EXHIBIT 10.16
STOCKHOLDERS' AGREEMENT
BETWEEN
LODGENET ENTERTAINMENT CORPORATION
AND
TCI SATELLITE ENTERTAINMENT, INC.
Dated as of October 21, 1996
EXECUTION COPY
STOCKHOLDERS' AGREEMENT
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This STOCKHOLDERS' AGREEMENT (this "Agreement") is entered into as of
October 21, 1996, by and between ResNet Communications, Inc., a Delaware
corporation ("ResNet"), LodgeNet Entertainment Corporation, a Delaware
corporation ("LodgeNet"), and TCI Satellite Entertainment, Inc., a Delaware
corporation ("TCI-Satellite") (each of TCI-Satellite and LodgeNet being referred
to herein individually as a "Stockholder" and together as the "Stockholders").
RECITALS
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A. Prior to the date hereof, LodgeNet owns all of the issued and
outstanding common stock of ResNet.
B. Simultaneously with the execution of this Agreement, TCI-Satellite
is entering into a Subscription Agreement (the "Subscription Agreement") to
subscribe for and acquire 52,520 shares of the common stock of ResNet, which
shares represent, immediately after such issuance, 4.99% of the issued and
outstanding common stock of ResNet (the "Initial Stock").
C. Simultaneously with the execution of this Agreement, TCI-Satellite
and ResNet are entering into a Subordinated Convertible Term Loan Agreement (the
"Loan Agreement") pursuant to which TCI-Satellite has agreed to lend to ResNet
the principal amount of $34,603,947, the loans under which are convertible under
certain circumstances into shares of the common stock of ResNet (the "Conversion
Stock"), that when combined with the Initial Stock will give TCI-Satellite the
right to acquire shares of common stock of ResNet representing immediately after
issuance of all such shares, a total of 36.99% of the issued and outstanding
common stock of ResNet on a fully diluted basis. Under the terms of the Loan
Agreement, if TCI-Satellite is unable to convert the loans in full into the
Conversion Stock due to the Regulatory Restrictions, on the maturity date under
the Loan Agreement ResNet has agreed to issue to TCI-Satellite a warrant to
acquire the unconverted portion of the Conversion Stock (the "Conversion
Warrant").
D. Simultaneously with the execution of this Agreement, TCI-Satellite
and ResNet are entering into an Option Agreement (the "Option Agreement")
pursuant to which ResNet is granting to TCI-Satellite an option (the "Option")
to acquire additional shares of common stock of ResNet (the "Option Stock") that
when combined with the Initial Stock and the Conversion Stock will give TCI-
Satellite the right to acquire shares of common stock of ResNet representing,
immediately after issuance of all such shares, a total of 50% of the issued and
outstanding common stock of ResNet on a fully diluted basis. If TCI-Satellite
has not exercised its option in full to acquire the Option Stock upon issuance
by ResNet to TCI-Satellite of the Conversion Warrant, then ResNet will issue to
TCI-Satellite, simultaneously with issuance of the Conversion Warrant, a warrant
to acquire the unexercised portion of the Option Stock (the "Option Warrant").
E. ResNet and the Stockholders desire to restrict the transfer of
shares of common stock of ResNet, to provide anti-dilution protection for the
Stockholders' respective ownership positions in ResNet, and to provide for
certain other matters.
AGREEMENT
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For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, ResNet and the Stockholders hereby agree as
follows:
1. Definitions.
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For purposes of this Agreement, the following terms shall have the
following meanings:
"Affiliate" of any Person at any time shall mean any other Person
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directly or indirectly controlling, controlled by or under common control with
such Person at such time; with "control" for such purposes meaning the ownership
of securities representing at least 75% of the economic interests in and 75% of
the voting power of a Person.
"Agreement" shall mean this Stockholders' Agreement, including any
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exhibits and attachments hereto, as amended from time to time.
"Appraised Purchase Price" shall have the meaning specified in Section
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3(a)(iii).
"Below Appraised Value Offer" shall have the meaning specified in
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Section 3(b).
"Buying Stockholder" shall have the meaning specified in Section 3(a).
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"Conversion Stock" shall have the meaning specified in Recital C.
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"Conversion Warrant" shall have the meaning specified in Recital C.
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"Definitive Purchase Notice" shall have the meaning specified in
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Section 3(a)(iv).
"Definitive Purchase Notice Date" shall have the meaning specified in
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Section 3(a)(iv).
"Definitive Sale Notice" shall have the meaning specified in Section
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3(a)(iv).
"Definitive Sale Notice Date" shall have the meaning specified in
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Section 3(a)(iv).
"Final ResNet Fair Market Value" shall have the meaning specified in
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Section 3(a)(ii).
"Governmental Authority" shall mean any federal, state, municipal or local
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governmental authority or political subdivision thereof.
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"XXX Xxx" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
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of 1976, as amended, and the rules and regulations thereunder, as in effect from
time to time.
"Initial Stock" shall have the meaning specified in Recital B.
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"Legal Requirement" shall mean the requirements of any law, ordinance,
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statute, rule, regulation, code, order, judgment, decree, injunction, franchise,
determination, approval, permit, license, authorization or other requirement of
any Governmental Authority.
"Loan Agreement" shall have the meaning specified in Recital C.
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"LodgeNet" shall have the meaning specified in the Preamble.
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"Negotiated Purchase Price" shall have the meaning specified in
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Section 3(a)(i).
"Negotiation Period" shall have the meaning specified in Section
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3(a)(i).
"Notice Date" shall have the meaning specified in Section 3(a).
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"Option" shall have the meaning specified in Recital D.
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"Option Agreement" shall have the meaning specified in Recital D.
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"Option Stock" shall have the meaning specified in Recital D.
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"Option Warrant" shall have the meaning specified in Recital D.
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"Person" shall mean and include an individual, a corporation, a
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partnership (general, limited or limited liability), a joint venture, a limited
liability company, an association, a trust or any other organization or entity,
including a Governmental Authority.
"Preliminary ResNet Fair Market Value" shall have the meaning
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specified in Section 3(a)(ii).
"Prohibited Transferees" shall mean Comsat Corporation, Ascent
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Entertainment Group, Inc., On Command Corporation, MagiNet Corporation, IPC of
Singapore, and their respective successors, assigns, or affiliates.
"Proprietary Information" shall have the meaning specified in Section
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12.
"Reconciliation Stock" shall mean 152,750 shares of common stock of
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ResNet to be issued to TCI-Satellite under the Loan Agreement or the Conversion
Warrant upon issuance of the Option Stock to TCI-Satellite, as such number of
shares may be adjusted pursuant to the Loan Agreement or the Conversion Warrant.
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"Regulatory Restrictions" shall mean any restriction or limitation on
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the ability of TCI-Satellite to acquire all or any portion of the Conversion
Stock, Reconciliation Stock, or Option Stock because such acquisition would
cause ResNet or TCI-Satellite to violate any Legal Requirement, including,
without limitation, 47 U.S.C. (S) 533(a)(2) or any regulations of the FCC
promulgated thereunder if any SMATV service offered by ResNet continued to be
offered after such acquisition separate and apart from any applicable franchised
cable service.
"ResNet" shall have the meaning specified in the Preamble.
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"Right of First Negotiation" shall have the meaning specified in
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Section 3(a).
"Right of First Negotiation Closing Date" shall have the meaning
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specified in Section 3(a)(vii).
"Right of First Refusal" shall have the meaning specified in Section
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3(b).
"Right of First Refusal Closing Date" shall have the meaning specified
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in Section 3(b)(ii).
"Right of First Refusal Period" shall have the meaning specified in
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Section 3(b)(i).
"Right of First Refusal Purchase Price" shall have the meaning
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specified in Section 3(b).
"Selling Stockholder" shall have the meaning specified in Section
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3(a).
"SMATV" shall mean satellite master antenna television.
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"Stock" shall mean any and all shares of the common stock of ResNet.
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"Stockholder" and "Stockholders" shall have the meaning specified in
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the Preamble.
"Subscription Agreement" shall have the meaning specified in
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Recital B.
"TCI-Satellite" shall have the meaning specified in the Preamble.
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"Transaction Documents" shall have the meaning specified in Section
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15(j).
2. Restrictions on Transfer of Stock.
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(a) Neither Stockholder shall sell, assign, encumber, pledge,
distribute, or otherwise transfer any shares of Stock or any interest in any
shares of Stock, in whole or in part, unless (i) such transfer is made to an
Affiliate of such Stockholder, (ii) the Stockholder first obtains the written
consent of the other Stockholder to such transfer, or (iii) the Stockholder
first follows the right of first negotiation and right of first refusal
procedures set forth in Section 3; provided, however, that in no event may TCI-
Satellite assign any interest in any shares of Stock to any of the Prohibited
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Transferees without the prior written consent of LodgeNet, which consent may be
withheld in its sole and absolute discretion.
(b) Notwithstanding any transfer of Stock in accordance with the terms
of this Agreement, including any successive transfers of such Stock, such Stock
shall nevertheless remain subject to the terms of this Agreement, and the
transferee (including any successive transferees) shall become a signatory to
this Agreement acknowledging acceptance of this Agreement and agreeing to abide
by its terms and conditions. Any attempted transfer of Stock in violation of
this Agreement shall be null and void.
3. Right of First Negotiation; Right of First Refusal.
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(a) Except with respect to transfers permitted under Section 2(a)(i)
or (ii), if, during the term of this Agreement, a Stockholder desires to sell,
assign or otherwise transfer all of such Stockholder's Stock (which shall
include for all purposes of this Agreement, in the case of TCI-Satellite, the
right to acquire any Conversion Stock, any Reconciliation Stock, and any Option
Stock and any right, title, and interest in the Conversion Warrant or the Option
Warrant if such warrants, or either of them, are issued unless the rights of
TCI-Satellite to acquire any Option Stock under the Option Agreement or Option
Warrant have expired by their terms in which event the right to acquire any
Reconciliation Stock and any Option Stock and any right, title, and interest in
the Option Warrant shall not be included), such Stockholder (the "Selling
Stockholder") first shall deliver a notice to the other Stockholder (the "Buying
Stockholder") offering to sell all of the Selling Stockholder's Stock to the
Buying Stockholder (the date of such notice being the "Notice Date") in
accordance with the following procedures of this Section 3(a) (the "Right of
First Negotiation").
(i) The Selling Stockholder and the Buying Stockholder will
negotiate in good faith for a period of 30 days after the Notice Date (the
"Negotiation Period") regarding the purchase price to be paid for the Selling
Stockholder's Stock (the "Negotiated Purchase Price"). If the Selling
Stockholder and the Buying Stockholder agree on the Negotiated Purchase Price,
the closing with respect to the purchase and sale of the Selling Stockholder's
Stock shall occur in accordance with the provisions of Section 3(a)(vii).
(ii) If the Selling Stockholder and the Buying Stockholder are
unable to agree on the Negotiated Purchase Price during the Negotiation Period,
within ten days after the end of the Negotiation Period the Selling Stockholder
and the Buying Stockholder each shall select a nationally recognized investment
banker who shall determine, within 45 days after the end of the Negotiation
Period, the net fair market value of ResNet on a going concern basis, as of the
Notice Date, taking into account all indebtedness of ResNet (including any
guarantees of indebtedness for borrowed money) and the current assets and
current liabilities of ResNet, based upon a transaction negotiated on an arms'-
length basis between a willing buyer and willing seller, with neither having any
compulsion to buy or sell and with each party having full knowledge of all of
the facts and circumstances of ResNet's business and properties (the
"Preliminary ResNet Fair Market Value"). If the Preliminary ResNet Fair Market
Value determinations of the two investment bankers vary by
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more than 10%, within ten days after such determinations of the Preliminary
ResNet Fair Market Value, such investment bankers shall select a third
nationally recognized investment banker who shall make an independent
determination of the Preliminary ResNet Fair Market Value within 30 days after
being selected. The final determination of the net fair market value of ResNet
(the "Final ResNet Fair Market Value") will be the average of the Preliminary
ResNet Fair Market Value determination of such third investment banker and the
Preliminary ResNet Fair Market Value determination of the one of the first two
investment bankers that is closest to the Preliminary ResNet Fair Market Value
determination of such third investment banker.
(iii) The purchase price for the Selling Stockholder's Stock (the
"Appraised Purchase Price") shall be determined by the two investment bankers
whose valuations determined the Final ResNet Fair Market Value by multiplying
(A) the sum of (1) the Final ResNet Fair Market Value, and (2) the Option Stock
Purchase Price (as defined below), by (B) a fraction the numerator of which is
the number of shares of Stock held by the Selling Stockholder and the
denominator of which is the total number of shares of issued and outstanding
common stock of ResNet (including the number of shares of Option Stock to be
issued to TCI-Satellite pursuant to exercise of the Option and assuming prior
issuance of the maximum number of shares of Conversion Stock and Reconciliation
Stock), and adjusting the resulting product as such investment bankers determine
to be appropriate to reflect any control premium or discount for lack of
marketability associated with the Selling Stockholder's Stock; provided,
however, that if such investment bankers do not agree on the appropriate amount
of any control premium or discount for lack of marketability associated with the
Selling Stockholder's Stock, then any such premium or discount shall be
determined by averaging the determinations of such investment bankers, and
provided further that if TCI-Satellite is the Selling Stockholder and the
Selling Stockholder's Stock includes any Option Stock with respect to which TCI-
Satellite has not yet exercised the Option and paid the purchase price for such
Option Stock, then the Appraised Purchase Price for TCI-Satellite's Stock shall
be reduced by the portion of the Appraised Purchase Price attributable to such
Option Stock (the "Option Stock Purchase Price") determined by multiplying (C)
the sum of (1) the Final ResNet Fair Market Value and (2) the Option Stock
Purchase Price by (D) a fraction the numerator of which is the number of shares
of Option Stock with respect to which TCI-Satellite has not exercised the Option
and paid the purchase price and the denominator of which is the total number of
shares of issued and outstanding common stock of ResNet (including all Option
Stock and assuming prior issuance of the maximum number of shares of Conversion
Stock and Reconciliation Stock). Notwithstanding the preceding provisions of
this Section 3(a)(iii), (E) if LodgeNet is the Selling Stockholder and if TCI-
Satellite is not prevented by the Regulatory Restrictions from exercising the
Option to acquire the Option Stock but TCI-Satellite has not exercised the
Option and paid the purchase price for the Option Stock as of the date on which
the Appraised Purchase Price is determined, or (F) whether LodgeNet or TCI-
Satellite is the Selling Stockholder, if the rights of TCI-Satellite to acquire
any Option Stock under the Option Agreement or Option Warrant have expired by
their terms without issuance of the Option Stock to TCI-Satellite, then in the
case of either (E) or (F) the Reconciliation Stock, the Option Stock, and the
Option Stock Purchase Price shall be excluded from the calculation contained in
the preceding provisions of this Section 3(a)(iii) for all purposes.
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(iv) Within 15 business days after the determination of the
Appraised Purchase Price for the Selling Stockholders' Stock, the Selling
Stockholder will notify the Buying Stockholder if the Selling Stockholder
desires to sell all of its Stock for the Appraised Purchase Price (the
"Definitive Sale Notice," the date of which being the "Definitive Sale Notice
Date"), and if the Selling Stockholder delivers a Definitive Sale Notice to the
Buying Stockholder, then the Buying Stockholder will notify the Selling
Stockholder if the Buying Stockholder desires to purchase all of the Selling
Stockholders' Stock for the Appraised Purchase Price within 15 business days
after the Definitive Sale Notice Date (the "Definitive Purchase Notice," the
date of which being the "Definitive Purchase Notice Date").
(v) If the Selling Stockholder delivers a Definitive Sale Notice
to the Buying Stockholder but the Buying Stockholder does not deliver a
Definitive Purchase Notice to the Selling Stockholder within the time periods
set forth in Section 3(a)(iv), then the Selling Stockholder will be free for a
period of one year after the Definitive Sale Notice Date to sell the Selling
Stockholder's Stock for a purchase price equal to or greater than the Appraised
Purchase Price, and the Buying Stockholder shall have no Right of First Refusal
with respect to any such sale of the Selling Stockholder's Stock.
(vi) If the Selling Stockholder delivers a Definitive Sale Notice
to the Buying Stockholder and the Buying Stockholder delivers a Definitive
Purchase Notice to the Selling Stockholder within the time periods set forth in
Section 3(a)(iv), then the closing with respect to the purchase and sale of the
Selling Stockholder's Stock shall occur in accordance with the provisions of
Section 3(a)(vii). If the Buying Stockholder delivers a Definitive Purchase
Notice but fails to purchase such Stock in accordance with the provisions of
Section 3(a)(vii), the Selling Stockholder will then be free for a period of two
years after the Definitive Sale Notice Date to sell such Stock for a purchase
price equal to or greater than the Appraised Purchase Price, and the Buying
Stockholder shall have no Right of First Refusal with respect to any such sale
of the Selling Stockholder's Stock.
(vii) The closing for any purchase and sale of Stock pursuant to
the Right of First Negotiation shall be held on the date selected by the Buying
Stockholder no later than 120 days after the determination of the Negotiated
Purchase Price or the Definitive Purchase Notice Date, as applicable, or on a
later date as mutually agreed by the Buying Stockholder and the Selling
Stockholder (the "Right of First Negotiation Closing Date"). Notwithstanding any
other provision of this Section 3(a)(vii), the Right of First Negotiation
Closing Date shall not occur before all necessary approvals of any Governmental
Authority have been obtained, including without limitation compliance with the
HSR Act, if applicable. If any such approvals cannot be obtained within the
otherwise applicable time period for closing, the closing shall occur as soon as
practicable after all such approvals are obtained. Failure by either party to
close within the applicable period stated herein (unless such failure is caused
by the inability of such person, after diligent effort, to obtain any necessary
approvals from any Governmental Authority) shall constitute a default entitling
the non-defaulting party to such remedies as are contained in this Agreement or
as may be provided under applicable law. On the Right of First Negotiation
Closing Date, the Buying Stockholder shall pay the Negotiated Purchase Price or
the Appraised Purchase Price, as applicable, as follows: (A) 10% in
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cash by wire transfer of immediately available funds to an account designated by
the Selling Stockholder, and (B) 90% by delivery of the Buying Stockholder's
promissory note bearing interest at the prime rate charged by The Bank of New
York from time to time, compounded quarterly, with all principal and accrued
interest being due and payable on the date that is 18 months after the Right of
First Negotiation Closing Date, which note shall be prepayable without penalty
and shall be secured by a first priority security interest in the Selling
Stockholder's Stock.
(viii) If a determination of the Appraised Purchase Price is made
under Section 3(a)(iii), then the Selling Stockholder shall pay the fees and
expenses of the investment banker selected by it, the Buying Stockholder shall
pay the fees and expenses of the investment banker selected by it, and the
Selling Stockholder and the Buying Stockholder each shall pay one-half of the
fees and expenses of any third investment banker selected by the first two
investment bankers; provided, however, that if the Selling Stockholder elects
not to sell its Stock after the determination of the Appraised Purchase Price,
the Selling Stockholder shall pay all fees and expenses of both or all three of
the investment bankers, as applicable, and the Selling Stockholder shall have no
other obligation or liability with respect to its decision not to sell its
Stock.
(b) If the Buying Stockholder fails to deliver a Definitive Purchase
Notice under Section 3(a)(iv) and the Selling Stockholder desires to sell its
Stock to a third party pursuant to a bona fide written offer by such third party
to purchase such Stock for a purchase price that is less than the Appraised
Purchase Price (the "Below Appraised Value Offer"), then the Stock of the
Selling Stockholder shall be offered or deemed offered for sale to the Buying
Stockholder at the price (the "Right of First Refusal Purchase Price") and on
the terms stated in such bona fide written offer in accordance with the
following procedures of this Section 3(b) (the "Right of First Refusal").
(i) If the Selling Stockholder receives a Below Appraised Value
Offer that the Selling Stockholder desires to accept, the Selling Stockholder
shall deliver a copy of such written offer to the Buying Stockholder. The Buying
Stockholder shall have 10 business days from the date of receipt of such copy
(the "Right of First Refusal Period") in which to exercise its Right of First
Refusal to acquire the Selling Stockholder's Stock by giving written notice of
such exercise to the Selling Stockholder. If the Buying Stockholder fails to
give the Selling Stockholder written notice of exercise within the Right of
First Refusal Period, the Selling Stockholder will be free to sell the Stock
covered by the Below Appraised Value Offer for a period of one year after the
end of the Right of First Refusal Period, but only at a price equal to or
greater than and on terms not materially more favorable to the buyer than those
contained in the Below Appraised Value Offer. If the Below Appraised Value Offer
contains terms or provides for consideration which by reason of the unique
nature of such terms or consideration cannot be met by the Buying Stockholder,
then the Stock may be transferred pursuant to such offer only upon the written
consent of the Buying Stockholder. If the Buying Stockholder timely exercises
its Right of First Refusal to purchase the Stock of the Selling Stockholder, the
Buying Stockholder must purchase such Stock in accordance with the provisions of
Section 3(b)(ii). If the Buying Stockholder exercises the Right of First Refusal
but fails to purchase such Stock in accordance with the provisions of Section
3(b)(ii), the Selling Stockholder
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may then sell such Stock on terms substantially similar to the Below Appraised
Value Offer for a period of two years after the end of the Right of First
Refusal Period.
(ii) The closing for any purchase and sale of Stock pursuant to
an exercise of the Right of First Refusal shall be held on the date selected by
the Buying Stockholder no later than 30 days after the end of the Right of First
Refusal Period, or on a later date as mutually agreed by the Buying Stockholder
and the Selling Stockholder (the "Right of First Refusal Closing Date").
Notwithstanding any other provision of this Section 3(b)(ii), the Right of First
Refusal Closing Date shall not occur before all necessary approvals of any
Governmental Authority have been obtained, including without limitation
compliance with the HSR Act, if applicable. If any such approvals cannot be
obtained within the otherwise applicable time period for closing, the closing
shall occur as soon as practicable after all such approvals are obtained.
Failure by either party to close within the applicable period stated herein
(unless such failure is caused by the inability of such person, after diligent
effort, to obtain any necessary approvals from any Governmental Authority) shall
constitute a default entitling the non-defaulting party to such remedies as are
contained in this Agreement or as may be provided under applicable law. On the
Right of First Refusal Closing Date, the Buying Stockholder shall pay the Right
of First Refusal Purchase Price as follows: (A) 10% in cash by wire transfer of
immediately available funds to an account designated by the Selling Stockholder,
and (B) 90% by delivery of the Buying Stockholder's promissory note bearing
interest at the prime rate charged by The Bank of New York from time to time,
compounded quarterly, with all principal and accrued interest being due and
payable on the date that is six months after the Right of First Refusal Closing
Date, which note shall be prepayable without penalty and shall be secured by a
first priority security interest in the Selling Stockholder's Stock.
4. Preemptive Rights. If ResNet issues any additional shares of its capital
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stock (including by sale of treasury stock), each Stockholder shall have the
preemptive and preferential right, in proportion to its percentage ownership of
the capital stock of ResNet immediately prior to such issuance, to purchase and
subscribe for additional shares of the capital stock of ResNet, upon the same
terms and conditions as any such new issuance of capital stock of ResNet, such
that each Stockholder will have immediately after such stock issuance, the same
percentage ownership of the capital stock of ResNet as such Stockholder had
immediately prior to such stock issuance; provided, however, that LodgeNet shall
have no preemptive rights with respect to the Initial Stock or any Conversion
Stock, Reconciliation Stock, or Option Stock to be issued to TCI-Satellite and
provided further that for purposes of determining percentage ownership of each
of the Stockholders in the capital stock of ResNet, all of the Initial Stock and
the Conversion Stock shall be deemed to be owned by TCI-Satellite and all of the
Reconciliation Stock and Option Stock shall be deemed to be owned by TCI-
Satellite if it has been issued and, if or to the extent that it has not been
issued, all of the Reconciliation Stock and Option Stock shall be deemed to be
owned by TCI-Satellite until such time as the Option Agreement and the Option
Warrant shall have terminated without issuance of the Option Stock. If TCI-
Satellite is prevented from exercising its preemptive rights to acquire
additional shares of capital stock of ResNet due to the Regulatory Restrictions,
upon payment of the purchase price for such shares ResNet shall issue such
shares into an escrow or voting trust that, in the opinion of regulatory counsel
reasonably acceptable to ResNet, would not violate the Regulatory Restrictions,
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or upon TCI-Satellite loaning the amount of the purchase price for such shares
to ResNet on a non-recourse basis ResNet shall issue a warrant to acquire such
shares, in form and substance reasonably satisfactory to ResNet and TCI-
Satellite, to TCI-Satellite, at the option of TCI-Satellite. If any issuance of
capital stock of ResNet is on varying terms, the preemptive rights of the
Stockholders hereunder shall be at the most favorable price and on the most
favorable terms applicable to any purchaser of any such additional shares of
capital stock of ResNet. If the consideration paid by a purchaser is not cash
or cash equivalents, then the price paid by such purchaser will be deemed to be
the fair market value of such consideration. The Stockholders' preemptive right
to acquire additional shares of capital stock of ResNet shall extend, without
limitation, to shares issued pursuant to any options, warrants, debentures, or
debt convertible into common stock of ResNet (which in the case of debt or
debentures coupled with warrants will be considered as a unit for purposes of
exercise of any preemptive rights), to shares issued for property or services,
and to shares issued pursuant to any stock option, bonus, or other incentive
plan for the benefit of any of the directors, officers, or employees of ResNet.
5. Stockholder Rights.
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(a) ResNet shall cause to be delivered to each Stockholder the
financial statements listed below, prepared, in each case, in accordance with
generally accepted accounting principles consistently applied with prior
periods, and such other reports as any Stockholder may reasonably request from
time to time. Such financial statements shall be accompanied by an analysis, in
reasonable detail, of the variance between the financial condition and results
of operations reported therein and the corresponding amounts for the applicable
period or periods in the annual budget for ResNet. The monthly and quarterly
financial statements referred to in (ii) and (iii) below may be subject to
normal year-end audit adjustments.
(i) As soon as practicable following the end of each fiscal year
(and in any event not later than 90 days after the end of such fiscal year), an
audited balance sheet of ResNet as of the end of such fiscal year and the
related statements of operations, stockholders' equity, and cash flows for such
fiscal year, together with appropriate notes to such financial statements and
supporting schedules, all of which shall be certified by certified public
accountants selected by ResNet, and in each case setting forth in comparative
form the corresponding figures for the immediately preceding fiscal year (in the
case of each balance sheet following the end of the second fiscal year of
ResNet) and the two immediately preceding fiscal years (in the case of each
statement of operations following the end of the third fiscal year of ResNet).
(ii) As soon as practicable following the end of each fiscal
quarter (and in any event not later than 45 days after the end of such fiscal
quarter), a balance sheet of ResNet as of the end of such fiscal quarter and the
related statements of operations, stockholders' equity, and cash flows for such
fiscal quarter and for the fiscal year to date, in each case setting forth in
comparative form the corresponding figures for the prior year's fiscal quarter
and interim period corresponding to the fiscal quarter and interim period just
completed.
(iii) As soon as practicable following the end of each calendar
month (and in any event not later than 30 days after the end of such calendar
month), statements of operations for the interim period through such month and
the monthly period then ended.
(b) Any Stockholder shall have the right, from time to time but no
more often than once each calendar month, to request a special meeting of the
Stockholders by means of a written notice, together with a proposed agenda,
which notice must be given no less than 10 days prior to the date of such
special meeting. Except in the case of an emergency, no meeting of the
Stockholders may be called without the required advance notice and the proposed
agenda. Any Stockholders may participate in any such meeting by means of
telephonic or other communications equipment pursuant to which all Stockholders
can hear one another.
6. Representations and Warranties of TCI-Satellite.
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TCI-Satellite represents and warrants to LodgeNet and ResNet that:
(a) It (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and (ii) has all
corporate powers required to carry on its business as conducted on the date
hereof with such exceptions as would not materially and adversely affect its
ability to perform its obligations under this Agreement.
(b) The execution, delivery and performance by it of this Agreement
are within its corporate powers and have been duly authorized by all necessary
corporate action on its part.
(c) This Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by the principles governing the availability of
equitable remedies.
7. Representations and Warranties of LodgeNet.
------------------------------------------
LodgeNet represents and warrants to TCI-Satellite and ResNet that:
(a) It (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and (ii) has all
corporate powers required to carry on its business as conducted on the date
hereof with such exceptions as would not materially and adversely affect its
ability to perform its obligations under this Agreement.
(b) The execution, delivery, and performance by it of this Agreement
are within its corporate powers and have been duly authorized by all necessary
corporate action on its part.
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(c) This Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by the principles governing the availability of
equitable remedies.
8. Representations and Warranties of ResNet.
----------------------------------------
ResNet represents and warrants to TCI-Satellite and LodgeNet that:
(a) It (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and (ii) has all
corporate powers required to carry on its business as conducted on the date
hereof with such exceptions as would not materially and adversely affect its
ability to perform its obligations under this Agreement.
(b) The execution, delivery, and performance by it of this Agreement
are within its corporate powers and have been duly authorized by all necessary
corporate action on its part.
(c) This Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by the principles governing the availability of
equitable remedies.
9. Further Assurances. From time to time during the term of this
------------------
Agreement and without further consideration, the Stockholders will execute and
deliver, or arrange for the execution and delivery of, such other documents and
take or arrange for such other actions as may reasonably be requested to
complete more effectively the agreements contemplated by this Agreement.
10. Termination of Agreement. This Agreement shall terminate upon the first
------------------------
to occur of the following events:
(a) merger or consolidation of ResNet, but only if ResNet is not the
surviving corporation as a result of such merger or consolidation or the
Stockholders do not hold a majority of the voting securities of the surviving
corporation as a result of such merger or consolidation;
(b) the date on which the Stock is publicly traded; or
(c) the unanimous written consent of the Stockholders.
11. Media Releases. Except for any announcement intended solely for the
--------------
internal distribution of TCI-Satellite, LodgeNet, or ResNet, or any disclosure
required by legal, accounting, or regulatory requirements (as to which the
limitations of Section 12(ii) below shall apply), all media releases
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(including but not limited to promotional or marketing material) by TCI-
Satellite, LodgeNet, or ResNet, or the respective employees or agents of any of
them, which identify TCI-Satellite, LodgeNet, or ResNet in the context of the
Transaction Documents shall be coordinated with and approved in writing by TCI-
Satellite, LodgeNet, and ResNet prior to the release thereof. Such approvals
shall not be unreasonably withheld or delayed. ResNet and TCI-Satellite may
state, without prior approval, in their promotional and advertising material
that the equipment being sold pursuant to the Equipment Sale Agreement and that
the distribution of programming services being provided pursuant to the Signal
Availability Agreement included in the Transaction Documents are being provided
to ResNet by TCI-Satellite.
12. Confidentiality. ResNet and each Stockholder agree that all terms and
---------------
conditions of this Agreement and all Proprietary Information (as defined herein)
furnished to ResNet by a Stockholder or to a Stockholder by the other
Stockholder or by ResNet shall be: (a) held in trust and confidence for the
disclosing Person; (b) used only in performance of the Transaction Documents;
(c) not copied (unless required for performance of the Transaction Documents)
without permission of the disclosing Person; and (d) not disclosed to anyone
other than Persons (including shareholders, directors, officers, employees or
agents of a Stockholder or of any Person affiliated with a Stockholder) who have
agreed to hold the Proprietary Information in trust and confidence in accordance
with the terms of this Section 12 and who have need to use such Proprietary
Information for the purposes of the Transaction Documents. "Proprietary
Information" means any ideas, plans or information, including, without
limitation, information of a technological or business nature (including,
without limitation, all trade secrets, technology, intellectual property, data,
summaries, reports, or mailing lists, whether written or oral and, if written,
however produced or reproduced) which is received by the receiving Person or
otherwise disclosed to the receiving Person from or by the disclosing Person,
that is marked as confidential or proprietary or bears a marking of like import,
or that the disclosing Person states is to be considered proprietary or
confidential, or that would logically be considered proprietary or confidential
under the circumstances of its disclosure. Information will not be deemed to be
Proprietary Information and the receiving Person shall have no obligation with
respect thereto, to the extent such information (i) is approved by prior written
authorization of the disclosing Person for release by the receiving Person; (ii)
is disclosed in order to comply with a judicial order issued by a court of
competent jurisdiction or with government laws or regulations, in which event
the receiving Person shall give prior written notice to the disclosing Person of
such disclosure as soon as practicable and shall cooperate with the disclosing
Person in using all reasonable efforts to obtain an appropriate protective order
or equivalent, provided, that the information shall continue to be Proprietary
Information to the extent it is covered by such protective order or equivalent;
(iii) becomes generally available to the public through any means other than a
breach by the receiving Person of its obligations under this Agreement; (iv) was
in the possession of the receiving Person without obligation of confidentiality
prior to receipt or disclosure as Proprietary Information as evidenced by
written records made prior to such receipt or disclosure; or (v) is developed
independently by the receiving Person (verified by written records maintained in
the ordinary course of business) without use of or benefit from the Proprietary
Information. Notwithstanding the foregoing, any information furnished to a
Stockholder by the other Stockholder or by ResNet prior to the date of this
Agreement that was covered by and subject to the terms of the Confidentiality
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Agreement dated March, 1996, shall remain subject to the terms thereof. The
restrictions contained in this Section 12 shall continue in full force and
effect and shall survive any termination of this Agreement or the sale by any
Stockholder of its Stock in ResNet for a period of two years.
13. Agreement Regarding Restructuring.
---------------------------------
(a) ResNet and the Stockholders acknowledge and agree that,
notwithstanding the fact that the Initial Stock being issued to TCI-Satellite
pursuant to the Subscription Agreement simultaneously with the execution of this
Agreement and the Conversion Stock and Reconciliation Stock issuable to TCI-
Satellite pursuant to the conversion rights under the Loan Agreement or the
Conversion Warrant is delineated as "common stock" of the same class as the
Stock owned by LodgeNet, ResNet, LodgeNet, and TCI-Satellite intend that the
Stock issued or issuable to TCI-Satellite as Initial Stock, Conversion Stock,
and Reconciliation Stock shall be entitled to receive in the aggregate a
preferential return of $40 million representing the investment by TCI-Satellite
in the Initial Stock, Conversion Stock, and Reconciliation Stock, determined on
a per share basis, in the form of a dividend upon a sale of all or substantially
all of the assets of ResNet or, if not previously paid in the form of such a
dividend, as a distribution upon a liquidation of ResNet, after payment of any
debt, including intercompany debt, of ResNet but prior to any other distribution
to the Stockholders in respect of their Stock. In order to effect the intent of
the parties described in the preceding sentence, ResNet, LodgeNet, and TCI-
Satellite agree to cause ResNet to amend its certificate of incorporation, in a
form mutually agreed to by LodgeNet and TCI-Satellite, to cause the
recapitalization of ResNet into Class A common stock and Class B common stock as
soon as practicable and in no event later than 30 days after the date of this
Agreement. The Class A common stock and Class B common stock shall have
identical rights, privileges, and interests, except that the Class B common
stock shall have the right to the preferential return described in the preceding
provisions of this Section 13. Immediately upon the recapitalization of ResNet,
the Stock held by LodgeNet shall be exchanged for Class A common stock and the
Stock held by TCI-Satellite shall be exchanged for Class B common stock.
(b) Simultaneously with effecting the recapitalization of ResNet,
ResNet, LodgeNet, and TCI agree to execute and deliver amended and restated
versions of the Transaction Documents that have been amended as appropriate to
reflect the recapitalization of ResNet, including, without limitation, the
addition of the preferential return associated with the Class B common stock in
determining the consideration to be paid for the Stock of TCI-Satellite if TCI-
Satellite is the Selling Stockholder pursuant to the Right of First Negotiation
under Section 3(a) of this Agreement. ResNet, LodgeNet, and TCI-Satellite agree
to negotiate in good faith and without delay to effect the recapitalization of
ResNet and appropriate amendments to the Transaction Documents. If, however,
such actions are not taken within 30 days after the date of this Agreement, TCI-
Satellite will have a unilateral right to rescind the transactions contemplated
by the Transaction Documents by written notice to ResNet, and ResNet agrees that
it will immediately refund to TCI-Satellite the sum of $5,396,053, plus interest
at the prime rate charged by The Bank of New York from and including the date of
this Agreement to but not including the date of such payment by ResNet to TCI-
Satellite, and the shares of Initial Stock shall be simultaneously canceled.
TCI-Satellite shall have no obligation to
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honor any purchase order for Equipment under the Equipment Sale Agreement,
including the Initial Purchase Order thereunder, until the recapitalization of
ResNet and related actions described in this Section 13 are completed.
(c) In connection with the negotiation regarding the recapitalization
of ResNet and related amendments to the Transaction Documents described in the
preceding provisions of this Section 13, ResNet, LodgeNet, and TCI-Satellite
further agree to negotiate in good faith and without delay regarding whether an
alternative structure would be more tax efficient than a recapitalization of
ResNet while maintaining the economic terms contained in the Transaction
Documents as they would be amended to take into account the proposed
recapitalization of ResNet as described in the preceding provisions of this
Section 13 and to obtain the acknowledgement of LodgeNet's senior lender that
the Borrower Bank Guaranty (as defined in the Loan Agreement) will not be
amended to extend the liability of ResNet beyond the LodgeNet Debt (as defined
in the Loan Agreement) without the consent of TCI Satellite.
14. Agreement Regarding Amendment of Bylaws. If at any time the
---------------------------------------
Stockholders each own 50% of the issued and outstanding common stock of ResNet,
ResNet and the Stockholders agree that ResNet's bylaws will be amended to
provide that each of the Stockholders has the right to elect an equal number of
members of ResNet's board of directors.
15. Miscellaneous.
-------------
(a) Upon execution of this Agreement, all certificates for shares of
the Stock owned by the Stockholders shall be returned to ResNet for endorsement
with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ALSO ARE SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN A STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 21,
1996, A COPY OF WHICH IS ON FILE AND AVAILABLE FOR INSPECTION
DURING NORMAL BUSINESS HOURS AT THE PRINCIPAL OFFICE OF THE
CORPORATION, AND ANY ATTEMPTED TRANSFER IN VIOLATION OF THE TERMS
OF SUCH STOCKHOLDERS' AGREEMENT IS VOID .
After the Stock certificates are so endorsed, they shall be returned to the
Stockholders. All certificates of Stock which are issued or reissued during the
term of this Agreement shall bear the same endorsement.
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(b) Except as expressly set forth herein, the fees and expenses (including
the fees of any lawyers, accountants, investment bankers or others engaged by
any Person) in connection with this Agreement will be paid by the Person
incurring the same.
(c) All documentation, notices, reports and correspondence under this
Agreement shall be submitted and maintained in the English language. As used
herein, the singular shall include the plural and the plural may refer to only
the singular. The use of any gender shall be applicable to all genders. The
captions contained herein are for purpose of convenience only and are not part
of the Agreement. Unless otherwise specified, all references to Sections and
Exhibits in this Agreement are references to Sections of, and Exhibits to, this
Agreement.
(d) If any portion or portions of this Agreement shall be deemed, for any
reason, invalid or unenforceable, the remaining portion or portions shall
nevertheless be valid, enforceable, and in effect, unless such remaining portion
or portions are not reasonably adequate to accomplish the basic purposes and
intent of the parties. The parties will negotiate in good faith to replace any
invalid or unenforceable provision of this Agreement with an enforceable
provision that accomplishes the original intent of the parties to the extent
reasonably practicable.
(e) This Agreement cannot be amended except by a written instrument signed
by both Stockholders and ResNet.
(f) Either party's failure to enforce any provision of this Agreement shall
not in any way be construed as a waiver of any such provision as to any future
violations thereof, or prevent that party thereafter from enforcing each and
every other provision of this Agreement. No waiver of any right or remedy
hereunder shall be effective unless contained in a writing signed by the waiving
party. The rights granted to the parties herein are cumulative and the waiver by
a party of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
(g) Termination or expiration of this Agreement for any reason shall not
release either party from any liabilities or obligations set forth in this
Agreement which the parties have expressly agreed shall survive any termination
or expiration, or remain to be performed or by their nature would be intended to
be applicable following any such termination or expiration.
(h) This Agreement shall be governed and interpreted by the laws of the
State of Delaware, without regard to its conflict of law rules. The parties
agree that all litigation relating to this Agreement shall be brought in the
state and federal courts of appropriate subject matter jurisdiction in Delaware
and each party hereby submits itself to the non-exclusive in personam
jurisdiction of such courts for purposes of any such litigation. Neither party
shall object to venue in such courts on the grounds of an inconvenient forum or
otherwise. In the event of any litigation between the parties relating to this
Agreement, the prevailing party shall be entitled to recover, in addition to any
other relief awarded by the court, its reasonable attorneys fees and all other
costs of preparing for and participating in the litigation, including all
appeals.
-16-
(i) Neither party will be in default or otherwise liable for any delay in
or failure of its performance under this Agreement where such delay or failure
arises by reason of any act of God, acts of the common enemy, the elements,
earthquake, floods, fires, epidemics, quarantine restrictions, riots, strikes,
failure or delay in transportation, freight embargoes or other causes beyond its
control.
(j) This Agreement, together with any exhibits, schedules, appendices, and
other attachments, expresses the understanding of the parties hereto and
supersedes all prior agreements, whether oral or written, relating to the
subject matters specifically expressed herein; provided, however, that the
parties acknowledge that simultaneously with the execution of this Agreement
they or their Affiliates are entering into the Loan Agreement, the Subscription
Agreement, the Option Agreement, an Equipment Sale Agreement, a Signal
Availability Agreement, and a Standstill Agreement, which documents are related
to this Agreement in that they collectively document a transaction between the
parties of which this Agreement is a part (collectively, the "Transaction
Documents").
(k) This Agreement may be executed in any number of counterparts each of
which shall be an original with the same effect as if the signatures thereof and
hereto were upon the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
RESNET COMMUNICATIONS, INC. TCI SATELLITE ENTERTAINMENT,
INC.
By: By:
--------------------------- ---------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------ ------------------------
LODGENET ENTERTAINMENT
CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
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