of such Underwritten Offering.

                    (b) If so requested (pursuant to a timely notice) by the managing underwriter in any Underwritten Offering, whether or not Buyer participates in such offering, Buyer will agree not to effect any public sale or distribution (or any other type of sale or hedging activity as the managing underwriter reasonably determines is appropriate in order to not adversely affect the Underwritten Offering) of any such Registrable Securities, including a sale pursuant to Rule 144 (but excluding any Registrable Securities included in such Underwritten Offering), during the ten (10) days prior to, and during such period, not to exceed ninety (90) days, following, the closing date of such Underwritten Offering as the managing underwriter reasonably determines is appropriate in order to not adversely affect the Underwritten Offering. In the event of such a request, LodgeNet may impose, during such period, appropriate stop-transfer instructions with respect to the Registrable Securities subject to such restrictions.

     Section 7.5. Withdrawal of Piggyback Registration.

                    (a) If at any time after giving the Piggyback Notice and prior to the effective date of the Registration Statement filed in connection with the Piggyback Registration, LodgeNet determines for any reason not to register or to delay the Piggyback Registration, LodgeNet may, at its election, give notice of its determination to Buyer, and in the case of a determination not to register, will be relieved of its obligation to register any Registrable Securities in connection with the abandoned Piggyback Registration, without prejudice.

                    (b) Buyer may withdraw its request to be included in a Piggyback Registration by giving written notice to LodgeNet of its intention to withdraw from that registration, provided, however, that (i) Buyer’s request be made in writing, (ii) the withdrawal must be made during the time period and on the terms determined by LodgeNet and the underwriters, if any, and (iii) the withdrawal will be irrevocable and, after making the withdrawal, Buyer will no longer have any right to include its Registrable Securities in that specific Piggyback Registration.

                    (c) An election by LodgeNet to withdraw a Piggyback Registration under this Section shall not be deemed to be a breach of LodgeNet’s obligations with respect to such Piggyback Registration.

     Section 7.6. Blackout Periods.

                    (a) For purposes of this Agreement, “Blackout Periods” means the periods described in this Section 7.6(a):

                         (i) Notwithstanding anything contained in Sections 7.1 to 7.5 to the contrary, if the Board determines in good faith that the registration and distribution of Registrable Securities (A) would require premature disclosure of a matter the Board has determined would not be in the best interest of LodgeNet to be disclosed at such time, (B) would materially adversely affect or interfere with in any material respect any financing, acquisition, corporate reorganization or other material transaction or development involving LodgeNet, then LodgeNet will promptly give Buyer notice of such determination and will be entitled to postpone the preparation, filing or effectiveness or suspend the effectiveness of a Registration Statement for a reasonable period of time not to exceed 75 days, provided, however, that LodgeNet may extend one such postponement for up to 105 days.

                    (b) Notwithstanding anything contained in this Section 7.6 to the contrary, in no event will the number of days included in all Blackout Periods during any consecutive 12-month period exceed an aggregate of 180 days.

     Section 7.7. Registration Procedures. In connection with LodgeNet’s registration obligations herein, LodgeNet will use its reasonable efforts to effect such registrations to permit the sale of Registrable Securities by Buyer in accordance with the intended method or methods of disposition thereof, and pursuant thereto LodgeNet will as promptly as reasonably practicable:

                    (a) prepare and file with the SEC a Registration Statement on an appropriate form under the Securities Act available for the sale of the Registrable Securities by Buyer in accordance with the intended method or methods of distribution thereof;

                    (b) furnish, at its expense, to Buyer such number of conformed copies of the Registration Statement and each amendment thereto, of the Prospectus and each supplemental thereto, and of such other documents as Buyer reasonably may request from time to time;

                    (c) prepare and file with the SEC any amendments and post-effective amendments to the Registration Statement as may be necessary and any supplements to the Prospectus as may be required or appropriate, in the view of LodgeNet and its counsel, by the rules, regulations or instructions applicable to the registration form used by LodgeNet or by the Securities Act to keep the Registration Statement effective until such time as all Registrable Securities covered by the Registration Statement are sold in

accordance with the intended plan of distribution set forth in the Registration Statement or supplement to the Prospectus;

                    (d) promptly following its actual knowledge thereof, notify Buyer and the managing underwriter, if any:

                         (i) when a Registration Statement, Prospectus, Issuer Free Writing Prospectus or any supplement or amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective;

                         (ii) of any request by the SEC or any other governmental authority for amendments or supplements to a Registration Statement, Prospectus or Issuer Free Writing Prospectus or for additional information;

                         (iii) of the issuance by the SEC or any other governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose;

                         (iv) of the receipt by LodgeNet of any written notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;

                         (v) of the occurrence of any event which makes any statement made in the Registration Statement or Prospectus or any Issuer Free Writing Prospectus untrue in any material respect or which requires the making of any changes in a Registration Statement, Prospectus, Issuer Free Writing Prospectus or other documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and

                         (vi) of LodgeNet’s reasonable determination that a post-effective amendment to a Registration Statement is necessary;

                    (e) use its reasonable efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable date;

                    (f) prior to any public offering of Registrable Securities, register or qualify and cooperate with Buyer, the managing underwriter, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as Buyer or the managing underwriter reasonably requests in writing and maintain each registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective; provided, however, that LodgeNet will not be

required to qualify generally to do business in any jurisdiction in which it is not then so qualified or take any action which would subject it to general service of process or material taxation in any jurisdiction in which it is not then so subject;

                    (g) as promptly as practicable upon the occurrence of any event contemplated by Sections 7.7(d)(v) or 7.7(d)(vi) hereof, prepare (and furnish, at its expense, to Buyer a reasonable number of copies of) a supplement or post-effective amendment to each Registration Statement or a supplement to the related Prospectus (including by means of an Issuer Free Writing Prospectus), or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus or Issuer Free Writing Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

                    (h) in the case of an Underwritten Offering, enter into customary agreements (including an underwriting agreement) and take other actions reasonably necessary to expedite the disposition of the Registrable Securities, and in connection therewith:

                         (i) obtain opinions of counsel to LodgeNet and updates thereof covering matters customarily covered in opinions of counsel requested in Underwritten Offerings, addressed to Buyer and the managing underwriter;

                         (ii) obtain “comfort” letters and updates thereof from the independent certified public accountants of LodgeNet addressed to Buyer and the managing underwriter, if any, covering matters customarily covered in “comfort” letters in connection with Underwritten Offerings;

                         (iii) provide officers’ certificates and other customary closing documents reasonably requested by the managing underwriter;

                         (iv) if requested by the managing underwriter or underwriters or counsel to Buyer, promptly incorporate in a prospectus supplement or post effective amendment such information as such managing underwriter or underwriters or counsel reasonably requests to be included therein, and which is reasonably related to the offering of such Registrable Securities, including, without limitation, with respect to the Registrable Securities being sold to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and any other terms of an underwritten offering of the Registrable Securities to be sold in such offering, and LodgeNet shall promptly make all required filings of such prospectus supplement or post effective amendment; and

                         (v) cooperate with Buyer and each underwriter and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (“NASD”), including, if appropriate, the pre-filing of a prospectus as part of a Registration Statement in advance of an Underwritten Offering.

                    (i) upon reasonable notice and at reasonable times during normal business hours, make available for inspection by a representative of Buyer and the managing underwriter, if any, participating in any disposition of Registrable Securities and any attorney or accountant retained by Buyer or any underwriter, all financial and other records, pertinent corporate documents and properties of LodgeNet that are reasonably necessary for a due diligence investigation by an underwriter or a selling stockholder, as applicable, in LodgeNet’s sole reasonable discretion, and cause the officers, directors and employees of LodgeNet to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with the Registration Statement;

                    (j) use its reasonable efforts to comply with all applicable rules and regulations of the SEC relating to such registration and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act, provided that LodgeNet will be deemed to have complied with this Section 7.7(j) if it has satisfied the provisions of Rule 158 under the Securities Act (or any similar rule promulgated under the Securities Act); and

                    (k) use its reasonable efforts to procure the cooperation of LodgeNet’s transfer agent in settling any offering or sale of Registrable Securities;

                    (l) cause all such Registrable Securities to be listed on each securities exchange or automated quotation system on which similar securities issued by LodgeNet are then listed.

     Section 7.8. Information from Buyer.

                    (a) Upon requested inclusion of its Registrable Securities in any Registration Statement, Buyer shall furnish to LodgeNet such information regarding Buyer and its plan and method of distribution of such Registrable Securities as LodgeNet may, from time to time, reasonably request. LodgeNet may refuse to proceed with the registration of Buyer’s Registrable Securities if Buyer unreasonably fails to furnish such information within a reasonable time after receiving such request.

                    (b) Buyer will promptly (i) following its actual knowledge thereof, notify LodgeNet of the occurrence of any event that makes any statement made in a Registration Statement, Prospectus, Issuer Free Writing Prospectus or other Free Writing Prospectus regarding Buyer untrue in any material respect or that requires the making of any changes in a Registration Statement, Prospectus or Free Writing Prospectus so that, in such regard, it will not, with respect to Buyer, contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements not misleading and (ii) provide LodgeNet with such information regarding Buyer as may be required to enable LodgeNet to prepare a supplement or post-effective amendment to any such Registration Statement or a supplement to such Prospectus or Free Writing Prospectus.

                    (c) With respect to any Registration Statement for an Underwritten Offering, the inclusion of Buyer’s Registrable Securities therein will be conditioned, at the managing underwriter’s request, upon the execution and delivery by Buyer of an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings.

     Section 7.9. Suspension of Disposition.

                    (a) Upon receipt of any notice from LodgeNet of the occurrence of any event of the type described in Sections 7.7(d)(ii), 7.7(d)(iii), 7.7(d)(iv), 7.7(d)(v) or 7.7(d)(vi), Buyer will discontinue disposition of Registrable Securities covered by a Registration Statement, Prospectus or Free Writing Prospectus and suspend use of such Prospectus or Free Writing Prospectus until Buyer’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 7.7(g) or until it is advised by LodgeNet that the use of the applicable Prospectus or Free Writing Prospectus may be resumed and have received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Free Writing Prospectus. In the event LodgeNet shall give any such notice, LodgeNet will use reasonable best efforts to promptly amend or supplement the Prospectus or Issuer Free Writing Prospectus or take such other action as is necessary in order to provide to Buyer as promptly as practicable (i) the copies of the supplemented or amended Prospectus or Issuer Free Writing Prospectus contemplated by Section 7.7(g) or (ii) the advice referenced in this Section 7.9(a).

                    (b) Upon receipt of any notice from LodgeNet of the happening of an event specified in Section 7.6(a)(i), Buyer will discontinue disposition of Registrable Securities covered by a Registration Statement, Prospectus or Free Writing Prospectus and suspend use of such Prospectus or Free Writing Prospectus until the earlier to occur of Buyer’s receipt of (i) copies of a supplemented or amended Prospectus or Issuer Free Writing Prospectus describing the event giving rise to the aforementioned suspension and (ii) (A) notice from LodgeNet that the use of the applicable Prospectus or Issuer Free Writing Prospectus may be resumed and (B) copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Issuer Free Writing Prospectus. In the event LodgeNet shall give any such notice, LodgeNet will use reasonable best efforts to promptly amend or supplement the Prospectus or Issuer Free Writing Prospectus or take such other action as is necessary in order to provide to Buyer as promptly practicable (i) a supplemented or amended Prospectus or Issuer Free Writing Prospectus describing the event giving rise to the aforementioned suspension or (ii) notice that use of the applicable Prospectus or Issuer Free Writing Prospectus may resume

     Section 7.10. Registration Expenses.

                    (a) All fees and expenses incurred by LodgeNet in complying with Sections 7.1 to 7.5 and Section 7.7 (“Registration Expenses”) will be borne by LodgeNet. These fees and expenses will include without limitation (i) all registration, filing and qualification fees, (ii) printing, duplicating and delivery expenses, (iii) fees and

disbursements of counsel for LodgeNet, (iv) fees and expenses of complying with state securities or “blue sky” laws (including the fees and expenses of any local counsel in connection therewith), and (v) fees and disbursements of all independent certified public accountants referred to in Section 7.7(h)(ii) (including the expenses of any special audit and “comfort” letters required by or incident to such performance).

                    (b) Notwithstanding anything contained herein to the contrary, all underwriting fees, discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities will be borne by Buyer.

     Section 7.11. Indemnification.

                    (a) LodgeNet will indemnify and hold harmless Buyer, its Affiliates, officers, directors, managers, partners, stockholders, employees, advisors, agents and other representatives, and each Person who controls Buyer (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against all losses, claims, damages, liabilities, costs (including without limitation reasonable attorneys’ fees and disbursements) and expenses (collectively, “Losses”) arising out of or based upon any untrue or alleged untrue statement of a material fact contained or incorporated by reference in any Registration Statement, Prospectus or preliminary prospectus or Issuer Free Writing Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based solely upon information furnished in writing to LodgeNet by or on behalf of Buyer expressly for use therein; provided, however, that LodgeNet will not be liable to the extent that any Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if either (a) such untrue statement or alleged untrue statement or such omission or alleged omission was corrected in a Prospectus or Issuer Free Writing Prospectus provided to Buyer prior to the confirmation of the sale of Registrable Securities to the Person asserting the claim from which such Losses arose, and Buyer thereafter failed to send or deliver a copy of the Prospectus or Issuer Free Writing Prospectus with or prior to the delivery of written confirmation of such sale in any case in which such delivery is required under the Securities Act or (b) such untrue statement or alleged untrue statement or omission or alleged omission was corrected in an amendment or supplement to the Prospectus or Issuer Free Writing Prospectus previously furnished by or on behalf of LodgeNet and such Prospectus or Issuer Free Writing Prospectus as so amended or supplemented was provided to Buyer prior to the confirmation of the sale of Registrable Securities to the Person asserting the claim from such Losses arose, and Buyer thereafter failed to send or deliver such Prospectus or Issuer Free Writing Prospectus as so amended or supplemented with or prior to the delivery of written confirmation of such sale in any case in which such delivery is required under the Securities Act.

                    (b) In the event of the filing of any registration statement relating to the registration of any Registrable Securities, Buyer will indemnify and hold harmless LodgeNet, its Affiliates, officers, directors, managers, partners, stockholders, employers, advisors, agents and other representatives, and each Person who controls LodgeNet

(within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained or incorporated by reference in any Registration Statement, Prospectus or preliminary prospectus or Issuer Free Writing Prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, and only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information so furnished in writing by or on behalf of Buyer to LodgeNet expressly for use in such Registration Statement, Prospectus or preliminary prospectus or Issuer Free Writing Prospectus. The liability of Buyer for indemnification under this Section 7.11 in its capacity as a seller of Registrable Securities under any registration Statement shall not exceed the amount equal to the net proceeds to Buyer of the Registrable Securities sold under such Registration Statement.

                    Section 7.12. Contribution. If the indemnification provided for in Section 7.11 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the untrue statement or omission that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by Buyer hereunder exceed the net proceeds to Buyer from the sale of Registrable Securities. The obligations of the parties under Section 7.11 and this Section 7.12 shall survive completion of any offering of Registrable Securities and any termination of this Agreement..

                    Section 7.13. Rule 144. To the extent the following make available the benefits of certain rules and regulations of the SEC which may permit the sale of registered securities to the public without registration or pursuant to a registration on Form S-3, LodgeNet agrees to (a) make and keep public information available as those terms are understood and defined in Rule 144; (b) use its reasonable efforts to file with the SEC in a timely manner all reports and other documents required of LodgeNet under the Securities Act and the Exchange Act; (c) to the extent not available on EDGAR, furnish to Buyer promptly upon written request a written statement by LodgeNet as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of LodgeNet and such other reports and documents as Buyer reasonably may request in availing itself of any rule or regulation of the SEC allowing Buyer to sell any Registrable Securities without

registration; and (d) take such other actions as may be reasonably required by LodgeNet’s transfer agent to consummate any sale of Registrable Securities in accordance with the terms and conditions of Rule 144.

                    Section 7.14. Participation in Underwritten Offerings. Notwithstanding anything contained herein to the contrary, Buyer may not participate in any Underwritten Offering pursuant to a registration hereunder unless Buyer (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements all of which shall be in customary form and reasonably acceptable to Buyer.

                    Section 7.15. Legend. LodgeNet shall cause a legend substantially similar to the following effect to be placed on each certificate representing any Shares:

THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SALE AND TRANSFER IS EFFECTIVE UNDER THE ACT OR (II) THE TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT, AND IF THE ISSUER REQUESTS, AN OPINION SATISFACTORY TO THE ISSUER TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL LOCK-UP PERIOD PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND PAR INVESTMENT PARTNERS, L.P., IN ACCORDANCE WITH AND SUBJECT TO SUCH LOCK-UP PERIOD, SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, DISPOSED OF, ENCUMBERED OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER, PLEDGE, DISPOSAL, ENCUMBRANCE OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH ITS TRANSFER AGENT) WITH RESPECT TO SUCH SECURITIES THAT ARE NO LONGER BOUND BY THE STOCK PURCHASE AGREEMENT.

                    If any Shares become eligible for sale pursuant to Rule 144(k) or otherwise cease to be restricted securities, Seller shall, upon the request of the holder of such Shares, promptly remove the first legend set forth above from the certificates for such Shares. At any time following the date that is six months after the Closing Date, Seller shall, upon the request of Buyer, promptly remove the second legend set forth above from any certificates representing Shares.

                    Section 7.16. Remedies. Each of the Parties acknowledges and agrees that in the event of any breach of this Agreement, the nonbreaching Party would be irreparably harmed and could not be made whole by monetary damages. Accordingly, the Parties to this Agreement, in addition to any other remedy to which they may be entitled hereunder or at law or in equity, shall be entitled to compel specific performance of this Agreement.

                    Section 7.17. Confidentiality. Buyer will, and will cause its officers, directors, employees, legal counsel, accountants, financial advisors and other representatives to, hold in confidence any material nonpublic information received by it pursuant to this Agreement, including without limitation any material nonpublic information included in any Registration Statement or Prospectus proposed to be filed with the SEC (until such Registration Statement or Prospectus has been filed). This Section 7.17 shall not apply to any information which (a) is or becomes generally available to the public, (b) was already in Buyer’s possession from a non-confidential source prior to its disclosure by LodgeNet, (c) is or becomes available to Buyer on a non-confidential basis from a source other than LodgeNet, provided that such source is not known by Buyer to be bound by confidentiality obligations or (d) is required to be disclosed by law.

ARTICLE VIII
TERMINATION

                    Section 8.1. Termination of Agreement.

                    This Agreement may be terminated at any time prior to the Closing as follows:

                    (a) Buyer and Seller may terminate this Agreement by mutual written consent;

                    (b) Buyer may terminate this Agreement upon written notice within five (5) Business Days of being informed by Seller that Seller has entered into a definitive agreement for a transaction (other than the Acquisition) with a purchase price in excess of $100,000,000 or that Seller intends to do so.

                    (c) Buyer may terminate this Agreement upon written notice within five (5) Business Days of being informed by Seller that Seller has made a material change to the economic terms or such similar business terms of the Acquisition or that Seller intends to do so.

                    (d) Buyer or Seller may terminate this Agreement upon written notice to the other at any time after the termination of the Liberty SPA.

                    (e) Buyer may terminate this Agreement by giving written notice to Seller (i) if Seller has breached any representation, warranty, or covenant contained in this Agreement in any material respect and such breach has not been cured by Seller within 30 days after written notice of such breach is delivered by Buyer to Seller, or (ii) if any of the conditions in Section 5.1 has not been satisfied or if satisfaction of such a condition is or becomes impossible (other than as a result of the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before such date; or

                    (f) Seller may terminate this Agreement by giving written notice to Buyer (i) if Buyer has breached any representation, warranty, or covenant contained in this Agreement in any material respect and such breach has not been cured by Buyer within 30 days after written notice of such breach is delivered by Seller to Buyer, or (ii) if any of the conditions in Section 5.2 has not been satisfied or if satisfaction of such a condition is or becomes impossible (other than in whole or in part as a result of the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before such date.

                    Section 8.2. Effect of Termination.

                    (a) Buyer’s and Seller’s right of termination under Section 8.1 is in addition to any other rights or remedies it may have under this Agreement or otherwise, and the exercise of a right of termination will not be deemed an election of remedies. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the Parties under this Agreement automatically will terminate; provided, however, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal and equitable remedies for such breach will survive such termination unimpaired.

ARTICLE IX
MISCELLANEOUS

     Section 9.1. Public Announcements. Prior to the Closing, except as required by federal securities laws or by obligations pursuant to any listing agreement with or requirement of any national securities exchange or national quotation system on which the common stock of LodgeNet is listed, admitted to trading or quoted, LodgeNet shall not, without the prior written consent of the Buyer, make any public announcement, press release or similar publicity with respect to this Agreement or the transactions contemplated by this Agreement.

     Section 9.2 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

     Section 9.3. Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties, provided that the Buyer may without the prior written consent of Seller, assign this Agreement or any of its rights, interests or obligations to an Affiliate of Buyer or to the limited partners of Buyer and provided further that Buyer may make a collateral assignment of its rights, but not its obligations, under this Agreement to any of its financing sources. In the event of any Transfer of any Shares to the limited partners of Buyer as permitted by Section 6.3 and without the need for an express assignment, such Shares shall be held subject to all of the terms of this Agreement, and by taking and holding such Shares such persons shall be deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such persons shall be entitled to receive the benefits hereof.

     Section 9.4. Entire Agreement. This Agreement (including the Exhibits and Schedules hereto and any other agreements and documents referred to in this Agreement) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they are related in any way to the subject matter hereof

     Section 9.5. Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and telecopier numbers as a Party may designate by notice to the other Parties, provided that any such change shall be effective only upon receipt by the other Parties):

If to Buyer: PAR Investment Partners, L.P.
c/o PAR Capital Management, Inc.
One International Place, Suite 2401
Boston, MA 02110
Attention: Gina DiMento
Facsimile: 617-556-8875

If to Seller: LodgeNet Entertainment Corporation
3900 West Innovation Street
Sioux Falls, SD 57107
Attention: Scott C. Petersen and James G. Naro
Facsimile: 605-988-1715

     Section 9.6. Governing Law; Jurisdiction; Remedies. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any Proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated by this Agreement may be brought by or against any Party in any court of competent jurisdiction located in the State of Delaware. Each Party irrevocably and unconditionally agrees to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware and not to object to the jurisdiction of such courts on the basis of inconvenience of forum or otherwise. Without limiting the generality of the foregoing, each Party agrees that service of process upon such Party at such Party’s address as set forth in Section 9.4, together with written notice of such service to such Party, will be deemed effective service of process upon such Party. If a Party breaches or threatens to breach this Agreement, the non-breaching Party may, in addition to all other remedies available to it, seek equitable remedies, including the remedies of injunction and specific performance, without the need to post any bond or other security.

     Section 9.7. Amendments and Waivers. No amendment of any provision of this Agreement will be valid unless the same is in writing and signed by Buyer and Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant under this Agreement, whether intentional or not, will be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant under this Agreement or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

     Section 9.8. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

     Section 9.9. Expenses. Except as otherwise expressly provided in this Agreement, each of Seller and Buyer will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated by this Agreement.

     Section 9.10. Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

     Section 9.11. Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

     Section 9.12. Headings. The Article and Section headings contained in this Agreement are inserted for convenience only and will not affect in any way the meaning or interpretation of this Agreement.

     Section 9.13. Facsimile; Counterparts Signatures. This Agreement may be executed by facsimile signature and in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

     IN WITNESS WHEREOF, the Parties have executed this Stock Purchase Agreement as of the date first written above.

SELLER:
LODGENET ENTERTAINMENT CORPORATION
By: Name: Scott C. Petersen Title: President and Chief Executive Officer
BUYER:
PAR INVESTMENT PARTNERS, L.P.
By:	PAR Group, L.P.
	its general partner
By:	PAR Capital Management, Inc.
	its general partner
By:
Name: Title:	Edward L. Shapiro Vice President

[Signature Page to Stock Purchase Agreement]

EX-12.1

Exhibit 12.1

LodgeNet Entertainment Corporation and Subsidiary
Statement Regarding Computation of Ratios (Unaudited)
(Dollar amounts in thousands, except ratios)

Computation of Coverage of Fixed Charges

	2006		2005			2004			2003			2002
Net income (loss)	$	1,841	$	(6,959	)	$	(20,781	)	$	(35,052	)	$	(29,126	)
Add:
Provision for income taxes		299		450			421			459			550
Fixed charges (see below)		27,470		31,241			33,946			36,393			35,383
Earnings available to cover fixed charges	$	29,610	$	24,732		$	13,586		$	1,800		$	6,807
Fixed charges (1):
Interest	$	25,730	$	29,351		$	31,891		$	34,239		$	33,037
Amortization of debt costs		1,495		1,636			1,734			1,831			2,001
Amortization of debt discount		—		—			82			104			147
Interest portion of rentals		245		254			239			219			198
Total fixed charges	$	27,470	$	31,241		$	33,946		$	36,393		$	35,383
Earnings (deficiency) in the coverage of fixed charges	$	2,140	$	(6,509	)	$	(20,360	)	$	(34,593	)	$	(28,576	)
Ratio of earnings to fixed charges		1.08		—			—			—			—

(1) 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).

EX-21.1

Exhibit 21.1

LodgeNet Entertainment Corporation and Subsidiaries
Subsidiaries of the Company

LodgeNet Entertainment (Canada) Corporation, a Canadian corporation

LodgeNet StayOnline, Inc.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-117092, 333-108114, 33-75908, 333-84974, 333-34160, 33-75906 and 33-86532) of LodgeNet Entertainment Corporation of our report dated March 13, 2007, relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

Minneapolis, MN
March 13, 2007

EX-31.1

Exhibit 31.1

Certification

I, Gary H. Ritondaro, certify that:

1. I have reviewed this annual report on Form 10-K of LodgeNet Entertainment Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2007

/s/ Gary H. Ritondaro Gary H. Ritondaro

Senior Vice President, Chief Financial Officer

(Principal Financial & Accounting Officer)

LodgeNet Entertainment Corporation Form 10-K 2006

EX-31.2

Exhibit 31.2

Certification

I, Scott C. Petersen, certify that:

1. I have reviewed this annual report on Form 10-K of LodgeNet Entertainment Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2007

/s/ Scott C. Petersen

Scott C. Petersen

President and Chief Executive Officer

(Principal Executive Officer)

LodgeNet Entertainment Corporation Form 10-K 2006

EX-32.1

Exhibit 32.1

LODGENET ENTERTAINMENT CORPORATION

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

     Each of the undersigned, Scott C. Petersen and Gary H. Ritondaro, the Chief Executive Officer and the Chief Financial Officer, respectively, of LodgeNet Entertainment Corporation, individually and not jointly has executed this Certification in connection with the filing with the Securities and Exchange Commission of the LodgeNet’s Annual Report on Form 10-K for the period ended December 31, 2006 (the “Report”).

     Each of the undersigned hereby certifies, to his knowledge, that:

• the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of LodgeNet.

     IN WITNESS WHEREOF, each of the undersigned has executed this Certification as of the 13th day of March 2007.

/s/ Scott C. Petersen  

Scott C. Petersen 

Chief Executive Officer 

/s/ Gary H. Ritondaro  

Gary H. Ritondaro 

Chief Financial Officer 

LodgeNet Entertainment Corporation Form 10-K 2006