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, 2007

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 Interactive 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer: o	Accelerated filer: þ	Non-accelerated filer: o	Smaller reporting company: o
		(Do not check if a smaller reporting company)

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. $680,940,197

The number of shares of common stock of the Registrant outstanding as of March 7, 2008, was 22,990,471 shares.

DOCUMENTS INCORPORATED BY REFERENCE — Portions of the Registrant’s definitive proxy statement for the 2008 Annual Meeting of Stockholders, which will be filed within 120 days of the fiscal year ended December 31, 2007, are incorporated by reference in Part III of this Form 10-K.

This Report contains a total of 92 pages, excluding exhibits. The exhibit index appears on page 48

Table of Contents

Item 1 – Business	1
Overview	1
Overview of Markets Served	3
Acquisition of StayOnline, Inc.	4
Acquisition of Ascent Entertainment Group, Inc.	4
Hospitality Market and Customers	5
Hospitality Market Services and Products	5
Healthcare and Adjacent Markets	9
Corporate Operations Utilized Across Multiple Markets	10
Competition	11
Business Strategy	13
Regulation	14
Employees	15
Corporate Information and Web Site Access to SEC Filings	15
Item 1A — Risk Factors	16
Item 1B — Unresolved Staff Comments	22
Item 2 – Properties	22
Item 3 - Legal Proceedings	22
Item 4 - Submission of Matters to a Vote of Security Holders	22
Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Issuer Purchases of Equity Securities	23
Dividends	23
Stockholder Rights Plan	23
Item 6 - Selected Financial Data	26
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Executive Overview	28
Core Businesses	30
Liquidity and Capital Resources	36
Seasonality	38
Results of Operations — Years Ended December 31, 2007 and 2006	39
Results of Operations — Years Ended December 31, 2006 and 2005	43
Critical Accounting Policies	44
Recent Accounting Developments	44
Item 7A — Quantitative and Qualitative Disclosures About Market Risk	45
Item 8 - Financial Statements and Supplementary Data	45
Item 9 - Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	45
Item 9A — Controls and Procedures	46
Item 9B — Other Information	46
Item 10 - Directors and Executive Officers of the Registrant	47

LodgeNet Interactive Corporation Form 10-K 2007

Item 11 - Executive Compensation	47
Item 12 - Security Ownership of Certain Beneficial Owners and Management	47
Item 13 - Certain Relationships and Related Transactions	47
Item 14 - Principal Accountant Fees and Services	47
Item 15 — Exhibits and Financial Statement Schedules	48
Rights Agreement
Amended and Restated Employment Agreement
Executive Employment Agreement - David M. Bankers
Executive Employment Agreement - James G. Naro
Executive Employment Agreement - Steven R. Pofahl
Executive Employment Agreement - Gary H. Ritondaro
Executive Employment Agreement - Derek S. White
Executive Employment Agreement - Scott E. Young
Statement of Computation of Ratios
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Certification
Certification
Certification

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 Interactive Corporation (f/k/a LodgeNet Entertainment Corporation) and its consolidated subsidiaries.

“LodgeNet”, “LodgeNetRX”, On Command and the LodgeNet logo are trademarks or registered trademarks of LodgeNet Interactive Corporation. All rights reserved. DIRECTV^® Sports is a registered trademark of DIRECTV, Inc. Nintendo is a registered trademark of Nintendo of America Inc. iPod is a registered trademark of Apple Inc. All other trademarks or service marks used herein are the property of their respective owners.

LodgeNet Interactive Corporation Form 10-K 2007

PART I

Item 1 – Business

Overview

We are the largest provider of interactive media and connectivity solutions to the hospitality industry in the United States, Canada, and Mexico. We also provide interactive television solutions in select international markets, primarily through local or regional licensees. As of December 31, 2007, we provided interactive television and other services to approximately 9,900 hotel properties serving over 1.9 million hotel rooms. Within that customer base, we also provide cable television programming, broadband Internet, and advertising media solutions in approximately 1.1 million, 220,000 and 400,000 hotels rooms respectively. In addition, we sell and operate interactive television systems that provide on-demand patient education, information and entertainment to healthcare facilities throughout the United States. As of December 31, 2007, our systems were installed in twenty-three healthcare facilities, with five additional hospitals under contract.

The interactive media and connectivity solutions we offer the hospitality industry generally include entertainment content, interactive television programming, broadband Internet systems, and professional technical and installation services. We provide a wide range of guest-paid entertainment options including on-demand movies, music and games, as well as subscription sports and television on-demand programming. We generally refer to these offerings as guest entertainment content, which guests typically purchase on a per-view, hourly, or daily basis. We also provide a variety of services for which hotels pay us a monthly service fee. These offerings include satellite-delivered basic and premium television programming packages and Internet access customer support services, as well as video, Internet and technical support services. During 2007, we also began delivering advertising-supported media into select segments of our interactive television room base, from which we earn revenue from the sale of television commercials or other marketing-based programs. Lastly, we also sell Internet access and interactive television systems and equipment to hotels including related professional design, project management and installations services.

In the healthcare industry, we sell our interactive television systems and license our software to individual healthcare facilities. We generate revenue from the 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, patient education content, software maintenance and technical support services.

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

Ø Increase the recurring revenues we earn from our hospitality business by:

o Expanding the size of our hotel customer base;

o Selling more content and services by increasing the number of:

§	High-definition interactive television rooms;
§	Basic and premium television programming rooms;
§	Broadband Internet access rooms;
§	Advertising media services rooms;

Ø	Increase the sale of systems and professional technical services to our hotel customers.
Ø	Continue to diversify our business into healthcare and other adjacent markets; and
Ø	Generate increasing levels of cash flow.

The acquisition of StayOnline, Inc. in February 2007 and Ascent Entertainment Group, Inc., which owns 100% of the capital stock of On Command Corporation (“On Command”), in April 2007 substantially increased our hospitality room base and revenues in 2007 and affected our financial results for the year. Dollar amounts are shown in thousands, except for room data.

LodgeNet Interactive Corporation 1 Form 10-K 2007

	Year Ended December 31,
	2007			2006		2005			2004			2003
Selected Operations Data:
Total rooms served (1) (5)		1,962,090			1,052,025		1,053,806			1,034,605			994,127
Total Guest Pay interactive rooms (2) (5)		1,860,720			1,004,937		1,001,929			974,798			924,643
Total Digital rooms (3)		1,471,608			733,362		629,085			508,979			385,426
Total Cable Programming (FTG) Rooms (4)		1,068,256			535,777		536,984			525,436			500,170
Total Broadband Internet Rooms (6)		218,619			37,686		—			—			—
Total HD rooms (7)		84,327			23,502		259			—			—
Total revenues	$	485,588		$	288,213	$	275,771		$	266,441		$	250,149
Operating income		(4,237	)		26,932		22,693			12,970			6,500
Depreciation and amortization (8)		116,378			66,311		69,862			77,045			78,459
Share-based compensation		1,737			1,677		288			198			—
Net loss (income)	$	(65,172	)	$	1,841	$	(6,959	)	$	(20,781	)	$	(35,052	)

(1)	Total rooms served include interactive television rooms, rooms served by international licensees, and properties receiving only basic and premium television services and properties receiving only broadband services.
(2)	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 each respective hotel. Digital rooms are included in total Guest Pay interactive rooms and represent 79% of the Guest Pay interactive rooms served as of December 31, 2007.
(4)	Cable programming rooms receiving basic or premium television programming.
(5)	Total room count for 2007 was not affected as a result of Hurricane Katrina but prior years were reduced by 4,053 rooms in 2006 and 8,195 rooms in 2005.
(6)	Represents rooms receiving broadband Internet service and are included in total rooms served.
(7)	HD rooms are equipped with high-definition capabilities and are included in total rooms served and in total digital rooms.
(8)	Includes amortization of acquired intangibles.

LodgeNet Interactive Corporation 2 Form 10-K 2007

Overview of Markets Served

In the hospitality market, we provide our interactive media and connectivity solutions to hotel customers and their guests throughout the United States, Canada, and Mexico, and through licensing arrangements with companies in other select countries.

We provide our services to various hotel chains, ownership groups and management companies representing some of the finest hotels in the world, including Marriott International Inc. (J.W. Marriott, Ritz-Carlton, Renaissance, Courtyard by Marriott, Fairfield Inn & Suites, Residence Inn, Springhill Suites and Towne Place Suites); Hilton Hotels Corporation (Hilton, Doubletree, Embassy Suites, Hampton Inn & Suites, Hilton Garden Inn, Homewood Suites, Conrad Hotels & Resorts and The Waldorf Astoria Collection); Starwood Hotels & Resorts (Westin, W Hotels, Sheraton, Four Points by Sheraton and The Luxury Collection); Hyatt Hotels & Resorts (Hyatt, Hyatt Regency, Park Hyatt and Hyatt Place); Blackstone Real Estate Group (LXR Collection, La Quinta); Carlson Hospitality (Radisson, Park Plaza, Country Inns & Suites, Park Inn); Four Seasons, Fairmont; Harrah’s; Kimpton Hotel Group; Camino Real; Wyndham (Wyndham; Wyndham Garden; Wingate by Wyndham); Gaylord Hotels; Omni; Loews Hotels, Outrigger; Grand Casino’s Felcor; Interstate; John Q. Hammons, Davidson Hotels, Winegardner & Hammons; Gaylord Hotels; Sands/Venetian and Sage Hospitality, as well as many independent properties.

For interactive television services, our contracts with hotels are generally exclusive and have non-cancelable terms of five to seven years. 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. At approximately 80% of these locations, we update the digitally-stored content we offer via a satellite distribution network. The remaining locations are served by our legacy tape-based system. 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.

Beginning in 2005, we began deploying a high-definition (“HD”) configuration of our digital system. This configuration uses the same content management and satellite distribution network as our standard digital system; however, in the HD system, the content is sent in a digital format from the headend server to a commercial, in-room digital television. In our standard digital systems, the content is sent to the in-room television using an analog transport technology. As of December 31, 2007, the new high-definition system was installed and operating in more than 84,000 hotel rooms. We expect that the number of rooms served with our new HD system will expand significantly during the next several years as most of our new installations and system upgrades (associated with a long-term contract extension) will involve this new configuration.

Our interactive television systems provide a broad array of guest entertainment and other interactive services, including:

Ø	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; and
Ø	improved guest marketing and merchandising capabilities.

In addition to interactive television services, we also provide a wide variety of satellite-delivered basic and premium television programming to approximately 57% of our interactive television locations. In those cases, we also install additional equipment that receives and de-crypts the television programming for viewing on the in-room televisions. Hotels generally pay us a fixed fee per room per month for this incremental service.

LodgeNet Interactive Corporation 3 Form 10-K 2007

With the acquisition of The Hotel Networks (“THN”) in 2007 as part of the Ascent acquisition described below, we also provide ten specific satellite-delivered television channels without charge to select, larger hotels. As of December 31, 2007, THN was providing this service in approximately 357,000 rooms. THN’s revenue is derived from the sale of advertising, which THN has the legal rights to insert into the programming on those ten channels in lieu of both the national and local advertising that would otherwise appear on a standard cable system.

We also design, install and operate wired and wireless broadband Internet access systems at hotel properties. These systems control access to the Internet, allow hotels to charge or provide the access as a guest amenity, and provide bandwidth management tools. Participating hotels purchase the Internet equipment and installation services from us. We receive on-going monthly service fees from such hotels for technical maintenance and call center support services following the initial installation. As of December 31, 2007, we served approximately 219,000 rooms with broadband Internet services.

In 2004, we also began to offer our interactive television system to healthcare facilities in the United States. As of December 31, 2007, twenty-three hospitals had installed our system, with an additional five 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 also earn recurring revenues, under long-term contracts, by providing entertainment content, patient education materials, 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 2008.

Acquisition of StayOnline, Inc.

In February 2007, LodgeNet Interactive Corporation, through our wholly-owned subsidiary, LodgeNet StayOnline, Inc., acquired substantially all of the operating assets of StayOnline, Inc., a leading provider of high-speed Internet access solutions focused on the lodging industry. We paid approximately $15.5 million in cash for the assets of StayOnline which included a customer room base of more than 135,000 high-speed Internet access (“broadband”) rooms. The acquisition presents a key strategic opportunity to drive additional revenue streams through our customer base by providing broadband Internet solutions and services – one of the most highly demanded services of the business traveler. The combination of StayOnline’s expertise and industry relationships, and our resources and hotel relationships, will allow us to enhance the array of broadband solutions we can deliver to our customers, all backed by our nationwide customer service organization.

Acquisition of Ascent Entertainment Group, Inc.

On April 4, 2007, pursuant to the Stock Purchase Agreement, dated December 13, 2006, among LodgeNet, Liberty Satellite & Technology, Inc. (“Liberty Satellite”) and Liberty Satellite’s parent company, Liberty Media Corporation, LodgeNet acquired 100% of the capital stock of Ascent Entertainment Group, Inc. (“Ascent”), which was a wholly owned subsidiary of Liberty Satellite. Ascent owns 100% of the capital stock of On Command Corporation (On Command). LodgeNet paid approximately $332.1 million in cash and issued 2.05 million shares of its common stock as the purchase price. The share consideration was valued at $23.35 per share by the parties at the time of the execution of the Stock Purchase Agreement on December 13, 2006. Based on the execution date of December 13, 2006, the fair value of the common stock issued, in accordance with EITF 99-12 guidelines, was $50.1 million as determined by averaging the closing stock price for the period beginning two days before and ending two days after the date that the terms of the acquisition were agreed upon and publicly announced. We also incurred other acquisition related costs of approximately $5.6 million. This acquisition supports our long-term business strategy in a number of significant ways: by increasing our room base by approximately 73%, significantly increasing our revenue and cash flow, and providing a room base with the scale necessary to support the development and launch of additional services to diversify our revenue streams in the future. These diversified revenue streams include increased opportunities to provide free-to-guest entertainment, Internet access, and

LodgeNet Interactive Corporation 4 Form 10-K 2007

advertising services, as well as a base to develop future revenue streams, which could include digital signage, new forms of in-room entertainment options and professional services. The acquisition has also resulted in a number of operating synergies that are expected to enhance our operating efficiency over time.

Hospitality Market and Customers

U.S.,Canadian and Mexican Market. The primary market for our interactive television network is the mid-size and large hotel segments within the United States, Canada, and Mexico. Based on industry sources, we estimate that these segments account for approximately 71%, or 3.5 million, of the lodging industry’s estimated 4.9 million rooms. In addition, we believe that growth opportunities are available through (i) supply growth (new construction) within the lodging industry and (ii) rooms currently served by other service providers when their contracts expire.

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, 2007, 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 representing some of the finest hotels in the world, including Marriott International Inc (J.W. Marriott, Ritz-Carlton, Renaissance, Courtyard by Marriott, Fairfield Inn & Suites, Residence Inn, Springhill Suites and Towne Place Suites); Hilton Hotels Corporation (Hilton, Doubletree, Embassy Suites, Hampton Inn & Suites, Hilton Garden Inn, Homewood Suites, Conrad Hotels & Resorts and The Waldorf Astoria Collection); Starwood Hotels & Resorts (Westin, W Hotels, Sheraton, Four Points by Sheraton and The Luxury Collection); Hyatt Hotels & Resorts (Hyatt, Hyatt Regency, Park Hyatt and Hyatt Place); Blackstone Real Estate Group (LXR Collection, La Quinta); Carlson Hospitality (Radisson, Park Plaza, Country Inns & Suites, Park Inn); Four Seasons, Fairmont; Harrah’s; Kimpton Hotel Group; Camino Real; Wyndham (Wyndham; Wyndham Garden; Wingate by Wyndham); Gaylord Hotels; Omni; Loews Hotels, Outrigger; Grand Casino’s Felcor; Interstate; John Q. Hammons, Davidson Hotels, Winegardner & Hammons; Gaylord Hotels; Sands/Venetian and Sage Hospitality, as well as many independent properties. During 2007, hotels covered by the master services agreement with Hilton Hotels Corporation and Marriott International, represented approximately 18.3% and 13.7%, respectively, of our consolidated revenue. As most of the hotels served under these agreements are owned by independent franchisees, the number of Hilton-owned and Marriott-owned properties each accounted for less than 5% of consolidated revenue. Each property is subject to an individual long-term 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 sell the equipment and license our interactive television system and technologies to the licensee and receive a royalty based on gross revenue. During 2007, we also created a wholly-owned subsidiary, LodgeNet International which, in turn, sold an interactive television system to the Venetian Macau Hotel and Casino. Pursuant to a long-term contract, we program, operate and maintain the system and receive a share of the revenue generated from guest entertainment purchases. Financial information related to our domestic and international operations is included in Note 17 of our consolidated financial statements. Internationally, we intend to continue to expand in selected countries in Asia, Latin America, South America, Europe, Asia and other regions through long-term licensing agreements or other arrangements with entities in those areas.

Hospitality Market Services and Products

Interactive Television Programming and Services. Our primary source of revenue is providing interactive television services to the hospitality industry, which the hotel guest buys on a per-view, hourly or daily basis. The interactive system offers a wide variety of guest-paid entertainment options including on-demand movies, music and games, as well as subscription sports and television on-demand programming. It also enables hotels to offer video review of room charges, video checkout, guest surveys, and hotel branding and marketing promotions.

In 2005, we began deploying a high-definition (“HD”) configuration of our digital system, which allows the delivery of a variety of high-definition programming services to guest rooms. The HD configuration uses the same content management and satellite distribution network as our standard digital system; however in the HD system, the content is sent in a digital format from the headend server to a commercial, in-room

LodgeNet Interactive Corporation 5 Form 10-K 2007

digital television. In our standard digital systems, the content is sent to the in-room television using an analog transport technology. The HD system utilizes the 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.  As of December 31, 2007, the new high-definition system was installed and operating in more than 84,000 hotel rooms. We expect that the number of rooms served with our new HD system will expand significantly during the next several years, driven both by new standards for broadcast television and hotel brand standards, as most of our new installations and system upgrades (associated with a long-term contract extension) will involve this new configuration.

In 2005, we also introduced our Hotel SportsNET^SM service, which provides guests the ability to purchase daily subscriptions to certain professional and college sports television packages. During 2007, 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, 2007, Hotel SportsNET^SM was installed in approximately 224,000 rooms.

The revenues generated from interactive television 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 content and 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 content management systems allow 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. 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.

Satellite-Delivered Cable Television Programming. We also offer a wide variety of satellite-delivered basic and premium television programming that is paid for by the hotel and provided to guests at no charge. The television programming is delivered via satellite through DIRECTV pursuant to a long-term agreement and distributed to approximately 57% 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. With the launch of the high-definition configuration of our interactive television system, we also began offering high-definition television programming to the extent available from broadcast sources and DIRECTV. During 2007, the percentage of hotels that subscribed to our cable television programming services where we installed our HD interactive television system was approximately 85%, which was substantially higher than our historical subscription rate of approximately 50% of hotels.

With the acquisition of The Hotel Networks (“THN”) in 2007, we also provide ten specific satellite-delivered television channels without charge to select, larger hotels. As of December 31, 2007, THN was providing this service in approximately 357,000 rooms. THN’s revenue is derived from the sale of advertising, which THN has the legal rights to insert into the programming on those ten channels in lieu of both the national and local advertising that would otherwise appear on a standard cable system.

LodgeNet Interactive Corporation 6 Form 10-K 2007

Broadband Internet Access System Sales, Service and Support. We also design, install and operate wired and wireless broadband Internet access systems at hotel properties. These systems control access to the Internet, allow hotels to charge or provide the access as a guest amenity, and provide bandwidth management tools. 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. 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 in-house 24-hour call center which provides services seven days a week. As of December 31, 2007, we served approximately 219,000 rooms with broadband Internet services.

Other Services and System Sales. In addition to the sale of systems to our international markets and our hotel customers, we also generate revenue from the sale of interactive television systems and connectivity equipment to Allin Interactive, which installs this equipment on cruise ships. We also offer hotel properties that do not meet our economic and/or demographic profile the opportunity to purchase our interactive television system. We then program, operate and maintain the system and receive a percentage of revenue generated from guest entertainment purchases. Additionally, we sell hotels a variety of connectivity, satellite television reception and video equipment. In addition, we recently created a professional solutions group that offers planning, technical installation, project management and support services, primarily focused on high-definition television and low voltage wiring installations, as wells as managed Internet connectivity services for conferences and meetings.

Contracts. We provide interactive television services under contracts with lodging properties that generally run for a term of five to seven 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 the 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 length of each agreement is determined based on a number of factors, including the revenue potential of the hotel, the amount of capital we are investing in the equipment, and other considerations. A term of five to seven years is generally adequate to assure that we receive the expected return on our invested capital. In cases where the hotel customer is willing to contribute to the capital costs of the system, the term and other provisions of the agreement can be modified while still assuring a reasonable return on our investment. The terms contained in the contracts with corporate-managed hotels are generally negotiated by that hotel’s corporate management in a master agreement, 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. A master agreement typically gives us an exclusive right to serve corporate-owned or managed properties and a status as a “preferred provider” to franchised properties for a defined period of time, which can range from one to seven years. While the exclusivity period of the master agreements may vary, any property level agreements executed pursuant to a master agreement are determined in a manner similar to individual properties, with terms of five to seven years where we make the capital investment in the system. We also offer to certain hotel customers who would not otherwise qualify for installation of our systems or who desire to exercise greater control over content and pricing, the opportunity to purchase our systems combined with long-term service maintenance and content agreements with us.

For the interactive television programming which is purchased 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 or more advantageous terms. Over the next 24 months, approximately 42% of current interactive rooms are in the renewal window. Over the last five years, we have de-installed an average of approximately 3% of our installed base per year. During 2007, we de-installed approximately 44,000 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, Asia and other regions through long-term licensing agreements or other arrangements with entities in those areas.

LodgeNet Interactive Corporation 7 Form 10-K 2007

We provide satellite-delivered cable television programming under contracts with hotel properties that generally run for the same term as the interactive television contract. The hotel pays us a fixed fee per room per month for this programming, which in turn is provided to the guest without charge.

We provide broadband Internet access services to hotels pursuant to contracts that generally have terms of two to five years. Pursuant to these agreements, the hotel pays us a fixed fee per room per month for providing a 24x7 help desk service for their guests having questions about accessing the Internet. In some cases, we also enter into technical service agreements, for which the hotel pays an incremental fixed fee per month. We also provide technical services under an hourly service charge arrangement.

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 recently acquired subsidiary, 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 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.

LodgeNet Interactive Corporation 8 Form 10-K 2007

In addition, we are continuing to develop and integrate technologies that enable us to deliver high-definition television and other digital content to our hotels and their guests. These developments extend our digital platform with new technology including specially-equipped 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.

Our content management systems allow 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 broadband Internet 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 19 United States and foreign 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 2007, we continued to develop our product offering and presence in the healthcare industry and, as of December 31, 2007, had twenty-three facilities installed with our interactive system and five 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 2008.

In 2006, we began selling our interactive television system combined with a multi-year maintenance contract to a company which produces and markets technology for installation at travel centers that provide various services for sleeper cabs in long-haul trucks. That company purchases our interactive television server and licenses related software for integration with their own proprietary systems, 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.

In 2007, we also sold our interactive television and broadband Internet access systems to several timeshare hotel locations. As in other adjacent markets, we sell the system hardware, license our software and generate recurring revenue from technical maintenance and guest support services, and receive a share of the revenue generated from guest entertainment purchases.

In addition to the sale of systems to our international markets and our hotel customers, we also generate revenue from the sale of interactive television systems and connectivity equipment to Allin Interactive, which installs this equipment on cruise ships.

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 basic cable and premium television programming and Nintendo for video game services.

LodgeNet Interactive Corporation 9 Form 10-K 2007

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

Technology and Product Development. We have been able to leverage the technology and product development utilized in the hotel market to the healthcare, travel center and timeshare 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 hospitality market, we focus our sales and marketing strategies on acquiring new contracts from hotels, extending and retaining existing contracts, and marketing our 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 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, patient education materials, software maintenance and technical field service. In this market, we sell our interactive systems to healthcare facilities through third-party sales organizations and company employees. 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 2008. Our business model for the healthcare market differs from the business model for the hotel market. For healthcare, we do not use our capital to deploy a system 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. 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 31 locations throughout the United States, Canada, and Mexico, 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.

LodgeNet Interactive Corporation 10 Form 10-K 2007

Service personnel are responsible for all preventive and corrective systems maintenance. Our service organization is also utilized to support our broadband Internet systems and interactive systems sold to healthcare facilities.

We maintain a toll-free customer support hot line, 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 most 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.

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 9,900 hotel properties and over 1.9 million hotel rooms. 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 Hospitality Networks, Inc. (a wholly-owned subsidiary of Cox Communications, Inc.), NXTV, Kool Connect, Oxford SVI, Guest-Tek and other international providers, such as Quadriga, 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 basic and premium television programming, portable media devices 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 entertainment, basic and premium television programming 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.

LodgeNet Interactive Corporation 11 Form 10-K 2007

Moreover, in an effort to accommodate guest requests to view display content from portable media devices on in-room televisions, a number of hoteliers have requested means to connect these devices to the in-room televisions. A number of interconnection devices exist from third parties, and the Company has developed its own product, known as the LaunchPad, to permit content from portable devices to be displayed on the in-room television. One advantage of the LaunchPad product over products from third parties is that it is capable of communicating with the headend as well as the television, which the Company believes could be used to develop additional revenue opportunities by downloading content such as movies or music to portable devices for later use.

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 interactive television system;
Ø	our content management system; and
Ø	our field service group, which is the largest in the industry providing hotels with on-the-spot attention to any technical issues that they may encounter.

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 hospitality 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 basic and premium television programming 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 basic and premium programming 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 interactive television, basic and premium television programming and broadband 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.

LodgeNet Interactive Corporation 12 Form 10-K 2007

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

Business Strategy

Expand our recurring revenues from the hospitality market. Within the hospitality market, we believe opportunity exists for the continued growth of our business from (a) the expansion of our hotel customer base, (b) the sales of more content and services to our customers, and (c) an increase in the revenue we earn from advertising media solutions.

o We believe that growth opportunities are available from (i) supply growth (new construction) within the hospitality market and (ii) rooms currently served by other service providers when their contracts expire. We also believe that the features and benefits of our interactive high-definition television platforms, 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, Canada and Mexico hospitality 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 or, in certain circumstances, through direct agreements with customers. We may also consider select acquisitions to further our network expansion objectives.

o We believe that incremental revenue growth opportunities are available within our existing customer base of 1.9 million hotel rooms from (i) expanding the percentage of rooms having high-definition interactive televisions because guests historically have purchased more entertainment from us in rooms with this platform, (ii) increasing the percentage of hotels that purchase basic and premium cable television programming packages, which growth was highly correlated to the expansion of our HD platform in 2007, and (iii) expanding the percentage of hotels that contract for our broadband Internet access help-desk and technical support services based on the strength of our nationwide service organization and the benefits of having a single source provider. As of December 31, 2007, only 5% of our rooms were installed with an HD system, only 57% of the hotels served were purchasing cable television programming from us, and only 12% of the hotels served were taking broadband Internet services from us.

o We also believe that growth opportunities are available from an expansion of our revenue we earn from advertising media solutions. With the acquisition of The Hotel Networks (THN) in 2007, we began delivering advertising-supported media into select segments of our interactive television room base, from which we earn revenue from the sale of television commercials or other marketing-based programs. The demographic and professional profile of the traveler within our room base tends to have characteristics that we believe may be attractive to consumer marketing organizations. As of December 31, 2007, THN was delivering this programming into only 357,000 rooms of our total 1.9 million room base.

Increase the sale of system, services and solutions to the hospitality market. We also believe opportunity exists to expand our revenue from the hospitality market by selling more interactive television, high-definition satellite programming and broadband Internet systems, equipment and professional services to our hotel customers. We offer a wide variety of commercial systems and equipment that hotels need as they upgrade their television systems to the new high-definition technology and internal broadband Internet networks to contemporary standards. We also offer hotel properties that do not meet our economic and/or demographic profile the opportunity to purchase our interactive television system. We program, operate and maintain the system and receive a percentage of revenue generated from guest entertainment purchases. We also sell hotels a variety of connectivity, satellite television receiving and video equipment. In addition, we recently created a professional solutions group that offers consultation, technical installation, project management and support services, primarily focused on high-definition

LodgeNet Interactive Corporation 13 Form 10-K 2007

television and low voltage wiring installations, as well as managed Internet connectivity services for conferences and meetings in hotels.

Diversify our business into healthcare and other adjacent markets. We presently offer our interactive television systems to the healthcare facilities in the United States, primarily for patient education and entertainment. 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 2007, we continued to develop our product offering and presence in the healthcare industry and as of December 31, 2007, had twenty-three facilities installed with our interactive system and five additional facilities under contract. We plan to continue to pursue opportunities in the healthcare market and expect to contract and install additional hospitals in 2008.

Additionally, we have also sold our interactive television systems to organizations in the travel center and timeshare industries. We plan to continue to pursue these opportunities and 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 2007, we generated $58.9 million of cash from operations. We intend to use part of that cash flow and the cash flow we expect to generate in 2008 to make required debt and interest payments and add new rooms to our base and upgrade existing rooms to the new high-definition television platform in exchange for long-term extensions of our service agreements. In addition, most of our growth strategies discussed above are intended to generate new or expanded revenues and cash flows for our company that are not dependent upon a capital investment on our part which will assist us in achieving our cash flow goals. We intend to manage our business 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 a 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 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

LodgeNet Interactive Corporation 14 Form 10-K 2007

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.

Broadband 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, 2007, we had 1,459 employees in the United States, Canada and Mexico. 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 Interactive Corporation 15 Form 10-K 2007

Item 1A — Risk Factors

We experienced substantial net losses in 2007. If we are not profitable in the long-term or do not 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 generated a net loss of $65.2 million for the fiscal year ended December 31, 2007, as a result of (a) acquisition related costs of restructuring, integration and acquired intangibles, (b) higher interest expense, and (c) a one-time charge related to debt refinancing. We expect to generate a net loss for fiscal year 2008 because of the continuing integration and restructuring, in addition to increased interest and amortization expenses related to the acquisitions completed in 2007.

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 2007, we acquired substantially all of the assets of StayOnline, Inc., a broadband provider to hotels, and acquired 100% of the capital stock of Ascent Entertainment Group, Inc., which owned 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 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 have limited 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. Moreover, new accounting regulations may require us to immediately expense such fees, which could exceed the net income we generate from our ongoing business operations during a given period.

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 the domestic and foreign entertainment service industries may create significant new competitors for us. Many of these combined entities could have resources 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.

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.

LodgeNet Interactive Corporation 16 Form 10-K 2007

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 deployment of high-definition television (HDTV) and the introduction of new technologies such as Internet Protocol television (IPTV) into the hospitality market could 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.

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.

LodgeNet Interactive Corporation 17 Form 10-K 2007

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 for 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 from 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. We have sought to diversify our business and decrease reliance on revenue from the hospitality industry. These activities 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

LodgeNet Interactive Corporation 18 Form 10-K 2007

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 of the lodging industry to offer such content to guests that 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 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.

LodgeNet Interactive Corporation 19 Form 10-K 2007

Our revenue is affected by seasonality and dependent on other factors beyond our control including a recession in the US. 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.

We have substantial debt and significant interest payment requirements related to our acquisitions. As of December 31, 2007, we had $624.6 million of debt outstanding. Subject to restrictions in 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;

LodgeNet Interactive Corporation 20 Form 10-K 2007

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 may limit our ability to operate our business. Our current Credit Facility contains 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 restricts, among other things, our ability and the ability of our subsidiaries to:

Ø	borrow money;
Ø	pay dividends;
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.

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.

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.

LodgeNet Interactive Corporation 21 Form 10-K 2007

The price of our common stock may be volatile. As of December 31, 2007, a substantial portion of our common stock was held by a limited number of institutional investors, and the amount of capital stock held by non-institutional holders is believed to be limited. This concentration of ownership may limit the amount of stock available for sale or purchase at any particular time, and may result in significant increases or decreases in the price of our common stock due to factors which may not reflect the market as a whole or our economic condition or results of operations.

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 239,000 square feet including approximately 100,000 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 are currently adding an additional 40,000 square feet of space to our existing corporate facility. We believe that our facility, with the new addition, will be sufficient to accommodate foreseeable local operational space requirements.

We lease 44 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, Canada and Mexico. No individual facility occupies greater than 120,000 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.

On July 16, 2007, Advanced Satellite Systems, LLC, a Delaware limited liability company based in Utah, filed an action for patent infringement in the U.S. District Court in Salt Lake City, Utah. The suit alleges that the Company infringes a patent issued in October of 2006 entitled “Method and System Asymmetric Satellite Communications For Local Area Networks”. The complaint does not specify an amount in controversy. The complaint does not specify the alleged manner of infringement. The Company believes that it does not infringe the patent in question, has filed responsive pleadings as well as a motion for summary judgment, has a number of other substantive defenses, and is vigorously defending the action.

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, 2007.

LodgeNet Interactive Corporation 22 Form 10-K 2007

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 Stock Market (“NASDAQ Exchange “) under the symbol “LNET”. Our common stock began trading on the NASDAQ Exchange on October 14, 1993 upon the effectiveness of our initial public offering. As of March 7, 2008, there were outstanding 22,990,471 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.

Quarter Ended	High		Low		Quarter Ended	High		Low
March 31, 2007		30.72		24.26	March 31, 2006		15.70		13.05
June 30, 2007		36.01		30.48	June 30, 2006		19.33		15.41
September 30, 2007		34.56		23.67	September 30, 2006		19.41		17.80
December 31, 2007		28.24		17.44	December 31, 2006		26.75		17.63

On March 7, 2008, the closing price of our common stock, as reported by NASDAQ Exchange was $8.65. Stockholders are urged to obtain current market quotations for our common stock. As of March 7, 2008, we have 121 stockholders of record with approximately 86.8% of the shares held in “street name”. We estimate that as of March 7, 2008, we had more than 1,700 beneficial owners of our common stock.

The following table provides information with respect to acquisitions by us of our shares of common stock during the fourth quarter ended December 31, 2007 (in thousands of dollars, except share data):

Issuer Purchases of Equity Securities

					Total Number of		Approximate Dollar
					Shares Purchased as		Value of Shares that
	Total Number				Part of Publicly		May Yet Be
	of Shares		Average Price		Announced Plans or		Purchased Under the
Period	Purchased		Paid per Share		Programs		Plans or Programs
12/1/2007 - 12/31/07		60,000	$	17.91		60,000	$	13,924

We purchased 60,000 shares during the fourth quarter of 2007 under a program authorized by our Board of Directors to repurchase up to $15.0 million of our common stock. This repurchase program was publicly announced in a press release on December 4, 2007.

Dividends

No dividends have been paid to date on our common stock. The terms and conditions of our bank Credit Facility 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 was submitted to a vote of the shareholders at the Company’s annual meeting in May 2007, but was not approved and terminated on February 28, 2008. 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.

LodgeNet Interactive Corporation 23 Form 10-K 2007

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.

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.

On February 28, 2007, the Board of Directors of the Company adopted an Amended and Restated Rights Plan (the 2007 Amended Rights Plan), which 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.

LodgeNet Interactive Corporation 24 Form 10-K 2007

The 2007 Amended Rights Plan incorporated 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.

As the 2007 Amended Rights Plan was not ratified by the Shareholders at the Company’s annual meeting on May 9, 2007, it expired on February 28, 2008. However, on February 28, 2008, the Company entered into a new rights plan (the “2008 Rights Plan”), which differs from the 2007 Amended Rights Plan principally in that (a) the term is reduced to a maximum of three years unless ratified by the Shareholders of the Company before the end of any three year period, (b) in the event of a Qualified Offer, the Rights Plan can be redeemed by a simple majority of the Shareholders at a special meeting convened by such purpose, (c) the provisions requiring review by the TIDE Committee have been eliminated, and (d) the definition of a “Qualified Offer” was amended to require that the offer be at a price greater than the highest reported market price per share during the prior 12 months, as compared to the prior plans that referred to a 24 month period. The Company intends to present the 2008 Rights Plan to the shareholders for approval at the 2008 Annual Meeting of the Shareholders.

LodgeNet Interactive Corporation 25 Form 10-K 2007

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,
	2007			2006			2005			2004			2003
Statement of Operations Data:
Revenues:
Guest Pay	$	446,235		$	277,433		$	267,754		$	258,571		$	243,732
Other		39,353			10,780			8,017			7,870			6,417
Total revenues		485,588			288,213			275,771			266,441			250,149
Direct costs (exclusive of operating expenses and depreciation and amortization)		253,163			131,953			123,228			119,193			111,947
Operating expenses (1)		236,662			129,328			129,850			134,278			131,702
Income from operations		(4,237	)		26,932			22,693			12,970			6,500
Investment gains		—			—			—			—			250
Write-off of debt issuance costs (2)		(22,195	)		(227	)		(272	)		(810	)		(7,061	)
Interest expense		(40,950	)		(25,730	)		(29,351	)		(31,891	)		(34,239	)
Other (expense) income, net		1,527			1,165			421			(629	)		(43	)
Income (loss) before income taxes		(65,855	)		2,140			(6,509	)		(20,360	)		(34,593	)
Benefit (provision) for income taxes (3)		683			(299	)		(450	)		(421	)		(459	)
Net (loss) income	$	(65,172	)	$	1,841		$	(6,959	)	$	(20,781	)	$	(35,052	)
Net (loss) income per common share (basic and diluted)	$	(3.00	)	$	0.10		$	(0.39	)	$	(1.36	)	$	(2.80	)
Other Data:
Capital expenditures (4)	$	79,097		$	48,268		$	51,855		$	54,917		$	52,868
Average cost per room – new installation	$	399		$	354		$	340		$	364		$	405
Depreciation and amortization (5)	$	116,378		$	66,311		$	69,862		$	77,045		$	78,459
Restructuring costs / expenses	$	11,158		$	—		$	—		$	—		$	—
Share-based compensation	$	1,737		$	1,677		$	288		$	198		$	—
Non-Financial Operating Data:
Total rooms served (6) (9)		1,962,090			1,052,025			1,053,806			1,034,605			994,127
Guest Pay interactive rooms served (7) (9)		1,860,720			1,004,937			1,001,929			974,798			924,643
Rooms with Digital services (8)		1,471,608			733,362			629,085			508,979			385,426
Rooms with HD services (10)		84,327			23,502			259			—			—
Cable Programming (FTG) Rooms (11)		1,068,256			535,777			536,984			525,436			500,170
Total Broadband Internet Rooms (12)		218,619			37,686			—			—			—
Average monthly revenue per Guest Pay room:
Movie revenue	$	16.62		$	17.27		$	17.00		$	17.39		$	17.55
Other interactive service revenue		5.97			5.75			5.53			5.47			5.04
Total	$	22.59		$	23.02		$	22.53		$	22.86		$	22.59

LodgeNet Interactive Corporation 26 Form 10-K 2007

	As of December 31,
	2007			2006			2005			2004			2003
Balance Sheet Data:
Cash and cash equivalents	$	25,569		$	22,795		$	20,742		$	24,995		$	2,772
Total assets	$	693,823		$	263,209		$	263,072		$	283,036		$	283,268
Total debt	$	624,594		$	270,169		$	292,000		$	312,291		$	368,248
Total stockholders’ deficiency	$	(48,242	)	$	(58,122	)	$	(70,233	)	$	(72,118	)	$	(129,002	)

	Year Ended December 31,
	2007			2006			2005			2004			2003
Statement of Cash Flows Data:
Cash provided by operating activities	$	58,869		$	72,301		$	64,285		$	60,614		$	48,563
Property and equipment additions		(79,097	)		(48,268	)		(51,855	)		(54,917	)		(52,868	)
		(20,228	)		24,033			12,430			5,697			(4,305	)
Cash used for acquisition and other activities, net		(354,177	)		(2,336	)		400			—			250
	$	(374,405	)	$	21,697		$	12,830		$	6,264		$	(5,055	)

(1) Operating expenses for 2007 included integration expenses of $5.6 million and restructuring expenses of $11.2 million. Integration expenses are defined as incremental costs associated with activities to combine or merge an operation that is not being closed, exited, or disposed of. Since we will realize certain future benefits, these costs are accounted for within our Guest Pay operating expenses and SG&A expenses as components of continuing operations.

(2) During 2007, we redeemed 199,990 notes of our 9.50% Senior Notes due June 15, 2013, and as a result of the early redemption we recognized a loss of $22.2 million, representing call and tender premiums and related expenses including the write off unamortized debt issuance costs.

(3) The benefit (provision) for income taxes consists of current federal income, state franchise taxes, and foreign taxes.

(4) Presented as cash used for property and equipment additions as reported in the Statement of Cash Flows.

(5) Includes amortization of acquired intangibles.

(6) Total rooms served include guest pay interactive rooms, rooms served by international licensees, and properties receiving only basic and premium televisions services.

(7) Interactive rooms are equipped with our interactive television systems.

(8) 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 Interactive rooms and represent 79% of the Interactive rooms served as of December 31, 2007.

(9) Total room count for 2007 was not affected as a result of Hurricane Katrina but prior years were reduced by 4,053 rooms in 2006 and 8,195 rooms in 2005.

(10) HD rooms are equipped with high-definition capabilities.

(11) Cable programming rooms are equipped to provide satellite-delivered basic and premium television programming and are included in total rooms served.

(12) Represents rooms receiving broadband Internet service included in total rooms served.

LodgeNet Interactive Corporation 27 Form 10-K 2007

Special Note Regarding Forward-Looking Statements

Certain statements in this report or document incorporated herein by reference 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, 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 in Item 1A of our most recent Annual Report on Form 10-K for the year ended December 31, 2007 and filed on March 14, 2008, in any prospectus supplement or any report or document incorporated herein by reference, such factors include, among others, the following:

Ø	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;
Ø	competition from providers of similar services and from alternative sources;
Ø	changes in demand for our products and services, programming costs, availability, timeliness, and quality;
Ø	technological developments by competitors;
Ø	developmental costs, difficulties, and delays;
Ø	relationships with clients and property owners;
Ø	the availability of capital to finance growth;
Ø	the impact of government regulations;
Ø	potential effects of litigation;
Ø	risks of expansion into new markets;
Ø	risks related to the security of our data systems; and
Ø	other factors detailed, from time to time, in our filings with the SEC.

With respect to any proposed or completed 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.

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

During 2007, we transformed our company from a company historically focused on movies and entertainment to an organization that is now the largest provider of interactive media, and connectivity solutions to the hospitality and healthcare industries. We continue to build upon our corporate strategy of expanding our networks and integrating additional market-valued solutions. In February 2007, we acquired substantially all of the assets of StayOnline, Inc., a leading provider of broadband solutions focused on the lodging industry, which presents an opportunity to drive additional revenue streams through our customer base by providing broadband Internet solutions and services – one of the most highly demanded services of the business traveler. The combination of StayOnline’s expertise and industry relationships, with our significant resources and hotel relationships, will allow us to enhance the array of broadband solutions we can deliver to our customers, all backed by our nationwide customer service organization.

LodgeNet Interactive Corporation 28 Form 10-K 2007

Another significant 2007 step that expands our networks to a broader range of solutions for our customers was our acquisition of On Command Corporation (On Command). On April 4, 2007, we acquired, for $380 million, 100% of the capital stock of Ascent Entertainment Group, Inc. (“Ascent”), which was a wholly owned subsidiary of Liberty Satellite. Ascent owned 100% of the capital stock of On Command. This acquisition expands the benefits that we can bring to our hospitality customers. On Command provides interactive media services to approximately 832,000 hotel rooms throughout the United States, Canada, and Mexico. It also owned 80% of the capital stock of The Hotel Networks, Inc., (“THN”) a distributor of advertising-supported, satellite-delivered television programming to approximately 357,000 rooms throughout the United States. In July of 2007, we acquired the remaining 20% interest of THN. During 2007, we initiated and substantially completed a plan to integrate the acquisitions into LodgeNet. As a result of our transformation into interactive media, and connectivity services, in early 2008, we changed the name of LodgeNet Entertainment Corporation to LodgeNet Interactive Corporation.

For 2007, we achieved revenue of $485.6 million, an increase of $197.4 million over 2006. Our net loss of $(65.2) million or $(3.00) per share (basic and diluted) included post acquisition costs of $25.3 million for restructuring, integration, and amortization of acquired intangibles and a $22.2 million one-time charge for debt refinancing. We have increased total rooms by 87% to almost 2.0 million, more than doubled the digital rooms to approximately 1.5 million, doubled the number of cable programming rooms served, expanded high definition (HD) rooms by more than two and a half times to 84,000, and increased broadband Internet rooms by almost five fold to 219,000. We also added advertising media services into approximately 400,000 rooms, and expanded our healthcare base to more than 20 facilities. Our strategic transformation places us in a unique position to deepen our customer relationships and drive new revenues. Leveraging on the significant benefits of our accelerated integration, we believe we are positioned to drive additional operational efficiencies and diversify our revenues by focusing on delivering high-definition television, broadband Internet, and professional and advertising media solutions across our expanding customer base in 2008 and beyond.

For 2007, our Guest Pay revenue, which includes guest entertainment purchases and contracted revenue from hotels for services such as basic and premium programming television channels and broadband Internet connectivity, increased $168.8 million or 60.8% to $446.2 million. Other revenue, which includes healthcare, advertising and media services (THN), broadband and interactive television system sales, increased to $39.4 million during 2007 versus $10.8 million in 2006. The increase was a direct result of the acquisitions previously discussed and our business diversification initiatives.

Total direct costs (exclusive of operating expenses and depreciation and amortization discussed separately below) were $253.2 million, an increase of $121.2 million as compared to $132.0 million in 2006. As a percentage of revenue, direct costs related to Guest Entertainment programming and hotel commissions remained flat year over year. The increase in total direct costs to 52.1% in 2007 as compared to 45.8% last year was driven by two primary components; 1) the lower margin inherent in the broadband business and 2) higher programming costs related to the On Command basic and premium television programming business. We expect to eliminate these discounts and reverse the lower margins as certain hotel sites are upgraded to high-definition television capabilities. The balance of the increase is from nominal increases to programming costs and hotel commissions.

As a result of the acquisitions, Guest Pay operations expenses increased to $54.1 million in 2007 compared to $35.2 million in 2006. Guest Pay operations expenses included $1.7 million of integration related expenses. As a percentage of revenue, Guest Pay operations expenses were 11.1% this year compared to 12.2% in 2006. Per average installed room, operations expenses decreased to $2.71 per room per month compared to $2.92 in the prior year.

Selling, general and administrative (SG&A) expenses increased $26.9 million as a result of the acquisitions from $29.0 million in 2006 to $55.9 million in the current year, which included G&A expenses from both acquired companies. Also included within this year’s SG&A expenses were approximately $4.0 million of integration expenses. As a percentage of revenue, SG&A expenses were 11.5% in the current year compared to 10.1% in 2006. SG&A expenses per average installed room were $2.79 in 2007 compared to $2.41 per average installed room in 2006.

In conjunction with our acquisitions, we initiated a restructuring and integration plan during 2007 with the goal of eliminating duplicative functions and achieving greater operating efficiencies (see Note 15 to the Consolidated Financial Statements). We incurred restructuring costs of $11.2 million during the year. The restructuring expenses were related to employee severance costs for consolidation of administrative, sales, engineering, marketing, programming and technical operations departments, consolidation of warehouse and manufacturing facilities, and consolidation of our call center operations.

LodgeNet Interactive Corporation 29 Form 10-K 2007

Our cash and liquidity position remained stable through the acquisitions and accelerated restructuring and integration activities. We ended the year with cash of $25.6 million and we are in compliance with all bank covenants. For the year, cash provided by operating activities was $58.9 million, which was reduced by $38.2 million of cash used primarily for acquisition refinancing, restructuring and integration related activities. We used cash for property and equipment additions, including growth related capital of $79.1 million. In addition, cash used for the acquisition investments was $354.8 million, which was primarily funded from our debt refinancing.

Core Businesses

Guest Pay Interactive Services (includes guest entertainment purchases and revenue from hotels for services such as free-to-guest television channels and broadband Internet connectivity). 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 television 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 that may not meet our return on investment requirement and may select programming from a local cable provider.

• The variety of services offered at the hotel. Rooms equipped with our high-definition or standard 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 HDTV system in all newly contracted rooms and by converting selected rooms to our HDTV 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 general economic conditions. Our technology enables us to measure the 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 for the properties we serve 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.

LodgeNet Interactive Corporation 30 Form 10-K 2007

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;
Ø	fixed monthly programming charges paid primarily to DIRECTV for satellite-delivered basic and premium television programming;
Ø	broadband Internet connectivity costs and call center support;
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 increased $28.6 million to $39.4 million during 2007 versus $10.8 million in 2006. The increase was a direct result of our initiatives to diversify our revenue including the expansion of our advertising and media services, increased broadband equipment and interactive television system equipment sales to hotels, increased equipment sales to health care facilities and increased equipment sales to travel centers. The advertising and media revenue was generated primarily by The Hotel Networks, a subsidiary acquired as part of the On Command acquisition.

Revenue generated from other products and services includes the following:

Ø	revenue generated from our advertising and media services;
Ø	revenue generated from the sale of our Guest Pay interactive systems to healthcare facilities, along with recurring support for interactive content, software maintenance and technical field service for a fixed fee;
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 multi-service connection equipment, television remotes and service parts and labor;
Ø	revenues from the sale of equipment to our international licensees;
Ø	revenues from the installation of master antenna low voltage 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 Interactive Corporation 31 Form 10-K 2007

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, a non-GAAP measure, as cash provided by operating activities less cash used for certain investing activities and excluding consideration paid for acquisitions. 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. A reconciliation of net free cash flow to cash provided by operating activities is provided as follows (in thousands of dollars):

	2007			2006		2005
Net free cash flow	$	(374,405	)	$	21,697	$	12,830
Add:
Cash used for property and equipment additions		79,097			48,268		51,855
Cash used for acquisitions and other activities		354,177			2,336		(400	)
Cash provided by operating activities	$	58,869		$	72,301	$	64,285

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 HDTV or digital room and by varying the number of rooms we install with the HDTV or digital system in any given period. During 2007, cash expenditures for our acquisition activities included $354.8 million for acquisition investments and $38.2 million of cash used primarily for acquisition refinancing, restructuring and integration related activities.

Levels of net free cash flow are set forth in the following table in thousands of dollars:

	2007			2006			2005
Cash provided by operating activities (1)	$	58,869		$	72,301		$	64,285
Property and equipment additions		(79,097	)		(48,268	)		(51,855	)
		(20,228	)		24,033			12,430
Cash used for acquisitions and other activities (2)		(354,177	)		(2,336	)		400
	$	(374,405	)	$	21,697		$	12,830

(1)	Cash provided by operating activities for the year ended December 31, 2007, included $38.2 million of cash used for acquisition refinancing, restructuring and integration including $18.6 million for the redemption of our 9.5% Senior Notes.
(2)	Cash used for acquisition activities related to the acquisitions of On Command, THN and StayOnline.

LodgeNet Interactive Corporation 32 Form 10-K 2007

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

	2007		2006		2005
Expansion capital investment (1)	$	24,668	$	22,291	$	24,231
Renewal investment (2)		25,772		13,317		14,091
Corporate capital and minor extensions (3)		28,657		12,660		13,533
	$	79,097	$	48,268	$	51,855

(1)	Capital investment to install newly contracted rooms with our digital or HDTV system.
(2)	Capital investment to convert rooms to our digital or HDTV system in exchange for long-term contact extensions.
(3)	Capital investment for corporate infrastructure including computers, equipment, software development and minor system upgrades.

Rooms Served

One of the metrics we monitor is the growth, net of de-installations, of our interactive television network. During 2007, our room base increased by more than 900,000 rooms, primarily from the acquisition of On Command. Over the last five years, de-installation activity averaged approximately 3% of our total installed room base. As lower revenue tape-based systems come up for contract renewal the overall economics may not support upgrading the site to our HDTV 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 television room base. We expect this trend to continue as we focus on the quality of rooms installed and upgraded with an objective of 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:

	2007		2006		2005
Total rooms served (1)		1,962,090		1,052,025		1,053,806
Total Guest Pay interactive rooms (2)		1,860,720		1,004,937		1,001,929
HD rooms (3)		84,327		23,502		259
Total Cable Programming (FTG) Rooms (4)		1,068,256		535,777		536,984
Total Broadband Internet rooms (5)		218,619		37,686		—
Net new Guest Pay interactive rooms (6)		30,228		3,008		35,326

(1)	Total rooms served include interactive television rooms, rooms served by international licensees, properties receiving only basic and premium television services and properties receiving only broadband services. The increase from 2006 is due to the addition of the On Command room base of approximately 830,000 rooms.
(2)	Interactive rooms are equipped with our interactive television systems.
(3)	HD rooms are equipped with high-definition capabilities.
(4)	Cable programming rooms receiving basic or premium television programming.
(5)	Represents rooms receiving broadband Internet service included in total rooms served.
(6)	Amounts shown are net of de-installations during the period. The gross number of new rooms installed was 71,430, 65,993 and 71,731 for 2007, 2006 and 2005, respectively.

LodgeNet Interactive Corporation 33 Form 10-K 2007

High Definition and Digital Room Growth

We continue to expand our digital base, including high-definition television (HDTV), as we install our HDTV system in newly contracted rooms and convert select rooms to the HDTV system in exchange for long-term contract extensions. Rooms equipped with our digital or HDTV system typically generate higher revenue since the range of services is greater than rooms equipped with our tape-based systems.

	2007			2006			2005
Total digital rooms installed		1,471,608			733,362			629,085
Digital rooms as a percent of total Guest Pay interactive rooms		79	%		73	%		63	%
Net new digital rooms installed		120,300			104,277			120,106
Total HDTV rooms installed (1)		84,327			23,502			259

(1) HDTV rooms are equipped with high-definition capabilities and are included in total digital rooms.

Capital Investment Per Room

The average investment per-room associated with a digital installation can fluctuate due to engineering efforts, component costs, product segmentation, cost of assembly and installation, 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:

	2007		2006		2005
Average cost per room — new installation	$	399	$	354	$	340
Average cost per room — conversion	$	309	$	252	$	262
Average cost per HD room — new installation	$	460	$	438	$	—
Average cost per HD room — conversion	$	312	$	289	$	—

The increase in the average cost per new room from 2006 to 2007 is primarily driven by the decrease in average number of rooms per property and the increase in high definition installations, which have a higher equipment cost per room. The incremental cost for a high-definition installation ranges from approximately $50 to $100 per room depending upon the average number of rooms per property, the mix of high-definition services and the amount of capital contributed by the hotel.

Revenue Per Room

Guest Entertainment 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 following table sets forth the components of our Guest Entertainment revenue per room for the years ended December 31:

	2007		2006		2005
Average monthly revenue per room:
Movie revenue	$	16.62	$	17.27	$	17.00
Other interactive service revenue		5.97		5.75		5.53
Total per Guest Pay room	$	22.59	$	23.02	$	22.53

Certain contracts within our acquired On Command customer base included discounts for satellite-delivered basic and premium television programming which negatively impacted other interactive service revenue. We expect to eliminate these discounts as the sites are upgraded to high-definition television capabilities.

LodgeNet Interactive Corporation 34 Form 10-K 2007

Direct Costs

Guest Entertainment 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. As a percentage of revenue, direct costs related to movie programming and hotel commissions remained flat year over year. Guest Entertainment direct costs related to hotel services increased by 520 basis points over 2006 and were driven by two primary components; 1) 190 basis points were associated with our acquired broadband Internet business, and 2) 290 basis points were associated with the lower margins related to the On Command basic and premium television programming business. The balance of the change was from nominal increases in other direct costs. The following table sets forth our Guest Entertainment direct expenses per room and as a percent of revenue during the years ended December 31:

	2007			2006			2005
Guest Pay direct costs per room	$	10.26		$	10.51		$	10.03
Guest Pay direct costs as a percent of total revenue		50.8	%		45.6	%		44.5	%

Operating Expense

System 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 On Command and StayOnline acquisitions added more than 800,000 rooms to the serviceable room base and accounted for a $37.7 million increase in SG&A and system operations expenses. We also incurred approximately $11.2 million of expenses related to the restructuring of the two acquisitions during 2007 (see Note 15 to the Consolidated Financial Statements).

	2007			2006			2005
Guest pay operating expenses (1)	$	2.71		$	2.92		$	2.96
SG&A expense (2)		2.79			2.41			2.14
Depreciation and amortization (D&A)		5.56			5.50			5.88
Amortization of acquired intangibles		0.51			—			—
Restructuring		0.64			—			—
Other operating expense (income), net (3)		(0.04	)		(0.10	)		(0.04	)
	$	12.17		$	10.73		$	10.94

(1)	Guest Entertainment operating expenses include $1.7 million directly related to integration activities.
(2)	SG&A expenses include $4.0 million directly related to integration activities.
(3)	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)

As a result of our acquisitions and the refinancing activities in 2007, net loss was $(65.2) million compared to net income of $1.8 million in 2006. The net loss included $25.3 million of acquisition related costs for restructuring, integration, and amortization of acquired intangibles and a $22.2 million one-time charge related the debt refinancing. These results are not indicative of our ability to generate net income in the future. The following table sets forth our net income (loss) for the year ended December 31 (in thousands of dollars):

	2007			2006		2005
Net (loss) income	$	(65,172	)	$	1,841	$	(6,959	)

LodgeNet Interactive Corporation 35 Form 10-K 2007

Liquidity and Capital Resources

Our cash and liquidity position remained stable throughout 2007. We ended the year with cash of $25.6 million and are in compliance with all bank Credit Facility and covenants. For the year, cash provided by operating activities was $58.9 million, which was reduced by $38.2 million of cash used primarily for acquisition refinancing, restructuring and integration related activities. We used cash for property and equipment additions, including growth related capital of $79.1 million. In addition, cash used for the acquisition investments was $354.8 million, which was primarily funded from our debt refinancing. During 2006, cash provided by operating activities was $72.3 million while cash used for investing activities, including growth-related capital investments, was $48.3 million. Cash as of December 31, 2007 was $25.6 million versus $22.8 million as of December 31, 2006.

Our principal sources of liquidity are our cash on hand, operating cash flow and the $50 million revolver portion of our Credit Facility, which matures in 2013. 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, 2007, working capital was $8.1 million, compared to $19.5 million at December 31, 2006.

In order to continue to operate and expand our business, we must remain in compliance with covenants imposed by our Credit Facility. 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 climate and business conditions that are beyond our control. 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 and we may need to refinance all or a portion of our indebtedness on or before maturity, or sell assets. As of December 31, 2007, 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 the current portion, as of December 31, 2007 was $624.6 million versus $270.2 million as of December 31, 2006.

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

	2007		2006		2005
Actual consolidated total leverage ratio (1) (3)		4.39		2.86		3.16
Maximum per covenant		5.00		3.50		4.00
Actual consolidated interest coverage ratio (2) (3)		3.47		3.85		3.20
Minimum per covenant		2.25		2.75		2.50

(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.
(2)	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.
(3)	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.

LodgeNet Interactive Corporation 36 Form 10-K 2007

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

Certain of our future debt covenant ratios will change as follows:

	Q1 2008		Q3 2008		Q1 2009		Q3 2009
Maximum consolidated total leverage ratio		4.75		4.50		4.25		4.00
Minimum consolidated interest coverage ratio		2.50		2.50		2.75		2.75

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 could be increased to $100.0 million, subject to certain limitations. The term loan was scheduled to mature in August 2008 and required quarterly repayments of $375,000 which began in December 2001. On April 4, 2007, the remaining balance of $67.8 million under the $225.0 million bank Credit Facility was repaid in full.

On April 4, 2007, we entered into a $675.0 million bank Credit Facility comprised of a $625.0 million term loan, which matures in April 2014 and a $50.0 million revolving credit facility that matures in April 2013. The term loan requires a quarterly repayment of $1,562,500 beginning September 30, 2007. The term loan bears interest at our option of (1) the bank’s base rate plus a margin of 1.00% or (2) LIBOR plus a margin of 2.00%. The agreement provides that when the consolidated leverage ratio is below 3.25 times, the term loan bears interest at our option of (1) the bank’s base rate plus a margin of 0.75% or (2) LIBOR plus a margin of 1.75%. The term loan is secured by substantially all of the assets of the Company. The Credit Facility agreement also stipulates that the company will hedge at least 50% of the outstanding term loan into a fixed interest rate for a period not less than two years. The company has entered into fixed rate swap agreements for 86% of the outstanding term loan at an average interest rate of 4.85%. The term loan all-in interest rate as of December 31, 2007 was 6.83%. Proceeds from the Credit Facility were used to repay the outstanding balance under the pre-existing Credit Facility, to fund the acquisition of On Command, to fund the tender offer for the 9.50% Senior Notes and for general corporate purposes. As of December 31, 2007, we were in compliance with all financial covenants of our 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, 2007, we had outstanding letters of credit totaling $0.8 million.

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

On March 26, 2007, the company made an offer to the holders of the 9.50% Senior Notes to purchase all of the outstanding Notes validly tendered pursuant to the Tender Offer at a price per $1,000 principal amount of Notes, equal to the accrued and unpaid interest, principal and a consent payment of $30 per $1,000 principal amount of Notes. The tender expired on April 23, 2007 at which time 199,990 notes, representing principal of $199,990,000, were tendered out of the total 200,000 Notes outstanding. In total, the company paid $18.6 million, plus accrued interest to tender for the Notes. At the time of the tender offer, the Indenture related to the 9.50% Senior Notes was amended to remove substantially all of the operating covenants.

LodgeNet Interactive Corporation 37 Form 10-K 2007

Obligations and Commitments as of December 31, 2007 (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)	$	624,594	$	7,398	$	13,881	$	12,680	$	590,635
Interest on fixed rate debt		6		1		2		2		1
Interest on bank term loan (1)		261,451		43,019		84,503		82,772		51,157
Interest on derivative instruments		4,219		143		854		1,985		1,237
Operating lease payments		7,439		2,996		4,109		334		—
Uncertain tax positions (2)		—		—		—		—		—
Purchase obligations (3)		6,490		6,490		—		—		—
Nintendo minimum royalty (4)		22,750		4,200		8,400		8,400		1,750
Programming related minimum royalties and commissions (5)		7,719		2,824		4,607		288		—
Total contractual obligations	$	934,668	$	67,071	$	116,356	$	106,461	$	644,780

			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	$	810	$	810	$	—	$	—	$	—

(1)	Interest payments are estimates based on current LIBOR and scheduled amortization.
(2)	Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2007, the company does not have unresolved income tax positions.
(3)	Consists of open purchase orders primarily for the procurement of system components.
(4)	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. See Note 10 to the Consolidated Financial Statements.
(5)	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 Interactive Corporation 38 Form 10-K 2007

Results of Operations — Years Ended December 31, 2007 and 2006

Revenue Analysis

Total revenue for 2007 was $485.6 million, an increase of $197.4 million, or 68.5%, compared to 2006. The growth was primarily driven by the integration of our On Command and StayOnline acquisitions, which contributed $184.7 million to revenue. New revenue streams, including broadband interactive, advertising, healthcare facilities and travel centers, increased to $39.4 million during 2007 versus $10.8 million in 2006. The increase was a direct result of our business acquisition and diversification initiatives. The following table sets forth the components of our revenue (in thousands) for the years ended December 31:

	2007					2006
			Percent					Percent
			of Total					of Total
Revenues:	Amount		Revenues			Amount		Revenues
Guest Pay	$	446,235		91.9	%	$	277,433		96.3	%
Other		39,353		8.1	%		10,780		3.7	%
	$	485,588		100.0	%	$	288,213		100.0	%

Guest Pay Interactive Services includes guest entertainment purchases and revenue from hotels for services such as free-to-guest television channels and broadband Internet connectivity. Revenue from Guest Entertainment services was $446.2 million, an increase of $168.8 million or 60.8% compared to 2006. Guest Entertainment revenue per room decreased to $22.59 per month in 2007 from $23.02 per month in 2006. The decline resulted from the addition of the On Command room base, which during the year generated lower revenue per room for both movie revenue and basic and premium television programming services than the pre-acquisition LodgeNet room base. The following table sets forth information with respect to revenue per Guest Entertainment room for the years ended December 31:

	2007		2006
Average monthly revenue per room:
Movie revenue	$	16.62	$	17.27
Other interactive service revenue		5.97		5.75
Total per Guest Pay room	$	22.59	$	23.02

Consolidated movie revenue per room was $16.62 for 2007 compared to LodgeNet of $17.27 in the prior year. On a stand alone basis, the movie revenue per room from the LodgeNet and On Command room bases were $16.89 and $16.28, respectively, for 2007. Other Guest Entertainment revenue per room, which includes basic and premium television programming services, TV-on-demand, games and music, and broadband Internet, was $5.97 on a consolidated basis in 2007 versus $5.75 in the prior year. On a stand alone basis, Other Guest Entertainment revenue from the LodgeNet and On Command room bases were $6.61 and $5.19, respectively, for 2007.

Other revenue includes revenue from sales of system equipment and service parts and labor, basic and premium television programming services provided to hotels not receiving Guest Entertainment services, and other revenue. Other revenue increased $28.6 million to $39.4 million during 2007 versus $10.8 million in 2006. The increase was a direct result of our diversification initiatives including the expansion of our advertising and media services, increased broadband equipment and interactive television system equipment sales to hotels, increased equipment sales to health care facilities and increased equipment sales to travel centers. The advertising and media revenue was generated primarily by The Hotel Networks, a subsidiary acquired as part of the On Command acquisition.

LodgeNet Interactive Corporation 39 Form 10-K 2007

Expense Analysis

Total direct costs (exclusive of operating expenses and depreciation and amortization discussed separately below) were $253.2 million, an increase of $121.2 million as compared to $132.0 million in 2006. As a percentage of revenue, direct costs related to Guest Entertainment programming and hotel commissions remained flat year over year. The increase in total direct costs to 52.1% in 2007 as compared to 45.8% last year was driven by two primary components; 1) the lower margin inherent in the broadband business and 2) higher programming costs related to the On Command basic and premium television programming business. We expect to eliminate these discounts and reverse the lower margins as certain hotel sites are upgraded to high-definition television capabilities. Per average Guest Entertainment room, total monthly direct costs increased to $12.96, or 18.4%, in 2007 compared to $10.95 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:

	2007			2006			Change
Direct costs as a percent of revenue (exclusive of operating expenses and depreciation and amortization discussed separately below):		52.1	%		45.8	%		6.3	%
Change drivers:
Broadband related								3.1	%
Cable Programming (FTG)								2.6	%
Other direct costs (Non Guest Entertainment)								0.7	%
Guest Entertainment Programming Costs								-0.3	%
Hotel Incentive Commissions — Movies								0.2	%
								6.3	%

Other direct costs include costs related to system sales, basic and premium television programming only fees, and international royalties. Other direct costs increased $21.0 million to $26.3 million in 2007 as compared to $5.3 million in the prior year. The increase was primarily related to the cost of sales associated with the acquired broadband business.

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

	2007						2006
				Percent						Percent
				of Total						of Total
	Amount			Revenues			Amount			Revenues
Operating expenses:
System operations (1)	$	54,114			11.1	%	$	35,223			12.2	%
Selling, general and administrative (2)		55,878			11.5	%		28,999			10.1	%
Depreciation and amortization		107,834			22.2	%		66,311			23.0	%
Amortization of acquired intangibles		8,544			1.8	%		—			—
Restructuring expenses (3)		11,158			2.3	%		—			—
Other operating income, net (4)		(866	)		(0.2	)%		(1,205	)		(0.4	)%
Total operating expenses	$	236,662			48.7	%	$	129,328			44.9	%

(1)	System operations expenses include $1.7 million directly related to integration activities.
(2)	SG&A expenses include $4.0 million directly related to integration activities.

LodgeNet Interactive Corporation 40 Form 10-K 2007

(3)	Restructuring or exit costs are defined as costs associated with the closing, disposal or exit of certain duplicate facilities or operations including termination benefits ands costs to consolidate facilities or relocate employees. The company will not realize future benefits from these costs.
(4)	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.

As a result of our post acquisition activities, we incurred restructuring costs of $11.2 million during the year ended December 31, 2007, all of which are included in operating expenses on the Consolidated Statement of Operations. StayOnline restructuring expenses of $833,000 were related to employee severance agreements and the consolidation of warehouse and call center operations. On Command restructuring expenses of $10.3 million consisted of $8.3 million in employee severance, $949,000 in facility consolidation and relocation expenses and $1.1 million of other restructuring costs. Employee severance costs relate to the consolidation of administrative, sales, engineering, marketing, programming and technical operations departments. The facility consolidation and relocation expenses relate to our relocation of several functions performed at a leased facility in Denver to Sioux Falls including warehousing, purchasing and system assembly.

We estimate there will be additional employee severance costs of approximately $2.0 to $3.0 million charged to restructuring over the next twelve months as the remaining duplicate general and administrative functions are phased out.

As a result of the acquisitions, Guest Entertainment operations expenses (consisting of costs directly related to the operation and maintenance of systems at hotel sites) increased to $54.1 million in 2007 compared to $35.2 million in 2006. Guest Entertainment operations expenses included $1.7 million of integration related expenses. As a percentage of revenue, Guest Entertainment operations expenses were 11.1% this year compared to 12.2% in 2006. Per average installed room, operations expenses decreased to $2.71 per room per month compared to $2.92 in the prior year.

Selling, general and administrative (SG&A) expenses increased $26.9 million as a result of the acquisitions from $29.0 million in 2006 to $55.9 million in the current year. Included within this year’s SG&A expenses were approximately $4.0 million of integration expenses. As a percentage of revenue, SG&A expenses were 11.5% in the current year compared to 10.1% in 2006. SG&A expenses per average installed room were $2.79 in 2007 compared to $2.41 per average installed room in 2006.

Depreciation and amortization expenses were $116.4 million in 2007. The depreciation and amortization expense included $45.1 million of depreciation related to On Command and $8.5 million of expense related to the amortization of acquired intangibles for the acquisition of StayOnline and On Command. As a percentage of revenue, depreciation and amortization expenses were 24.0% in 2007 compared to 23.0% in 2006.

As a result of our accelerated restructuring and integration activities, we incurred restructuring costs of $11.2 million during the year (see Note 15 to the Consolidated Financial Statements). During 2007, the restructuring expenses were related to employee severance costs for consolidation of administrative, sales, engineering, marketing, programming and technical operations departments, consolidation of warehouse and manufacturing facilities, and consolidation of our call center operations.

Operating Loss. As a result of the factors described above, our operating loss was $(4.2) million in 2007 as compared to $26.9 million of operating income in the prior year.

Write-Off of Debt Issuance Costs. During 2007, we incurred a $22.2 million charge as a result of the early retirement of $200 million related to our 9.5% note and $68 million of our Term B notes.

Interest Expense. Interest expense was $41.0 million in the current year versus $25.7 million in 2006. The increase resulted from the change in outstanding long-term debt, which increased as a result of the On Command acquisition to $621.9 million at December 31, 2007 from $268.1 million at December 31, 2006. The annualized interest rate decreased to 7.9% for the year versus 9.2% for 2006.

LodgeNet Interactive Corporation 41 Form 10-K 2007

Other Income (Expense). During 2007, we recorded $1.1 million of interest income and $323,000 of other income primarily related to the reversal of a tax provision. In 2006, we recorded a $238,000 recovery related to the settlement of an investment in Gamet Technology, Inc and interest income of $846,000. 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.

Taxes. During 2007, we incurred federal income, state franchise, and foreign taxes of approximately $720,000 and reversed a $1.4 million tax provision. The reversal was made as the statute of limitations expired. During 2006, we incurred federal income, state franchise, and foreign taxes of $299,000.

Net Income (Loss). Net loss was $(65.2) million for 2007 compared to a net income of $1.8 million in the prior year. Net loss per share for 2007 was $(3.00) compared to net income of $0.10 per share in 2006. The net loss included $25.3 million of acquisition related costs for restructuring, integration, and acquired intangibles and a $22.2 million one-time charge related the acquisition debt refinancing.

LodgeNet Interactive Corporation 42 Form 10-K 2007

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

In 2006, 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.

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 Entertainment room contributed the balance of the incremental revenue. On a per room basis, monthly Guest Entertainment 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 in 2006 as compared to $17.00 in 2005. 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 broadband services, offset in part by a decrease in revenue from on demand video games and TV Internet.

For 2006, our Guest Entertainment 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. System operations expenses decreased to $2.92 per average Guest Entertainment 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 Entertainment 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 Entertainment systems as higher-cost assets became fully depreciated while the cost basis of more recently installed Guest Entertainment systems were relatively lower. Amortization expense also decreased due to intangible assets becoming fully amortized. Depreciation and amortization expenses per average Guest Entertainment room decreased 6.5% to $5.50 in 2006 compared to $5.88 in the prior year.

LodgeNet Interactive Corporation 43 Form 10-K 2007

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. These policies are further discussed within the Notes of the financial statements as follows:

§	Revenue Recognition — footnote #2
§	Goodwill and Intangibles — footnote #7
§	Restructuring — footnote #15

Recent Accounting Developments

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 attributing a value to an asset or liability. Additionally, it establishes a fair value hierarchy for the underlying data used to generate those assumptions (i.e. quoted market prices versus an entity’s estimated value). This standard is effective for fiscal years beginning after November 15, 2007. Though 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.

In February 2007, the FASB issued FAS Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. (“SFAS No. 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We believe the adoption of SFAS No. 159 will not have a material impact on our consolidated financial position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements — An amendment of ARB No. 51. This standard requires the recognition of non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of new income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. Statement 160 also clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. The statement further requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Statement 160 also requires a substantial amount of new disclosures. This standard is effective for acquisitions beginning on or after December 15, 2008; early adoption is prohibited. We are currently evaluating the accounting treatment related to SFAS No. 160 and expect the adoption will not have significant impact on our consolidated financial position or results of operations.

In December 2007, the FASB issued FAS Statement No. 141 (Revised), Business Combinations. This standard significantly changes the framework related to accounting for business combinations. The revised standard requires an acquiring entity to recognize all assets and liabilities at the acquisition-date fair value including the following treatment:

§	Acquisition costs will generally be expensed as incurred;
§	“In Process” R&D will be recorded as an indefinite lived intangible asset at acquisition date;

LodgeNet Interactive Corporation 44 Form 10-K 2007

§	Restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date;
§	Liabilities will be recorded at acquisition date fair value and subsequently re-measured;
§	Minority interests will be valued at “fair value” at acquisition date; and
§	Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

Statement 141R also requires a substantial amount of new disclosures. This standard is effective for acquisitions beginning on or after December 15, 2008; early adoption is prohibited. We believe the adoption of SFAS No. 141R will not have an impact on our consolidated financial position or results of operations.

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, 2007, we had debt totaling $624.6 million with an all-in weighted average interest rate of 7.92%. We have two interest rate swap agreements with notional values of $312.5 million at a rate of 5.09% and $125.0 million, at a rate of 4.97%, both of which expire in June 2011. In addition, we entered into a $100.0 million notional amount swap in November 2007, at a rate of 3.97%, which expires in December 2009. After giving effect to the interest rate swap arrangements, we had fixed rate debt of $540.2 million and variable rate debt of $84.4 million at December 31, 2007. For fixed rate debt, interest rate fluctuations affect the fair market value but do not impact earnings or cash flows, if effective. 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 $92.0 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 $844,000, assuming other variables remain constant.

Economic Condition. 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, general economic, or other events, such as a recession in the US, 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.

Foreign Currency Transactions. A portion of our revenues is derived from the sale of Guest Entertainment services in Canada and Mexico. The results of operations and financial position of our operations in Canada and Mexico are measured in their local currencies and translated into U.S. dollars. The effects of foreign currency fluctuations in Canada and Mexico are somewhat mitigated by the fact that expenses and liabilities are generally incurred in the local currency. The reported income of our Canadian and Mexican subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the local currency. Additionally, a portion of our assets are based in Canada and Mexico and are 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 local currency.

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.

LodgeNet Interactive Corporation 45 Form 10-K 2007

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 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. Management has excluded Ascent and StayOnline from its assessment of internal control over financial reporting as of December 31, 2007 as they were acquired by the Company during 2007.

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, 2007, our internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the financial statements of the company and issued an attestation report on LodgeNet’s internal control over financial reporting which is contained in their audit opinion appearing 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 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B — Other Information

None.

LodgeNet Interactive Corporation 46 Form 10-K 2007

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 Interactive Corporation 47 Form 10-K 2007

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 Interactive 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, 2007, included herein.

Exhibits — Following is a list of Exhibits filed with this report. Exhibits 10.17 through 10.23 constitute management contracts. Exhibits 10.1, 10.2, 10.3, 10.7, 10.8, 10.9, 10.10, and 10.11 constitute compensatory plans.

If you would like a copy of any of the Exhibits listed herein, please submit a written request to LodgeNet Interactive 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 (2)
3.3	Amendment No. 1 to Restated Certificate of Incorporation of LodgeNet (3)
3.4	Certificate of Ownership and Merger merging LodgeNet Interactive Corporation into LodgeNet Entertainment Corporation (4)
4.1	Indenture dated June 18, 2003 between LodgeNet Interactive Corporation and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (5)
4.2	Form of Notes (included in Exhibit 4.1)
4.3	First Supplemental Indenture dated June 18, 2003 between LodgeNet Interactive Corporation and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (6)
4.4	Second Supplemental Indenture dated January 15, 2007 between LodgeNet Interactive Corporation and HSBC Bank USA as Trustee, relating to the 9.50% Senior Subordinated Notes due 2013 (7)
4.5	Third Supplemental Indenture dated as of April 10, 2007, among LodgeNet StayOnline, Inc., a Delaware corporation (the “Guaranteeing Subsidiary”), LodgeNet Entertainment Corporation, a Delaware corporation (the “Issuer”), and HSBC Bank USA, National Association, as trustee under the indenture referred to below (the “Trustee”). (8)
4.6	Rights Agreement dated as of February 28, 2008 between LodgeNet Interactive Corporation and Computershare Investor Services, LLC.
10.1	LodgeNet Interactive Corporation Stock Option Plan (as amended and restated effective May 9, 2001) (9)
10.2	1993 Plan Form of Stock Option Agreement for Non-Employee Directors (10)
10.3	1993 Plan Form of Incentive Stock Option Agreement for Key Employees (10)
10.4	Master Services Agreement between Hilton Hotels Corporation and LodgeNet Interactive Corporation dated October 9, 2000 † (11)

LodgeNet Interactive Corporation 48 Form 10-K 2007

10.5	Amendment To Master Services Agreement dated August 2, 2002 by and between Hilton Hotels Corporation and LodgeNet Interactive Corporation (12)
10.6	Hilton LodgeNet Agreement dated August 2, 2002 by and between Hilton Hotels Corporation and LodgeNet Interactive Corporation (13)
10.7	LodgeNet Interactive Corporation 2003 Stock Option and Incentive Plan (14)
10.8	2003 Plan Form of Stock Option Agreement for Non-Employee Directors (15)
10.9	2003 Plan Form of Incentive Stock Option Agreement for Key Employees (16)
10.10	Form of Restricted Stock Agreement for Time-based Vesting (17)
10.11	Form of Restricted Stock Agreement for Performance-Based Vesting (18)
10.12	Asset Purchase Agreement, dated November 14, 2006, between StayOnline, Inc. and LodgeNet StayOnline, Inc., as assignee of LodgeNet Interactive Corporation (19)
10.13	Stock Purchase Agreement, dated December 13, 2006, between LodgeNet Interactive Corp and Liberty Satellite Technology, Inc. (20)
10.14	Shareholders Agreement, dated December 13, 2006, between LodgeNet Interactive Corp and Liberty Satellite Technology, Inc. (21)
10.15	Stock Purchase Agreement, dated December 13, 2006, between LodgeNet Interactive Corp and PAR Capital Partners, LLC. (22)
10.16	$675,000,000 Credit Agreement dated as of April 4, 2007 among LodgeNet Entertainment Corporation, as Borrower, Credit Suisse Securities (USA) LLC as Syndication Agent, U.S. Bank National Association as Documentation Agent, and Bear Stearns Corporate Lending Inc. as Administrative Agent. (23)
10.17	Second Amended and Restated Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive Corporation and Scott C. Petersen.
10.18	Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive Corporation and David M. Bankers.
10.19	Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive Corporation and James G. Naro.
10.20	Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive Corporation and Steven R. Pofahl.
10.21	Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive Corporation and Gary H. Ritondaro.
10.22	Executive Employment Agreement dated as of February 4, 2008 between LodgeNet Interactive Corporation and Derek S. White.
10.23	Executive Employment Agreement dated as of January 29, 2008 between LodgeNet Interactive Corporation and Scott E. Young.
12.1	Statement of Computation of Ratios

LodgeNet Interactive Corporation 49 Form 10-K 2007

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 Interactive Corporation 50 Form 10-K 2007

†	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).
(2)	Incorporated by Reference to Exhibit 3.2 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
(3)	Incorporated by Reference to Exhibit 10.37 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
(4)	Incorporated by Reference to Exhibit 3.1 to LodgeNet’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 15, 2008.
(5)	Incorporated by Reference to Exhibit 4.1 to LodgeNet’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 19, 2003.
(6)	Incorporated by Reference to Exhibit 4.2 to LodgeNet’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 19, 2003.
(7)	Incorporated by Reference to Exhibit 4.2 to LodgeNet’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 14, 2007.
(8)	Incorporated by Reference to Exhibit 4.1 to LodgeNet’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 10, 2007
(9)	Incorporated by Reference to Exhibit 99.1 to LodgeNet’s Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on March 27, 2002.
(10)	Incorporated by Reference to Exhibit 10.13 and 10.14 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 1993.
(11)	Incorporated by Reference to Exhibit 10.32 to LodgeNet’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
(12)	Incorporated by Reference to Exhibit 10.02 to LodgeNet’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on August 15, 2002.
(13)	Incorporated by Reference to Exhibit 10.01 to LodgeNet’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on August 15, 2002.
(14)	Incorporated by Reference to Annex 2 of LodgeNet’s Definitive Proxy Statement dated March 30, 2006.
(15)	Incorporated by Reference to Exhibit 10.26 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2003.
(16)	Incorporated by Reference to Exhibit 10.27 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2003.
(17)	Incorporated by Reference to Exhibit 10.25 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2005.
(18)	Incorporated by Reference to Exhibit 10.26 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2005.

LodgeNet Interactive Corporation 51 Form 10-K 2007

(19)	Incorporated by Reference to Exhibit 10.33 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2006.
(20)	Incorporated by Reference to Exhibit 10.34 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2006.
(21)	Incorporated by Reference to Exhibit 10.35 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2006.
(22)	Incorporated by Reference to Exhibit 10.36 to LodgeNet’s Annual Report on Form 10-K for the year ended December 31, 2006.
(23)	Incorporated by Reference to Exhibit 10.1 to LodgeNet’s Current Report on Form 8-K dated April 4, 2007.

LodgeNet Interactive Corporation 52 Form 10-K 2007

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, 2008.

	LodgeNet Interactive 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, 2008.

Signature	Title	Date
/s/ Scott C. Petersen	President, Chief Executive Officer and Chairman of	March 13, 2008
Scott C. Petersen	the Board of Directors (Principal Executive Officer)
/s/ Gary H. Ritondaro	Senior Vice President	March 13, 2008
Gary H. Ritondaro	Chief Financial Officer (Principal Financial & Accounting Officer)
/s/ R. Douglas Bradbury	Director	March 13, 2008
R. Douglas Bradbury
/s/ R. F. Leyendecker	Director	March 13, 2008
R. F. Leyendecker
/s/ Vikki I. Pachera	Director	March 13, 2008
Vikki I. Pachera
/s/ Scott H. Shlecter	Director	March 13, 2008
Scott H. Shlecter

LodgeNet Interactive Corporation 53 Form 10-K 2007

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

LodgeNet Interactive Corporation and Subsidiaries

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		F - 2
Consolidated Balance Sheets as of December 31, 2007 and 2006		F - 4
Consolidated Statements of Operations — Three Years Ended December 31, 2007		F - 5
Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss) — Three Years Ended December 31, 2007		F - 6
Consolidated Statements of Cash Flows — Three Years Ended December 31, 2007		F - 7
Notes to Consolidated Financial Statements		F - 8
Index to Financial Schedules
Schedule II — Valuation and Qualifying Accounts		F - 32

LodgeNet Interactive Corporation F-1 Form 10-K 2007

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of LodgeNet Interactive Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of LodgeNet Interactive Corporation and its subsidiaries at December 31, 2007 and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 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 accompanying index presents fairly, in all materials respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, which is stated in Management’s Report on Internal Control Over Financial Reporting within the 2007 Annual Report to Shareholders. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 16 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions in 2007. As discussed in Note 12, the Company changed the manner in which it accounts for share-based compensation in 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.

As described in management’s Report on Internal Control Over Financial Reporting within the 2007 Annual Report to Shareholders, management has excluded Ascent and StayOnline from its assessment of internal control over financial reporting as of December 31, 2007 because it was acquired by the Company in a purchase business combination during 2007. We have also excluded Ascent and StayOnline from our audit of internal control over financial reporting. Ascent and StayOnline are wholly-owned subsidiaries whose total assets and total

LodgeNet Interactive Corporation F-2 Form 10-K 2007

revenues represent 59% and 38%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2007.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 14, 2008

LodgeNet Interactive Corporation F-3 Form 10-K 2007

LodgeNet Interactive Corporation and Subsidiaries

Consolidated Balance Sheets

(Dollar amounts in thousands, except share data)

	December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	25,569		$	22,795
Restricted cash		—			1,006
Accounts receivable, net		73,580			32,959
Other current assets		11,359			10,728
Total current assets		110,508			67,488
Property and equipment, net		323,963			185,770
Debt issuance costs, net		11,374			5,704
Intangible assets, net		126,530			690
Goodwill		111,293			—
Other assets		10,155			3,557
Total assets	$	693,823		$	263,209
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable	$	50,559		$	19,165
Current maturities of long-term debt		7,398			2,536
Accrued expenses		30,118			18,193
Deferred revenue		14,354			8,076
Total current liabilities		102,429			47,970
Long-term debt		617,196			267,633
Other long-term liabilities		22,440			5,728
Total liabilities		742,065			321,331
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; 22,969,775 and 19,084,734 shares outstanding at December 31, 2007 and December 31, 2006, respectively		230			191
Treasury stock, at cost: 2007 - 60,000 shares; 2006 - 0 shares		(1,075	)		—
Additional paid-in capital		330,405			242,383
Accumulated deficit		(367,638	)		(302,466	)
Accumulated other comprehensive (loss) income		(10,164	)		1,770
Total stockholders’ deficiency		(48,242	)		(58,122	)
Total liabilities and stockholders’ deficiency	$	693,823		$	263,209

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

LodgeNet Interactive Corporation F-4 Form 10-K 2007

LodgeNet Interactive Corporation and Subsidiaries

Consolidated Statements of Operations

(Dollar amounts in thousands, except share data)

	Years Ended December 31,
	2007			2006			2005
Revenues:
Guest Entertainment	$	446,235		$	277,433		$	267,754
Other		39,353			10,780			8,017
Total revenues		485,588			288,213			275,771
Direct Costs and Operating Expenses:
Direct costs (exclusive of operating expenses and depreciation and amortization shown separately below):
Guest Entertainment		226,882			126,635			119,180
Other		26,281			5,318			4,048
Operating expenses:
System operations		54,114			35,223			35,117
Selling, general and administrative		55,878			28,999			25,379
Depreciation and amortization		116,378			66,311			69,862
Restructuring expense		11,158			—			—
Other operating expense (income), net		(866	)		(1,205	)		(508	)
Total direct costs and operating expenses		489,825			261,281			253,078
(Loss) income from operations		(4,237	)		26,932			22,693
Other Income and Expenses:
Interest expense		(40,950	)		(25,730	)		(29,351	)
Loss on early retirement of debt		(22,195	)		(227	)		(272	)
Minority interest in income of subsidiary		165			—			—
Other income		1,362			1,165			421
(Loss) income before income taxes		(65,855	)		2,140			(6,509	)
Benefit (provision) for income taxes		683			(299	)		(450	)
Net (loss) income	$	(65,172	)	$	1,841		$	(6,959	)
Net (loss) income per common share (basic)	$	(3.00	)	$	0.10		$	(0.39	)
Net (loss) income per common share (diluted)	$	(3.00	)	$	0.10		$	(0.39	)
Weighted average shares outstanding (basic)		21,758,066			18,332,824			17,923,297
Weighted average shares outstanding (diluted)		21,758,066			18,840,917			17,923,297

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

LodgeNet Interactive Corporation F-5 Form 10-K 2007

LodgeNet Interactive Corporation and Subsidiaries

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

																Accumulated
										Additional						Other
	Common Stock				Treasury Stock					Paid-in			Accumulated			Comprehensive
	Shares		Amount		Shares		Amount			Capital			Deficit			Income/(Loss)			Total
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	)
Common stock option exercises		818,454		8		—		—			12,949			—			—			12,957
Stock issuance		3,050,000		31		—		—			73,382			—			—			73,413
Purchase of treasury stock		—		—		60,000		(1,075	)		—			—			—			(1,075	)
Share-based compensation		—		—		—		—			506			—			—			506
Restricted stock		16,587		—		—		—			1,185			—			—			1,185
Comprehensive income:
Net loss		—		—		—		—			—			(65,172	)		—
Foreign currency translation adjustment		—		—		—		—			—			—			4,963
Unrealized loss on derivative instruments		—		—		—		—			—			—			(16,897	)
Comprehensive loss		—		—		—		—			—			—			—			(77,106	)
Balance, December 31, 2007		22,969,775	$	230		60,000	$	(1,075	)	$	330,405		$	(367,638	)	$	(10,164	)	$	(48,242	)

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

LodgeNet Interactive Corporation F-6 Form 10-K 2007

Lodgenet Interactive Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)

	Years Ended December 31,
	2007			2006			2005
Operating activities:
Net (loss) income	$	(65,172	)	$	1,841		$	(6,959	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		116,378			66,311			69,862
Loss on early retirement of debt		3,583			227			272
Share-based compensation		1,737			1,677			288
Gain due to insurance proceeds		—			(817	)		(788	)
Other		188			288			668
Change in operating assets and liabilities:
Accounts receivable		(7,861	)		(3,332	)		(1,542	)
Other current assets		(2,496	)		(2,070	)		(855	)
Accounts payable		6,052			3,126			(786	)
Accrued expenses and deferred revenue		8,332			7,795			3,262
Other		(1,872	)		(2,745	)		863
Net cash provided by operating activities		58,869			72,301			64,285
Investing activities:
Property and equipment additions		(79,097	)		(48,268	)		(51,855	)
Insurance proceeds related to property damage		—			291			400
Acquisition of On Command Corporation, net of cash acquired		(335,517	)		(1,691	)		—
Acquisition of StayOnline, Inc.		(14,311	)		(1,174	)		—
Acquisition of THN (20% minority interest)		(5,000	)		—			—
Other investing activities		651			238			—
Net cash used for investing activities		(433,274	)		(50,604	)		(51,455	)
Financing activities:
Proceeds from long-term debt		625,000			—			—
Repayment of long-term debt		(271,241	)		(21,500	)		(20,500	)
Proceeds from lease transaction		—			—			1,022
Payment of capital lease obligations		(1,712	)		(1,380	)		(1,421	)
Debt issuance costs		(12,738	)		—			—
Contribution from minority interest holder to subsidiary		300			—			—
Purchase of treasury stock		(1,075	)		—			—
Proceeds from issuance of common stock, net of offering costs		23,290			—			—
Exercise of stock options		17,120			4,179			4,613
Change in other long-term liability		(2,225	)		(930	)		(846	)
Net cash provided by (used for) financing activities		376,719			(19,631	)		(17,132	)
Effect of exchange rates on cash		460			(13	)		49
Increase (decrease) in cash and cash equivalents		2,774			2,053			(4,253	)
Cash and cash equivalents at beginning of period		22,795			20,742			24,995
Cash and cash equivalents at end of period	$	25,569		$	22,795		$	20,742

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

LodgeNet Interactive Corporation F-7 Form 10-K 2007

LodgeNet Interactive Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — The Company

We are the largest provider of interactive media and connectivity solutions to the hospitality industry in the United States, Canada, and Mexico. We also provide interactive television solutions in select international markets, primarily through local or regional licensees. As of December 31, 2007, we provided interactive television and other services to approximately 9,900 hotel properties serving over 1.9 million hotel rooms. Within that customer base, we also provide cable television programming, broadband Internet, and advertising media solutions in approximately 1.1 million, 219,000 and 400,000 hotels rooms respectively. In addition, we deliver 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, general 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 Entertainment 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 Entertainment 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.

• Cable Programming Services. We generate revenue from the sale of basic and premium television programming to individual hotels. In contrast to Guest Entertainment Services, where the hotel guest is charged directly for the service, we charge the hotel for our Cable Programming Services. We recognize revenue from the sale of Cable Programming 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 basic and premium programming services where the revenue is deferred and recognized in the periods that services are provided.

• Broadband System Sales. We provide broadband 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.

• Broadband 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 is 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.

LodgeNet Interactive Corporation F-8 Form 10-K 2007

• Advertising and Media Services. We generate revenue from the sale of advertising-based media services within our hospitality media and connectivity businesses through our wholly-owned subsidiary, The Hotel Networks, and server based channels within our interactive room base. The Hotel Networks, which was acquired in the On Command transaction (See Note 3), delivers targeted advertising to more than 350,000 hotel rooms on 10 popular satellite-delivered channels such as MSNBC, CNBC, Fox News and The Weather Channel. In addition to the satellite platform, we generate revenue from server based channels, which we have operating in approximately 400,000 of our rooms today, and other interactive and location-based applications, that can be delivered by our interactive television platform. Advertising revenue is recognized, net of agency commissions, when advertisements are broadcast and when collection is reasonably assured. We establish the prices charged to each advertiser and no future performance obligations exist on advertising that has been broadcast. Persuasive evidence of an arrangement exists through our contracts with each advertiser.

• 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) support agreements with the facility to provide software maintenance, programming and system maintenance for one year. Historically, revenue from the sale and installation of our interactive system was recognized ratably over the one-year maintenance period after the equipment is installed. The contracted system hardware, installation and maintenance elements were 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. In the fourth quarter of 2007, we attained 100% renewal activity for maintenance services therefore establishing VSOE. Effective in the fourth quarter, the entire selling price of the interactive system was 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.

LodgeNet Interactive Corporation F-9 Form 10-K 2007

• 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.

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

Foreign Currency Translation — The assets and liabilities of our Canadian and Mexican subsidiaries 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 Asset — We review the carrying value of long-lived assets such as property and equipment 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 Entertainment and cable programming 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 system operations as incurred. We begin depreciating Guest Entertainment and cable programming 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.

Goodwill and Other Intangibles Assets — We account for goodwill and other intangible assets under Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. Under SFAS 142, purchased goodwill and other intangible assets with

LodgeNet Interactive Corporation F-10 Form 10-K 2007

indefinite lives, are not amortized; rather, they are tested for impairment at least annually by comparing the carrying amount of goodwill against its implied fair value. According to FAS 142, the fair value of an asset is the amount at which that asset could be bought in a current transaction between willing parties. Quoted market prices are the best evidence of fair value; however, the market price of an individual security may not be representative of the fair value of the reporting unit as a whole. If quoted prices are not available, the fair value estimate must be based on the best information available, including prices for similar assets and liabilities and the results of using other valuation techniques. A present value technique is often the best available technique used to estimate the fair value of a group of net assets. The cash flow estimates used in the present value technique shall be based on reasonable and supportable assumptions and shall consider all available evidence. We applied the present value technique, which included projection and discounting of cash flows and estimates of future operations.

SFAS 142 requires a two-step impairment test for goodwill. The first step is to compare the carrying amount of the reporting unit’s net assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. If the carrying amount exceeds the fair value, then the second step must be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. We would be required to record such impairment losses as a component of income from continuing operations. Changes in interest rates and market conditions, among other factors, may have an impact on these estimates. These estimates will likely change over time. There can be no assurance that goodwill or indefinite-lived intangibles impairment will not occur in the future.

In accordance with SFAS 142 and SFAS 144, we evaluate the remaining useful lives of its intangible assets, with definite lives, and review for impairment each reporting period to determine whether events or circumstances warrant-modifications to the useful lives or the carrying amount of the assets. We periodically evaluated the reasonableness of the useful lives and the carrying amount of these intangible assets and have concluded no impairment as of December 31, 2007.

	Years
Hotel contracts and relationships		10 - 20
Tradenames		7
Acquired technologies and patents		5
Content agreements and relationships		4

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 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 Entertainment, Broadband 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 $2,207,000, $1,399,000 and $1,496,000 during the years ended December 31, 2007, 2006 and 2005, respectively. Amortization of such costs was $ 3,759,000, $1,793,000 and $2,235,000 during the years ended December 31, 2007, 2006 and 2005, respectively. We charged research and development activities of $937,000, $635,000 and $566,000 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 2007, hotels owned, managed or franchised by Hilton Hotels Corporation (“Hilton”) and by Marriott International, Inc. (“Marriott”) represented approximately 18.3% and 13.7%, respectively, of our consolidated revenue. The Hilton owned properties account for less than 7% 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

LodgeNet Interactive Corporation F-11 Form 10-K 2007

managed and franchised properties. We also have a master agreement with Marriott which allows us to distribute our services to hotel rooms owned or managed by Marriott. In addition, we have the opportunity to enter into agreements to provide our services to additional hotel rooms franchised by Marriott. The master agreement with Marriott expires on the date when the last contract that is entered into under the master agreement with a hotel that is owned or managed by Marriott expires. The loss of any of these hotel chain customers, or the loss of a significant number of other hotel chain customers, could have a material adverse effect on our results of operations, cash flows and financial condition. No other customers account 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 $432,000, $175,000 and $300,000 at December 31, 2007, 2006 and 2005, respectively. The increase in 2007 was related to our acquired businesses.

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.

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):

LodgeNet Interactive Corporation F-12 Form 10-K 2007

	Unrealized Gain			Foreign		Accumulated
	(Loss) on			Currency		Other
	Derivative			Translation		Comprehensive
	Instruments			Adjustment		Income (Loss)
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
Change during period		(16,897	)		4,963		(11,934	)
Balance, December 31, 2007	$	(16,897	)	$	6,733	$	(10,164	)

Treasury Stock — Effective in the fourth quarter of 2007, we began to repurchase shares of common stock as treasury stock. We account for the treasury stock under the cost method and include the treasury stock as a component of stockholder’s deficiency within our consolidated balance sheets. Accordingly, we include the cash payment to acquire the treasury stock as a component of financing activities within our consolidated statement of cash flows.

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 years ended December 31, 2007 and 2005, 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. 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.

	2007		2006		2005
Average shares outstanding — basic		21,758,066		18,332,824		17,923,297
Dilutive effect of stock options, non- vested shares and warrants		—		508,093		—
Average shares outstanding — diluted		21,758,066		18,840,917		17,923,297
Antidilutive securities excluded from calculation		300,600		295,100		3,611,774

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

	2007		2006		2005
Potential dilutive common shares		1,355,631		2,056,754		4,295,749

Share-based Compensation — We account for our stock option and incentive plans under the recognition and measurement provisions of 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, net of estimated forfeitures. We adopted Statement 123(R), effective January 1, 2006, using the modified prospective transition method. We have also applied the supplemental implementation guidance of SEC Staff Accounting Bulletin No. 110 (“SAB 110”) in our adoption of Statement 123(R). Share-based compensation expense recognized in the years ended December 31, 2007 and 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).

LodgeNet Interactive Corporation F-13 Form 10-K 2007

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 $41,922,000, $25,884,000, and $29,221,000 respectively, for the years ended December 31, 2007, 2006 and 2005. Cash paid for taxes, primarily state franchise tax, was $500,000, $281,000 and $552,000 during the years ended December 31, 2007, 2006 and 2005, respectively.

Effect of Recently Issued Accounting Standards — 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.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. (“SFAS No. 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We believe the adoption of SFAS No. 159 will not have a material impact on our consolidated financial position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements — An amendment of ARB No. 51. This standard requires the recognition of non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of new income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. Statement 160 also clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. The statement further requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Statement 141R also requires a substantial amount of new disclosures. This standard is effective for acquisitions beginning on or after December 15, 2008; early adoption is prohibited. We are currently evaluating the accounting treatment related to SFAS No. 160 and expect the adoption will not have significant impact on our consolidated financial position or results of operations.

In December 2007, the FASB issued FAS Statement No. 141 (Revised), Business Combinations. This standard significantly changes the framework related to accounting for business combinations. The revised standard requires an acquiring entity to recognize all assets and liabilities at the acquisition-date fair value including the following treatment:

§	Acquisition costs will generally be expensed as incurred;
§	“In Process” R&D will be recorded as an indefinite lived intangible asset at acquisition date;
§	Restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date;
§	Liabilities will be recorded at acquisition date fair value and subsequently re-measured;
§	Minority interests to be valued at “fair value” at acquisition date; and
§	Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

Statement 141R also requires a substantial amount of new disclosures. This standard is effective for acquisitions beginning on or after December 15, 2008; early adoption is prohibited. We believe the adoption of SFAS No. 141R will not have an impact on our consolidated financial position or results of operations.

LodgeNet Interactive Corporation F-14 Form 10-K 2007

Note 3 — Investments & Business Combinations

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 fully reserved for the $1.0 million promissory note in 2004. During 2006, we recorded a $238,000 recovery related to the settlement of the Chapter 7 liquidation of Gamet Technology, Inc.

In February 2007, LodgeNet Interactive Corporation, through our wholly-owned subsidiary, LodgeNet StayOnline, Inc., acquired substantially all of the operating assets of StayOnline, a leading provider of high-speed Internet access solutions focused on the lodging industry. The purchase price of the acquisition was $15.5 million in cash. In accordance with SFAS 141, “Business Combinations”, the purchase consideration was allocated, based on their respective fair values at the date of acquisition, $3.4 million to the assets acquired, $2.4 million to the liabilities assumed, $4.9 million to identifiable intangible assets, and $9.6 million to goodwill. The fair values were determined based on management’s assessment of the acquired assets and technology, in conjunction with using an independent appraisal firm. Of the $4.9 million of acquired intangible assets, $1.5 million was assigned to software technology and $3.4 million was assigned to hotel contracts and customer relationships. StayOnline’s acquired customer list included a room base of more than 135,000 high-speed Internet access (“broadband”) rooms. The purchase consideration was allocated as follows (in thousands of dollars):

Receivables	$	2,082
Other current assets		794
Property and equipment		474
Intangible assets		4,900
Goodwill		9,596
Other assets		17
Accounts payable		(1,127	)
Deferred revenue		(1,251	)
Total purchase consideration	$	15,485

On April 4, 2007, pursuant to the Stock Purchase Agreement, dated December 13, 2006, among LodgeNet, Liberty Satellite & Technology, Inc. (“Liberty Satellite”) and Liberty Satellite’s parent company, Liberty Media Corporation, LodgeNet acquired 100% of the capital stock of Ascent Entertainment Group, Inc. (“Ascent”), which was a wholly owned subsidiary of Liberty Satellite. Ascent owns 100% of the capital stock of On Command Corporation (On Command). LodgeNet paid approximately $332.1 million in cash and issued 2.05 million shares of its common stock as the purchase price. The share consideration was valued at $23.35 per share by the parties at the time of the execution of the Stock Purchase Agreement on December 13, 2006. Based on the execution date of December 13, 2006, the fair value of the common stock issued, in accordance with EITF 99-12 guidelines, was $50.1 million as determined by averaging the closing stock price for the period beginning two days before and ending two days after the date that the terms of the acquisition were agreed upon and publicly announced. Also included in the acquisition is approximately $5.0 million of investments related to broadband technology. We also incurred other acquisition related costs of approximately $5.6 million.

In connection with the acquisition of On Command, on April 4, 2007, LodgeNet completed the sale of one million shares of its common stock to PAR Investment Partners, L.P. in exchange for $23.35 million in cash. The proceeds from this transaction were used to fund a portion of the acquisition purchase price.

In accordance with SFAS 141, Business Combinations, the purchase consideration of $387.9 million was allocated, based on their respective fair values at the date of acquisition, to the assets acquired and liabilities assumed, including identifiable intangible assets. The fair values were determined based on management’s assessment of the acquired business, technology and assets, in conjunction with using an independent appraisal firm. The purchase consideration was allocated as follows (in thousands of dollars):

LodgeNet Interactive Corporation F-15 Form 10-K 2007

Cash	$	4,656
Receivables		29,757
Other current assets		3,073
Property and equipment		158,646
Intangible assets		129,970
Goodwill		98,423
Other assets		5,567
Accounts payable		(24,039	)
Accrued liabilities		(16,081	)
Other long-term liabilities		(1,093	)
Minority interest		(1,030	)
Total purchase consideration	$	387,849

On July 1, 2007, we acquired the 20% minority interest in Hotelevision, Inc. dba The Hotel Networks (“THN”) for $5.0 million. We had acquired 80% ownership as part of the On Command acquisition on April 4, 2007. The acquisition of the 20% interest in THN resulted in goodwill of approximately $3.3 million and elimination of the minority interest. We also recorded an additional $190,000 of acquired intangibles. The purchase consideration was allocated as follows (in thousands of dollars):

Property and equipment	$	372
Intangible assets		190
Goodwill		3,274
Other long-term liabilities		300
Minority interest		864
Total purchase consideration	$	5,000

Of the $130.2 million of acquired intangible assets, including the acquired 20% interest in THN, $116.9 million was assigned to hotel contracts and customer relationships, $5.4 million was assigned to content agreements and relationships, primarily related to studio programming agreements, $3.0 million was assigned to tradenames and $4.9 million was assigned to patents. The acquired hotel contracts included a room base of more than 830,000 interactive rooms, which also included approximately 12,000 broadband rooms. The purchased intangibles are being amortized over their current estimated economic lives and are on an accelerated basis.

The following table presents LodgeNet’s unaudited pro forma condensed statements of operations, inclusive of StayOnline and On Command for the years ended December 31, 2007 and 2006 as if the acquisitions were completed as of January 1, 2007 and 2006, respectively (dollar amounts in thousands, except per share data):

	Pro Forma
	December 31,
	2007			2006
Revenues:
LodgeNet Interactive	$	296,752		$	288,213
On Command		230,666			234,206
StayOnline		20,607			11,965
Total revenues	$	548,025		$	534,384
Net loss	$	(79,038	)	$	(50,313	)
Net loss per share	$	(3.51	)	$	(2.35	)

The unaudited pro forma results are presented for comparative purposes only and are not indicative of operating results that would have been recorded if the acquisition had been consummated at the beginning of the period, nor is it indicative of future operating results. It is our intention to integrate the three businesses and continue to manage our operations as one reportable segment.

LodgeNet Interactive Corporation F-16 Form 10-K 2007

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):

	2007						2006
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Assets (Liabilities):
Interest rate swaps	$	16,897		$	16,897		$	—		$	—
Other long-term liability	$	—		$	—		$	(2,225	)	$	(2,225	)
Long-term debt	$	(624,594	)	$	(599,718	)	$	(270,169	)	$	(285,669	)

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 - - quoted market trade values and 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):

	2007			2006
Land, building and equipment	$	105,247		$	85,642
Guest Pay systems:
Installed system costs		646,095			473,930
Customer acquisition costs		55,080			53,156
System components		24,966			26,464
Software costs		33,783			22,520
Total		865,171			661,712
Less — depreciation and amortization		(541,208	)		(475,942	)
Property and equipment, net	$	323,963		$	185,770

We recorded depreciation and amortization expense of $105,428,000, $63,504,000 and $65,620,000 during the years ended December 31, 2007, 2006 and 2005, respectively.

Note 6 — 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 $12.7 million of debt issuance costs during the year ended December 31, 2007. No costs were capitalized during the years ended December 31, 2006 and 2005. Unamortized debt issuance costs of $5,338,000, $227,000 and $272,000 were written off in 2007, 2006 and 2005, respectively (see Note 19). Amortization of the debt issuance costs was $1,729,000 in 2007, $1,494,000 in 2006 and $1,636,000 in 2005. The components of the debt issuance costs recorded in the balance sheets are as follows at December 31 (in thousands of dollars):

	2007			2006
Debt issuance costs	$	12,739		$	13,617
Accumulated amortization		(1,365	)		(7,913	)
	$	11,374		$	5,704

LodgeNet Interactive Corporation F-17 Form 10-K 2007

Note 7 — Goodwill & Other Intangible Assets

Goodwill represents the excess of cost over the fair value of net assets acquired. In 2007, we recorded $9.6 million, $98.4 million and $3.3 million of goodwill in connection with the acquisitions of StayOnline, Inc., On Command, and minority interest of THN, respectively. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets with indefinite lives are not amortized; rather, they are tested for impairment at least annually by comparing the carrying amount of goodwill against its implied fair value. As of December 31, 2007, there was no impairment related to the carrying amount of goodwill.

In February 2007, we recorded $4.9 million of other intangibles in connection with the acquisition of StayOnline, Inc. (see Note 3). Of the $4.9 million of acquired intangible assets, $1.5 million was assigned to software technology with an estimated economic life of 5 years and $3.4 million was assigned to hotel contracts and customer relationships with an estimated economic life of 10 years. The intangibles are being amortized over their current estimated economic lives and are on an accelerated basis.

In connection with the acquisition of On Command in April 2007 and the minority interest of THN in July 2007 (see Note 3) we recorded $130.2 million of other intangibles. Of the $130.2 million of acquired intangible assets, $116.9 million was assigned to hotel contracts and customer relationships with an estimated economic life of 20 years, $5.4 million was assigned to content agreements and relationships, primarily related to studio programming agreements, with an estimated economic life of 4 years, $3.0 million was assigned to tradenames with an estimated economic life of 7 years and $4.9 million was assigned to patents with an estimated economic life of 5 years. The economic life attributed to our acquired hotel contracts and customer relationships intangible asset is based on historically low attrition rates coupled with the long contract terms, which typically are for five to seven years. The acquired hotel contracts included a room base of more than 830,000 interactive rooms, which also included approximately 12,000 broadband rooms. The purchased intangibles are being amortized over their current estimated economic lives and are on an accelerated basis.

We have other intangible assets consisting of certain acquired technology, patents, trademarks, customer relationships and licensee fees. We account for these assets on an ongoing basis in accordance with SFAS No. 144. These intangible assets have been deemed to have definite useful lives and are amortized over their current estimated useful lives ranging from three to ten years.

LodgeNet Interactive Corporation F-18 Form 10-K 2007

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

	2007					2006
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Assets subject to amortization:
Acquired contracts and relationships	$	120,315	$	(4,884	)	$	—	$	—
Other acquired intangibles		12,984		(8,263	)		16,503		(15,813	)
Tradenames		2,955		(225	)		—		—
Acquired patents		5,032		(1,384	)		—		—
	$	141,286	$	(14,756	)	$	16,503	$	(15,813	)

We recorded amortization expense of $9,219,000, $1,312,000 and $2,606,000, respectively, for the years ended December 31, 2007, 2006 and 2005. Total estimated amortization expense for the years ending December 31, as follows (dollar amounts in millions): 2008 — $11.0; 2009 — $9.6; 2010 - $8.2; 2011 — $7.1 and 2012 — $6.6. Actual amounts may change from such estimated amounts due to additional intangible asset acquisitions, potential impairment, accelerated amortization, or other events.

Note 8 — Accrued Expenses

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

	2007		2006
Accrued taxes	$	8,405	$	4,088
Accrued compensation		11,485		6,842
Accrued interest		—		946
Accrued programming related		1,785		1,748
Accrued restructuring		5,774		—
Other		2,669		4,569
	$	30,118	$	18,193

Note 9 — Long-term Debt and Credit Facilities

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

	2007			2006
Bank Credit Facility:
Bank term loan	$	621,875		$	68,125
Revolving credit facility		—			—
9.50% senior notes		10			200,000
Capital leases		2,709			2,044
		624,594			270,169
Less current maturities		(7,398	)		(2,536	)
	$	617,196		$	267,633

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 could be increased to $100.0 million, subject to certain limitations. The term loan was scheduled to mature in August 2008 and required quarterly repayments of $375,000, which began in December 2001. The term loan interest was at our option of (1) the bank’s base rate plus a margin of 1.50% or (2) LIBOR plus a margin of 2.25%. The revolving credit facility was scheduled to mature in August 2007 and the associated interest rate was calculated 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%. Loans under the Credit Facility were collateralized by a first priority interest in all of our assets. On April 4, 2007, the remaining balance of $67.8 million under the $225.0 million bank Credit Facility was paid in full.

LodgeNet Interactive Corporation F-19 Form 10-K 2007

On April 4, 2007, we entered into a $675.0 million bank Credit Facility comprised of a $625.0 million term loan, which matures in April 2014 and a $50.0 million revolving credit facility that matures in April 2013. The term loan requires a quarterly repayment of $1,562,500 beginning September 30, 2007. The term loan bears interest at our option of (1) the bank’s base rate plus a margin of 1.00% or (2) LIBOR plus a margin of 2.00%. The agreement provides that when the consolidated leverage ratio is below 3.25 times, the term loan bears interest at our option of (1) the bank’s base rate plus a margin of 0.75% or (2) LIBOR plus a margin of 1.75%. The term loan is secured by substantially all of the assets of the Company. The agreement establishes financial covenants including a maximum consolidated leverage ratio of 5.00 times and a minimum consolidated interest coverage ratio of 2.25 times. The Credit Facility agreement also stipulates that the Company will hedge 50% of the outstanding term loan into a fixed interest rate for a period not less than two years. The Company has entered into fixed rate swap agreements for 86% of the outstanding term loan at an average interest rate of 4.85%. The term loan all-in interest rate as of December 31, 2007 was 6.83%. Proceeds from the Credit Facility were used to repay the outstanding balance under the pre-existing Credit Facility, to fund the acquisition of On Command, to fund the tender offer for the 9.50% Senior Notes and for general corporate purposes. As of December 31, 2007, we were in compliance with all financial covenants of our bank Credit Facility.

In April 2007, we entered into two interest rate swap agreements with notional values of $312.5 million at a rate of 5.09% and $125.0 million, at a rate of 4.97%, both of which expire in June 2011. In addition, we entered into a $100.0 million notional amount swap in November 2007, at a rate of 3.97%, which expires in December 2009. These swap arrangements effectively change the underlying debt from a variable interest rate to a fixed interest rate for the term of the swap agreements. The swap agreements have been designated as, and meet the criteria for, cash flow hedges and are not considered speculative in nature.

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, 2007, we had outstanding letters of credit totaling $0.8 million, which reduce amounts available under the revolver.

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

On March 26, 2007, the company made an offer to the holders of the 9.50% Senior Notes to purchase all of the outstanding Notes validly tendered pursuant to the Tender Offer at a price per $1,000 principal amount of Notes, equal to the accrued and unpaid interest, principal and a consent payment of $30 per $1,000 principal amount of Notes. The tender expired on April 23, 2007 at which time 199,990 notes, representing principal of $199,990,000, were tendered out of the total 200,000 Notes outstanding. In total, the company paid $18.6 million, plus accrued interest for the Notes.

Capital Leases — As of December 31, 2007, we had total capital lease obligations of $2,709,000. Equipment acquired under capital lease arrangements totaled $1,798,000, $1,048,000 and $1,626,000 during the years ended December 31, 2007, 2006 and 2005, respectively.

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

	2008			2009			2010			2011			2012		Thereafter
Long-term debt	$	6,250		$	6,250		$	6,250		$	6,250		$	6,250	$	590,635
Capital leases		1,338			938			604			194			1		—
		7,588			7,188			6,854			6,444			6,251		590,635
Less amount representing interest on capital leases		(190	)		(109	)		(53	)		(14	)		—		—
	$	7,398		$	7,079		$	6,801		$	6,430		$	6,251	$	590,635

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

LodgeNet Interactive Corporation F-20 Form 10-K 2007

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 have rights to digital music content through our wholly owned subsidiary. 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, 2007 was approximately $3.1 million. We account for our minimum guarantees in accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.

At December 31, 2007, our obligations for programming related guarantees, primarily Nintendo programming, aggregated to approximately $30.5 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: $7.0 million in 2008, $6.6 million in 2009, $6.4 million in 2010, $4.4 million in 2011, $4.2 million in 2012 and $1.8 million thereafter.

Operating Leases — We have entered into certain operating leases, which at December 31, 2007, require future minimum lease payments, as follows: 2008 — $2,996,000; 2009 — $2,479,000; 2010 — $1,630,000; 2011 — $334,000. The leases, which relate to combination warehouse/office facilities for installation and service operations, expire at dates ranging from 2007 to 2011. Rental expense under all operating leases was $2,553,000, $734,000, and $758,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

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.

On July 16, 2007, Advanced Satellite Systems, LLC, a Delaware limited liability company based in Utah, filed an action for patent infringement in the U.S. District Court in Salt Lake City, Utah. The suit alleges that the Company infringes a patent issued in October of 2006 entitled “Method and System Asymmetric Satellite Communications For Local Area Networks”. The complaint does not specify an amount in controversy. The complaint does not specify the alleged manner of infringement. The Company believes that it does not infringe the patent in question, has filed responsive pleadings as well as a motion for summary judgment, has a number of other substantive defenses, and is vigorously defending the action.

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 April 2007, we issued 2.05 million shares of common stock as part of the purchase price of On Command (see Note 3). The fair value of the common stock issued, in accordance with EITF 99-12 guidelines, was $50.1 million. In connection with the acquisition of On Command, in April 2007, we completed the sale of one million shares of our common stock to PAR Investment Partners, L.P. in exchange for $23.35 million in cash. The proceeds from this transaction were used to fund a portion of the acquisition purchase price.

LodgeNet Interactive Corporation F-21 Form 10-K 2007

Share Repurchase Program — In the fourth quarter of 2007, our Board of Directors authorized a stock repurchase program of up to $15.0 million, the full amount currently permitted under our credit facility. As of December 31, 2007, we had repurchased 60,000 shares at a cost of $1.1 million (an average price of $17.91 per share).

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 was submitted to a vote of the shareholders at the Company’s annual meeting in May 2007, but was not approved. As the 2007 Amended Rights Plan was not ratified by the Shareholders at the Company’s annual meeting on May 9, 2007, it was to expire on February 28, 2008. However, on February 28, 2008, the Company entered into a new rights plan (the “2008 Rights Plan”), which differs from the 2007 Amended Rights Plan principally in that (a) the term is reduced to a maximum of three years unless ratified by the Shareholders of the Company before the end of any three year period, (b) in the event of a Qualified Offer, the Rights Plan can be redeemed by a simple majority of the Shareholders at a special meeting convened by such purpose, (c) the provisions requiring review by the TIDE Committee have been eliminated, and (d) the definition of a “Qualified Offer” was amended to require that the offer be at a price greater than the highest reported market price per share during the prior 12 months, as compared to the prior plans that referred to a 24 month period . We intend to present the 2008 Rights Plan to the shareholders for approval at the 2008 Annual Meeting of the Shareholders.

Note 12 — Stock Option Plans

The LodgeNet Interactive 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, 2007, there were 1,500,000 shares authorized under this plan and 548,551 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. 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. 110 (“SAB 110”) providing supplemental implementation guidance for Statement 123(R). We have applied the provisions of SAB 110 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 2007 and 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).

LodgeNet Interactive Corporation F-22 Form 10-K 2007

On November 16, 2005, the Board of Directors of LodgeNet Interactive 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.

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,
	2007		2006		2005
Compensation Cost:
Stock options	$	506	$	700	$	57
Non-vested (restricted) shares		1,231		977		231
Total share-based compensation expense	$	1,737	$	1,677	$	288
Compensation expense per common share:	$	0.08	$	0.09	$	0.02

Cash received from stock option exercises for the years ended December 31, 2007, 2006, and 2005 was $17,120,000, $4,179,000, and $4,613,000 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, 2007 included non-cash compensation expense related to stock options of $506,000 and non-cash compensation expense in the amount of $1,231,000 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 year ended December 31, 2005. 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).

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

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

For the year ended December 31, 2007, we did not grant stock options to non-employee directors of the Company and granted 127,500 stock options to certain officers and employees. 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

LodgeNet Interactive Corporation F-23 Form 10-K 2007

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 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. 110 (“SAB 110”). 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, 2007, 2006, and 2005 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,
	2007			2006			2005
Weighted average fair value of options granted	$	16.40		$	12.23		$	8.90
Dividend yield		0.0	%		0.0	%		0.0	%
Weighted average risk-free interest		4.5	%		4.4	%		3.5	%
Weighted average expected volatility		49.6	%		53.5	%		55.6	%
Weighted average expected life — employee	6.25 years				N/A		5.0 years
Weighted average expected life — non-employee director		N/A		8.47 years			5.0 years

LodgeNet Interactive Corporation F-24 Form 10-K 2007

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, 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
Granted		127,500			30.51
Exercised		(818,454	)		15.96
Forfeited/canceled		(16,550	)		17.78
Outstanding, December 31, 2007		1,165,450		$	18.96		5.2	$	1,304,715
Options exercisable, December 31, 2007		1,024,036		$	17.53		4.6	$	1,298,245

The aggregate intrinsic value in the table above represents the difference between the closing stock price on December 31, 2007 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, 2007. The total intrinsic value of options exercised the years ended December 31, 2007, 2006, and 2005 was approximately $12,348,000, $4,302,000, and $1,595,000, respectively.

The fair value of options vested during the years ended December 31, 2007, 2006, and 2005 was approximately $190,000, $650,000, and $5,564,000, respectively.

For the year ended December 31, 2007, 3,550 vested options to purchase shares with a weighted average exercise price of $21.68 expired. The remaining outstanding share options expire in 2008 though 2017.

Non-Vested Shares (Restricted Stock)

For the years ended December 31, 2007, 2006 and 2005, we awarded 16,323, 28,250 and 21,500 shares of time-based restricted stock (non-vested shares), respectively, to certain officers pursuant to our 2003 Stock Option and Incentive Plan. In 2007, the 16,323 shares were awarded in two separate grants. For the first grant of 12,500 shares, 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. For the second grant of 3,823 shares, 50% vest in the first quarter of 2008, and 50% vest in the first quarter of 2009. 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.

For the years ended December 31, 2007 and 2006, we awarded 12,000 and 12,500 shares of time-based restricted stock (non-vested shares), respectively, 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.

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. The Compensation Committee of the Board of Directors has the obligation to amend the performance metric as a result of the acquisitions. We currently expect to achieve the performance goal and are ratably amortizing the fair value over the period the

LodgeNet Interactive Corporation F-25 Form 10-K 2007

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.

In 2007, we awarded 3,658 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 fair value of the performance-based restricted stock is not currently being amortized ratably over the period that the performance metric is being measured. The Compensation Committee of the Board of Directors has the right to amend the performance metric. We currently do not expect to achieve these performance goals. If such goals are expected to be met, compensation cost will be recognized over the remaining period.

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,
	2007		2006		2005
Compensation cost — non-vested shares:
Time-based vesting	$	753	$	530	$	231
Performance-based vesting		478		447		—
Total share-based compensation expense — non-vested shares	$	1,231	$	977	$	231

A summary of the status of non-vested shares and changes as of December 31, 2007 is set forth below:

	Year Ended
	December 31, 2007
	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		78,500		$	16.93		101,550		$	14.47
Granted		28,323			31.97		3,658			31.10
Vested		(22,250	)		22.62		—			—
Forfeited/canceled		(5,250	)		16.02		(3,600	)		13.76
Outstanding, end of period		79,323		$	20.76		101,608		$	15.10

LodgeNet Interactive Corporation F-26 Form 10-K 2007

Unrecognized Compensation Expense

As of December 31, 2007 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
	2007		(months)
Unrecognized compensation cost:
Stock options, net of expected forfeitures	$	1,705		36.0
Non-vested shares — time based vesting		632		18.5
Non-vested shares — performance based vesting		495		11.6
Total unrecognized compensation cost	$	2,832

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 2005, holders of the 11.50% Notes exercised the remaining 240,000 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, 47,886 of these warrant shares were issued with a fair value of $446,000, 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, 2007, we did 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 $1,029,000, $869,000 and $816,000 in 2007, 2006 and 2005, respectively.

Note 15 — Restructuring

We account for our restructuring activities in accordance with Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. As a result of our post acquisition activities, we incurred restructuring costs of $11.2 million during the year ended December 31, 2007, all of which are included in operating expenses on the Consolidated Statement of Operations. StayOnline restructuring expenses of $833,000 were related to employee severance agreements and the consolidation of warehouse and call center

LodgeNet Interactive Corporation F-27 Form 10-K 2007

operations. On Command restructuring expenses of $10.3 million consisted of $8.3 million in employee severance, $949,000 in facility consolidation and relocation expenses and $1.1 million of other restructuring costs. Employee severance costs relate to the consolidation of administrative, sales, engineering, marketing, programming and technical operations departments. The facility consolidation and relocation expenses relate to our relocation of several functions performed at a leased facility in Denver to Sioux Falls including warehousing, purchasing and system assembly.

We estimate there will be additional employee severance costs of approximately $2.0 to $3.0 million charged to restructuring over the next twelve months as the remaining duplicate general and administrative functions are phased out.

Restructuring liabilities along with charges to expense and cash payments were as follows (in thousands of dollars):

	12/31/06		Expenses					12/31/07
	Balance		Incurred		Payments			Balance
Severance and other benefit related costs	$	—	$	9,094	$	(3,805	)	$	5,289
Cost of closing redundant facilities		—		955		(470	)		485
Other		—		1,109		(1,109	)		—
Total	$	—	$	11,158	$	(5,384	)	$	5,774

Note 16 — Income Taxes

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

	2007			2006		2005
Domestic	$	(67,692	)	$	1,159	$	(6,288	)
Foreign		1,837			981		(221	)
Total	$	(65,855	)	$	2,140	$	(6,509	)

The provision for income taxes varies from the federal statutory rate applied to the total income as follows for the years ended December 31 (in thousands of dollars):

	2007			2006			2005
Federal income tax benefit at statutory rate (35%)	$	(23,049	)	$	749		$	(2,341	)
State income taxes, net of federal benefit		403			441			(241	)
Other non-deductible items		345			134			152
Other		(58	)		—			—
Net change to valuation allowance, excluding change due to acquisitions		21,676			(1,025	)		2,880
(Benefit) provision for income taxes	$	(683	)	$	299		$	450

The provision (benefit) for income taxes was as follows for the years ended December 31 (in thousands of dollars):

	2007			2006		2005
Current:
Federal	$	—		$	—	$	—
State		622			224		365
Foreign		(1,305	)		75		85
		(683	)		299		450
Deferred:
Federal	$	—		$	—	$	—
State		—			—		—
Foreign		—			—		—
		—			—		—
Total income tax expense (benefit)	$	(683	)	$	299	$	450

LodgeNet Interactive Corporation F-28 Form 10-K 2007

Deferred income taxes, which result from the net tax effects of temporary differences between the carrying amounts of assets and liabilities for the financial reporting purposes and the amounts used for income tax purposes, consist of the following at December 31 (in thousands of dollars):

	2007			2006
Deferred tax assets:
Tax net operating loss and tax credit carryforwards	$	216,134		$	64,096
Capital loss carryforwards		1,469			1,431
Reserves and accruals		1,579			1,588
Deferred credits, net		4,636			3,371
Book over tax depreciation/amortization		—			21,692
Other tax assets		8,292			—
Tax valuation allowance		(197,232	)		(92,178	)
Total deferred tax assets		34,878			—
Deferred tax liabilities:
Tax over book depreciation/amortization		(34,878	)		—
Total deferred tax liabilities		(34,878	)		—
Net deferred tax liability	$	—		$	—

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.

The Company’s valuation allowance increased $105 million in 2007. This is primarily as a result of a $64.8 million increase resulting from acquisitions completed in 2007, an increase in federal and state net operating losses, changes in tax rates, and book amortization in excess of tax amortization.

If the valuation allowance for the deferred tax asset for the acquired deductible temporary differences or operating loss or tax credit carryforwards created as a result of the 2007 acquisitions are recognized in the future, the tax benefits for those items that are first recognized (that is, by elimination of that valuation allowance due to the acquisition of $64.8 million) in financial statements after the acquisition date shall be applied (a) first to reduce to zero any goodwill related to the acquisition, (b) second to reduce to zero other noncurrent intangible assets related to the acquisition, and (c) third to reduce income tax expense.

At December 31, 2007, the Company had net operating loss carryforwards for U.S. federal income tax purposes aggregating approximately $528.3 million and $524.7 million for U.S. state and local income tax purposes. In addition there are capital loss carryovers of $4.2 million available to offset future capital gains. There were also approximately $22.4 million of Canadian federal net operating loss carryforwards. At December 31, 2007, combined federal alternative minimum tax credit carryforwards, research and development credits, and foreign tax credits totaled $1.9 million available to offset future regular tax liabilities. A portion of these loss carryforwards expire each year unless utilized. Tax loss carryforwards expiring in the next five years are as follows (in thousands of dollars): 2008 — $0; 2009 — $6,390, 2010 — $7,732, 2011 — $13,188; and 2012 — $16,526.

Current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, the ability to utilize net operating losses and tax credit carryforwards generated prior to the parent company’s acquisition of the company may be limited as a result of such “ownership change” as defined.

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In instances where the Company has taken or expects to take a tax position in its tax return and the Company believes it is more likely than not that such tax position will be upheld by the relevant taxing authority, the Company may record a benefit for such tax position in its consolidated financial statements. The company is not currently under audit in any income tax jurisdiction and has not signed any extensions to extend the statute of limitations to complete an audit. The Company is generally open for tax year after 2003.

LodgeNet Interactive Corporation F-29 Form 10-K 2007

The impact—increase/(decrease)—on Company’s balance sheet as of December 31, 2007 due to the adoption of FIN 48 is as follows (in thousands of dollars):

	Beginning							Ending
	Balance		Additions		Deductions			Balance
Uncertain Tax Benefit	$	1,305	$	677	$	(1,305	)	$	677

The beginning balance represented a foreign tax position established prior to 2007 where the statute of limitations lapsed due to expiration of the statutory period of assessment in 2007.

Due to our net operating loss position, the unrecognized tax benefit has the effect of reducing our deferred tax asset and related valuation allowance. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate at December 31, 2007 is $677. The Company recognizes interest and penalties related to unrecognized tax benefit in tax expense.

Note 17 — Segment Information

We operate in one reportable segment, the distribution of entertainment and information services to the hospitality 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):

	2007		2006		2005
United States	$	454,063	$	275,190	$	263,927
Canada		27,794		12,310		11,083
Mexico		2,472		—		—
Other		1,259		713		761
Total	$	485,588	$	288,213	$	275,771

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

	2007		2006
United States	$	293,048	$	177,979
Canada		24,093		7,791
Mexico		6,822		—
Total	$	323,963	$	185,770

Note 18 — 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. Properties included in the acquired On Command room base suffered similar hurricane damage and final proceeds related to property damage and business interruption indemnification is being evaluated with the insurance carrier. As December 31, 2007, no amounts had been received or recognized within our results of operations.

Note 19 — Write-Off of Debt Issuance Costs

In April of 2007, we repaid our $225.0 million bank Credit Facility and redeemed 199,990 notes, representing principal of $199,990,000, of our 9.50% Senior Notes due June 15, 2013. As a result of this payoff and early redemption, we recognized a $22.2 million loss representing call and tender premiums and related expenses and the write off of unamortized debt issuance costs, net of a deferred gain from the termination of an interest rate swap arrangement where the 9.50% Senior Notes had been the underlying debt.

LodgeNet Interactive Corporation F-30 Form 10-K 2007

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,
2006
Revenues	$	70,193		$	71,871		$	76,510		$	69,639
Net (loss) income		(654	)		433			2,184			(122	)
Per common share (basic and diluted)	$	(0.04	)	$	0.02		$	0.12		$	(0.01	)
2007
Revenues	$	75,285		$	134,937		$	142,608		$	132,758
Net loss		(28	)		(34,031	)		(11,411	)		(19,702	)
Per common share (basic and diluted)	$	—		$	(1.52	)	$	(0.50	)	$	(0.87	)

LodgeNet Interactive Corporation F-31 Form 10-K 2007

LodgeNet Interactive Corporation and Subsidiaries

Schedule II — Valuation and Qualifying Accounts

(Dollar amounts in thousands)

			Additions					Additions
	Balance		Charged to			Additions		Related to					Balance
	Beginning		Costs and			Related to		Other					End of
Description	of Period		Expenses			Acquisition		Accounts		Deductions			Period
Allowances deducted from related balance sheet accounts:
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
Deferred Tax Valuation Allowance		86,647		—			—		7,721		1,166			93,202
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
Deferred Tax Valuation Allowance		93,202		—			—		2,362		3,386			92,178
Year Ended December 31, 2007:
Allowance for Excess or Obsolete System Components	$	460	$	1,405		$	—	$	—	$	1,190		$	675
Allowance for Doubtful Accounts		175		392			—		—		135			432
Allowance for System Removal		820		2,115			—		—		2,513			422
Deferred Tax Valuation Allowance		92,178		—			64,755		40,637		338			197,232

LodgeNet Interactive Corporation F-32 Form 10-K 2007

EX-4.6

Exhibit 4.6

LODGENET INTERACTIVE CORPORATION,

a Delaware corporation,

and

COMPUTERSHARE INVESTOR SERVICES, LLC,

a Delaware Limited Liability Company,

Rights Agent

Rights Agreement

Dated as of February 28, 2008

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		14
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		26
16. RIGHTS OF ACTION		27
17. AGREEMENT OF RIGHTS HOLDERS		28
18. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER		28
19. CONCERNING THE RIGHTS AGENT		29
20. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT		29

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		33
25. NOTICE OF CERTAIN EVENTS		38
26. NOTICES		38
27. SUPPLEMENTS AND AMENDMENTS		39
28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.		39
29. SUCCESSORS		40
30. BENEFITS OF THIS AGREEMENT		40
31. SEVERABILITY		40
32. GOVERNING LAW		40
33. COUNTERPARTS		40
34. DESCRIPTIVE HEADINGS		40
Exhibit A — Form of Rights Certificate		A-1
Exhibit B — Form of Summary of Rights		B-1

ii

RIGHTS AGREEMENT

     THIS RIGHTS AGREEMENT is dated as of February 28, 2008 between LODGENET INTERACTIVE CORPORATION, a Delaware corporation (the “Company”), and COMPUTERSHARE INVESTOR SERVICES, LLC, a Delaware Limited Liability Company (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”) (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 February 28, 2008 (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”);

     NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereby agree 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 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

1

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 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

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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;

     (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

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     (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.

     (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) “Final Expiration Date” shall mean February 28, 2018; provided, however, that, if a Distribution Date has not occurred prior thereto, the Final Expiration Date shall mean the earliest to occur of any of the following if and to the extent such events occur: (i) February 28, 2009, in the event 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

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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, prior to such date; and (ii) the date of any Company annual stockholders’ meeting following the meeting in 2008 in the event that at least three successive such meetings shall have occurred at any time following the meeting in 2008 without this Agreement being ratified at least once by the Company’s stockholders, as well as the Board, during the three-year period represented by such meetings (inclusive in such three-year period, for this purpose, of the date on which the third such meeting takes place).

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

     (j) “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.

     (k) “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 twelve (12) 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)

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Trading Days immediately preceding the date on which the offer is commenced, (B) the 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

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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;

     (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.

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

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

     (n) “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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     (o) 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.

     (p) “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.

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

     (r) “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 the Rights Agreement between LodgeNet Interactive Corporation (the “Company”) and the Rights Agent thereunder dated as of February 28, 2008 (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 the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in Section 24 hereof, (iii) the consummation of a transaction contemplated by Section 13(d) hereof, or (iv) the time at which the Rights are exchanged as provided in Section 24(c) hereof (the earliest time of (i), (ii), (iii), or (iv) 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 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

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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 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

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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 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

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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 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

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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 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,

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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 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.

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     (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 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.

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     (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 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

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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.

     (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

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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 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.

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

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     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.

     (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;

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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:

     (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

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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.

     (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

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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 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

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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 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

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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, 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

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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 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

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     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 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

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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 1 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’ 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

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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, 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

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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 ninety (90) 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 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.

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     (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 a majority 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 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.

35

     (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 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

36

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 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).

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     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 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 Interactive 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:

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Computershare Investor Services, LLC
2 North LaSalle Street – 3^rd F1
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 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.

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     (b) 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 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.

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     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.

Attest:	LODGENET INTERACTIVE CORPORATION
/s/ Scott E. Young	By	/s/ James G. Naro
Scott E. Young		James G. Naro
		Title:	Senior Vice President, General
			Counsel, Secretary and Chief Compliance Officer
Attest:	COMPUTERSHARE INVESTOR SERVICES, LLC,
	as Rights Agent
/s/ Kathleen Zednick	By	/s/ Robert A. Buckley Jr.
Kathleen Zednick		Robert A. Buckley Jr.
Title: Relationship Manager		Title:	Sr. Vice President

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EXHIBIT A

[Form of Rights Certificate]

Certificate No. R-                                          Rights

NOT EXERCISABLE AFTER THE FINAL EXPIRATION DATE (AS DEFINED IN THE RIGHTS AGREEMENT), 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 INTERACTIVE 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 Rights Agreement dated as of February 28, 2008 (the “Rights Agreement”) between LodgeNet Interactive 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 [___, 20___], 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.

A-2

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

Dated: ___, 20___.

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

A-3

[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                                                             

(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:

A-4

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.

A-5

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 INTERACTIVE 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:

A-6

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.

A-7

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 INTERACTIVE 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, 2008, the Board of Directors of LodgeNet Interactive 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 February 28, 2008 (the “Record Date”), and effective February 28, 2008, the Board of Directors of the Company (the “Board of Directors”) approved the Rights Agreement (as defined below). Except as set forth below, each Right, when exercisable, entitles the registered holder to purchase from the Company one one-thousandth of a share of a new series of preferred stock, designated as Series A Participating Preferred Stock, par value $.01 per share (the “Preferred Stock”), at a price of $60.00 (the “Purchase Price”), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement (the “Rights Agreement”), dated February 28, 2008, 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.

     The Rights are not exercisable until the Distribution Date. The Rights will expire on the earliest of (i) the Final Expiration Date, (ii) the consummation of a merger transaction with a

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Person or group who acquired Common Stock pursuant to a Permitted Offer (as defined below), and is offering in the merger the same price per share and form of consideration paid in the Permitted Offer, or (iii) redemption or exchange of the Rights by the Company as described below. “Final Expiration Date” means February 28, 2018; provided, however, that, if a Distribution Date has not occurred prior thereto, the Final Expiration Date shall mean the earliest to occur of any of the following if and to the extent such events occur: (i) February 28, 2009, in the event 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, prior to such date; and (ii) the date of any Company annual stockholders’ meeting following the meeting in 2008 in the event that at least three successive such meetings shall have occurred at any time following the meeting in 2008 without this Agreement being ratified at least once by the Company’s stockholders, as well as the Board, during the three-year period represented by such meetings (inclusive in such three-year period, for this purpose, of the date on which the third such meeting takes place).

     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

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“Subscription Right”). Notwithstanding the foregoing, upon the occurrence of any of the events giving rise to the exercisability of 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 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 90, 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 at least a majority 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

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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 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. This summary description of the Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the Certificate of Designation, which is incorporated herein by reference.

     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

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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-10.17

Exhibit 10.17

Execution Copy

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of January 29, 2008, and effective as of January 1, 2008 (the “Effective Date”), is made by and between LodgeNet Entertainment Corporation, a Delaware corporation (the “Corporation”), and Scott C. Petersen (“Executive”) with reference to the following circumstances, namely:

RECITALS

A. Executive is employed by Corporation as its Chairman of the Board, President and Chief Executive Officer, and as such is, and will be, making an important contribution to the development and operation of Corporation’s business.

B. On July 22, 1998, Executive and the Corporation entered into an Employment Agreement, which was amended and restated by an Amended and Restated Employment Agreement, effective January 1, 2002 (the “Original Employment Agreement”).

C. The Corporation and Executive desire to further amend and restate the Original Employment Agreement.

AGREEMENT

     NOW, THEREFORE, in consideration of the provisions of this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation agrees to continue to employ Executive, and Executive agrees to continue such employment, upon the following terms and conditions:

     1. PERIOD OF EMPLOYMENT. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (sometimes referred to herein as the “period of employment”) beginning on the Effective Date and continuing, unless sooner terminated as provided in Section 6 herein, through December 31, 2010; provided, however, that on each succeeding December 31, commencing December 31, 2009, such period of employment shall automatically be extended for an additional year (to result thereafter in a rolling two-year term of employment hereunder) unless sixty (60) days prior thereto either party hereto has given written notice to the other that such party does not wish to extend the period of employment.

     2. DUTIES. During the period of employment, Executive shall serve as Chairman of the Board, President and Chief Executive Officer of the Corporation, and in such other additional office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with his approval, performing the duties of such office or offices held at the time and such other duties not inconsistent with his position as such an officer or director as are assigned to him by the Board or committees of the Board. During the period of employment, Executive shall devote his full-time attention to the business of the Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs and charitable activities.

     3. OFFICE FACILITIES. During the period of employment, Executive shall have his office where Corporation’s principal offices are located from time to time, which currently are at 3900 West Innovation Street, Sioux Falls, South Dakota, and the Corporation shall furnish Executive with office facilities reasonably suitable to his position at such location.

     4. COMPENSATION. As compensation for his services performed hereunder, the Corporation shall pay or provide to Executive the following:

     (a) Base Salary. The Corporation shall pay Executive a base salary (the “Base Salary”), calculated at the rate of Five Hundred Eighty-Five Thousand Dollars ($585,000.00) per annum (which Base Salary may be increased, but not reduced, by the Board at any time and from time to time in its discretion), payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the period of employment under this Agreement. Executive’s Base Salary shall be reviewed by the Board and shall be subject to increase each year by an amount determined by the Board. Such Base Salary, including any such annual increases (which shall be considered part of the Base Salary), shall not be reduced during the period of employment hereunder.

     (b) Bonus. For each of the years in the period of employment, Executive shall be eligible to receive in cash an annual performance bonus (the “Bonus”). The Board shall develop the Bonus formula, targets and criteria for determining achievement of such targets in consultation with Executive; provided, however, that any such formula, target and criteria shall provide Executive with the opportunity to earn at least 70% of Base Salary upon the achievement of 100% of target. The Bonus targets and criteria for determining achievement of such targets shall be referred to herein as the “Bonus Plan.”

     (c) Other Bonus and Incentive Plans. During the period of employment, Executive shall be allowed to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, other than any annual cash bonus plan (which is dealt with in Section 4(b) hereof), and all compensation and other entitlements earned thereunder shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary and Bonus.

     (d) Health, Welfare and Retirement Plans; Vacation. During the period of employment, Executive shall be entitled to:

     (i) participate in such retirement, deferred compensation, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance, flexible benefits arrangements and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its executive employees;

     (ii) participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation;

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     (iii) cash payments in addition to Base Salary, Bonus, or any other benefits hereunder, in an amount to be set by the Board for each year during the period of employment, and which shall be $36,000 for 2008, to enable the Executive to purchase such other benefits as Executive deems necessary or advisable; such amount shall be paid annually in twelve equal monthly installments on or about the 20th day of each month, and to the extent permitted by law shall be paid on a pre-tax basis; and

     (iv) take vacations and be entitled to sick leave in accordance with the Corporation’s policy for executive personnel of the Corporation.

     (e) Equity Incentive Awards. Executive shall receive annual equity awards, which may consist of time-vested restricted stock; performance-vested restricted stock; options; or other types of equity-based grants, with the type, number, vesting schedule or milestones, if any, and exercise price, if appropriate, to be determined by the Board. In making such determination, the Board shall take into account Executive’s individual performance and performance of the Corporation as a whole, including Executive’s performance against the then applicable Bonus Plan targets.

     (f) Car Allowance. During the period of employment, the Corporation shall provide Executive with a monetary allowance in an amount acceptable to Executive which is approved by the Board for the lease of a suitable automobile and insurance therefore; provided, that such amount shall not be less than $1,100 per month.

     (g) Expenses. Executive shall be reimbursed for reasonable business expenses incurred in connection with the performance of his duties hereunder consistent with the Company’s policy regarding reimbursement of such expenses. In addition, Executive shall be reimbursed by the Corporation for Executive’s reasonable and documented legal and accounting fees incurred in connection with entering into this Agreement. With respect to any benefits or payments received or owed to Executive hereunder, Executive shall cooperate in good faith with the Corporation to structure such benefits or payments in the most tax efficient manner to the Corporation; provided, that Executive shall have no obligation to take any action that is reasonably determined by Executive to be adverse to Executive, including without limitation agreeing to alter Executive’s rights under Section 7(b) (iv) hereof.

     5. EFFECT OF DISABILITY AND CERTAIN HAZARDS. Executive shall not be obligated to perform the services required of him by this Agreement during any period in which he is disabled or his health is impaired to an extent which would render his performance of such services hazardous to his health or life, and relief from such obligation shall not in any way affect his rights hereunder except to the extent that such disability may result in termination of his employment by the Corporation pursuant to Section 6 herein.

     6. TERMINATION OF EMPLOYMENT. The employment of Executive by the Corporation pursuant to this Agreement may be terminated by the Corporation or the Executive at any time, as follows:

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     (a) Death. In the event of Executive’s death prior to the expiration of the period of employment hereunder, such employment shall terminate on the date of death.

     (b) Permanent Disability. Such employment may be terminated by the Corporation prior to the expiration of the period of employment hereunder due to Executive’s physical or mental disability which prevents the effective performance by Executive of his duties hereunder on a full-time basis, with such termination to occur on or after (i) the date on which Executive becomes entitled to disability compensation benefits under Executive’s long-term disability benefit policy then in effect, or (ii) in the event that no such policy is in effect, the date of the determination of an impartial physician in the manner set forth in the next sentence that Executive is permanently disabled. Any dispute as to Executive’s physical or mental disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefor by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne by the Corporation.

     (c) Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable written notice to Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 6(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.

     (d) Cause means that such termination must be due to (1) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute; (2) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or (3) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results in or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation or material damage to the Corporation’s reputation.

     (e) Without Cause. The Corporation may terminate such employment at any time prior to said date without Cause (which shall be for any reason not covered by preceding subsections (a) through (c)) upon 60 days prior written notice to Executive.

     (f) By Executive. Executive may terminate such employment at any time for an applicable Good Reason (subject to Section 6(g)) or otherwise upon written notice thereof to the Corporation.

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     (g) Notice of Good Reason. If Executive believes that he is entitled to terminate his employment with the Corporation for an applicable Good Reason, he may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 11 hereof. The submission of such a request by an Executive shall not constitute “Cause” for the Corporation to terminate Executive under Section 6(c) hereof; and Executive shall continue to receive all compensation and benefits he was receiving at the time of such submission throughout the resolution of the matter pursuant to the procedures set forth in Section 11 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Sections 11(a) and (b) hereof, then the parties shall promptly submit the claim to binding arbitration pursuant to Section 11(c) and use their best efforts to conclude the arbitration within ninety (90) days after the claim is submitted.

     (h) Notice of Termination. Any termination of the Executive’s employment by the Corporation or by the Executive (other than termination based on the Executive’s death) shall be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, no purported termination shall be effective without the delivery of such Notice of Termination.

     (i) Date of Termination. The date of termination of Executive’s employment shall mean (i) if the Executive is terminated by his death, the date of his death, (ii) if the Executive’s employment is terminated due to a permanent disability, thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such period), (iii) if the Executive’s employment is terminated pursuant to a termination for Cause, the date specified in the Notice of Termination, and (iv) if the Executive’s employment is terminated for any other reason, the date of termination shall be the later of thirty (30) days after termination as provided by the Notice of Termination or the date of the final resolution of the arbitration and claims procedures set forth in Section 11 hereof, unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement.

     7. PAYMENTS UPON TERMINATION.

     (a) Except as otherwise provided in subsection (b) of this Section 7, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which he may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program or by applicable law), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any

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event no later than the Last Payment Date. If the termination of Executive’s employment is by the Corporation not for Cause, or by the Executive for Good Reason, Executive shall be entitled to a payment equal to the greater of (i) Executive’s actual bonus for the preceding year, pro rata based on the portion of the year ended on the date of the termination, or (ii) the amount which would have been earned by Executive under his then current Bonus Plan, pro rata based on the portion of the year ended on the date of termination, and computed based on actual results for such year. Any such payment shall be paid to the Executive within ten (10) days of the date of termination and in any event no later than the Last Payment Date.

     (b) If Executive’s employment pursuant to this Agreement is terminated pursuant to subsection (d) of Section 6 herein, the Corporation elects at any time not to renew or extend this Agreement pursuant to Section 1 or Executive terminates this Agreement for Good Reason, then, in addition to the payments required by subsection (a) of this Section 7, Executive shall be entitled to and shall receive:

     (i) Severance Payment. Executive shall receive a lump sum cash payment (the “Severance Payment”) from the Corporation. The amount of the Severance Payment shall be an amount equal to the sum of Executive’s annual Base Salary and Bonus, multiplied by the Applicable Multiplier (as hereinafter defined). For purposes of this Section 7(b),

     (A) Executive’s Base Salary shall be the higher of Executive’s annual Base Salary in effect immediately prior to such termination or Executive’s annual Base Salary determined pursuant to Section 4(a), and

     (B) Executive’s Bonus shall be an amount equal to the greater of (1) Executive’s bonus for the preceding year or (2) an amount (i) for years 2008, 2009 and 2010, determined assuming that 87.5% of the target for such Bonus has been met, and (ii) for year 2011 and subsequent years, determined using a formula that results in a Bonus that is equal to the same percentage of annual Base Salary determined pursuant to Section 7(b)(i)(B)(2)(i) for year 2010

The Severance Payment shall be due and payable within ten (10) days after the date of termination of employment, but no later than the Last Payment Date. The Severance Payment is subject to required withholding.

     (ii) Acceleration of Vesting. All options to purchase the Corporation’s common stock held by Executive at the time of such termination but still subject to vesting, shall be fully and immediately vested and shall be exercisable until the first to occur of (x) the expiration date of the applicable option or (y) four (4) years following the date of termination. All grants of restricted stock or other rights related to shares of the Corporation’s common stock shall be immediately vested (or the risk of forfeiture, as appropriate, shall terminate and all restrictions or conditions to the receipt of such shares shall be waived, for 100% of the “target” shares that were to have been delivered to the Executive under any

6

performance-based plan and 100% of the shares subject to a time-based vesting plan) and shall be delivered to Executive free of all restrictions within ten (10) days of the date of termination. All other benefits or interests of Executive in any of the Corporation’s plans or arrangements which are subject to vesting shall be fully and immediately vested.

     (iii) Benefits. During the Severance Period, Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to termination of employment, as if he had continued to be an executive employee of the Corporation. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources or will provide Executive with a lump-sum payment equal to the cost of obtaining such coverage for the Severance Period. If Executive was receiving any cash-in-lieu payments designed to enable Executive to obtain insurance coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section, provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that Executive would have been entitled to receive over the Severance Period, no later than the Last Payment Date. Following the Severance Period, Executive shall be entitled to receive continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, treating the end of the Severance Period as a termination of the Executive’s employment.

     (iv) Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 or Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial advisor.

     (c) Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 7 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release, in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under

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the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Subject to Section 16 hereof, payment of the amounts payable pursuant to this Section 7 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state

     8. CONFIDENTIAL INFORMATION. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, including, without limitation, drawings, plans, programs, specifications and non-public information relating to customers of the Corporation or its subsidiaries except as may be required to perform his duties hereunder. The provisions of this Section 8 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 8 shall not apply to any such trade secret or confidential information which becomes generally known in the trade.

     9. PATENTS AND OTHER INTELLECTUAL PROPERTY. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the period of his employment with the Corporation, relating to the business of the Corporation or any of his subsidiaries. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas on inventions covered by this Agreement aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries (or any successor to the Corporation or any of its subsidiaries) full title to any and all such ideas, inventions and applications.

     Further Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     10. NON-COMPETITION; NON-MITIGATION; LITIGATION EXPENSES.

     (a) Executive shall not be required to mitigate the amount of any termination benefits due him under Section 7 herein, by seeking employment with others, or otherwise, nor shall the amount of such benefits be reduced or offset in any way by any income or benefits earned by Executive from another employer or other source.

     (b) For a period of twenty-four (24) months after Executive’s termination of employment hereunder, Executive shall not enter into endeavors that involve a Competing Business (as defined below), and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder (except for passive investments of not more than a one-percent interest in the securities of a publicly-held corporation regularly traded on a national securities exchange or in an over-the-counter securities market), consultant or otherwise, any individual, partnership, firm, corporation or other business organization or entity that engages in a business which is

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involved principally in the provision of video or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”). For these purposes, an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty percent (20%) of the revenues of such entity and (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of video or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (b), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts paid to Executive pursuant to the provisions of Section 7 hereof which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

     (c) For a period of twenty-four (24) months after Executive’s termination of employment hereunder, Executive shall not hire or attempt to hire any employee of the Corporation, assist in such hiring by any person or encourage any employee to terminate his or her employment relationship with the Corporation; provided, however, that it shall not be a breach of this Section 10(c) if Executive or Executive’s employer hires persons that are at the time employees of the Corporation as a result of (i) Executive or Executive’s employer conducting generalized solicitations by way of advertisements, engaging firms to conduct searches or by other means that are not focused on employees of the Corporation, or (ii) Executive or Executive’s employer responding to unsolicited requests or contacts by employees of the Corporation.

     (d) The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $25,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in Section 7 herein; provided, however, that if any arbitration or litigation results in a finding in favor of the Executive, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in any event of a finding in favor of the Corporation. Executive acknowledges that any breach of Sections 8, 9, or 10(b) or (c) would damage the Corporation irreparably and consequently, the Corporation, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctions, without having to post any bond or other security.

     11. ADMINISTRATOR AND CLAIMS PROCEDURE

     (a) The Executive, or other person claiming through the Executive, must file a written claim with the Board as a prerequisite to the payment of any such claim under this Agreement. The Board shall make all determinations as to the right of any person to receive payment of claims under subsections (a) and (b) of this Section 11. Any denial by the Board of a claim by the Executive, his heir or personal representative (“the claimant”) shall be stated in writing by the Board and delivered or mailed to the claimant within 10 days after receipt of the claim, unless special circumstances require an

9

extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 10-day period. In no event shall such extension exceed a period of 10 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Board’s ability in a manner that may be understood without legal or actuarial counsel.

     (b) A claimant whose claim has been wholly or partially denied by the Board may request, within 10 days following the date of such denial, in a writing addressed to the Board, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Board. Prior to submitting his request, the claimant shall be entitled to review such documents as the Board shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that only the first $25,000 of such fees and expenses shall be borne by the Corporation, unless the claimant is successful, in which case, all such fees and expenses shall be borne by the Corporation. All requests for review shall be promptly resolved. The Board’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 10 days following the receipt by the Board of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Board’s decision shall be so mailed not later than 20 days after receipt of such request.

     (c) A claimant who has followed the procedure in subsections (a) and (b) of this section, but who has not obtained full relief on his claim, may submit such claim for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance the filing fees, arbitrator fees and other costs required to conduct the arbitration, as well as up to $25,000 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The Corporation shall reimburse all of Executive’s remaining reasonable fees and expenses if Executive prevails in his claim, as determined by such arbitrator. The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; the arbitrator shall not change, add to, or subtract from, any of its provisions. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a national reputation for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

     12. MISCELLANEOUS.

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     (a) This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets and the Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise), by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform the obligations of the corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

     (b) The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death, this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate.

     (c) The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.

     (d) No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and Executive.

     (e) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.

     (f) This Agreement shall be governed by and construed in accordance with the laws of the State of South Dakota, without regard to the conflicts of law principles thereof.

     (g) If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.

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     (h) Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	Scott C. Petersen
	26 Riverview Heights
	Sioux Falls, SD 57105
If to the Corporation:	LodgeNet Entertainment Corporation
	3900 West Innovation Street
	Sioux Falls, SD 57107-7002
	Attn: General Counsel

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

(i) As used in this Agreement, the following terms have the meanings given:

“Applicable Multiplier” shall mean 2, unless Executive’s employment is terminated by the Corporation, or by Executive for Good Reason, within twenty-four months of a Change in Control, in which case “Applicable Multiplier” shall mean 2.5.

“Change in Control” of the Corporation shall mean the occurrence of any of the following:

     (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the Effective Date) or group of other persons acting in concert (other than Corporation or any subsidiary thereof or any employee benefit plan of Corporation or any subsidiary thereof, or any underwriter in connection with a firm commitment public offering of Corporations’ capital stock) becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act, except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of Corporation representing thirty percent (30%) or more of the combined voting power of Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

(ii) during any period subsequent to the Effective Date, a majority of the members of the Board shall for any reason not be (i) the individuals who at the beginning of such period constitute the Board or (ii) those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or

(iii) there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other

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transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of Corporation or generating thirty percent (30%) or more of Corporation’s operating cash flow, in each case measured over Corporation’s last four full fiscal quarters), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of Corporation in which no “person” (as defined in subsection 1 hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 1 hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of Corporation; or

     (iv) the adoption of any plan or proposal for the liquidation or dissolution of Corporation; or

     (v) the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the Effective Date.

     “Good Reason”, in the event of a Change in Control, shall mean the occurrence of any of the following:

     (i) the assignment to Executive of any duties inconsistent with Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of Executive from, or any failure to reelect Executive to, any such positions, except in connection with a termination of the employment of Executive for Cause, permanent disability, or as a result of Executive’s death or by Executive other than for Good Reason;

     (ii) a reduction by Corporation in Executive’s Base Salary in effect immediately prior to a Change in Control;

     (iii) any material breach by Corporation of any provisions of this Agreement;

     (iv) failure by Corporation to continue in effect (without substitution of a substantially equivalent plan) any compensation plan, bonus or incentive plan, stock purchase plan, stock option plan, life insurance plan, health plan, disability

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plan or other benefit plan or arrangement in which Executive is participating, or the taking of any action by Corporation which would adversely affect Executive’s participation in or materially reduce Executive’s benefits under any of such plans;

     (v) Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, compensation, stock option, health, dental, insurance, or pension plan generally made available to senior executives of the Corporation;

     (vi) without Executive’s express written consent, the requirement by the Corporation that Executive’s principal place of employment be relocated more than fifty (50) miles from Sioux Falls, South Dakota, or travel on the Corporation’s business to an extent materially greater than Executive’s customary business travel obligations;

     (vii) the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement; or

     (viii) Executive determines in good faith that a change in circumstances has occurred following a Change in Control which has rendered Executive substantially unable to carry out, has substantially hindered Executive’s performance of, or has caused Executive to suffer a substantial reduction in, any of the authorities, positions, duties, responsibilities or status attached to the position held by Executive immediately prior to the Change in Control, excluding the reasonable sharing of authority with a Chief Operating Officer.

     “Good Reason,” in the absence of a Change of Control, shall only mean subsections (i), (ii), (iii), (iv), (v), (vi) and (vii) of the immediately preceding definition; provided, however, that with respect to such subsection (iv), a termination or adverse change in a plan is not Good Reason in the absence of a Change in Control if such termination or adverse change is applied generally to all executive officers of the Corporation.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which executive incurs a separation from service (as defined in Section 409A of the Code).

     “Severance Period” means twenty-four (24) months, unless Executive’s employment is terminated by the Corporation, or by Executive for Good Reason, within twenty-four months of a Change of Control in which case “Severance Period” shall mean thirty (30) months.

     (j) Any dispute or controversy arising under or in connection with this Agreement, other than claims administered under Section 11, shall be settled exclusively by binding arbitration in the manner set forth in Section 11(c).

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     13. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof including any prior employment agreements, severance agreements, and change-in-control agreements. In addition, the provisions related to acceleration of options, time to exercise options, termination of risk of forfeiture of restricted stock, and the like, as well as the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Executive and the Corporation (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     14. NO INTERRUPTION OF BENEFITS. This Agreement constitutes an amendment and restatement of the Employment Agreement, and nothing in this Agreement shall be deemed an interruption of Executive’s years of service for vesting of the Corporation’s benefit plans, vesting of options to purchase the Corporation’s common stock, or otherwise.

     15. INDEMNIFICATION. The Corporation shall indemnify, defend, and hold Executive harmless, to the fullest extent allowed by law, from and against any liability, damages, costs, or expenses (including attorneys’ fees) in connection with any claim, cause of action, investigation, litigation, or proceeding involving him by reason of having been an officer, director, employee, or agent of the Corporation or its affiliates, unless it is judicially determined, in a final, nonappealable order that Executive was guilty of gross negligence or willful misconduct. The Corporation also agrees to maintain adequate directors and officers’ liability insurance for the benefit of Executive for the term of this Agreement and for at least three years thereafter. Notwithstanding the foregoing, the Corporation shall not have an obligation to purchase such directors and officers liability insurance if the Board determines in good faith that the premiums for such coverage are prohibitively expensive.

     16. Compliance with Section 409A of the Code. The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be interpreted and administered in accordance with Section 409A of the code and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A of the Code on account of the Executive’s “separation from service” (as defined in Section 409A of the Code, including the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A of the Code at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service.

[SIGNATURES ON NEXT PAGE]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date and year first above written.

LODGENET ENTERTAINMENT CORPORATION
By:	/s/ James G. Naro
	Name: James G. Naro
	Title: Senior VP, General Counsel
EXECUTIVE:
/s/ Scott C. Petersen
Scott C. Petersen

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EX-10.18

Exhibit 10.18

LODGENET ENTERTAINMENT CORPORATION

EXECUTIVE EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of January 29, 2008 by and between LodgeNet Entertainment Corporation, a Delaware corporation located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Corporation”), and David M. Bankers (“Executive”).

     WHEREAS, the Executive is presently employed by the Corporation in the capacity and with the title set forth on Appendix A hereto:

     WHEREAS, the Board of Directors (“Board”) has determined that it would be in the best interest of the Corporation and its shareholders to provide for the employment of Executive on the terms set forth herein in order to secure the attention and dedication of the Executive as a member of the Corporation’s management team.;

     WHEREAS, the Board has determined that entering into agreements from time to time with members of senior management in the form hereof will enhance the ability of the Corporation to attract and retain capable senior executives; and

     WHEREAS, the Executive is willing to continue serving the Corporation in accordance with the provisions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein shall have the meanings set forth in Appendix B, which is attached hereto and incorporated herein by reference.

     2. Term of Employment. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (the “Term”) beginning on the date hereof and continuing, unless sooner terminated as provided in Section 7 herein, through December 31, 2008; provided, however, that on each December 31, commencing with December 31, 2008, such period of employment shall automatically be extended for an additional year, (in which case the Term shall be deemed to have been extended through December 31 of the next succeeding year), unless sixty (60) days prior to the expiration of the then-current Term either party hereto has given written notice to the other that such party does not wish to extend the period of employment.

     3. Duties. During the Term, Executive shall serve as in the capacities and with the title(s) set forth in Appendix A, or in such other office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with Executive’s approval, performing the duties of such office or offices as are assigned to Executive by the Board or committees of the Board or the Chief Executive Officer of the Corporation. During the Term, Executive shall devote his full time and attention to the business of the

Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs.

     4. Work Location. During the Term, Executive shall have an office at the facility specified on Appendix A.

     5. Compensation. As compensation for the services performed hereunder, the Corporation shall pay or provide to Executive the following:

(a)	The Corporation shall pay Executive a salary (the “Base Salary”), calculated at the rate per annum set forth on Appendix A (which Base Salary may be increased by the Corporation at any time and from time to time in its discretion). The Base Salary shall be payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the Term under this Agreement.
(b)	During the Term, Executive shall be allowed to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, and all compensation and other entitlements earned pursuant to such programs shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary.
(c)	During the Term, Executive shall be entitled to:

(i)	participate in such retirement, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its salaried employees;
(ii)	participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation; and
(iii)	accrue vacation time, sick leave, or other forms of paid time off in accordance with the Corporation’s policy for executive personnel.

(d) During the Term, the Board from time to time in its discretion may grant to Executive stock options, restricted stock and other rights related to shares of the Corporation’s common stock, and may designate the terms on which such rights vest.

     6. Effect of Disability and Certain Hazards. Executive shall not be obligated to perform the services set forth in this Agreement during any period of Disability, and relief from such obligation shall not in any way affect his rights hereunder except to the

extent that such Disability may result in termination of his employment by the Corporation pursuant to Section 7 herein.

     7. Termination of Employment. The employment of Executive by the Corporation pursuant to this Agreement may be terminated on or prior to the expiration of the then current Term as follows:

(a)	Termination in the Event of Death. In the event of Executive’s death prior to the expiration of the Term, such employment shall automatically terminate on the date of Executive’s death.
(b)	Termination in the Event of Disability. The Corporation may terminate this Agreement due to Executive’s Disability prior to the expiration of the Term on not less than thirty (30) days prior written notice, unless prior to the expiration of said 30 day period, Executive shall have returned to the effective performance of Executive’s duties on a full-time basis. Any dispute as to the existence of a Disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefore by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne in equal shares by the Corporation and Executive.
(c)	Termination for Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable written notice to Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 7(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(d)	Termination Without Cause. The Corporation may terminate such employment at any time prior to the expiration of the Term without Cause upon 60 days prior written notice to Executive.
(e)	Date of Termination. Unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement, the effective date of termination shall be determined as follows:

(i) if this Agreement is terminated by death, the effective date of shall be the date of Executive’s death,

(ii)	if the Executive’s employment is terminated due to a Disability, the effective date of termination shall be thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the effective performance of his duties on a full-time basis during such period),
(iii)	if the Executive’s employment is terminated for Cause, the effective date of termination shall be the date specified in the Notice of Termination, and
(iv)	if the Executive’s employment is terminated for any other reason, the effective date of termination shall be sixty (60) days after the Notice of Termination.

     8. Payments Upon Termination.

(a)

Except as otherwise provided in subsections (b) or (c) of this Section 8, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which Executive may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any event no later than the Last Payment Date. Unless otherwise expressly provided in the terms of the bonus plan or program of the Corporation in which the Executive is a participant at the time of his termination, if the termination of Executive’s employment is for any reason other than a termination for Cause in accordance with Section 7(c) above, then a pro rata portion of the “target” full year’s bonus shall be deemed to have accrued for the Executive under such bonus plan or program for the portion of the year ended on the date of the termination, which shall be paid to the Executive within 10 days of the date of termination and no later than the Last Payment Date.

(b)

If Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause pursuant to Section 7(d) above, or if the Corporation elects at any time not to renew or extend this Agreement at the expiration of the then current Term, and provided that subsection (c) below does not apply, then, in addition to the payments required by subsection (a) of this Section 7, (i) all stock options previously granted but still subject to vesting shall be immediately vested and shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) two (2) years following the date of termination and (ii) all grants of restricted stock or other rights related to shares of the Corporation’s common stock shall be immediately vested (or the risk of forfeiture, as appropriate, shall terminate)

and shall be delivered to Executive at the same time and subject to the same performance conditions as if the Executive had remained employed by the Corporation. The Executive shall also receive, subject to the mitigation provisions of subsection (d) below, in a single sum payable at the time of termination, and no later than the Last Payment Date, a cash severance payment (the “Severance Payment”) from the Corporation. The amount of the Severance Payment shall be equal to the Executive’s then monthly Base Salary increased by a factor of twenty percent (20%) to account for the Executive’s loss of benefits, multiplied by the number of months in the Severance Period as set forth in Appendix A hereof. Executive shall have the right to purchase health and dental coverage under the Company’s group policies then in effect for the Severance Period. The Severance Payment is subject to required withholding. The Executive shall not be entitled to Severance Payments in any event if he is terminated for Cause as permitted by Section 7(c).

(c)

Termination Following Change in Control.

(i)

If a Change in Control of the Corporation occurs during the Term of this Agreement, or if Executive’s employment with the Corporation is terminated by the Corporation without Cause prior to but in connection with a Change in Control (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 8(c)(ii) below upon the termination of the Executive’s employment by the Corporation or by the Executive, unless the Corporation elects to terminate this Agreement pursuant to the provisions of Section 7 (a), (b) or (c) above or because the Executive terminates this Agreement other than for Good Reason.

(ii)

If the Executive shall be terminated from employment with the Corporation following the occurrence of a Change of Control such that Executive is entitled to the compensation set forth in this Section 8(c)(ii), then the Executive shall be entitled to receive the following severance benefits in lieu of any other benefits the Executive would otherwise be entitled to pursuant to this Agreement:

(a) Severance Payment. The Corporation shall pay as severance pay to the Executive an amount equal to the Base Salary that Executive would have received for a thirty (30) month period (the “Payment Period”) at an annualized rate equal to the higher of the rate in effect immediately prior to the Change in

	Control or the rate in effect on the date of the Notice of Termination. Such cash payment shall be payable in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date.
(b)	Incentive Awards. The Executive shall receive a cash payment in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date, in the amount equal a pro rata portion of the “target” full year’s bonus for the Executive under such bonus plan or program for the portion of the year ending on the date of the termination, with a partial month counted as a completed month.
(c)	Acceleration of Equity Grants. Any non-vested stock options, restricted stock or other equity award granted to the Executive by the Corporation shall become 100% vested and all restrictions or conditions to the receipt of such securities, included but not limited to any applicable performance criteria, shall be waived, up to 100% of the “target” shares that were to have been delivered to the executive under any performance-based plan, or 100% of the total shares under a time-based vesting plan. In addition, (i) any stock options shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) four (4) years following the date of termination and (ii) shares of restricted stock or other equity awards shall be delivered free of all restrictions within 10 days of the date of termination. If any plan pursuant to which stock options, restricted stock or other equity awards have been issued is not assumed by the successor entity, all such rights will immediately accelerate and be exercisable on the date of the Change of Control.
(d)	Insurance and Welfare Benefits. During the shorter of (i) the Payment Period or (ii) 18 months following the date of termination (the “Coverage Period”) the Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to the Change in Control. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources. If the Executive prior to a Change in Control was receiving any cash-in-lieu payments designed to enable the Executive to obtain insurance

coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section 8(c)(ii)(d), provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that the Executive would have been entitled to receive over the Coverage Period, no later than the Last Payment Date. The benefits to be provided under this Section 8(c)(ii)(d) shall be reduced to the extent of the receipt of substantially equivalent coverage by the Executive from any successor employer.

(e)

Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 or Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.

(iii) Notice of Good Reason. If Executive believes that Executive is entitled to terminate employment with the Corporation for Good Reason, the Executive may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 14 hereof. The submission of such a request by Executive shall not constitute Cause for the Corporation to terminate an Executive, and Executive shall continue to receive all compensation and benefits otherwise payable pursuant to this Agreement at the time of such submission throughout the resolution of the matter pursuant to the procedures set forth in Section 14 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Section 14(b) and (c) hereof, then the parties shall use their best efforts to resolve the claim within ninety (90) days after the claim is submitted to binding arbitration pursuant to Section 14(d).

(iv) All rights of the Employee pursuant to this Section 8(c) shall terminate on the second anniversary following the occurrence of a Change in Control.

(d)

No Mitigation. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 8(c)(ii)(d) above).

(e)

Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 8 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release, in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Subject to Section 21 hereof, payment of the amounts payable pursuant to this Section 8 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state law for such releases.

     9. Confidential Information. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, including, without limitation, drawings, plans, programs, specifications, code, algorithms, methods, techniques, systems, processes, designs and diagrams and non-public information relating to (i) customers of the Corporation or its subsidiaries, (ii) the Corporation’s business plans and budgets, and (iii) the Corporation’s financial information, including projections, plans and budgets, except as may be required to perform his duties hereunder. The provisions of this Section 9 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 9 shall not apply to any such trade secret or confidential information which becomes generally known in the trade from a source other than Executive.

     10. Patents, Etc. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the Executive’s period of employment with the Corporation, which relates to the business of the Corporation or any of it’s subsidiaries. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and

inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas or inventions covered by this Agreement as aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries (or any successor to the Corporation or any of its subsidiaries) full title to any and all such ideas, inventions and applications. Further, Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     11. Non-Competition.

(a)

If Executive receives severance compensation pursuant to Section 8 above, or if Executive is terminated for Cause, Executive agrees that Executive will not, without the prior written consent of the Corporation, directly or indirectly, during the six (6) month period following the Date of Termination, engage in any business or employment or provide any consulting service to any person or organization, or to a division or operating unit of any organization which is involved principally in the provision of video or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”); provided, however, that the parties acknowledge and agree that an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty (20%) percent of the revenues of such business and (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of video or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (a), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts payable to Executive pursuant to the provisions of Sections 8(b) or 8(c)(ii) of this Agreement which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

(b)

During the Term, Executive shall not enter into endeavors that are competitive with the business or operations of the Corporation and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder, member, venturer, advisor, consultant or otherwise (except for passive investments of not more than a one percent interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in an over-the-counter securities market) any Competing Business.

     12. Successors.

(a) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the

business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

(b)

This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

     13. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service (regularly providing proof of delivery), addressed to the Board and the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 13. Notices shall be deemed given when received.

     14. Administrator and Claims Procedure.

(a) In the event the Executive believes he/she has been wrongfully denied the payment of benefits, the Executive shall follow the procedures set forth in this Section 14. If the Executive is claiming benefits as a result of a termination of employment pursuant to Section 7(c), the Executive shall disregard subsections (b) and (c) hereof and shall proceed directly to arbitration pursuant to subsection (d) hereof. The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any

	time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.
(b)	The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 14. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 30 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 30-day period. In no event shall such extension exceed a period of 30 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
(c)	A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 30 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 30 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 60 days after receipt of such request.
(d)	A claimant who has followed the procedure in subsections (b) and (c) of this section, or who has been terminated pursuant to Section 7(c) after having been given the opportunity to be heard by the Board, and who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of

the Administrator’s written decision on review, or the Board’s decision, as the case may be, apply in writing to the Administrator for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the authority to award compensatory damages, but shall not have the authority to award punitive, consequential or exemplary damages. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

     15. Legal Fees and Expense. The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $15,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in accordance with this Agreement, provided, however, that if any arbitration or litigation results in a finding in favor of Executive contrary to the position of the Corporation, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in an event of a finding in favor of the Corporation. Amounts, if any, paid to the Executive pursuant to this Section 15 shall be in addition to all other amounts due to executive pursuant to this Agreement.

     16. Non-Alienation of Benefits. Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.

     17. Miscellaneous.

(a) This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by

	or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 8(c)(ii)(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.
(b)	This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets.
(c)	The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate, but only to the extent of any remaining financial obligations of the Corporation.
(d)	The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(e)	No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and Executive.
(f)	This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.

(g)	If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(h)	Any notice required or permitted to be given under this Agreement shall be in
	writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	to the address set forth on
	Appendix B hereto
If to the Corporation:	LodgeNet Entertainment Corporation
	3900 West Innovation Street
	Sioux Falls, SD 57107
	Attn: President

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

     18. Prior Agreements Superseded. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof including any prior employment agreements, severance agreements, and change-in-control agreements. In addition, the provisions related to acceleration of options, time to exercise options, termination of risk of forfeiture of restricted stock, and the like, as well as the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Executive and the Corporation (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     19. Survival of Certain Provisions. The provisions of sections 9, 10 and 11(a) of this Agreement shall survive the termination of this Agreement, provided that any claims pursuant to such sections must be brought within one year of the date of the termination of this agreement.

     20. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.

     21. Compliance with Section 409A of the Code. The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A of the

Internal Revenue Code of 1986, as amended (the “Code”) shall be interpreted and administered in accordance with Section 409A of the code and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A of the Code on account of the Executive’s “separation from service” (as defined in Section 409A of the Code, including the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A of the Code at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service.

     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE:	LODGENET ENTERTAINMENT CORPORATION:
/s/ David M. Bankers	By:	/s/ Scott C. Petersen
	Title: President — CEO
Address: 2634 Regency Court
Sioux Falls SD 57103

Appendix A

Employee Name:	David M. Bankers
Employee Address:	2634 Regency Court, Sioux Falls SD 57103
Position/Title:	Senior Vice President, Product & Technology Development
Work Location	3900 West Innovation Street, Sioux Falls, SD
Base Salary:	$280,000.00 per annum
Benefits Stipend:	$18,000.00 per annum, payable monthly
Bonus Parameters:	Percentage of Base Salary at Target: 45%
Severance Period:	24 months from date of termination

Appendix B

DEFINITIONS

For the purpose of this Agreement, the following terms have the meanings indicated:

“Cause” means one or more of the following:

(a) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute;

(b) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or

(c) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results in or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation or material damage to the Corporation’s reputation.

“Change in Control” means the occurrence of any of the following:

(a)

any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

(b)

during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals

	who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or
(c)	there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or
(d)	the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e)	the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.

“Disability” means any physical or mental condition which prevents the effective performance on a full time basis by Executive of the duties set forth in this Agreement or otherwise assigned to Executive as contemplated by this Agreement for a period of more than 180 days.

“Good Reason” means any of the following which occur following a Change of Control:

(a) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the Executive from, or any

	failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;
(b)	a material reduction by the Corporation in the Executive’s base salary in effect immediately prior to a Change in Control;
(c)	any material breach by the Corporation of any provision of this Agreement;
(d)	following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
(e)	without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than fifty (50) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(f)	the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which the Executive incurs a separation from service.

GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims (“Agreement”) is entered into by and between the undersigned,                      (“Employee”) LODGENET ENTERTAINMENT CORPORATION (the “Company”). Employee and the Company are collectively referred to as “Parties.”

     In exchange for the payments made pursuant to the severance provisions of the Employment Agreement between Employee and the Company, Employee hereby acknowledges full and complete satisfaction and hereby releases and forever discharges the Company and each of its affiliates, subsidiaries, agents, directors, officers, shareholders, employees, attorneys, successors, and assigns, from any and all claims arising from or connected with Employee’s employment by, or separation from the Company, including but not limited to, any actions brought in tort or for breach of contract, or claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefits Protection Act (“OWBPA”), the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, and any other federal or state statute, law or regulation relating to employment.

     In order to conform this release agreement with the rights provided by the Older Workers Benefit Protection Act of 1990, Employee is aware of the following with respect to release of any claims under the ADEA:

(1)	the right to consult with an attorney before signing this Release.
(2)	Forty-five (45) days, in which to consider this Release and any ADEA claim; and
(3)	Seven (7) days after signing this Release to revoke this release to any ADEA claim.

This Agreement shall not be effective until the expiration of seven (7) days following its execution by Employee. In addition, Employee acknowledges that the Company has provided Employee with a list of all employees eligible for and offered benefits under the ETA Plan, with their ages and job titles in compliance with the OWBPA. Employee acknowledges that the names could change as the Plan is implemented and that a current list will be available upon request at the Human Resource office of the Company.

     Employee agrees not to use any confidential information or trade secrets acquired during employment with the Company for any other business or employment without the prior written consent of the Company. Employee hereby assigns to the Company all rights to any invention(s) developed or will develop relating at the time of conception or reduction to practice to the Company’s business, or resulting from work performed for the Company.

     Employee further agrees that this Agreement, the terms and conditions of this Agreement, and any and all actions by the Parties in accordance therewith, are strictly confidential and Employee agrees not to disclose, discuss or reveal said information to any other persons, entities or organizations, except that Employee may disclose this information to immediate family members, counsel, personal tax advisor, or as may be required by applicable law. However, a violation of this confidentiality agreement by any third party referenced-above will constitute a breach of this Agreement.

     The Parties hereby agree to submit any and all disputes regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement, to final and binding and confidential arbitration by a single neutral arbitrator as the exclusive remedy for such claim or dispute. Subject to the terms of this paragraph, the arbitration proceedings shall be conducted and administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes then in effect. The arbitrator shall be experienced in labor and employment matters and shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, pursuant to the AAA Rules. In addition, should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the prevailing party shall be entitled to recover from the other party all damages, costs, expenses, and attorney’s fees incurred as a result of such action.

     This Agreement represents and contains the entire agreement between Employee and the Company relating to the matters described herein, and supersedes all prior discussions and agreements, whether oral or written.

     Employee affirms and represents that he is entering into this Agreement freely and voluntarily, and that Employee is acting under no other inducement, or under any coercion, threat or duress. Employee acknowledges that the contents of this document have been explained to Employee and Employee understands the meaning and legal effect of this Agreement.

Dated:
	Employee Signature
Dated:	By:

EX-10.19

Exhibit 10.19

LODGENET ENTERTAINMENT CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of January 29, 2008 by and between LodgeNet Entertainment Corporation, a Delaware corporation located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Corporation”), and James G. Naro (“Executive”).

     WHEREAS, the Executive is presently employed by the Corporation in the capacity and with the title set forth on Appendix A hereto:

     WHEREAS, the Board of Directors (“Board”) has determined that it would be in the best interest of the Corporation and its shareholders to provide for the employment of Executive on the terms set forth herein in order to secure the attention and dedication of the Executive as a member of the Corporation’s management team.;

     WHEREAS, the Board has determined that entering into agreements from time to time with members of senior management in the form hereof will enhance the ability of the Corporation to attract and retain capable senior executives; and

     WHEREAS, the Executive is willing to continue serving the Corporation in accordance with the provisions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein shall have the meanings set forth in Appendix B, which is attached hereto and incorporated herein by reference.

     2. Term of Employment. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (the “Term”) beginning on the date hereof and continuing, unless sooner terminated as provided in Section 7 herein, through December 31, 2008; provided, however, that on each December 31, commencing with December 31, 2008, such period of employment shall automatically be extended for an additional year, (in which case the Term shall be deemed to have been extended through December 31 of the next succeeding year), unless sixty (60) days prior to the expiration of the then-current Term either party hereto has given written notice to the other that such party does not wish to extend the period of employment.

     3. Duties. During the Term, Executive shall serve as in the capacities and with the title(s) set forth in Appendix A, or in such other office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with Executive’s approval, performing the duties of such office or offices as are assigned to Executive by the Board or committees of the Board or the Chief Executive Officer of the Corporation. During the Term, Executive shall devote his full time and attention to the business of the

Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs.

     4. Work Location. During the Term, Executive shall have an office at the facility specified on Appendix A.

     5. Compensation. As compensation for the services performed hereunder, the Corporation shall pay or provide to Executive the following:

(a)	The Corporation shall pay Executive a salary (the “Base Salary”), calculated at the rate per annum set forth on Appendix A (which Base Salary may be increased by the Corporation at any time and from time to time in its discretion). The Base Salary shall be payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the Term under this Agreement.
(b)	During the Term, Executive shall be allowed to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, and all compensation and other entitlements earned pursuant to such programs shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary.
(c)	During the Term, Executive shall be entitled to:

(i)	participate in such retirement, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its salaried employees;
(ii)	participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation; and
(iii)	accrue vacation time, sick leave, or other forms of paid time off in accordance with the Corporation’s policy for executive personnel.

(d) During the Term, the Board from time to time in its discretion may grant to Executive stock options, restricted stock and other rights related to shares of the Corporation’s common stock, and may designate the terms on which such rights vest.

     6. Effect of Disability and Certain Hazards. Executive shall not be obligated to perform the services set forth in this Agreement during any period of Disability, and relief from such obligation shall not in any way affect his rights hereunder except to the

extent that such Disability may result in termination of his employment by the Corporation pursuant to Section 7 herein.

     7. Termination of Employment. The employment of Executive by the Corporation pursuant to this Agreement may be terminated on or prior to the expiration of the then current Term as follows:

(a)	Termination in the Event of Death. In the event of Executive’s death prior to the expiration of the Term, such employment shall automatically terminate on the date of Executive’s death.
(b)	Termination in the Event of Disability. The Corporation may terminate this Agreement due to Executive’s Disability prior to the expiration of the Term on not less than thirty (30) days prior written notice, unless prior to the expiration of said 30 day period, Executive shall have returned to the effective performance of Executive’s duties on a full-time basis. Any dispute as to the existence of a Disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefore by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne in equal shares by the Corporation and Executive.
(c)	Termination for Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable written notice to Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 7(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(d)	Termination Without Cause. The Corporation may terminate such employment at any time prior to the expiration of the Term without Cause upon 60 days prior written notice to Executive.
(e)	Date of Termination. Unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement, the effective date of termination shall be determined as follows:

(i) if this Agreement is terminated by death, the effective date of shall be the date of Executive’s death,

(ii)	if the Executive’s employment is terminated due to a Disability, the effective date of termination shall be thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the effective performance of his duties on a full-time basis during such period),
(iii)	if the Executive’s employment is terminated for Cause, the effective date of termination shall be the date specified in the Notice of Termination, and
(iv)	if the Executive’s employment is terminated for any other reason, the effective date of termination shall be sixty (60) days after the Notice of Termination.

     8. Payments Upon Termination.

(a)

Except as otherwise provided in subsections (b) or (c) of this Section 8, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which Executive may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any event no later than the Last Payment Date. Unless otherwise expressly provided in the terms of the bonus plan or program of the Corporation in which the Executive is a participant at the time of his termination, if the termination of Executive’s employment is for any reason other than a termination for Cause in accordance with Section 7(c) above, then a pro rata portion of the “target” full year’s bonus shall be deemed to have accrued for the Executive under such bonus plan or program for the portion of the year ended on the date of the termination, which shall be paid to the Executive within 10 days of the date of termination and no later than the Last Payment Date.

(b)

If Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause pursuant to Section 7(d) above, or if the Corporation elects at any time not to renew or extend this Agreement at the expiration of the then current Term, and provided that subsection (c) below does not apply, then, in addition to the payments required by subsection (a) of this Section 7, (i) all stock options previously granted but still subject to vesting shall be immediately vested and shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) two (2) years following the date of termination and (ii) all grants of restricted stock or other rights related to shares of the Corporation’s common stock shall be immediately vested (or the risk of forfeiture, as appropriate, shall terminate)

and shall be delivered to Executive at the same time and subject to the same performance conditions as if the Executive had remained employed by the Corporation. The Executive shall also receive, subject to the mitigation provisions of subsection (d) below, in a single sum payable at the time of termination, and no later than the Last Payment Date, a cash severance payment (the “Severance Payment”) from the Corporation. The amount of the Severance Payment shall be equal to the Executive’s then monthly Base Salary increased by a factor of twenty percent (20%) to account for the Executive’s loss of benefits, multiplied by the number of months in the Severance Period as set forth in Appendix A hereof. Executive shall have the right to purchase health and dental coverage under the Company’s group policies then in effect for the Severance Period. The Severance Payment is subject to required withholding. The Executive shall not be entitled to Severance Payments in any event if he is terminated for Cause as permitted by Section 7(c).

(c)

Termination Following Change in Control.

(i)

If a Change in Control of the Corporation occurs during the Term of this Agreement, or if Executive’s employment with the Corporation is terminated by the Corporation without Cause prior to but in connection with a Change in Control (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 8(c)(ii) below upon the termination of the Executive’s employment by the Corporation or by the Executive, unless the Corporation elects to terminate this Agreement pursuant to the provisions of Section 7 (a), (b) or (c) above or because the Executive terminates this Agreement other than for Good Reason.

(ii)

If the Executive shall be terminated from employment with the Corporation following the occurrence of a Change of Control such that Executive is entitled to the compensation set forth in this Section 8(c)(ii), then the Executive shall be entitled to receive the following severance benefits in lieu of any other benefits the Executive would otherwise be entitled to pursuant to this Agreement:

(a) Severance Payment. The Corporation shall pay as severance pay to the Executive an amount equal to the Base Salary that Executive would have received for a thirty (30) month period (the “Payment Period”) at an annualized rate equal to the higher of the rate in effect immediately prior to the Change in

	Control or the rate in effect on the date of the Notice of Termination. Such cash payment shall be payable in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date.
(b)	Incentive Awards. The Executive shall receive a cash payment in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date, in the amount equal a pro rata portion of the “target” full year’s bonus for the Executive under such bonus plan or program for the portion of the year ending on the date of the termination, with a partial month counted as a completed month.
(c)	Acceleration of Equity Grants. Any non-vested stock options, restricted stock or other equity award granted to the Executive by the Corporation shall become 100% vested and all restrictions or conditions to the receipt of such securities, included but not limited to any applicable performance criteria, shall be waived, up to 100% of the “target” shares that were to have been delivered to the executive under any performance-based plan, or 100% of the total shares under a time-based vesting plan. In addition, (i) any stock options shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) four (4) years following the date of termination and (ii) shares of restricted stock or other equity awards shall be delivered free of all restrictions within 10 days of the date of termination. If any plan pursuant to which stock options, restricted stock or other equity awards have been issued is not assumed by the successor entity, all such rights will immediately accelerate and be exercisable on the date of the Change of Control.
(d)	Insurance and Welfare Benefits. During the shorter of (i) the Payment Period or (ii) 18 months following the date of termination (the “Coverage Period”) the Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to the Change in Control. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources. If the Executive prior to a Change in Control was receiving any cash-in-lieu payments designed to enable the Executive to obtain insurance

coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section 8(c)(ii)(d), provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that the Executive would have been entitled to receive over the Coverage Period, no later than the Last Payment Date. The benefits to be provided under this Section 8(c)(ii)(d) shall be reduced to the extent of the receipt of substantially equivalent coverage by the Executive from any successor employer.

(e)

Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 or Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.

(iii) Notice of Good Reason. If Executive believes that Executive is entitled to terminate employment with the Corporation for Good Reason, the Executive may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 14 hereof. The submission of such a request by Executive shall not constitute Cause for the Corporation to terminate an Executive, and Executive shall continue to receive all compensation and benefits otherwise payable pursuant to this Agreement at the time of such submission throughout the resolution of the matter pursuant to the procedures set forth in Section 14 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Section 14(b) and (c) hereof, then the parties shall use their best efforts to resolve the claim within ninety (90) days after the claim is submitted to binding arbitration pursuant to Section 14(d).

(iv) All rights of the Employee pursuant to this Section 8(c) shall terminate on the second anniversary following the occurrence of a Change in Control.

(d)

No Mitigation. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 8(c)(ii)(d) above).

(e)

Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 8 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release, in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Subject to Section 21 hereof, payment of the amounts payable pursuant to this Section 8 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state law for such releases.

     9. Confidential Information. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, including, without limitation, drawings, plans, programs, specifications, code, algorithms, methods, techniques, systems, processes, designs and diagrams and non-public information relating to (i) customers of the Corporation or its subsidiaries, (ii) the Corporation’s business plans and budgets, and (iii) the Corporation’s financial information, including projections, plans and budgets, except as may be required to perform his duties hereunder. The provisions of this Section 9 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 9 shall not apply to any such trade secret or confidential information which becomes generally known in the trade from a source other than Executive.

     10. Patents, Etc. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the Executive’s period of employment with the Corporation, which relates to the business of the Corporation or any of it’s subsidiaries. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and

inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas or inventions covered by this Agreement as aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries (or any successor to the Corporation or any of its subsidiaries) full title to any and all such ideas, inventions and applications. Further, Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     11. Non-Competition.

(a)

If Executive receives severance compensation pursuant to Section 8 above, or if Executive is terminated for Cause, Executive agrees that Executive will not, without the prior written consent of the Corporation, directly or indirectly, during the six (6) month period following the Date of Termination, engage in any business or employment or provide any consulting service to any person or organization, or to a division or operating unit of any organization which is involved principally in the provision of video or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”); provided, however, that the parties acknowledge and agree that an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty (20%) percent of the revenues of such business and (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of video or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (a), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts payable to Executive pursuant to the provisions of Sections 8(b) or 8(c)(ii) of this Agreement which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

(b)

During the Term, Executive shall not enter into endeavors that are competitive with the business or operations of the Corporation and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder, member, venturer, advisor, consultant or otherwise (except for passive investments of not more than a one percent interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in an over-the-counter securities market) any Competing Business.

     12. Successors.

(a) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the

business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

(b)

This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

     13. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service (regularly providing proof of delivery), addressed to the Board and the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 13. Notices shall be deemed given when received.

     14. Administrator and Claims Procedure.

(a) In the event the Executive believes he/she has been wrongfully denied the payment of benefits, the Executive shall follow the procedures set forth in this Section 14. If the Executive is claiming benefits as a result of a termination of employment pursuant to Section 7(c), the Executive shall disregard subsections (b) and (c) hereof and shall proceed directly to arbitration pursuant to subsection (d) hereof. The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any

time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.

(b)	The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 14. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 30 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 30-day period. In no event shall such extension exceed a period of 30 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
(c)	A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 30 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 30 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 60 days after receipt of such request.
(d)	A claimant who has followed the procedure in subsections (b) and (c) of this section, or who has been terminated pursuant to Section 7(c) after having been given the opportunity to be heard by the Board, and who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of

the Administrator’s written decision on review, or the Board’s decision, as the case may be, apply in writing to the Administrator for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the authority to award compensatory damages, but shall not have the authority to award punitive, consequential or exemplary damages. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

15. Legal Fees and Expense. The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $15,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in accordance with this Agreement, provided, however, that if any arbitration or litigation results in a finding in favor of Executive contrary to the position of the Corporation, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in an event of a finding in favor of the Corporation. Amounts, if any, paid to the Executive pursuant to this Section 15 shall be in addition to all other amounts due to executive pursuant to this Agreement.

     16. Non-Alienation of Benefits. Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.

     17. Miscellaneous.

(a) This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by

or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 8(c)(ii)(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.

(b)	This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets.
(c)	The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate, but only to the extent of any remaining financial obligations of the Corporation.
(d)	The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(e)	No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and Executive.
(f)	This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.

(g)	If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(h)	Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	to the address set forth on
	Appendix B hereto
If to the Corporation:	LodgeNet Entertainment Corporation
	3900 West Innovation Street
	Sioux Falls, SD 57107
	Attn: President

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

     18. Prior Agreements Superseded. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof including any prior employment agreements, severance agreements, and change-in-control agreements. In addition, the provisions related to acceleration of options, time to exercise options, termination of risk of forfeiture of restricted stock, and the like, as well as the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Executive and the Corporation (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     19. Survival of Certain Provisions. The provisions of sections 9, 10 and 11(a) of this Agreement shall survive the termination of this Agreement, provided that any claims pursuant to such sections must be brought within one year of the date of the termination of this agreement.

     20. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.

     21. Compliance with Section 409A of the Code. The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A of the

Internal Revenue Code of 1986, as amended (the “Code”) shall be interpreted and administered in accordance with Section 409A of the code and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A of the Code on account of the Executive’s “separation from service” (as defined in Section 409A of the Code, including the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A of the Code at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service.

     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE:	LODGENET ENTERTAINMENT CORPORATION:
/s/ James G. Naro	By:	/s/ Scott C. Petersen
	Title:	President — CEO
Address: 4 East Twin Oaks Estates
Sioux Falls, SD 57105

Appendix A

Employee Name:	James G. Naro
Employee Address:	4 East Twin Oaks Estates
	Sioux Falls, SD 57105
Position/Title:	Senior Vice President, General Counsel
Work Location	3900 West Innovation Street, Sioux Falls, SD
Base Salary:	$277,500.00 per annum
Benefits Stipend:	$18,000.00 per annum, payable monthly
Bonus Parameters:	Percentage of Base Salary at Target: 45%
Severance Period:	18 months from date of termination

Appendix B

DEFINITIONS

For the purpose of this Agreement, the following terms have the meanings indicated:

“Cause” means one or more of the following:

(a) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute;

(b) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or

(c) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results in or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation or material damage to the Corporation’s reputation.

“Change in Control” means the occurrence of any of the following:

(a)

any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

(b)

during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals

	who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or
(c)	there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or
(d)	the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e)	the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.

“Disability” means any physical or mental condition which prevents the effective performance on a full time basis by Executive of the duties set forth in this Agreement or otherwise assigned to Executive as contemplated by this Agreement for a period of more than 180 days.

“Good Reason” means any of the following which occur following a Change of Control:

(a) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the Executive from, or any

	failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;
(b)	a material reduction by the Corporation in the Executive’s base salary in effect immediately prior to a Change in Control;
(c)	any material breach by the Corporation of any provision of this Agreement;
(d)	following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
(e)	without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than fifty (50) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(f)	the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which the Executive incurs a separation from service.

GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims (“Agreement”) is entered into by and between the undersigned,                      (“Employee”) LODGENET ENTERTAINMENT CORPORATION (the “Company”). Employee and the Company are collectively referred to as “Parties.”

     In exchange for the payments made pursuant to the severance provisions of the Employment Agreement between Employee and the Company, Employee hereby acknowledges full and complete satisfaction and hereby releases and forever discharges the Company and each of its affiliates, subsidiaries, agents, directors, officers, shareholders, employees, attorneys, successors, and assigns, from any and all claims arising from or connected with Employee’s employment by, or separation from the Company, including but not limited to, any actions brought in tort or for breach of contract, or claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefits Protection Act (“OWBPA”), the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, and any other federal or state statute, law or regulation relating to employment.

     In order to conform this release agreement with the rights provided by the Older Workers Benefit Protection Act of 1990, Employee is aware of the following with respect to release of any claims under the ADEA:

(1)	the right to consult with an attorney before signing this Release.
(2)	Forty-five (45) days, in which to consider this Release and any ADEA claim; and
(3)	Seven (7) days after signing this Release to revoke this release to any ADEA claim.

This Agreement shall not be effective until the expiration of seven (7) days following its execution by Employee. In addition, Employee acknowledges that the Company has provided Employee with a list of all employees eligible for and offered benefits under the ETA Plan, with their ages and job titles in compliance with the OWBPA. Employee acknowledges that the names could change as the Plan is implemented and that a current list will be available upon request at the Human Resource office of the Company.

     Employee agrees not to use any confidential information or trade secrets acquired during employment with the Company for any other business or employment without the prior written consent of the Company. Employee hereby assigns to the Company all rights to any invention(s) developed or will develop relating at the time of conception or reduction to practice to the Company’s business, or resulting from work performed for the Company.

     Employee further agrees that this Agreement, the terms and conditions of this Agreement, and any and all actions by the Parties in accordance therewith, are strictly confidential and Employee agrees not to disclose, discuss or reveal said information to any other persons, entities or organizations, except that Employee may disclose this information to immediate family members, counsel, personal tax advisor, or as may be required by applicable law. However, a violation of this confidentiality agreement by any third party referenced-above will constitute a breach of this Agreement.

     The Parties hereby agree to submit any and all disputes regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement, to final and binding and confidential arbitration by a single neutral arbitrator as the exclusive remedy for such claim or dispute. Subject to the terms of this paragraph, the arbitration proceedings shall be conducted and administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes then in effect. The arbitrator shall be experienced in labor and employment matters and shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, pursuant to the AAA Rules. In addition, should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the prevailing party shall be entitled to recover from the other party all damages, costs, expenses, and attorney’s fees incurred as a result of such action.

     This Agreement represents and contains the entire agreement between Employee and the Company relating to the matters described herein, and supersedes all prior discussions and agreements, whether oral or written.

     Employee affirms and represents that he is entering into this Agreement freely and voluntarily, and that Employee is acting under no other inducement, or under any coercion, threat or duress. Employee acknowledges that the contents of this document have been explained to Employee and Employee understands the meaning and legal effect of this Agreement.

Dated:
	Employee Signature
Dated:	By:

EX-10.20

Exhibit 10.20

LODGENET ENTERTAINMENT CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of January 29, 2008 by and between LodgeNet Entertainment Corporation, a Delaware corporation located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Corporation”), and Steven R. Pofahl (“Executive”).

     WHEREAS, the Executive is presently employed by the Corporation in the capacity and with the title set forth on Appendix A hereto:

     WHEREAS, the Board of Directors (“Board”) has determined that it would be in the best interest of the Corporation and its shareholders to provide for the employment of Executive on the terms set forth herein in order to secure the attention and dedication of the Executive as a member of the Corporation’s management team.;

     WHEREAS, the Board has determined that entering into agreements from time to time with members of senior management in the form hereof will enhance the ability of the Corporation to attract and retain capable senior executives; and

     WHEREAS, the Executive is willing to continue serving the Corporation in accordance with the provisions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein shall have the meanings set forth in Appendix B, which is attached hereto and incorporated herein by reference.

     2. Term of Employment. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (the “Term”) beginning on the date hereof and continuing, unless sooner terminated as provided in Section 7 herein, through December 31, 2008; provided, however, that on each December 31, commencing with December 31, 2008, such period of employment shall automatically be extended for an additional year, (in which case the Term shall be deemed to have been extended through December 31 of the next succeeding year), unless sixty (60) days prior to the expiration of the then-current Term either party hereto has given written notice to the other that such party does not wish to extend the period of employment.

     3. Duties. During the Term, Executive shall serve as in the capacities and with the title(s) set forth in Appendix A, or in such other office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with Executive’s approval, performing the duties of such office or offices as are assigned to Executive by the Board or committees of the Board or the Chief Executive Officer of the Corporation. During the Term, Executive shall devote his full time and attention to the business of the

Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs.

     4. Work Location. During the Term, Executive shall have an office at the facility specified on Appendix A.

     5. Compensation. As compensation for the services performed hereunder, the Corporation shall pay or provide to Executive the following:

(a)	The Corporation shall pay Executive a salary (the “Base Salary”), calculated at the rate per annum set forth on Appendix A (which Base Salary may be increased by the Corporation at any time and from time to time in its discretion). The Base Salary shall be payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the Term under this Agreement.
(b)	During the Term, Executive shall be allowed to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, and all compensation and other entitlements earned pursuant to such programs shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary.
(c)	During the Term, Executive shall be entitled to:

(i)	participate in such retirement, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its salaried employees;
(ii)	participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation; and
(iii)	accrue vacation time, sick leave, or other forms of paid time off in accordance with the Corporation’s policy for executive personnel.

(d) During the Term, the Board from time to time in its discretion may grant to Executive stock options, restricted stock and other rights related to shares of the Corporation’s common stock, and may designate the terms on which such rights vest.

     6. Effect of Disability and Certain Hazards. Executive shall not be obligated to perform the services set forth in this Agreement during any period of Disability, and relief from such obligation shall not in any way affect his rights hereunder except to the

extent that such Disability may result in termination of his employment by the Corporation pursuant to Section 7 herein.

     7. Termination of Employment. The employment of Executive by the Corporation pursuant to this Agreement may be terminated on or prior to the expiration of the then current Term as follows:

(a)	Termination in the Event of Death. In the event of Executive’s death prior to the expiration of the Term, such employment shall automatically terminate on the date of Executive’s death.
(b)	Termination in the Event of Disability. The Corporation may terminate this Agreement due to Executive’s Disability prior to the expiration of the Term on not less than thirty (30) days prior written notice, unless prior to the expiration of said 30 day period, Executive shall have returned to the effective performance of Executive’s duties on a full-time basis. Any dispute as to the existence of a Disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefore by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne in equal shares by the Corporation and Executive.
(c)	Termination for Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable written notice to Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 7(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(d)	Termination Without Cause. The Corporation may terminate such employment at any time prior to the expiration of the Term without Cause upon 60 days prior written notice to Executive.
(e)	Date of Termination. Unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement, the effective date of termination shall be determined as follows:

(i) if this Agreement is terminated by death, the effective date of shall be the date of Executive’s death,

(ii)	if the Executive’s employment is terminated due to a Disability, the effective date of termination shall be thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the effective performance of his duties on a full-time basis during such period),
(iii)	if the Executive’s employment is terminated for Cause, the effective date of termination shall be the date specified in the Notice of Termination, and
(iv)	if the Executive’s employment is terminated for any other reason, the effective date of termination shall be sixty (60) days after the Notice of Termination.

     8. Payments Upon Termination.

(a)

Except as otherwise provided in subsections (b) or (c) of this Section 8, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which Executive may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any event no later than the Last Payment Date. Unless otherwise expressly provided in the terms of the bonus plan or program of the Corporation in which the Executive is a participant at the time of his termination, if the termination of Executive’s employment is for any reason other than a termination for Cause in accordance with Section 7(c) above, then a pro rata portion of the “target” full year’s bonus shall be deemed to have accrued for the Executive under such bonus plan or program for the portion of the year ended on the date of the termination, which shall be paid to the Executive within 10 days of the date of termination and no later than the Last Payment Date.

(b)

If Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause pursuant to Section 7(d) above, or if the Corporation elects at any time not to renew or extend this Agreement at the expiration of the then current Term, and provided that subsection (c) below does not apply, then, in addition to the payments required by subsection (a) of this Section 7, (i) all stock options previously granted but still subject to vesting shall be immediately vested and shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) two (2) years following the date of termination and (ii) all grants of restricted stock or other rights related to shares of the Corporation’s common stock shall be immediately vested (or the risk of forfeiture, as appropriate, shall terminate)

and shall be delivered to Executive at the same time and subject to the same performance conditions as if the Executive had remained employed by the Corporation. The Executive shall also receive, subject to the mitigation provisions of subsection (d) below, in a single sum payable at the time of termination, and no later than the Last Payment Date, a cash severance payment (the “Severance Payment”) from the Corporation. The amount of the Severance Payment shall be equal to the Executive’s then monthly Base Salary increased by a factor of twenty percent (20%) to account for the Executive’s loss of benefits, multiplied by the number of months in the Severance Period as set forth in Appendix A hereof. Executive shall have the right to purchase health and dental coverage under the Company’s group policies then in effect for the Severance Period. The Severance Payment is subject to required withholding. The Executive shall not be entitled to Severance Payments in any event if he is terminated for Cause as permitted by Section 7(c).

(c)

Termination Following Change in Control.

(i)

If a Change in Control of the Corporation occurs during the Term of this Agreement, or if Executive’s employment with the Corporation is terminated by the Corporation without Cause prior to but in connection with a Change in Control (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 8(c)(ii) below upon the termination of the Executive’s employment by the Corporation or by the Executive, unless the Corporation elects to terminate this Agreement pursuant to the provisions of Section 7 (a), (b) or (c) above or because the Executive terminates this Agreement other than for Good Reason.

(ii)

If the Executive shall be terminated from employment with the Corporation following the occurrence of a Change of Control such that Executive is entitled to the compensation set forth in this Section 8(c)(ii), then the Executive shall be entitled to receive the following severance benefits in lieu of any other benefits the Executive would otherwise be entitled to pursuant to this Agreement:

(a) Severance Payment. The Corporation shall pay as severance pay to the Executive an amount equal to the Base Salary that Executive would have received for a thirty (30) month period (the “Payment Period”) at an annualized rate equal to the higher of the rate in effect immediately prior to the Change in

	Control or the rate in effect on the date of the Notice of Termination. Such cash payment shall be payable in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date.
(b)	Incentive Awards. The Executive shall receive a cash payment in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date, in the amount equal a pro rata portion of the “target” full year’s bonus for the Executive under such bonus plan or program for the portion of the year ending on the date of the termination, with a partial month counted as a completed month.
(c)	Acceleration of Equity Grants. Any non-vested stock options, restricted stock or other equity award granted to the Executive by the Corporation shall become 100% vested and all restrictions or conditions to the receipt of such securities, included but not limited to any applicable performance criteria, shall be waived, up to 100% of the “target” shares that were to have been delivered to the executive under any performance-based plan, or 100% of the total shares under a time-based vesting plan. In addition, (i) any stock options shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) four (4) years following the date of termination and (ii) shares of restricted stock or other equity awards shall be delivered free of all restrictions within 10 days of the date of termination. If any plan pursuant to which stock options, restricted stock or other equity awards have been issued is not assumed by the successor entity, all such rights will immediately accelerate and be exercisable on the date of the Change of Control.
(d)	Insurance and Welfare Benefits. During the shorter of (i) the Payment Period or (ii) 18 months following the date of termination (the “Coverage Period”) the Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to the Change in Control. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources. If the Executive prior to a Change in Control was receiving any cash-in-lieu payments designed to enable the Executive to obtain insurance

coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section 8(c)(ii)(d), provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that the Executive would have been entitled to receive over the Coverage Period, no later than the Last Payment Date. The benefits to be provided under this Section 8(c)(ii)(d) shall be reduced to the extent of the receipt of substantially equivalent coverage by the Executive from any successor employer.

(e)

Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 or Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.

(iii) Notice of Good Reason. If Executive believes that Executive is entitled to terminate employment with the Corporation for Good Reason, the Executive may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 14 hereof. The submission of such a request by Executive shall not constitute Cause for the Corporation to terminate an Executive, and Executive shall continue to receive all compensation and benefits otherwise payable pursuant to this Agreement at the time of such submission throughout the resolution of the matter pursuant to the procedures set forth in Section 14 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Section 14(b) and (c) hereof, then the parties shall use their best efforts to resolve the claim within ninety (90) days after the claim is submitted to binding arbitration pursuant to Section 14(d).

(iv) All rights of the Employee pursuant to this Section 8(c) shall terminate on the second anniversary following the occurrence of a Change in Control.

(d)

No Mitigation. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 8(c)(ii)(d) above).

(e)

Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 8 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release, in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Subject to Section 21 hereof, payment of the amounts payable pursuant to this Section 8 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state law for such releases.

     9. Confidential Information. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, including, without limitation, drawings, plans, programs, specifications, code, algorithms, methods, techniques, systems, processes, designs and diagrams and non-public information relating to (i) customers of the Corporation or its subsidiaries, (ii) the Corporation’s business plans and budgets, and (iii) the Corporation’s financial information, including projections, plans and budgets, except as may be required to perform his duties hereunder. The provisions of this Section 9 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 9 shall not apply to any such trade secret or confidential information which becomes generally known in the trade from a source other than Executive.

     10. Patents, Etc. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the Executive’s period of employment with the Corporation, which relates to the business of the Corporation or any of it’s subsidiaries. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and

inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas or inventions covered by this Agreement as aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries (or any successor to the Corporation or any of its subsidiaries) full title to any and all such ideas, inventions and applications. Further, Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     11. Non-Competition.

(a)

If Executive receives severance compensation pursuant to Section 8 above, or if Executive is terminated for Cause, Executive agrees that Executive will not, without the prior written consent of the Corporation, directly or indirectly, during the six (6) month period following the Date of Termination, engage in any business or employment or provide any consulting service to any person or organization, or to a division or operating unit of any organization which is involved principally in the provision of video or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”); provided, however, that the parties acknowledge and agree that an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty (20%) percent of the revenues of such business and (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of video or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (a), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts payable to Executive pursuant to the provisions of Sections 8(b) or 8(c)(ii) of this Agreement which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

(b)

During the Term, Executive shall not enter into endeavors that are competitive with the business or operations of the Corporation and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder, member, venturer, advisor, consultant or otherwise (except for passive investments of not more than a one percent interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in an over-the-counter securities market) any Competing Business.

     12. Successors.

(a) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the

business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

(b)

This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

     13. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service (regularly providing proof of delivery), addressed to the Board and the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 13. Notices shall be deemed given when received.

     14. Administrator and Claims Procedure.

(a) In the event the Executive believes he/she has been wrongfully denied the payment of benefits, the Executive shall follow the procedures set forth in this Section 14. If the Executive is claiming benefits as a result of a termination of employment pursuant to Section 7(c), the Executive shall disregard subsections (b) and (c) hereof and shall proceed directly to arbitration pursuant to subsection (d) hereof. The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any

	time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.
(b)	The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 14. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 30 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 30-day period. In no event shall such extension exceed a period of 30 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
(c)	A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 30 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 30 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 60 days after receipt of such request.
(d)	A claimant who has followed the procedure in subsections (b) and (c) of this section, or who has been terminated pursuant to Section 7(c) after having been given the opportunity to be heard by the Board, and who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of

the Administrator’s written decision on review, or the Board’s decision, as the case may be, apply in writing to the Administrator for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the authority to award compensatory damages, but shall not have the authority to award punitive, consequential or exemplary damages. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

15. Legal Fees and Expense. The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $15,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in accordance with this Agreement, provided, however, that if any arbitration or litigation results in a finding in favor of Executive contrary to the position of the Corporation, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in an event of a finding in favor of the Corporation. Amounts, if any, paid to the Executive pursuant to this Section 15 shall be in addition to all other amounts due to executive pursuant to this Agreement.

     16. Non-Alienation of Benefits. Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.

     17. Miscellaneous.

(a) This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by

	or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 8(c)(ii)(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.
(b)	This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets.
(c)	The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate, but only to the extent of any remaining financial obligations of the Corporation.
(d)	The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(e)	No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and Executive.
(f)	This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.

(g)	If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(h)	Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	to the address set forth on
	Appendix B hereto
If to the Corporation:	LodgeNet Entertainment Corporation
	3900 West Innovation Street
	Sioux Falls, SD 57107
	Attn: President

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

     18. Prior Agreements Superseded. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof including any prior employment agreements, severance agreements, and change-in-control agreements. In addition, the provisions related to acceleration of options, time to exercise options, termination of risk of forfeiture of restricted stock, and the like, as well as the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Executive and the Corporation (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     19. Survival of Certain Provisions. The provisions of sections 9, 10 and 11(a) of this Agreement shall survive the termination of this Agreement, provided that any claims pursuant to such sections must be brought within one year of the date of the termination of this agreement.

     20. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.

     21. Compliance with Section 409A of the Code. The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A of the

Internal Revenue Code of 1986, as amended (the “Code”) shall be interpreted and administered in accordance with Section 409A of the code and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A of the Code on account of the Executive’s “separation from service” (as defined in Section 409A of the Code, including the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A of the Code at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service.

     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE:	LODGENET ENTERTAINMENT CORPORATION:
/s/ Steven R.Pofahl	By:	/s/ Scott C. Petersen
	Title:	President — CEO
Address: 1140 N Connor Trail
Sioux Falls SD 57103

Appendix A

Employee Name:	Steven R. Pofahl
Employee Address:	1140 N Connor Trail, Sioux Falls SD 57103
Position/Title:	Senior Vice President, Technical Operations
Work Location	3900 West Innovation Street, Sioux Falls, SD
Base Salary:	$242,500.00 per annum
Benefits Stipend:	$18,000.00 per annum, payable monthly
Bonus Parameters:	Percentage of Base Salary at Target: 45%
Severance Period:	12 months from date of termination

Appendix B

DEFINITIONS

For the purpose of this Agreement, the following terms have the meanings indicated:

“Cause” means one or more of the following:

(a) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute;

(b) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or

(c) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results in or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation or material damage to the Corporation’s reputation.

“Change in Control” means the occurrence of any of the following:

(a)

any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

(b)

during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals

	who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or
(c)	there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or
(d)	the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e)	the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.

“Disability” means any physical or mental condition which prevents the effective performance on a full time basis by Executive of the duties set forth in this Agreement or otherwise assigned to Executive as contemplated by this Agreement for a period of more than 180 days.

“Good Reason” means any of the following which occur following a Change of Control:

(a) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the Executive from, or any

	failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;
(b)	a material reduction by the Corporation in the Executive’s base salary in effect immediately prior to a Change in Control;
(c)	any material breach by the Corporation of any provision of this Agreement;
(d)	following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
(e)	without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than fifty (50) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(f)	the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which the Executive incurs a separation from service.

GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims (“Agreement”) is entered into by and between the undersigned,                      (“Employee”) LODGENET ENTERTAINMENT CORPORATION (the “Company”). Employee and the Company are collectively referred to as “Parties.”

     In exchange for the payments made pursuant to the severance provisions of the Employment Agreement between Employee and the Company, Employee hereby acknowledges full and complete satisfaction and hereby releases and forever discharges the Company and each of its affiliates, subsidiaries, agents, directors, officers, shareholders, employees, attorneys, successors, and assigns, from any and all claims arising from or connected with Employee’s employment by, or separation from the Company, including but not limited to, any actions brought in tort or for breach of contract, or claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefits Protection Act (“OWBPA”), the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, and any other federal or state statute, law or regulation relating to employment.

     In order to conform this release agreement with the rights provided by the Older Workers Benefit Protection Act of 1990, Employee is aware of the following with respect to release of any claims under the ADEA:

(1)	the right to consult with an attorney before signing this Release.
(2)	Forty-five (45) days, in which to consider this Release and any ADEA claim; and
(3)	Seven (7) days after signing this Release to revoke this release to any ADEA claim.

This Agreement shall not be effective until the expiration of seven (7) days following its execution by Employee. In addition, Employee acknowledges that the Company has provided Employee with a list of all employees eligible for and offered benefits under the ETA Plan, with their ages and job titles in compliance with the OWBPA. Employee acknowledges that the names could change as the Plan is implemented and that a current list will be available upon request at the Human Resource office of the Company.

     Employee agrees not to use any confidential information or trade secrets acquired during employment with the Company for any other business or employment without the prior written consent of the Company. Employee hereby assigns to the Company all rights to any invention(s) developed or will develop relating at the time of conception or reduction to practice to the Company’s business, or resulting from work performed for the Company.

     Employee further agrees that this Agreement, the terms and conditions of this Agreement, and any and all actions by the Parties in accordance therewith, are strictly confidential and Employee agrees not to disclose, discuss or reveal said information to any other persons, entities or organizations, except that Employee may disclose this information to immediate family members, counsel, personal tax advisor, or as may be required by applicable law. However, a violation of this confidentiality agreement by any third party referenced-above will constitute a breach of this Agreement.

     The Parties hereby agree to submit any and all disputes regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement, to final and binding and confidential arbitration by a single neutral arbitrator as the exclusive remedy for such claim or dispute. Subject to the terms of this paragraph, the arbitration proceedings shall be conducted and administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes then in effect. The arbitrator shall be experienced in labor and employment matters and shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, pursuant to the AAA Rules. In addition, should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the prevailing party shall be entitled to recover from the other party all damages, costs, expenses, and attorney’s fees incurred as a result of such action.

     This Agreement represents and contains the entire agreement between Employee and the Company relating to the matters described herein, and supersedes all prior discussions and agreements, whether oral or written.

     Employee affirms and represents that he is entering into this Agreement freely and voluntarily, and that Employee is acting under no other inducement, or under any coercion, threat or duress. Employee acknowledges that the contents of this document have been explained to Employee and Employee understands the meaning and legal effect of this Agreement.

Dated:
	Employee Signature
Dated:	By:

EX-10.21

Exhibit 10. 21

LODGENET ENTERTAINMENT CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of January 29, 2008 by and between LodgeNet Entertainment Corporation, a Delaware corporation located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Corporation”), and Gary H. Ritondaro (“Executive”).

     WHEREAS, the Executive is presently employed by the Corporation in the capacity and with the title set forth on Appendix A hereto:

     WHEREAS, the Board of Directors (“Board”) has determined that it would be in the best interest of the Corporation and its shareholders to provide for the employment of Executive on the terms set forth herein in order to secure the attention and dedication of the Executive as a member of the Corporation’s management team.;

     WHEREAS, the Board has determined that entering into agreements from time to time with members of senior management in the form hereof will enhance the ability of the Corporation to attract and retain capable senior executives; and

     WHEREAS, the Executive is willing to continue serving the Corporation in accordance with the provisions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein shall have the meanings set forth in Appendix B, which is attached hereto and incorporated herein by reference.

     2. Term of Employment. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (the “Term”) beginning on the date hereof and continuing, unless sooner terminated as provided in Section 7 herein, through December 31, 2008; provided, however, that on each December 31, commencing with December 31, 2008, such period of employment shall automatically be extended for an additional year, (in which case the Term shall be deemed to have been extended through December 31 of the next succeeding year), unless sixty (60) days prior to the expiration of the then-current Term either party hereto has given written notice to the other that such party does not wish to extend the period of employment.

     3. Duties. During the Term, Executive shall serve as in the capacities and with the title(s) set forth in Appendix A, or in such other office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with Executive’s approval, performing the duties of such office or offices as are assigned to Executive by the Board or committees of the Board or the Chief Executive Officer of the Corporation. During the Term, Executive shall devote his full time and attention to the business of the

Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs.

     4. Work Location. During the Term, Executive shall have an office at the facility specified on Appendix A.

     5. Compensation. As compensation for the services performed hereunder, the Corporation shall pay or provide to Executive the following:

(a)	The Corporation shall pay Executive a salary (the “Base Salary”), calculated at the rate per annum set forth on Appendix A (which Base Salary may be increased by the Corporation at any time and from time to time in its discretion). The Base Salary shall be payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the Term under this Agreement.
(b)	During the Term, Executive shall be allowed to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, and all compensation and other entitlements earned pursuant to such programs shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary.
(c)	During the Term, Executive shall be entitled to:

(i)	participate in such retirement, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its salaried employees;
(ii)	participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation; and
(iii)	accrue vacation time, sick leave, or other forms of paid time off in accordance with the Corporation’s policy for executive personnel.

(d) During the Term, the Board from time to time in its discretion may grant to Executive stock options, restricted stock and other rights related to shares of the Corporation’s common stock, and may designate the terms on which such rights vest.

     6. Effect of Disability and Certain Hazards. Executive shall not be obligated to perform the services set forth in this Agreement during any period of Disability, and relief from such obligation shall not in any way affect his rights hereunder except to the

extent that such Disability may result in termination of his employment by the Corporation pursuant to Section 7 herein.

     7. Termination of Employment. The employment of Executive by the Corporation pursuant to this Agreement may be terminated on or prior to the expiration of the then current Term as follows:

(a)	Termination in the Event of Death. In the event of Executive’s death prior to the expiration of the Term, such employment shall automatically terminate on the date of Executive’s death.
(b)	Termination in the Event of Disability. The Corporation may terminate this Agreement due to Executive’s Disability prior to the expiration of the Term on not less than thirty (30) days prior written notice, unless prior to the expiration of said 30 day period, Executive shall have returned to the effective performance of Executive’s duties on a full-time basis. Any dispute as to the existence of a Disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefore by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne in equal shares by the Corporation and Executive.
(c)	Termination for Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable written notice to Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 7(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(d)	Termination Without Cause. The Corporation may terminate such employment at any time prior to the expiration of the Term without Cause upon 60 days prior written notice to Executive.
(e)	Date of Termination. Unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement, the effective date of termination shall be determined as follows:

(i) if this Agreement is terminated by death, the effective date of shall be the date of Executive’s death,

(ii)	if the Executive’s employment is terminated due to a Disability, the effective date of termination shall be thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the effective performance of his duties on a full-time basis during such period),
(iii)	if the Executive’s employment is terminated for Cause, the effective date of termination shall be the date specified in the Notice of Termination, and
(iv)	if the Executive’s employment is terminated for any other reason, the effective date of termination shall be sixty (60) days after the Notice of Termination.

     8. Payments Upon Termination.

(a)

Except as otherwise provided in subsections (b) or (c) of this Section 8, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which Executive may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any event no later than the Last Payment Date. Unless otherwise expressly provided in the terms of the bonus plan or program of the Corporation in which the Executive is a participant at the time of his termination, if the termination of Executive’s employment is for any reason other than a termination for Cause in accordance with Section 7(c) above, then a pro rata portion of the “target” full year’s bonus shall be deemed to have accrued for the Executive under such bonus plan or program for the portion of the year ended on the date of the termination, which shall be paid to the Executive within 10 days of the date of termination and no later than the Last Payment Date.

(b)

If Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause pursuant to Section 7(d) above, or if the Corporation elects at any time not to renew or extend this Agreement at the expiration of the then current Term, and provided that subsection (c) below does not apply, then, in addition to the payments required by subsection (a) of this Section 7, (i) all stock options previously granted but still subject to vesting shall be immediately vested and shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) two (2) years following the date of termination and (ii) all grants of restricted stock or other rights related to shares of the Corporation’s common stock shall be immediately vested (or the risk of forfeiture, as appropriate, shall terminate)

and shall be delivered to Executive at the same time and subject to the same performance conditions as if the Executive had remained employed by the Corporation. The Executive shall also receive, subject to the mitigation provisions of subsection (d) below, in a single sum payable at the time of termination, and no later than the Last Payment Date, a cash severance payment (the “Severance Payment”) from the Corporation. The amount of the Severance Payment shall be equal to the Executive’s then monthly Base Salary increased by a factor of twenty percent (20%) to account for the Executive’s loss of benefits, multiplied by the number of months in the Severance Period as set forth in Appendix A hereof. Executive shall have the right to purchase health and dental coverage under the Company’s group policies then in effect for the Severance Period. The Severance Payment is subject to required withholding. The Executive shall not be entitled to Severance Payments in any event if he is terminated for Cause as permitted by Section 7(c).

     (c) Termination Following Change in Control.

(i)

If a Change in Control of the Corporation occurs during the Term of this Agreement, or if Executive’s employment with the Corporation is terminated by the Corporation without Cause prior to but in connection with a Change in Control (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 8(c)(ii) below upon the termination of the Executive’s employment by the Corporation or by the Executive, unless the Corporation elects to terminate this Agreement pursuant to the provisions of Section 7 (a), (b) or (c) above or because the Executive terminates this Agreement other than for Good Reason.

(ii)

If the Executive shall be terminated from employment with the Corporation following the occurrence of a Change of Control such that Executive is entitled to the compensation set forth in this Section 8(c)(ii), then the Executive shall be entitled to receive the following severance benefits in lieu of any other benefits the Executive would otherwise be entitled to pursuant to this Agreement:

(a) Severance Payment. The Corporation shall pay as severance pay to the Executive an amount equal to the Base Salary that Executive would have received for a thirty (30) month period (the “Payment Period”) at an annualized rate equal to the higher of the rate in effect immediately prior to the Change in

Control or the rate in effect on the date of the Notice of Termination. Such cash payment shall be payable in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date.

(b)	Incentive Awards. The Executive shall receive a cash payment in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date, in the amount equal a pro rata portion of the “target” full year’s bonus for the Executive under such bonus plan or program for the portion of the year ending on the date of the termination, with a partial month counted as a completed month.
(c)	Acceleration of Equity Grants. Any non-vested stock options, restricted stock or other equity award granted to the Executive by the Corporation shall become 100% vested and all restrictions or conditions to the receipt of such securities, included but not limited to any applicable performance criteria, shall be waived, up to 100% of the “target” shares that were to have been delivered to the executive under any performance-based plan, or 100% of the total shares under a time-based vesting plan. In addition, (i) any stock options shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) four (4) years following the date of termination and (ii) shares of restricted stock or other equity awards shall be delivered free of all restrictions within 10 days of the date of termination. If any plan pursuant to which stock options, restricted stock or other equity awards have been issued is not assumed by the successor entity, all such rights will immediately accelerate and be exercisable on the date of the Change of Control.
(d)	Insurance and Welfare Benefits. During the shorter of (i) the Payment Period or (ii) 18 months following the date of termination (the “Coverage Period”) the Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to the Change in Control. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources. If the Executive prior to a Change in Control was receiving any cash-in-lieu payments designed to enable the Executive to obtain insurance

coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section 8(c)(ii)(d), provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that the Executive would have been entitled to receive over the Coverage Period, no later than the Last Payment Date. The benefits to be provided under this Section 8(c)(ii)(d) shall be reduced to the extent of the receipt of substantially equivalent coverage by the Executive from any successor employer.

(e) Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 or Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.

(iii) Notice of Good Reason. If Executive believes that Executive is entitled to terminate employment with the Corporation for Good Reason, the Executive may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 14 hereof. The submission of such a request by Executive shall not constitute Cause for the Corporation to terminate an Executive, and Executive shall continue to receive all compensation and benefits otherwise payable pursuant to this Agreement at the time of such submission throughout the resolution of the matter pursuant to the procedures set forth in Section 14 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Section 14(b) and (c) hereof, then the parties shall use their best efforts to resolve the claim within ninety (90) days after the claim is submitted to binding arbitration pursuant to Section 14(d).

(iv) All rights of the Employee pursuant to this Section 8(c) shall terminate on the second anniversary following the occurrence of a Change in Control.

(d)

No Mitigation. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 8(c)(ii)(d) above).

(e)

Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 8 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release, in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Subject to Section 21 hereof, payment of the amounts payable pursuant to this Section 8 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state law for such releases.

     9. Confidential Information. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, including, without limitation, drawings, plans, programs, specifications, code, algorithms, methods, techniques, systems, processes, designs and diagrams and non-public information relating to (i) customers of the Corporation or its subsidiaries, (ii) the Corporation’s business plans and budgets, and (iii) the Corporation’s financial information, including projections, plans and budgets, except as may be required to perform his duties hereunder. The provisions of this Section 9 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 9 shall not apply to any such trade secret or confidential information which becomes generally known in the trade from a source other than Executive.

     10. Patents, Etc. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the Executive’s period of employment with the Corporation, which relates to the business of the Corporation or any of it’s subsidiaries. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and

inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas or inventions covered by this Agreement as aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries (or any successor to the Corporation or any of its subsidiaries) full title to any and all such ideas, inventions and applications. Further, Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     11. Non-Competition.

(a)

If Executive receives severance compensation pursuant to Section 8 above, or if Executive is terminated for Cause, Executive agrees that Executive will not, without the prior written consent of the Corporation, directly or indirectly, during the six (6) month period following the Date of Termination, engage in any business or employment or provide any consulting service to any person or organization, or to a division or operating unit of any organization which is involved principally in the provision of video or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”); provided, however, that the parties acknowledge and agree that an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty (20%) percent of the revenues of such business and (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of video or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (a), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts payable to Executive pursuant to the provisions of Sections 8(b) or 8(c)(ii) of this Agreement which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

(b)

During the Term, Executive shall not enter into endeavors that are competitive with the business or operations of the Corporation and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder, member, venturer, advisor, consultant or otherwise (except for passive investments of not more than a one percent interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in an over-the-counter securities market) any Competing Business.

     12. Successors.

(a) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the

business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

(b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

     13. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service (regularly providing proof of delivery), addressed to the Board and the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 13. Notices shall be deemed given when received.

     14. Administrator and Claims Procedure.

(a) In the event the Executive believes he/she has been wrongfully denied the payment of benefits, the Executive shall follow the procedures set forth in this Section 14. If the Executive is claiming benefits as a result of a termination of employment pursuant to Section 7(c), the Executive shall disregard subsections (b) and (c) hereof and shall proceed directly to arbitration pursuant to subsection (d) hereof. The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any

	time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.
(b)	The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 14. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 30 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 30-day period. In no event shall such extension exceed a period of 30 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
(c)	A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 30 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 30 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 60 days after receipt of such request.
(d)	A claimant who has followed the procedure in subsections (b) and (c) of this section, or who has been terminated pursuant to Section 7(c) after having been given the opportunity to be heard by the Board, and who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of

the Administrator’s written decision on review, or the Board’s decision, as the case may be, apply in writing to the Administrator for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the authority to award compensatory damages, but shall not have the authority to award punitive, consequential or exemplary damages. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

     15. Legal Fees and Expense. The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $15,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in accordance with this Agreement, provided, however, that if any arbitration or litigation results in a finding in favor of Executive contrary to the position of the Corporation, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in an event of a finding in favor of the Corporation. Amounts, if any, paid to the Executive pursuant to this Section 15 shall be in addition to all other amounts due to executive pursuant to this Agreement.

     16. Non-Alienation of Benefits. Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.

     17. Miscellaneous.

(a) This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by

or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 8(c)(ii)(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.

(b)	This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets.
(c)	The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate, but only to the extent of any remaining financial obligations of the Corporation.
(d)	The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(e)	No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and Executive.
(f)	This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.

(g)	If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(h)	Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	to the address set forth on Appendix B hereto
If to the Corporation:	LodgeNet Entertainment Corporation 3900 West Innovation Street Sioux Falls, SD 57107 Attn: President

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

     18. Prior Agreements Superseded. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof including any prior employment agreements, severance agreements, and change-in-control agreements. In addition, the provisions related to acceleration of options, time to exercise options, termination of risk of forfeiture of restricted stock, and the like, as well as the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Executive and the Corporation (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     19. Survival of Certain Provisions. The provisions of sections 9, 10 and 11(a) of this Agreement shall survive the termination of this Agreement, provided that any claims pursuant to such sections must be brought within one year of the date of the termination of this agreement.

     20. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.

     21. Compliance with Section 409A of the Code. The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A of the

Internal Revenue Code of 1986, as amended (the “Code”) shall be interpreted and administered in accordance with Section 409A of the code and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A of the Code on account of the Executive’s “separation from service” (as defined in Section 409A of the Code, including the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A of the Code at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service.

     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE:		LODGENET ENTERTAINMENT CORPORATION:
/s/	Gary H. Ritondaro	By:	/s/ Scott C. Petersen
		Title:	President — CEO

Address:	5600 S Deer Park Drive
	Sioux Falls SD 57108

Appendix A

Employee Name:	Gary H. Ritondaro
Employee Address:	5600 S Deer Park Drive, Sioux Falls SD 57108
Position/Title:	Senior Vice President, Chief Financial Officer
Work Location	3900 West Innovation Street, Sioux Falls, SD
Base Salary:	$370,800.00 per annum
Benefits Stipend:	$27,000 per annum, payable monthly
Bonus Parameters:	Percentage of Base Salary at Target: 45%
Severance Period:	24 months from date of termination

Appendix B

DEFINITIONS

For the purpose of this Agreement, the following terms have the meanings indicated:

“Cause” means one or more of the following:

(a) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute;

(b) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or

(c) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results in or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation or material damage to the Corporation’s reputation.

“Change in Control” means the occurrence of any of the following:

(a)

any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

(b)

during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals

who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or

(c)	there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or
(d)	the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e)	the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.

“Disability” means any physical or mental condition which prevents the effective performance on a full time basis by Executive of the duties set forth in this Agreement or otherwise assigned to Executive as contemplated by this Agreement for a period of more than 180 days.

“Good Reason” means any of the following which occur following a Change of Control:

(a) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the Executive from, or any

failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;

(b)	a material reduction by the Corporation in the Executive’s base salary in effect immediately prior to a Change in Control;
(c)	any material breach by the Corporation of any provision of this Agreement;
(d)	following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
(e)	without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than fifty (50) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(f)	the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which the Executive incurs a separation from service.

GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims (“Agreement”) is entered into by and between the undersigned,                      (“Employee”) LODGENET ENTERTAINMENT CORPORATION (the “Company”). Employee and the Company are collectively referred to as “Parties.”

     In exchange for the payments made pursuant to the severance provisions of the Employment Agreement between Employee and the Company, Employee hereby acknowledges full and complete satisfaction and hereby releases and forever discharges the Company and each of its affiliates, subsidiaries, agents, directors, officers, shareholders, employees, attorneys, successors, and assigns, from any and all claims arising from or connected with Employee’s employment by, or separation from the Company, including but not limited to, any actions brought in tort or for breach of contract, or claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefits Protection Act (“OWBPA”), the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, and any other federal or state statute, law or regulation relating to employment.

     In order to conform this release agreement with the rights provided by the Older Workers Benefit Protection Act of 1990, Employee is aware of the following with respect to release of any claims under the ADEA:

(1)	the right to consult with an attorney before signing this Release.
(2)	Forty-five (45) days, in which to consider this Release and any ADEA claim; and
(3)	Seven (7) days after signing this Release to revoke this release to any ADEA claim.

This Agreement shall not be effective until the expiration of seven (7) days following its execution by Employee. In addition, Employee acknowledges that the Company has provided Employee with a list of all employees eligible for and offered benefits under the ETA Plan, with their ages and job titles in compliance with the OWBPA. Employee acknowledges that the names could change as the Plan is implemented and that a current list will be available upon request at the Human Resource office of the Company.

     Employee agrees not to use any confidential information or trade secrets acquired during employment with the Company for any other business or employment without the prior written consent of the Company. Employee hereby assigns to the Company all rights to any invention(s) developed or will develop relating at the time of conception or reduction to practice to the Company’s business, or resulting from work performed for the Company.

     Employee further agrees that this Agreement, the terms and conditions of this Agreement, and any and all actions by the Parties in accordance therewith, are strictly confidential and Employee agrees not to disclose, discuss or reveal said information to any other persons, entities or organizations, except that Employee may disclose this information to immediate family members, counsel, personal tax advisor, or as may be required by applicable law. However, a violation of this confidentiality agreement by any third party referenced-above will constitute a breach of this Agreement.

     The Parties hereby agree to submit any and all disputes regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement, to final and binding and confidential arbitration by a single neutral arbitrator as the exclusive remedy for such claim or dispute. Subject to the terms of this paragraph, the arbitration proceedings shall be conducted and administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes then in effect. The arbitrator shall be experienced in labor and employment matters and shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, pursuant to the AAA Rules. In addition, should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the prevailing party shall be entitled to recover from the other party all damages, costs, expenses, and attorney’s fees incurred as a result of such action.

     This Agreement represents and contains the entire agreement between Employee and the Company relating to the matters described herein, and supersedes all prior discussions and agreements, whether oral or written.

     Employee affirms and represents that he is entering into this Agreement freely and voluntarily, and that Employee is acting under no other inducement, or under any coercion, threat or duress. Employee acknowledges that the contents of this document have been explained to Employee and Employee understands the meaning and legal effect of this Agreement.

Dated:
	Employee Signature
Dated:	By:

EX-10.22

Exhibit 10.22

Execution Copy

LODGENET INTERACTIVE CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of February 4, 2008, by and between LodgeNet Interactive Corporation, a Delaware corporation located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Corporation”), and Derek S. White (“Executive”).

     WHEREAS, the Executive is being offered employment by the Corporation in the capacity and with the title set forth on Appendix A hereto:

     WHEREAS, the Board of Directors (“Board”) has determined that it would be in the best interest of the Corporation and its shareholders to provide for the employment of Executive on the terms set forth herein; and

     WHEREAS, the Executive is willing to serve the Corporation in accordance with the provisions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein shall have the meanings set forth in Appendix B, which is attached hereto and incorporated herein by reference.

     2. Term of Employment. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (the “Term”) beginning on the date he commences employment (“Commencement Date”) and continuing, unless sooner terminated as provided in Section 7 herein, through December 31, 2008; provided, however, that on each December 31, commencing with 2008, such period of employment shall automatically be extended for an additional year, (in which case the Term shall be deemed to have been extended through December 31 of the next succeeding year), unless sixty (60) days prior to the expiration of the then-current Term either party hereto has given written notice to the other (“Notice of Non-renewal”) that such party does not wish to extend the period of employment.

     3. Duties. During the Term, Executive shall serve as in the capacities and with the title(s) set forth in Appendix A, or in such other office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with Executive’s approval, performing the duties of such office or offices as are assigned to Executive by the Board or committees of the Board or the Chief Executive Officer of the Corporation. Executive will report directly to the Chief Executive Officer of the Corporation and will be a member of the Senior Management Team of the Corporation. During the Term, Executive shall devote his full time and attention to the business of the Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs.

     4. Work Location. During the Term, Executive shall have an office at the facility specified on Appendix A. It is understood and agreed that Executive will work a minimum of one day a week from his home and that his commuting time will be considered daily work time. It is also agreed that Executive will not be required to move to South Dakota.

     5. Compensation. As compensation for the services performed hereunder, the Corporation shall pay or provide to Executive the following:

(a)	The Corporation shall pay Executive a salary (the “Base Salary”), calculated at the rate per annum set forth on Appendix A (which Base Salary may be increased by the Corporation at any time and from time to time in its discretion). The Base Salary shall be payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the Term of this Agreement.
(b)	During the Term, Executive shall be entitled to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, and all compensation and other entitlements earned pursuant to such programs shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary. There will be an annual performance-related cash bonus opportunity, at “target” equal to forty-five percent (45%) of Executive’s Base Salary with an opportunity to earn up to approximately eighty percent (80%) of Executive’s Base Salary, depending upon the achievement of targets and objectives related to the performance of: (a) The Hotel Networks (60% of the 45% — or 27% of Base Salary at target); and (b) the Corporation (40% of the 45% — or 18% at target). The portion of Executive’s bonus related to The Hotel Networks will be guaranteed and paid at “target” for 2008 and will be based on the assumption that he was employed at the Corporation for eleven months this year.
(c)	As of the Commencement Date, Executive will also be awarded equity-based incentives of LodgeNet Interactive common stock in the following forms: (a) an option to acquire fifteen thousand (15,000) shares at a strike price equal to the FMV of the stock on said day (the “Sign-on Option”), which option will vest 25% per year over four years and will be issued in the form of an ISO; and (b) five thousand (5,000) shares of time-based restricted stock (the “Sign-on Restricted Stock”), which will vest fifty percent (50%) on the third anniversary of the grant and fifty percent (50%) on the fourth anniversary.
(d)	During the Term, Executive shall be entitled to:

(i) participate in such retirement, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its Senior Vice Presidents;

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(ii)	participate in LodgeNet’s executive benefits program, under which program he will receive (a) the same medical, dental, life and vision plan benefits on the same terms made available to other Senior Vice Presidents of the Corporation, currently, the Company’s Option II Health, Dental, Life, and Vision Plan without cost to him (a $750 deductible plan with an approximate value of $900 per month), plus (b) $1,500 per month to subsidize certain personal expenses, which will be structured in the most tax-efficient manner;
(iii)	participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation; and
(iv)	accrue vacation time, sick leave, or other forms of paid time off in accordance with the Corporation’s policy for executive personnel based on four weeks of vacation time per annum, plus ten specified Corporation-observed holidays.

(e) In order to closely align the interest of the Executive with creating shareholder value at The Hotel Networks and for the Corporation, following the completion of each of calendar years 2008, 2009, and 2010, the Corporation shall award Executive shares of common stock of the Corporation equal to two (2%) percent of the increase of the Net Equity Value, if any, of The Hotel Networks, Inc. over the Net Equity Value of The Hotel Networks, Inc. determined as of the close of the preceding calendar year (each such grant an “Annual Equity Grant” and collectively the “Annual Equity Grants”). The increase in Net Equity Value over the preceding calendar year shall be determined in accordance with the formula set forth in Appendix C below; provided, however, that the Corporation shall have no obligation to issue such Annual Equity Grant if Executive no longer serves as President of The Hotel Networks, Inc. as of the end of the calendar year in question except as set forth in Section 8(b) and 8(c)(ii)(d) of this Agreement. One third of the Annual Equity Grant shall vest on the date of the grant, and the remaining two thirds of the grant will be in the form of Time-Based Restricted Stock which will vest in two equal installments, one half on the first anniversary of the Annual Equity Grant and one half on the second anniversary of the Annual Equity Grant. The determination of the amount of the Annual Equity Grant shall be completed no later than thirty (30) days following the announcement by the Corporation of its financial results for the calendar year in question. Except as expressly set forth in this Agreement, the form of the Time-Based Restricted Stock issued pursuant to this subparagraph (a) shall be the same as other Time-Based Restricted Stock issued by the Corporation during the year of the grant to its senior executives, and (b) such Time-Based Restricted Stock will be treated the same manner as other grants of restricted stock in the event of a Change of Control in accordance with Section 8(c)(ii)(c) below.

     6. Effect of Disability and Certain Hazards. Executive shall not be obligated to perform the services set forth in this Agreement during any period of Disability, and relief from such

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obligation shall not in any way affect his rights hereunder except to the extent that such Disability may result in termination of his employment by the Corporation pursuant to Section 7 herein.

     7. Termination of Employment. The employment of Executive by the Corporation pursuant to this Agreement may be terminated on or prior to the expiration of the then current Term as follows:

(a)	Termination in the Event of Death. In the event of Executive’s death prior to the expiration of the Term, such employment shall automatically terminate on the date of Executive’s death.
(b)	Termination in the Event of Disability. The Corporation may terminate this Agreement due to Executive’s Disability prior to the expiration of the Term on not less than thirty (30) days prior written notice, unless prior to the expiration of said 30 day period, Executive shall have returned to the effective performance of Executive’s duties on a full-time basis. Any dispute as to the existence of a Disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefore by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne by the Corporation.
(c)	Termination for Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable notice to the Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 7(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(d)	Termination Without Cause. The Corporation may terminate such employment at any time prior to the expiration of the Term without Cause (which shall be for any reason not covered by preceding subsections (a) through (c)) upon 60 days prior written notice to Executive.
(e)	Termination by Executive. Executive may terminate his Employment with the Corporation on not less than 60 days prior notice. Such termination shall not be considered a breach of this Agreement.
(f)	Date of Termination. Unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement, the effective date of termination shall be determined as follows:

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(i)	if this Agreement is terminated by death, the effective date of shall be the date of Executive’s death,
(ii)	if the Executive’s employment is terminated due to a Disability, the effective date of termination shall be thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the effective performance of his duties on a full-time basis during such period),
(iii)	if the Executive’s employment is terminated for Cause, the effective date of termination shall be the date specified in the Notice of Termination,
(iv)	if either party gives a Notice of Non-renewal, the effective date of termination shall be the last day of the Term, and
(v)	if the Executive’s employment is terminated for any other reason, the effective date of termination shall be sixty (60) days after the Notice of Termination.

8.	Payments Upon Termination.
(a)	Except as otherwise provided in subsections (b) or (c) of this Section 8, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which Executive may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any event no later than the Last Payment Date. Unless otherwise expressly provided in the terms of the bonus plan or program of the Corporation in which the Executive is a participant at the time of his termination, if the termination of Executive’s employment is for any reason other than a termination for Cause in accordance with Section 7(c) above or a termination without Good Reason in accordance with Section 7(f) above, then a pro rata portion of the “target” full year’s bonus shall be deemed to have accrued for the Executive under such bonus plan or program for the portion of the year ended on the date of the termination, which shall be paid to the Executive within 10 days of the date of termination and no later than the Last Payment Date.
(b)	If Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause pursuant to Section 7(d) above, or if the Corporation elects at any time not to renew or extend this Agreement at the expiration of the then current Term, and provided that subsection (c) below does not apply, then Executive shall receive in a single sum payable at the time of termination, and no later than the Last Payment Date, a cash severance payment (the “Severance Payment”) from the

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Corporation. The amount of the Severance Payment shall be equal to the Executive’s then monthly Base Salary increased by a factor of twenty percent (20%) to account for the Executive’s loss of benefits, multiplied by the number of months in the Severance Period as set forth in Appendix A hereof. Any unvested portion of the Sign-on Option, Sign-on Restricted Stock, Annual Equity Grants or other equity award granted to Executive by the Corporation shall become 100% vested and all restrictions shall be waived; in addition, stock options shall remain exercisable for a period of one (1) year following the date of termination. If the termination of the Executive occurs prior to December 31, 2010, in addition to the Severance Payment, Executive shall be entitled to receive an amount equal to the Annual Equity Grant for such year (the “Cash Equivalent Payment”), which amount shall be determined by computing the Annual Equity Grant for the year in question in the manner set forth in Appendix C. The Cash Equivalent Payment shall be paid in cash on the date the Annual Equity Grant for the year in which Executive’s employment hereunder is terminated would otherwise be issued. Executive shall have the right to purchase health and dental coverage for himself and his dependents under the Company’s group policies then in effect for the Severance Period. Following the Severance Period, Executive may be entitled to benefit continuation under COBRA for the remaining COBRA coverage period. The Severance Payment is subject to required withholding. The Executive shall not be entitled to Severance Payments in any event if he is terminated for Cause pursuant to Section 7(c).

(c) Termination Following Change in Control.

(i)

If a Change in Control of the Corporation or The Hotel Networks, Inc. occurs during the Term of this Agreement, or if Executive’s employment with the Corporation is terminated by the Corporation without Cause prior to but in connection with a Change in Control of the Corporation or The Hotel Networks, Inc. (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 8(c)(ii) below upon the termination of the Executive’s employment by the Corporation or by the Executive, unless the Corporation elects to terminate this Agreement pursuant to the provisions of Section 7 (a), (b) or (c) above or because the Executive terminates this Agreement other than for Good Reason.

(ii)

If the Executive shall be terminated from employment with the Corporation following the occurrence of a Change of Control such that Executive is entitled to the compensation set forth in this Section 8(c)(ii), then the Executive shall be entitled to receive the following severance benefits in lieu of any other benefits the Executive would otherwise be entitled to pursuant to this Agreement:

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(a)	Severance Payment. The Corporation shall pay as severance pay to the Executive an amount equal to the Base Salary that Executive would have received for a twenty-four (24) month period (the “Payment Period”) at an annualized rate equal to the higher of the rate in effect immediately prior to the Change in Control or the rate in effect on the date of the Notice of Termination. Such cash payment shall be payable in a single sum, within 10 days following the Executive’s Date of Termination and no later than the Last Payment Date.
(b)	Incentive Awards. The Executive shall receive a cash payment in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date, in the amount equal a pro rata portion of the “target” full year’s bonus for the Executive under such bonus plan or program for the portion of the year ending on the date of the termination, with a partial month counted as a completed month.
(c)	Acceleration of Equity Grants. Any non-vested stock options, restricted stock or other equity award granted to the Executive by the Corporation shall become 100% vested and all restrictions or conditions to the receipt of such securities, included but not limited to any applicable performance criteria, shall be waived, up to 100% of the “target” shares that were to have been delivered to the executive under any performance-based plan, or 100% of the total shares under a time-based vesting plan. In addition, (i) any stock options shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) one (1) year following the date of termination and (ii) shares of restricted stock or other equity awards shall be delivered free of all restrictions within 30 days of the date of termination. If any plan pursuant to which stock options, restricted stock or other equity awards have been issued is not assumed by the successor entity, all such rights will immediately accelerate and be exercisable on the date of the Change of Control.
(d)	If the termination of the Executive occurs prior to December 31, 2010, in addition to the Severance Payment, Executive shall be entitled to receive an amount equal to the Annual Equity Grant for such year (the “Cash Equivalent Payment”), which amount shall be determined by computing the Annual Equity Grant for the year in question in the manner set forth in Appendix C. The Cash Equivalent Payment shall be paid in cash on the date the Annual Equity Grant for the year in which Executive’s employment hereunder is terminated would otherwise be issued.

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(e)

Insurance and Welfare Benefits. During the shorter of (i) the Payment Period or (ii) 18 months following the date of termination (the “Coverage Period”) the Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to the Change in Control. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources. If the Executive prior to a Change in Control was receiving any cash-in-lieu payments designed to enable the Executive to obtain insurance coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section 8(c)(ii)(d), provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that the Executive would have been entitled to receive over the Coverage Period, no later than the Last Payment Date. The benefits to be provided under this Section 8(c)(ii)(d) shall be reduced to the extent of the receipt of substantially equivalent coverage by the Executive from any successor employer.

(f)

Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.

(iii) Notice of Good Reason. If Executive believes that Executive is entitled to terminate employment with the Corporation for Good Reason, the Executive may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 14 hereof. The submission of such a request by Executive shall not constitute Cause for the Corporation to terminate an Executive, and Executive shall continue to receive all compensation and benefits otherwise payable pursuant to this Agreement at the time of such submission throughout the resolution of the matter pursuant

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to the procedures set forth in Section 14 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Section 14(b) and (c) hereof, then the parties shall use their best efforts to resolve the claim within ninety (90) days after the claim is submitted to binding arbitration pursuant to Section 14(d).

(iv) All rights of the Executive pursuant to this Section 8(c) shall terminate on the second anniversary following the occurrence of a Change in Control.

(d)

No Mitigation. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 8(c)(ii)(d) above).

(e)

Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 8 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Notwithstanding anything to the contrary contained herein, payment of the amounts payable pursuant to this Section 8 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state law for such releases.

     9. Confidential Information. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries or Affiliates, including, without limitation, drawings, plans, programs, specifications, code, algorithms, methods, techniques, systems, processes, designs and diagrams and non-public information relating to (i) customers of the Corporation or its subsidiaries or Affiliates, (ii) the business plans and budgets of the Corporation, its subsidiaries or Affiliates, and (iii) the financial information, including projections, plans and budgets of the Corporation, its subsidiaries or Affiliates, except as may be required to perform his duties hereunder. The provisions of this Section 9 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 9 shall not apply to any such trade secret or confidential information which becomes generally known in the trade from a source other than Executive.

     10. Patents, Etc. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the Executive’s period of employment with the Corporation, which relates to the business of the

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Corporation or any of its subsidiaries or Affiliates. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas or inventions covered by this Agreement as aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries or Affiliates (or any successor to the Corporation or any of its subsidiaries or Affiliates) full title to any and all such ideas, inventions and applications. Further, Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     11. Non-Competition.

(a)

If Executive receives severance compensation pursuant to Section 8 above, or if Executive is terminated for Cause, Executive agrees that Executive will not, without the prior written consent of the Corporation, directly or indirectly, during the twelve (12) month period following the Date of Termination, engage in any business or employment or provide any consulting service to any person or organization, or to a division or operating unit of any organization which is involved principally in the provision of television channels, video services, advertising targeting guests in hotels, or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”); provided, however, that the parties acknowledge and agree an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty (20%) percent of the revenues of such business or (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of television channels, video services, advertising targeting guests in hotels or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (a), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts payable to Executive pursuant to the provisions of Sections 8(b) or 8(c)(ii) of this Agreement which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

(b)

During the Term, Executive shall not enter into endeavors that are competitive with the business or operations of the Corporation, and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder, member, venturer, advisor, consultant or otherwise (except for passive investments of not more than a one percent interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in an over-the-counter securities market) any Competing Business.

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     12. Successors.

(a)

The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

(b)

This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

     13. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service (regularly providing proof of delivery), addressed to the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 13. Notices shall be deemed given when received.

     14. Administrator and Claims Procedure.

(a) In the event the Executive believes he or she has been wrongfully denied the payment of benefits, the Executive shall follow the procedures set forth in this Section 14. If the Executive is claiming benefits as a result of a termination of employment pursuant to Section 7(c), the Executive shall disregard subsections (b) and (c) hereof and shall proceed directly to arbitration pursuant to subsection (d0 hereof. The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any

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time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.

(b)	The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 14. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 30 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 30-day period. In no event shall such extension exceed a period of 30 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
(c)	A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 30 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 30 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 60 days after receipt of such request.
(d)	A claimant who has followed the procedure in subsections (b) and (c) of this section, or has been terminated pursuant to Section 7(c) after having been given the opportunity to be heard by the Board, and who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of the Administrator’s written decision on review, or the Board’s decision, as the case may be, apply in writing to the Administrator for expedited and binding arbitration of his claim before

12

an arbitrator in New York, NY, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the authority to award compensatory damages, but shall not have the authority to award punitive, consequential or exemplary damages. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

     15. Legal Fees and Expenses. The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $3,000 for review of this Agreement and a total of $10,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in accordance with this Agreement, provided, however, that if any arbitration or litigation results in a finding in favor of Executive contrary to the position of the Corporation, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in an event of a finding in favor of the Corporation. Amounts, if any, paid to the Executive pursuant to this Section 15 shall be in addition to all other amounts due to executive pursuant to this Agreement.

     16. Non-Alienation of Benefits. Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.

     17. Miscellaneous.

(a) This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or

13

unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 8(c)(ii)(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.

(b)	This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets.
(c)	The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate, but only to the extent of any remaining financial obligations of the Corporation.
(d)	Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	to the address set forth on
	Appendix B hereto
If to the Corporation:	LodgeNet Interactive Corporation
	3900 West Innovation Street
	Sioux Falls, SD 57107
	Attn: General Counsel

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

     18. Prior Agreements Superseded. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof. In addition, the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Corporation and the Executive (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject

14

or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     19. Survival of Certain Provisions. The provisions of sections 9, 10 and 11(a) of this Agreement shall survive the termination of this Agreement, provided that any claims pursuant to such sections must be brought within one year of the date of the termination of this agreement.

     20. Compliance with Section 409A of Internal Revenue Code (“Section 409A). The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A shall be interpreted and administered in accordance with Section 409A and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A on account of the Executive’s “separation from service” (as defined in Section 409A and the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service. The Corporation agrees that it will not, without Executive’s prior written consent, take any action, or refrain from taking any action, that would result in the imposition of tax, interest and/or penalties upon Executive under Code Section 409A, and that it will hold Executive harmless if any action it takes results in the imposition of such tax, interest and/or penalties.

     21. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.

     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE:		LODGENET INTERACTIVE CORPORATION:
/s/ Derek S. White		By:	/s/ Scott C. Petersen, President
Address:	10 Spring Oak Drive
	Newtown, PA 18940

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Appendix A

Employee Name: Derek S. White

Employee Address:	10 Spring Oak Drive
	Newtown, PA 18940
Position/Title:	Senior Vice President, LodgeNet Interactive Corporation.
	President, The Hotel Networks, Inc.

Work Location: The Hotel Networks

Commencement of Employment: As mutually agreed upon between February 15 and March 1, 2008

Base Salary: $325,000 per annum

Benefits Stipend: $18,000 per annum, payable in monthly installments of $1,500.00

Bonus Parameters: a “target” equal to 45% of base salary with a maximum opportunity of 80% of base salary. Of the 45% target, 27 percentage points will be based on the performance of The Hotel Networks, Inc., and the remaining 18 percentage points will be based on the performance of the Corporation as a whole.

Severance Period: 12 months

Time-Based Restricted Stock (separate agreement): 5,000 shares of the common stock of the Corporation, 50% of which will vest on the third anniversary of the grant and 50% of which will vest on the fourth anniversary of the grant.

Stock Options (separate agreement): an option, in the form of an ISO, to acquire 15,000 shares of the common stock of the Corporation at a purchase price equal to the closing price of the Stock on the date of the grant, which option will vest in four installments of 25% on the first, second, third and fourth anniversaries of the grant.

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Appendix B

DEFINITIONS

For the purpose of this Agreement, the following terms have the meanings indicated:

“Affiliate” means any person or entity that directly or indirectly controls, is controlled by, or is under common control with the Corporation.

“Cause” means one or more of the following:

(a) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute;

(b) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or

(c) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation, or to materially damage the Corporation’s reputation.

“Change in Control” means the occurrence of any of the following with respect to the Corporation:

(a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

17

(b)	during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or
(c)	there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or
(d)	the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e)	the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.

A Change of Control will also be deemed to have occurred in the event the Corporation ceases to own a majority of the voting stock of The Hotel Networks, Inc.

“Disability” means any physical or mental condition which prevents the effective performance on a full time basis by Executive of the duties set forth in this Agreement or otherwise assigned to Executive as contemplated by this Agreement for a period of more than 180 days.

“Good Reason” means any of the following which occur following a Change of Control:

(a) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the

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Executive from, or any failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;

(b)	a reduction by the Corporation in the Executive’s base salary or in the percentage of base salary used in computing Executive’s bonus in effect immediately prior to a Change in Control;
(c)	any material breach by the Corporation of any provision of this Agreement;
(d)	following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
(e)	without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than fifty (50) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(f)	the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which the Executive incurs a separation from service.

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Appendix C

Formula for Calculating Increase in Equity Value of
The Hotel Networks, Inc.

For 2008:

o 2008 THN Adjusted Operating Cash Flow (AOCF)

o Times: LNET Trailing Twelve Month (TTM) Market Multiple for the preceding calendar year (updated on an annual basis for future periods)

o Equals: Gross Equity Value of THN

o Less: Cumulative Capital Invested in THN by the Corporation since January 1, 2008 (which specific date is to be used for 2009 and 2010)

o Equals: Increase in THN Net Equity Value for 2008

o Times: Two Percent (2%)

o Equals: THN Net Equity Value to be Converted into LNET Restricted Stock

o Divided by: FMV of LNET Stock on March 1, 2009 (“Conversion Date”)

o Equals: Number of LNET Restricted Shares to be Issued

Refer to Section 5(d) for terms and conditions of Restricted Stock.

For 2009 and 2010:

     The calculation will be the same as above with appropriate data adjustments to determine the increase, if any, of Net Entity Value created in 2009 and 2010 over the prior year.

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GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims (“Agreement”) is entered into by and between the undersigned,                      (“Employee”) LODGENET INTERACTIVE CORPORATION (the “Company”). Employee and the Company are collectively referred to as “Parties.”

     In exchange for the payments made pursuant to the severance provisions of the Employment Agreement between Employee and the Company, Employee hereby acknowledges full and complete satisfaction and hereby releases and forever discharges the Company and each of its affiliates, subsidiaries, agents, directors, officers, shareholders, employees, attorneys, successors, and assigns, from any and all claims arising from or connected with Employee’s employment by, or separation from the Company, including but not limited to, any actions brought in tort or for breach of contract, or claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefits Protection Act (“OWBPA”), the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, and any other federal or state statute, law or regulation relating to employment.

     Anything herein to the contrary notwithstanding, Employee is not releasing (i) claims for indemnification under the applicable by-laws of the Company or its affiliates or pursuant to its directors’ and officers’ insurance policies or (ii) his right to enforce the Agreement to which this release is attached.

     In order to conform this release agreement with the rights provided by the Older Workers Benefit Protection Act of 1990, Employee is aware of the following with respect to release of any claims under the ADEA:

(1)	the right to consult with an attorney before signing this Release.
(2)	Forty-five (45) days, in which to consider this Release and any ADEA claim; and
(3)	Seven (7) days after signing this Release to revoke this release to any ADEA claim.

This Agreement shall not be effective until the expiration of seven (7) days following its execution by Employee. In addition, Employee acknowledges that the Company has provided Employee with a list of all employees eligible for and offered benefits under the ETA Plan, with their ages and job titles in compliance with the OWBPA. Employee acknowledges that the names could change as the Plan is implemented and that a current list will be available upon request at the Human Resource office of the Company.

     Employee agrees not to use any confidential information or trade secrets acquired during employment with the Company for any other business or employment without the prior written consent of the Company. Employee hereby assigns to the Company all rights to any invention(s)

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developed or will develop relating at the time of conception or reduction to practice to the Company’s business, or resulting from work performed for the Company.

     Employee further agrees that this Agreement, the terms and conditions of this Agreement, and any and all actions by the Parties in accordance therewith, are strictly confidential and Employee agrees not to disclose, discuss or reveal said information to any other persons, entities or organizations, except that Employee may disclose this information to immediate family members, counsel, personal tax advisor, or as may be required by applicable law and he may disclose restrictive covenants to a potential employer. However, a violation of this confidentiality agreement by any third party referenced-above will constitute a breach of this Agreement.

     The Parties hereby agree to submit any and all disputes regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement, to final and binding and confidential arbitration by a single neutral arbitrator as the exclusive remedy for such claim or dispute. Subject to the terms of this paragraph, the arbitration proceedings shall be conducted and administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes then in effect. The arbitrator shall be experienced in labor and employment matters and shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, pursuant to the AAA Rules. In addition, should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the prevailing party shall be entitled to recover from the other party all damages, costs, expenses, and attorney’s fees incurred as a result of such action.

     This Agreement represents and contains the entire agreement between Employee and the Company relating to the matters described herein, and supersedes all prior discussions and agreements, whether oral or written.

     Employee affirms and represents that he is entering into this Agreement freely and voluntarily, and that Employee is acting under no other inducement, or under any coercion, threat or duress. Employee acknowledges that the contents of this document have been explained to Employee and Employee understands the meaning and legal effect of this Agreement.

Dated:
	Employee Signature
Dated:	By:

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EX-10.23

Exhibit 10.23

LODGENET ENTERTAINMENT CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of January 29, 2008 by and between LodgeNet Entertainment Corporation, a Delaware corporation located at 3900 West Innovation Street, Sioux Falls, South Dakota 57107 (“Corporation”), and Scott E. Young (“Executive”).

     WHEREAS, the Executive is presently employed by the Corporation in the capacity and with the title set forth on Appendix A hereto:

     WHEREAS, the Board of Directors (“Board”) has determined that it would be in the best interest of the Corporation and its shareholders to provide for the employment of Executive on the terms set forth herein in order to secure the attention and dedication of the Executive as a member of the Corporation’s management team.;

     WHEREAS, the Board has determined that entering into agreements from time to time with members of senior management in the form hereof will enhance the ability of the Corporation to attract and retain capable senior executives; and

     WHEREAS, the Executive is willing to continue serving the Corporation in accordance with the provisions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

     1. Definitions. Capitalized terms used herein shall have the meanings set forth in Appendix B, which is attached hereto and incorporated herein by reference.

     2. Term of Employment. The employment of Executive by the Corporation pursuant to this Agreement shall be for a period (the “Term”) beginning on the date hereof and continuing, unless sooner terminated as provided in Section 7 herein, through December 31, 2008; provided, however, that on each December 31, commencing with December 31, 2008, such period of employment shall automatically be extended for an additional year, (in which case the Term shall be deemed to have been extended through December 31 of the next succeeding year), unless sixty (60) days prior to the expiration of the then-current Term either party hereto has given written notice to the other that such party does not wish to extend the period of employment.

     3. Duties. During the Term, Executive shall serve as in the capacities and with the title(s) set forth in Appendix A, or in such other office or offices to which he shall be elected by the Board of Directors of the Corporation (“Board”) with Executive’s approval, performing the duties of such office or offices as are assigned to Executive by the Board or committees of the Board or the Chief Executive Officer of the Corporation. During the Term, Executive shall devote his full time and attention to the business of the

Corporation and the discharge of the aforementioned duties, except for permitted vacations, absences due to illness, and reasonable time for attention to personal affairs.

     4. Work Location. During the Term, Executive shall have an office at the facility specified on Appendix A.

     5. Compensation. As compensation for the services performed hereunder, the Corporation shall pay or provide to Executive the following:

(a)	The Corporation shall pay Executive a salary (the “Base Salary”), calculated at the rate per annum set forth on Appendix A (which Base Salary may be increased by the Corporation at any time and from time to time in its discretion). The Base Salary shall be payable monthly, semi-monthly or weekly according to the Corporation’s general practice for its executives, for the Term under this Agreement.
(b)	During the Term, Executive shall be allowed to participate in such bonus and other incentive compensation programs in accordance with their terms as the Corporation may have in effect from time to time for its executive personnel, and all compensation and other entitlements earned pursuant to such programs shall be in addition to, and shall not in any way reduce, the amount payable as Base Salary.
(c)	During the Term, Executive shall be entitled to:

(i)	participate in such retirement, investment, health (medical, hospital and/or dental) insurance, life insurance, disability insurance and accident insurance plans and programs as are maintained in effect from time to time by the Corporation for its salaried employees;
(ii)	participate in other non-duplicative benefit programs which the Corporation may from time to time offer generally to executive personnel of the Corporation; and
(iii)	accrue vacation time, sick leave, or other forms of paid time off in accordance with the Corporation’s policy for executive personnel.

(d) During the Term, the Board from time to time in its discretion may grant to Executive stock options, restricted stock and other rights related to shares of the Corporation’s common stock, and may designate the terms on which such rights vest.

     6. Effect of Disability and Certain Hazards. Executive shall not be obligated to perform the services set forth in this Agreement during any period of Disability, and relief from such obligation shall not in any way affect his rights hereunder except to the

extent that such Disability may result in termination of his employment by the Corporation pursuant to Section 7 herein.

     7. Termination of Employment. The employment of Executive by the Corporation pursuant to this Agreement may be terminated on or prior to the expiration of the then current Term as follows:

(a)	Termination in the Event of Death. In the event of Executive’s death prior to the expiration of the Term, such employment shall automatically terminate on the date of Executive’s death.
(b)	Termination in the Event of Disability. The Corporation may terminate this Agreement due to Executive’s Disability prior to the expiration of the Term on not less than thirty (30) days prior written notice, unless prior to the expiration of said 30 day period, Executive shall have returned to the effective performance of Executive’s duties on a full-time basis. Any dispute as to the existence of a Disability shall be settled by the opinion of an impartial physician selected by the parties or their representatives or, in the event of failure to make a joint selection after request therefore by either party to the other, a physician selected by the Corporation, with the fees and expenses of any such physician to be borne in equal shares by the Corporation and Executive.
(c)	Termination for Cause. The Corporation, by giving written notice of termination to Executive, may terminate Executive’s employment at any time prior to the expiration of the Term for Cause, with Cause to be determined by the Board after reasonable written notice to Executive and an opportunity for Executive to be heard at a meeting of the Board and with reasonable opportunity (of not less than 30 days) in the case of willful neglect of material duties to cease such neglect. For purposes of this Section 7(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(d)	Termination Without Cause. The Corporation may terminate such employment at any time prior to the expiration of the Term without Cause upon 60 days prior written notice to Executive.
(e)	Date of Termination. Unless otherwise agreed by the Executive and Corporation or otherwise provided in this Agreement, the effective date of termination shall be determined as follows:

(i) if this Agreement is terminated by death, the effective date of shall be the date of Executive’s death,

(ii)	if the Executive’s employment is terminated due to a Disability, the effective date of termination shall be thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the effective performance of his duties on a full-time basis during such period),
(iii)	if the Executive’s employment is terminated for Cause, the effective date of termination shall be the date specified in the Notice of Termination, and
(iv)	if the Executive’s employment is terminated for any other reason, the effective date of termination shall be sixty (60) days after the Notice of Termination.

     8. Payments Upon Termination.

(a)

Except as otherwise provided in subsections (b) or (c) of this Section 8, upon termination of Executive’s employment by the Corporation, all compensation due Executive under this Agreement and under each plan or program of the Corporation in which Executive may be participating at the time shall cease to accrue as of the date of such termination (except, in the case of any such plan or program, if and to the extent otherwise provided in the terms of such plan or program), and all such compensation accrued as of the date of such termination but not previously paid shall be paid to Executive at the time such payment otherwise would be due, and in any event no later than the Last Payment Date. Unless otherwise expressly provided in the terms of the bonus plan or program of the Corporation in which the Executive is a participant at the time of his termination, if the termination of Executive’s employment is for any reason other than a termination for Cause in accordance with Section 7(c) above, then a pro rata portion of the “target” full year’s bonus shall be deemed to have accrued for the Executive under such bonus plan or program for the portion of the year ended on the date of the termination, which shall be paid to the Executive within 10 days of the date of termination and no later than the Last Payment Date.

(b)

If Executive’s employment pursuant to this Agreement is terminated by the Corporation without Cause pursuant to Section 7(d) above, or if the Corporation elects at any time not to renew or extend this Agreement at the expiration of the then current Term, and provided that subsection (c) below does not apply, then, in addition to the payments required by subsection (a) of this Section 7, (i) all stock options previously granted but still subject to vesting shall be immediately vested and shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) two (2) years following the date of termination and (ii) all grants of restricted stock or other rights related to shares of the Corporation’s common stock shall be immediately vested (or the risk of forfeiture, as appropriate, shall terminate)

and shall be delivered to Executive at the same time and subject to the same performance conditions as if the Executive had remained employed by the Corporation. The Executive shall also receive, subject to the mitigation provisions of subsection (d) below, in a single sum payable at the time of termination, and no later than the Last Payment Date, a cash severance payment (the “Severance Payment”) from the Corporation. The amount of the Severance Payment shall be equal to the Executive’s then monthly Base Salary increased by a factor of twenty percent (20%) to account for the Executive’s loss of benefits, multiplied by the number of months in the Severance Period as set forth in Appendix A hereof. Executive shall have the right to purchase health and dental coverage under the Company’s group policies then in effect for the Severance Period. The Severance Payment is subject to required withholding. The Executive shall not be entitled to Severance Payments in any event if he is terminated for Cause as permitted by Section 7(c).

(c) Termination Following Change in Control.

(i)

If a Change in Control of the Corporation occurs during the Term of this Agreement, or if Executive’s employment with the Corporation is terminated by the Corporation without Cause prior to but in connection with a Change in Control (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 8(c)(ii) below upon the termination of the Executive’s employment by the Corporation or by the Executive, unless the Corporation elects to terminate this Agreement pursuant to the provisions of Section 7 (a), (b) or (c) above or because the Executive terminates this Agreement other than for Good Reason.

(ii)

If the Executive shall be terminated from employment with the Corporation following the occurrence of a Change of Control such that Executive is entitled to the compensation set forth in this Section 8(c)(ii), then the Executive shall be entitled to receive the following severance benefits in lieu of any other benefits the Executive would otherwise be entitled to pursuant to this Agreement:

(a) Severance Payment. The Corporation shall pay as severance pay to the Executive an amount equal to the Base Salary that Executive would have received for a thirty (30) month period (the “Payment Period”) at an annualized rate equal to the higher of the rate in effect immediately prior to the Change in

Control or the rate in effect on the date of the Notice of Termination. Such cash payment shall be payable in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date.

(b)	Incentive Awards. The Executive shall receive a cash payment in a single sum, within 10 days following the Executive’s Date of Termination, and no later than the Last Payment Date, in the amount equal a pro rata portion of the “target” full year’s bonus for the Executive under such bonus plan or program for the portion of the year ending on the date of the termination, with a partial month counted as a completed month.
(c)	Acceleration of Equity Grants. Any non-vested stock options, restricted stock or other equity award granted to the Executive by the Corporation shall become 100% vested and all restrictions or conditions to the receipt of such securities, included but not limited to any applicable performance criteria, shall be waived, up to 100% of the “target” shares that were to have been delivered to the executive under any performance-based plan, or 100% of the total shares under a time-based vesting plan. In addition, (i) any stock options shall be exercisable until the first to occur of (y) the expiration date of the applicable option or (z) four (4) years following the date of termination and (ii) shares of restricted stock or other equity awards shall be delivered free of all restrictions within 10 days of the date of termination. If any plan pursuant to which stock options, restricted stock or other equity awards have been issued is not assumed by the successor entity, all such rights will immediately accelerate and be exercisable on the date of the Change of Control.
(d)	Insurance and Welfare Benefits. During the shorter of (i) the Payment Period or (ii) 18 months following the date of termination (the “Coverage Period”) the Executive shall be entitled to the continuation of the same or equivalent life, health, hospitalization, dental and disability insurance coverage and other employee insurance or welfare benefits that he had received (including equivalent coverage for his spouse and dependent children) immediately prior to the Change in Control. In the event that Executive is ineligible under the terms of such insurance to continue to be so covered, the Corporation shall provide the Executive with substantially equivalent coverage through other sources. If the Executive prior to a Change in Control was receiving any cash-in-lieu payments designed to enable the Executive to obtain insurance

coverage of his choosing, the Corporation shall, in addition to any other benefits to be provided under this Section 8(c)(ii)(d), provide Executive with a lump-sum payment equal to the amount of such in-lieu payments that the Executive would have been entitled to receive over the Coverage Period, no later than the Last Payment Date. The benefits to be provided under this Section 8(c)(ii)(d) shall be reduced to the extent of the receipt of substantially equivalent coverage by the Executive from any successor employer.

(e) Tax Gross-Up. If any payments received by Executive pursuant to this Agreement will be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 or Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor or similar provision of the Code, the Corporation shall pay to the Executive additional compensation such that the net amount received by the Executive after deduction of any Excise Tax (and taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation no later than the Last Payment Date. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.

(iii) Notice of Good Reason. If Executive believes that Executive is entitled to terminate employment with the Corporation for Good Reason, the Executive may apply in writing to the Corporation for confirmation of such entitlement prior to the Executive’s actual separation from employment, by following the claims procedure set forth in Section 14 hereof. The submission of such a request by Executive shall not constitute Cause for the Corporation to terminate an Executive, and Executive shall continue to receive all compensation and benefits otherwise payable pursuant to this Agreement at the time of such submission throughout the resolution of the matter pursuant to the procedures set forth in Section 14 hereof. If the Executive’s request for a termination of employment for Good Reason is denied under both the request and appeal procedures set forth in Section 14(b) and (c) hereof, then the parties shall use their best efforts to resolve the claim within ninety (90) days after the claim is submitted to binding arbitration pursuant to Section 14(d).

(iv) All rights of the Employee pursuant to this Section 8(c) shall terminate on the second anniversary following the occurrence of a Change in Control.

(d)

No Mitigation. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 8(c)(ii)(d) above).

(e)

Additional Requirement for Severance Compensation. The amounts payable pursuant to this Section 8 shall be paid only upon an Executive’s execution and delivery to the Corporation of an agreement and general release, in such form as is acceptable to the Corporation, in its sole discretion, under which, among other things, the Executive shall release and discharge the Corporation and related persons from all claims and liabilities relating to the Executive’s employment with the Corporation and/or the termination of the Executive’s employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. Subject to Section 21 hereof, payment of the amounts payable pursuant to this Section 8 will be paid only after the Release Effective Date and expiration of all periods of permitted rescission under federal or state law for such releases.

     9. Confidential Information. Executive shall not at any time during the period of employment and thereafter disclose to others or use any trade secrets or any other confidential information belonging to the Corporation or any of its subsidiaries, including, without limitation, drawings, plans, programs, specifications, code, algorithms, methods, techniques, systems, processes, designs and diagrams and non-public information relating to (i) customers of the Corporation or its subsidiaries, (ii) the Corporation’s business plans and budgets, and (iii) the Corporation’s financial information, including projections, plans and budgets, except as may be required to perform his duties hereunder. The provisions of this Section 9 shall survive the termination of Executive’s employment with the Corporation, provided that after the termination of Executive’s employment with the Corporation, the restrictions contained in this Section 9 shall not apply to any such trade secret or confidential information which becomes generally known in the trade from a source other than Executive.

     10. Patents, Etc. The Corporation shall be entitled to any and all ideas, know-how and inventions, whether patentable or not, which Executive shall conceive, make or develop during the Executive’s period of employment with the Corporation, which relates to the business of the Corporation or any of it’s subsidiaries. Executive shall, from time to time, at the request of the Corporation, execute and deliver such instruments or documents, and shall perform or do such acts or things, as reasonably may be requested in order that the Corporation may have the benefit of such ideas, know-how and

inventions and, in particular, so that patent applications may be prepared and filed in the United States Patent Office, or in appropriate places in foreign countries, covering any of the patentable ideas or inventions covered by this Agreement as aforesaid, including appropriate assignments vesting in the Corporation or any of its subsidiaries (or any successor to the Corporation or any of its subsidiaries) full title to any and all such ideas, inventions and applications. Further, Executive will cooperate and assist the Corporation in the prosecution of any such applications in order that patents may issue thereon.

     11. Non-Competition.

(a)

If Executive receives severance compensation pursuant to Section 8 above, or if Executive is terminated for Cause, Executive agrees that Executive will not, without the prior written consent of the Corporation, directly or indirectly, during the six (6) month period following the Date of Termination, engage in any business or employment or provide any consulting service to any person or organization, or to a division or operating unit of any organization which is involved principally in the provision of video or broadband services to lodging or healthcare facilities in the United States (a “Competing Business”); provided, however, that the parties acknowledge and agree that an entity involved in the cable, satellite or other pay television business generally shall not be deemed to be a Competing Business if (i) the provision of video or broadband services to lodging or healthcare facilities comprises less than twenty (20%) percent of the revenues of such business and (ii) Executive’s principal duties do not involve operation or oversight of that portion of the enterprise involved in the provision of video or broadband services to lodging or healthcare facilities). In the event that Executive violates the provisions of this subparagraph (a), the Corporation shall have the right, in addition to such other remedies as the Corporation may have available to it, to recover that portion of the amounts payable to Executive pursuant to the provisions of Sections 8(b) or 8(c)(ii) of this Agreement which relate to the period of time Executive is found to have been in violation of the terms of this subparagraph.

(b)

During the Term, Executive shall not enter into endeavors that are competitive with the business or operations of the Corporation and shall not own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, director, partner, stockholder, member, venturer, advisor, consultant or otherwise (except for passive investments of not more than a one percent interest in the securities of a publicly held corporation regularly traded on a national securities exchange or in an over-the-counter securities market) any Competing Business.

     12. Successors.

(a) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the

business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 12(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.

(b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

     13. Notices. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service (regularly providing proof of delivery), addressed to the Board and the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 13. Notices shall be deemed given when received.

     14. Administrator and Claims Procedure.

(a) In the event the Executive believes he/she has been wrongfully denied the payment of benefits, the Executive shall follow the procedures set forth in this Section 14. If the Executive is claiming benefits as a result of a termination of employment pursuant to Section 7(c), the Executive shall disregard subsections (b) and (c) hereof and shall proceed directly to arbitration pursuant to subsection (d) hereof. The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any

time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.

(b)	The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 14. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 30 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 30-day period. In no event shall such extension exceed a period of 30 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
(c)	A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 30 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 30 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 60 days after receipt of such request.
(d)	A claimant who has followed the procedure in subsections (b) and (c) of this section, or who has been terminated pursuant to Section 7(c) after having been given the opportunity to be heard by the Board, and who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of

the Administrator’s written decision on review, or the Board’s decision, as the case may be, apply in writing to the Administrator for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the authority to award compensatory damages, but shall not have the authority to award punitive, consequential or exemplary damages. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.

     15. Legal Fees and Expense. The Corporation shall pay Executive’s out-of-pocket expenses, including attorneys’ fees, but not to exceed a total of $15,000 for any proceeding or group of related proceedings to enforce, construe or determine the validity of the provisions for termination benefits in accordance with this Agreement, provided, however, that if any arbitration or litigation results in a finding in favor of Executive contrary to the position of the Corporation, then Executive will be reimbursed for all reasonable legal and related costs regardless of the limitation set forth above; and further provided that in no event will Executive be held liable for the legal and related costs of the Corporation in an event of a finding in favor of the Corporation. Amounts, if any, paid to the Executive pursuant to this Section 15 shall be in addition to all other amounts due to executive pursuant to this Agreement.

     16. Non-Alienation of Benefits. Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.

     17. Miscellaneous.

(a) This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by

or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 8(c)(ii)(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.

(b)	This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation, including any party with which the Corporation may merge or consolidate or to which it may transfer substantially all of its assets.
(c)	The rights and obligations of Executive under this Agreement are expressly declared and agreed to be personal, nonassignable and nontransferable during his life, but upon his death this Agreement shall inure to the benefit of his heirs, legatees and legal representatives of his estate, but only to the extent of any remaining financial obligations of the Corporation.
(d)	The waiver by either party hereto of its rights with respect to a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any rights with respect to any subsequent breach.
(e)	No modification, amendment, addition, alteration or waiver of any of the terms, covenants or conditions hereof shall be effective unless made in writing and duly executed by the Corporation and Executive.
(f)	This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together will constitute but one and the same agreement.

(g)	If any provision of this Agreement is determined to be invalid or unenforceable under any applicable statute or rule of law, it is to that extent to be deemed omitted and it shall not affect the validity or enforceability of any other provision.
(h)	Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed given when sent by registered or certified mail, postage prepaid, addressed as follows:

If to Executive:	to the address set forth on
	Appendix B hereto
If to the Corporation:	LodgeNet Entertainment Corporation
	3900 West Innovation Street
	Sioux Falls, SD 57107
	Attn: President

or mailed to such other person and/or address as the party to be notified may hereafter have designated by notice given to the other party in a similar manner.

     18. Prior Agreements Superseded. This Agreement supersedes all prior agreements, if any, between the parties hereto with respect to the subject matter hereof including any prior employment agreements, severance agreements, and change-in-control agreements. In addition, the provisions related to acceleration of options, time to exercise options, termination of risk of forfeiture of restricted stock, and the like, as well as the definitions of “Cause,” “Good Reason” and “Change in Control” contained herein supersede and replace any conflicting provisions in any option grant agreement or any restricted stock agreement between the Executive and the Corporation (in any such case, an “Equity Agreement”) and the Executive, by executing this Agreement, hereby agrees that all his or her existing Equity Agreements, and all Equity Agreements to which he or she may become subject or party to during the Term, are and shall be hereby amended to supersede and replace such provisions.

     19. Survival of Certain Provisions. The provisions of sections 9, 10 and 11(a) of this Agreement shall survive the termination of this Agreement, provided that any claims pursuant to such sections must be brought within one year of the date of the termination of this agreement.

     20. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.

     21. Compliance with Section 409A of the Code. The provisions of this Agreement regarding amounts that are determined to be subject to Section 409A of the

Internal Revenue Code of 1986, as amended (the “Code”) shall be interpreted and administered in accordance with Section 409A of the code and the regulations and guidance issued thereunder. Notwithstanding anything to the contrary contained herein, no payment of an amount subject to Section 409A of the Code on account of the Executive’s “separation from service” (as defined in Section 409A of the Code, including the regulations and guidance issued thereunder) shall be made to the Executive if the Executive is determined to be a “specified employee” within the meaning of Section 409A of the Code at the time of the Executive’s separation from service. Any such amounts to which the Executive would otherwise be entitled under this Agreement during the first six months following a separation from service shall be accumulated and paid on the first day of the seventh month following the Executive’s separation from service.

     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE:		LODGENET ENTERTAINMENT CORPORATION:
/s/ Scott E. Young		By:	/s/ Scott C. Petersen
		Title:	President — CEO
Address:	301 Ferndale Rd South
	Wayzata MN 55391

Appendix A

Employee Name:	Scott E. Young
Employee Address:	301 Ferndale Rd South, Wayzata MN 55391
Position/Title:	Senior Vice President, Chief Marketing Officer
Work Location	3900 West Innovation Street, Sioux Falls, SD
Base Salary:	$335,000.00 per annum
Benefits Stipend:	$18,000 per annum, payable monthly
Bonus Parameters:	Percentage of Base Salary at Target: 45%
Severance Period:	12 months from date of termination

Appendix B

DEFINITIONS

For the purpose of this Agreement, the following terms have the meanings indicated:

“Cause” means one or more of the following:

(a) acts committed during the Term of this Agreement resulting in a felony conviction under any federal or state statute;

(b) willfully engaging in dishonest or fraudulent action or omission resulting or intended to result in any demonstrable and material financial or economic harm to the Corporation, or which materially damages the Corporation’s reputation; or

(c) willful breach of this Agreement, willful neglect of the material duties of the Executive under this Agreement, gross and willful misconduct, or willful and material violation of (x) the Corporation’s Code of Business Conduct and Ethics or (y) the Corporation’s Employee Handbook (as amended from time to time) which results in or is reasonably likely to result in any demonstrable and material financial or economic harm to the Corporation or material damage to the Corporation’s reputation.

“Change in Control” means the occurrence of any of the following:

(a)

any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); or

(b)

during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals

who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or

(c)	there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; or (ii) would be effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or
(d)	the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e)	the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.

“Disability” means any physical or mental condition which prevents the effective performance on a full time basis by Executive of the duties set forth in this Agreement or otherwise assigned to Executive as contemplated by this Agreement for a period of more than 180 days.

“Good Reason” means any of the following which occur following a Change of Control:

(a) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the Executive from, or any

failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;

(b)	a material reduction by the Corporation in the Executive’s base salary in effect immediately prior to a Change in Control;
(c)	any material breach by the Corporation of any provision of this Agreement;
(d)	following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
(e)	without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than fifty (50) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(f)	the Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.

     “Last Payment Date” means the date that is two and one-half months after the close of the taxable year in which the Executive incurs a separation from service.

GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims (“Agreement”) is entered into by and between the undersigned,                      (“Employee”) LODGENET ENTERTAINMENT CORPORATION (the “Company”). Employee and the Company are collectively referred to as “Parties.”

     In exchange for the payments made pursuant to the severance provisions of the Employment Agreement between Employee and the Company, Employee hereby acknowledges full and complete satisfaction and hereby releases and forever discharges the Company and each of its affiliates, subsidiaries, agents, directors, officers, shareholders, employees, attorneys, successors, and assigns, from any and all claims arising from or connected with Employee’s employment by, or separation from the Company, including but not limited to, any actions brought in tort or for breach of contract, or claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefits Protection Act (“OWBPA”), the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, and any other federal or state statute, law or regulation relating to employment.

     In order to conform this release agreement with the rights provided by the Older Workers Benefit Protection Act of 1990, Employee is aware of the following with respect to release of any claims under the ADEA:

(1)	the right to consult with an attorney before signing this Release.
(2)	Forty-five (45) days, in which to consider this Release and any ADEA claim; and
(3)	Seven (7) days after signing this Release to revoke this release to any ADEA claim.

This Agreement shall not be effective until the expiration of seven (7) days following its execution by Employee. In addition, Employee acknowledges that the Company has provided Employee with a list of all employees eligible for and offered benefits under the ETA Plan, with their ages and job titles in compliance with the OWBPA. Employee acknowledges that the names could change as the Plan is implemented and that a current list will be available upon request at the Human Resource office of the Company.

     Employee agrees not to use any confidential information or trade secrets acquired during employment with the Company for any other business or employment without the prior written consent of the Company. Employee hereby assigns to the Company all rights to any invention(s) developed or will develop relating at the time of conception or reduction to practice to the Company’s business, or resulting from work performed for the Company.

     Employee further agrees that this Agreement, the terms and conditions of this Agreement, and any and all actions by the Parties in accordance therewith, are strictly confidential and Employee agrees not to disclose, discuss or reveal said information to any other persons, entities or organizations, except that Employee may disclose this information to immediate family members, counsel, personal tax advisor, or as may be required by applicable law. However, a violation of this confidentiality agreement by any third party referenced-above will constitute a breach of this Agreement.

     The Parties hereby agree to submit any and all disputes regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement, to final and binding and confidential arbitration by a single neutral arbitrator as the exclusive remedy for such claim or dispute. Subject to the terms of this paragraph, the arbitration proceedings shall be conducted and administered by the American Arbitration Association (“AAA”) under its National Rules for the Resolution of Employment Disputes then in effect. The arbitrator shall be experienced in labor and employment matters and shall be appointed by agreement of the Parties hereto or, if no agreement can be reached, pursuant to the AAA Rules. In addition, should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other with respect to any claim waived by this Agreement or pursue any arbitrable dispute by any method other than said arbitration, the prevailing party shall be entitled to recover from the other party all damages, costs, expenses, and attorney’s fees incurred as a result of such action.

     This Agreement represents and contains the entire agreement between Employee and the Company relating to the matters described herein, and supersedes all prior discussions and agreements, whether oral or written.

     Employee affirms and represents that he is entering into this Agreement freely and voluntarily, and that Employee is acting under no other inducement, or under any coercion, threat or duress. Employee acknowledges that the contents of this document have been explained to Employee and Employee understands the meaning and legal effect of this Agreement.

Dated:
	Employee Signature
Dated:	By:

EX-12.1

Exhibit 12.1

LodgeNet Interactive Corporation and Subsidiaries
Statement Regarding Computation of Ratios (Unaudited)
(Dollar amounts in thousands, except ratios)

Computation of Coverage of Fixed Charges

	2007			2006		2005			2004			2003
Net (loss) income	$	(65,172	)	$	1,841	$	(6,959	)	$	(20,781	)	$	(35,052	)
Add:
Provision for income taxes		(683	)		299		450			421			459
Fixed charges (see below)		43,531			27,470		31,241			33,946			36,393
Earnings available to cover fixed charges	$	(22,324	)	$	29,610	$	24,732		$	13,586		$	1,800
Fixed charges (1):
Interest	$	40,950		$	25,730	$	29,351		$	31,891		$	34,239
Amortization of debt costs		1,731			1,495		1,636			1,734			1,831
Amortization of debt discount		—			—		—			82			104
Interest portion of rentals		850			245		254			239			219
Total fixed charges	$	43,531		$	27,470	$	31,241		$	33,946		$	36,393
Earnings (deficiency) in the coverage of fixed charges	$	(65,855	)	$	2,140	$	(6,509	)	$	(20,360	)	$	(34,593	)
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 Interactive Corporation and Subsidiaries
Subsidiaries of the Company

Company Name	Jurisdiction of Incorporation
LodgeNet StayOnline, Inc.	Delaware
LodgeNet Entertainment Canada Corporation	Ontario, CA
LodgeNet International	Delaware
Equipment OCV, Inc.	Delaware
Hotel Digital Network, Inc.	California
On Command Corporation	Delaware
On Command Canada Inc.	Ontario, CA
On Command Development Corp	Delaware
On Command Video Corp	Delaware
OnCo-HTV, Inc.	Delaware
Puerto Rico VEC	Delaware
Spectradyne International, Inc.	Delaware
The Hotel Networks, Inc.	Delaware
Virgin Islands VEC	Delaware

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, 333-75908, 333-84974, 333-34160, 33-75906 and 33-86532) and Form S-3 (No. 333-146522) of LodgeNet Entertainment Corporation of our report dated March 14, 2008, relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

Minneapolis, MN
March 14, 2008

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 Interactive 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, 2008

/s/ Gary H. Ritondaro

Gary H. Ritondaro

Senior Vice President, Chief Financial Officer

(Principal Financial & Accounting Officer)

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 Interactive 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, 2008

/s/ Scott C. Petersen

Scott C. Petersen

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.1

Exhibit 32.1

LODGENET INTERACTIVE 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 Interactive 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, 2007 (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 2008.

/s/ Scott C. Petersen  

Scott C. Petersen 

Chief Executive Officer 

/s/ Gary H. Ritondaro  

Gary H. Ritondaro 

Chief Financial Officer