MUZAK INC, S-1/A, 1996-07-02

MUZAK INC
S-1/A, 1996-07-02
BUSINESS SERVICES, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1996

REGISTRATION NO. 333-03741
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

AMENDMENT NO. 2
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

MUZAK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7389 91-1722302
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBERS) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

---------------

2901 THIRD AVENUE, SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

---------------

MR. JOHN R. JESTER
PRESIDENT
MUZAK, INC.
2901 THIRD AVENUE, SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

STEPHEN H. COOPER, ESQ. LOUISA BARASH, ESQ. CHRISTOPHER J. BARRY, ESQ.
NORMAN D. CHIRITE, ESQ. HELLER, EHRMAN, WHITE BOGLE & GATES P.L.L.C.
WEIL, GOTSHAL & MANGES & MCAULIFFE TWO UNION SQUARE,
LLP 701 FIFTH AVENUE, SUITE 6100 601 UNION STREET
767 FIFTH AVENUE SEATTLE, WA 98104 SEATTLE, WA 98101
NEW YORK, NY 10153 (206) 447-0900 (206) 682-5151
(212) 310-8000

---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

---------------

CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par
value.................. $84,640,000 $29,187
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.

(2) The Company previously paid $25,578 of this registration fee.

---------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

MUZAK, INC.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(b) OF REGULATION S-K

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
--------------------------------------- ----------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page;
Prospectus..................................... Available Information; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio of Outside Front Cover Page;
Earnings to Fixed Charges...................... Prospectus Summary; Risk
Factors; The Company
4. Use of Proceeds................................. Prospectus Summary; The
Recapitalization; Use of
Proceeds
5. Determination of Offering Price................. Outside Front Cover Page; Risk
Factors; Underwriting
6. Dilution........................................ Risk Factors; Dilution
7. Selling Security Holders........................ Certain Relationships and Related
Transactions; Principal and
Selling Stockholders
8. Plan of Distribution............................ Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered...... Outside Front Cover Page;
Prospectus Summary; Dividend
Policy; Description of Capital
Stock
10. Interests of Named Experts and Counsel.......... Legal Matters
11. Information with Respect to the Registrant...... Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Company; Use of
Proceeds; Dividend Policy;
Dilution; Capitalization;
Selected Financial Data; Pro
Forma Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Certain
Relationships and Related
Transactions; Principal and
Selling Stockholders; Shares
Eligible for Future Sale;
Description of Capital Stock;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>

<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED JULY 2, 1996

4,600,000 SHARES

[LOGO OF MUZAK APPEARS HERE]

COMMON STOCK

-----------

Of the 4,600,000 shares offered hereby, 4,241,577 shares will be sold by
Muzak, Inc. (the "Company") and 358,423 shares will be sold by Comcast Sound
Corporation ("Comcast Sound"). The Company will not receive any of the proceeds
from the sale of shares by Comcast Sound. See "Principal and Selling
Stockholders." The net proceeds from the sale of shares by the Company will be
used to repay indebtedness of and retire equity interests in a predecessor
partnership. See "The Recapitalization" and "Use of Proceeds."

Prior to this offering (the "Offering"), there has been no public market for
the Company's Common Stock. It is currently anticipated that the initial public
offering price will be between $14.00 and $16.00 per share. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price.

Application has been made for listing of the Common Stock on the Nasdaq Stock
Market's National Market under the symbol "MUZK."

SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==========================================================================================
Underwriting Proceeds to
Discounts and Proceeds to Selling
Price to Public Commissions(1) Company(2) Stockholders
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
- ------------------------------------------------------------------------------------------
Total............................. $ $ $ $
- ------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3)......... $ $ $ $
==========================================================================================
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.

(3) Assuming exercise in full of the 30-day option granted by MLP Holdings L.P.
("MLP") to the Underwriters to purchase up to 690,000 additional shares, on
the same terms, solely to cover over-allotments. See "Underwriting." The
Company will not receive any of the proceeds from the sale of these shares.

-----------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
, 1996.
-----------
PAINEWEBBER INCORPORATED MONTGOMERY SECURITIES
-----------

THE DATE OF THIS PROSPECTUS IS , 1996.

<PAGE>

[GRAPHICS OMITTED]

[Graphics omitted depicting geographic presence of the Company through a map of
the United States with locations of the operations owned by the Company,
franchise locations, satellite uplink facilities and Company headquarters and a
smaller map set below showing global presence.]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

[GRAPHICS OMITTED]

WIDE RANGE OF MUSIC

[GRAPHICS OMITTED]

. Over 100 different music formats for Direct Broadcast Satellite, FM radio
broadcast, and long-playing audio tapes

. Music formats to suit a wide range of tastes: from the instrumental
Environmental Music to today's popular recording artists. Examples include:
Country Currents: Clint Black, Garth Brooks, Wynonna
Eurostyle: M People, Oasis, UB40, Stone Roses, Simple Minds
FM1: John Mellencamp, R.E.M., U2, Crowded House Urban Beat: Boyz II Men, Janet
Jackson, TLC, Babyface
Comtemporary Jazz Flavors: The Rippingtons, Joe Sample, Richard Elliott,
Herbie Hancock
<PAGE>

[GRAPHICS OMITTED]

ECHOSTAR AGREEMENTS

In December 1995, the Company entered into several agreements with EchoStar
Satellite Corporation which provide, among other things, for the Company to
furnish 30 channels of digital music programming to EchoStar's residential
subscribers.

[GRAPHICS OMITTED]

INTERNET SERVICES

The Company has developed and begun testing its Internet MusicServer (SM)
service, which permits real-time delivery of digitized 30-second music samples
to music retailers' sites on the World Wide Web.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, information in this
Prospectus assumes that the Underwriters' over-allotment option will not be
exercised. In addition, unless the context otherwise requires, information in
this Prospectus has been adjusted to give effect to the reorganization of Muzak
Limited Partnership, a Delaware limited partnership (the "Partnership"), into
Muzak Services, Inc. ("Muzak Services"), a Delaware corporation and a wholly-
owned subsidiary of Muzak, Inc., which will be consummated immediately prior to
the consummation of the Offering, and all references to the "Company" include
Muzak, Inc., Muzak Services and all other consolidated subsidiaries of Muzak,
Inc., as the successor to the Partnership. See "The Recapitalization."
Investors should carefully consider the information set forth under the heading
"Risk Factors" beginning on page 9 of this Prospectus.

THE COMPANY

The Company is the leading provider of business music in the United States.
The Company and its franchisees serve approximately 178,000 customer locations
in the United States, representing a market share of approximately 50% of the
estimated number of domestic locations currently served by business music
providers and approximately twice the estimated number of locations served by
its nearest competitor. Its customers, most of which are under long-term
contracts, include Taco Bell, McDonald's and Boston Market restaurants and
Nordstrom, Crate & Barrel, Kroger, Staples, Hallmark and Wal-Mart retail
stores, as well as a large number of local and regional accounts. Through a
network of distributors, the Company also provides business music to
subscribers outside the United States. The Company estimates that its business
music is heard by more than 80 million listeners each day in the United States
and abroad.

The Company also offers its customers a range of non-music services,
including broadcast data delivery, video, audio marketing and in-store
advertising services, and sells, installs and services related equipment. The
ability to deliver a package of music and non-music services over a common
transmission system has been a critical factor in enabling the Company to
generate incremental revenues from its customers at little or no additional
cost, gain new customers and protect existing customers from competitive
business music providers that do not offer such a broad array of services.

To achieve continued growth, the Company plans to exploit its well-
established Muzak(R) brand name and customer base, its extensive sales and
service network, new delivery technologies (including high-powered direct
broadcast satellite transmission and the Internet) and an expanded array of
music and non-music services. The Company's strategy includes the following key
elements: (i) increasing domestic market penetration by expanding its local and
national account sales force, offering a wider choice of music formats and
marketing additional services; (ii) pursuing strategic relationships,
acquisitions and joint ventures, such as the Company's recent agreements with
EchoStar Satellite Corporation ("EchoStar") and its 1994 acquisition of the
assets of Comcast Sound Communications Inc. ("Comcast"), then the Company's
largest franchisee; (iii) exploiting new market opportunities, including the
residential market through its agreements with EchoStar, and the use of the
Internet; (iv) expanding in foreign markets, primarily through strategic
relationships and joint ventures, such as Muzak Europe B.V. ("Muzak Europe"), a
joint venture formed in 1995 between the Company and Alcas Holdings B.V.
("Alcas"); and (v) enhancing operating margins and reducing capital
requirements through continued centralization of operations and the utilization
of less costly transmission technologies. The Company's credit facilities will
require the lenders' consent for certain acquisitions, joint ventures and other
investments exceeding specified dollar amounts.

The Company markets business music in a variety of formats, including its
proprietary Environmental Music(R) (or "background" music) and numerous
"foreground" music formats. Internal and third-party studies

3
<PAGE>

sponsored by the Company have indicated that properly programmed music can have
a favorable impact on listeners in business and retail environments.
Environmental Music(R), which is principally comprised of instrumental versions
of popular songs that have been adapted and rerecorded by the Company, is
generally used in business offices and manufacturing facilities to improve
employee concentration and reduce stress. Foreground music, consisting
principally of original artist recordings, is most commonly used in public
areas, such as restaurants and retail establishments, primarily as a sales
enhancement tool. The Company currently programs over 100 different music
formats, ranging from top-of-the-charts hits to contemporary jazz, country
music and classical music, of which 30 are distributed by broadcast media
(principally direct broadcast satellite ("DBS") transmission) and the balance
are supplied to subscribers in the form of long-playing audio tapes.

The Company currently delivers its business music and other services to its
customers primarily through medium-powered DBS transmission, local radio
broadcast transmission and distribution of audio tapes. The Company believes
that its multiple delivery systems are a key feature of its marketing efforts
and enable it to effectively serve customers with either single or multiple
locations as well as those having varied music or service needs. The number of
domestic subscriber locations served by medium-powered DBS transmission has
grown from approximately 44,000 at the end of 1992 to approximately 113,000 at
March 31, 1996. In addition, as of March 31, 1996, 47,000 subscriber locations
were served by local broadcast technology and 18,000 were supplied with audio
tapes.

The Company's customers generally commit to a five-year subscription for
business music at rates varying between $35 and $75 per month per location,
depending on the type of service, and averaging approximately $45 per month in
revenue to the Company, net of applicable royalties and licensing fees. To
initiate its basic music service, the Company typically makes an investment per
subscriber location of approximately $950 for medium-powered DBS subscribers
and a substantially lower investment for local broadcast technology
subscribers. This investment includes sales costs and a standard package of
receiving and sound equipment. In addition, upon commencement of service, a new
business music subscriber typically reimburses the Company for the installation
costs of such equipment on its premises. For a subscription through a
franchisee, the franchisee receives the revenue, typically makes the initial
investment for new subscriber locations and owns the equipment, and pays
royalties to the Company.

In December 1995, the Company entered into several agreements with EchoStar,
a provider of high-powered DBS television service, to furnish 30 channels of
digital music programming, of which 27 channels have begun to be distributed in
stereo to EchoStar's residential subscribers, thus providing the Company with
access to the residential consumer market for the first time. The launch of
EchoStar's second high-powered satellite, currently anticipated for late 1996,
will give the Company the exclusive right to distribute approximately 30
additional channels to business music subscribers and will provide EchoStar an
additional three channels. The Company anticipates that its agreements with
EchoStar will enable it to (i) attract additional business music subscribers by
offering an expanded array of DBS-delivered music programming, (ii) deliver
music services to residential subscribers for the first time and (iii) deliver
television programming, such as CNN(R), MTV(R) and ESPN(R), to business music
subscribers for whom television is a desired additional service. In addition,
the EchoStar agreements provide the Company with high-powered DBS transmission
capability to supplement its existing medium-powered DBS system, reduced
equipment installation costs and an opportunity to shift certain equipment
costs to the subscriber.

The Company has developed and begun testing its Internet MusicServer SM
service, which permits real-time delivery of recorded music to selected sites
on the World Wide Web. The MusicServer SM service permits music retailers and
others to offer visitors to their websites access to digitized 30-second
samples from the Company's library of recorded music. This service, which
permits, among other things, a consumer to preview recordings offered for sale
by a retailer, currently is being provided to CDnow!, an on-line retailer of
compact discs and audio cassettes. The Company has also entered into agreements
to provide the MusicServer SM service to Tower Records and Microsoft.

The Company believes that, together with its franchisees, it has the largest
network of customer sales and service offices among business music providers in
the United States. The Company has 35 sales offices in the

4
<PAGE>

United States, including in seven of the top ten U.S. markets (the greater
metropolitan areas of New York, Los Angeles, Chicago, San Francisco, Boston,
Dallas and Detroit). In addition, the Company has 81 franchisees, whose sales
territories cover the remaining market in the United States, and 20
international distributors in 15 foreign countries. For the three-month period
ended March 31, 1996, approximately 71% of the Company's consolidated revenues
were attributable to Company sales offices and approximately 29% were
attributable to royalties and other payments from and sales of equipment to the
Company's franchisees.

1993 census data indicate that there are approximately 6.4 million business
locations in the United States, including approximately 1.1 million retail
outlets and 450,000 restaurant and other food service locations. Of the total
6.4 million business locations, only about 5% are currently believed by the
Company to subscribe to a business music service. The Company believes that
demand for business music services will grow, as awareness of the potential
benefits of business music increases and as new, less costly transmission
technologies enable business music providers, including the Company, to supply
businesses with a broader range of music formats and other services.

THE RECAPITALIZATION

The Offering is part of a recapitalization (the "Recapitalization") that is
designed to strengthen the Company's capital position, reduce its total
indebtedness and debt service costs and provide it with greater operating and
financial flexibility. The Recapitalization includes the conversion of the
Company's business from a limited partnership to a corporation (the
"Incorporation") through:

(i) the conversion of approximately $5.9 million of a convertible, non-
participating but accreting, preferred interest in the Partnership into
1,420,368 participating units in the Partnership;

(ii) the retirement of 3,863,186 units in the Partnership held by certain
lenders, representing approximately 19.7% of the total equity interest in
the Partnership, and the creation of payment obligations to the holders of
such interests in the aggregate of approximately $24.6 million;

(iii) the issuance of approximately 7,168,762 shares of Common Stock of
Muzak, Inc. in exchange for the remaining 15,707,093 units in the
Partnership, representing approximately 80.3% of the total equity interest
in the Partnership;

(iv) the conversion of options to purchase an aggregate of 1,834,545
units in the Partnership to options to purchase an aggregate of 837,292
shares of Common Stock of Muzak, Inc. pursuant to the Company's Replacement
Stock Option Plan (the "Replacement Option Plan") described under
"Management--Replacement Stock Option Plan;" and

(v) the retirement of a non-convertible, non-participating but accreting,
preferred interest in the Partnership held by an affiliate of The Field
Corporation ("Field"), and the creation of a payment obligation to the
holder of such interest in the amount of $8.9 million plus interest thereon
from July 1, 1996 at 7% per annum.

In addition to the Incorporation and the Offering, the principal elements of
the Recapitalization include the following:

(i) the retirement, for cash, of approximately $23.6 million of
outstanding indebtedness, including approximately $12.5 million of
subordinated indebtedness having an effective interest rate of 14.5% per
annum and approximately $11.1 million of variable rate senior secured
indebtedness having an annual interest rate at March 31, 1996 of 8.9%;

(ii) the payment of approximately $24.6 million in obligations to former
holders of the 3,863,186 units in the Partnership retired pursuant to the
Incorporation;

(iii) the payment of $8.9 million plus interest thereon from July 1, 1996
at 7% per annum to an affiliate of Field in respect of its preferred
interest in the Partnership retired pursuant to the Incorporation; and

5
<PAGE>

(iv) the refinancing of all remaining secured indebtedness, aggregating
approximately $38.3 million at March 31, 1996, with borrowings under a new
$45.0 million eight-year senior secured reducing revolving credit facility
and a $12.5 million two-year senior secured revolving credit facility.

All elements of the Recapitalization, including the Offering, are conditioned
upon each other and will be consummated concurrently.

The following table sets forth a summary of the sources and uses of funds
associated with the Recapitalization:

<TABLE>
<CAPTION>
AMOUNT
--------------
SOURCES: (IN THOUSANDS)
<S> <C>
The Offering.............................................. $ 63,624
Borrowings under new credit facility...................... 38,325
--------
Total sources........................................... $101,949
========
<CAPTION>
USES:
<S> <C>
Retirement of interests in the Partnership................ $ 24,596
Retirement of non-participating preferred interest in the
Partnership.............................................. 8,900
Retirement of outstanding subordinated indebtedness....... 12,500
Retirement of a portion of outstanding senior secured in-
debtedness............................................... 11,124
Refinancing of remaining senior secured indebtedness...... 38,325
Offering expenses (including underwriting discounts and
commissions)(1).......................................... 6,504
--------
Total uses.............................................. $101,949
========
</TABLE>
- --------

(1) Includes a one-time financial advisory fee of $250,000 to be paid to Centre
Partners L.P. ("Centre Partners"), the general partner of MLP, in
connection with the Recapitalization.

All of the foregoing references to dollar amounts and numbers of shares are
based upon the initial public offering price in the Offering (the "IPO Price"),
which is assumed to be $15.00 per share.

THE OFFERING

Common Stock to be Offered by the
Company....................................
4,241,577 shares

Common Stock to be Offered by Comcast
Sound................................. 358,423 shares

Common Stock to be Outstanding after the
Offering(1)................................ 11,410,339 shares

Use of Proceeds............................
The Company's share of the
net proceeds from the Offer-
ing, estimated at $57.1 mil-
lion (based upon an assumed
IPO Price of $15.00 per
share), will be used to im-
plement the Recapitalization.
See "The Recapitalization"
and "Use of Proceeds."

Nasdaq National Market Symbol......... MUZK

- --------

(1) Excludes 837,292 shares of Common Stock reserved for issuance upon the
exercise of outstanding employee stock options which have an average
exercise price of $2.44 per share, none of which are exercisable as of the
date of this Prospectus. Also excludes options with respect to 250,000
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan, none of which have been granted. See "Management--Replacement
Stock Option Plan" and "--1996 Stock Option Plan" and Note 11 of Notes to
the Company's Financial Statements.

6
<PAGE>

SUMMARY FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
(AS ADJUSTED) (AS ADJUSTED)
1993 1994(1) 1995 1995(2)(3) 1995 1996 1996(2)(3)
-------- -------- -------- ------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Music and other
business services..... $36,800 $50,410 $52,489 $52,489 $12,941 $13,306 $13,306
Equipment and related
services.............. 21,741 33,006 34,392 34,392 8,265 7,634 7,634
-------- -------- -------- ------- ------- ------- -------
Total revenues....... 58,541 83,416 86,881 86,881 21,206 20,940 20,940
-------- -------- -------- ------- ------- ------- -------
Cost of revenues:
Music and other
business services..... 10,611 13,685 14,465 14,465 3,518 3,708 3,708
Equipment and related
services.............. 16,756 23,413 23,895 23,895 5,720 5,254 5,254
-------- -------- -------- ------- ------- ------- -------
Total cost of
revenues............ 27,367 37,098 38,360 38,360 9,238 8,962 8,962
-------- -------- -------- ------- ------- ------- -------
Gross profit............ 31,174 46,318 48,521 48,521 11,968 11,978 11,978
Selling, general and
administrative
expenses............... 19,603 28,699 28,496 28,496 7,410 7,526 7,526
Depreciation............ 4,349 8,211 9,382 9,382 2,303 2,537 2,537
Amortization............ 6,942 9,622 8,909 8,909 2,196 2,137 2,137
-------- -------- -------- ------- ------- ------- -------
Operating income
(loss)................. 280 (214) 1,734 1,734 59 (222) (222)
Interest expense........ 3,785 6,990 7,483 3,160 1,901 1,798 790
Other (income) expense,
net.................... (30) (21) (35) (35) (32) 122 122
-------- -------- -------- ------- ------- ------- -------
Net loss................ ($3,475) ($7,183) ($5,714) ($1,391) ($1,810) ($2,142) ($1,134)
======== ======== ======== ======= ======= ======= =======
Pro forma net loss
attributable to common
stockholders (4)(5).... ($6,371) ($1,391) ($2,314) ($1,134)
======== ======= ======= =======
Pro forma net loss
attributable to common
stockholders per share
(6).................... ($0.84) ($0.12) ($0.30) ($0.10)
======== ======= ======= =======
Pro forma weighted
average shares
outstanding (6)........ 7,589 11,831 7,589 11,831
======== ======= ======= =======
OTHER INFORMATION:
EBITDA(7).............. $11,571 $17,619 $20,025 $20,025 $ 4,558 $ 4,452 $ 4,452
======== ======== ======== ======= ======= ======= =======
Estimated number of
domestic customer
locations:
Company.............. 33,000 56,000 60,000 57,000 61,000
Franchisees.......... 116,000 103,000 111,000 105,000 117,000
-------- -------- -------- ------- -------
Total............... 149,000 159,000 171,000 162,000 178,000
======== ======== ======== ======= =======
Estimated number of
domestic DBS customer
locations:
Company.............. 12,000 29,000 35,000 30,000 36,000
Franchisees.......... 49,000 55,000 72,000 59,000 77,000
-------- -------- -------- ------- -------
Total............... 61,000 84,000 107,000 89,000 113,000
======== ======== ======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) (AS ADJUSTED)(2)(3)
------- -------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................... $94,358 $94,358 $90,798
Total long-term obligations, including
current portion....................... 50,517 50,517 39,317
Redeemable preferred partnership
interests............................. 15,993 -- --
Ownership equity....................... (1,058) (18,561) 33,525
</TABLE>

footnotes on following page

7
<PAGE>

footnotes to table on preceding page
- --------
(1) Includes the acquisition of Comcast as of January 31, 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Adjusted to reflect the Incorporation. See "The Recapitalization," Note 3
of Notes to the Company's Financial Statements and Unaudited Pro Forma
Financial Statements.

(3) Gives effect to the issuance of 4,241,577 shares of Common Stock being
offered by the Company and the use of proceeds from the Offering to (i) pay
the payment obligations created in the Incorporation and (ii) repay the
subordinated debt and a portion of the senior variable rate secured
indebtedness. Effect is also given to the borrowings under the new credit
facility and refinancing of indebtedness at a lower interest rate. The
reduction in and refinancing of indebtedness has the effect of reducing pro
forma interest expense. See "The Recapitalization," "Use of Proceeds" and
Unaudited Pro Forma Financial Statements.

In the quarter in which the Company completes the Recapitalization, the
Company will record certain non-cash charges, including the write-off of
deferred financing fees of approximately $2.6 million, unamortized debt
discount of approximately $1.4 million and unamortized organizational costs
of approximately $600,000. The Company will also record non-cash charges
under the Company's Replacement Option Plan of at least $2.1 million in the
same quarter and additional charges of at least $330,000 during the
remainder of 1996, $880,000 during 1997, and $220,000 during 1998. In
addition, the Company will record a non-recurring gain of approximately
$1.5 million from the retirement at a discount of a preferred interest in
the Partnership during the quarter in which the Recapitalization is
completed. No effect has been given to the non-recurring charges, charges
under the Replacement Option Plan or the non-recurring gain in the pro
forma adjustments for the year ended December 31, 1995 and the three-month
period ended March 31, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and Unaudited Pro
Forma Financial Statements.

In addition, the Company will record a deferred tax asset of approximately
$9.0 million upon completion of the Incorporation. The Company will provide
a 100% valuation allowance for this tax benefit, as it has generated
insufficient levels of taxable income.
(4) For all periods presented, the Company was a limited partnership for
federal and state income tax purposes and, accordingly, was not subject to
corporate income taxes. Pro forma net loss attributable to common
stockholders was computed as if the Company were subject to federal and
state taxes at an assumed combined effective tax rate of 40% for all
periods presented. The Company has not recognized any benefit from the net
operating losses and has provided a 100% valuation allowance for the tax
benefit, as it has generated insufficient levels of taxable income.

(5) Includes adjustments for the year ended December 31, 1995 and the three-
month period ended March 31, 1996 for the preferred return attributable to
the preferred interest in the Partnership that will be retired upon the
completion of the Incorporation.

(6) Pro forma net loss attributable to common stockholders per share and pro
forma weighted average shares outstanding for the period presented are
calculated pursuant to the treasury stock method at an assumed IPO Price of
$15.00 per share. Stock options outstanding as of the end of the period
presented and issued prior to twelve months before the end of the period
presented have been excluded from the calculation as they are anti-
dilutive.

(7) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. The Company believes
that EBITDA is an important tool for measuring certain aspects of the
financial performance of companies, such as liquidity, operating
performance and leverage. EBITDA does not represent cash flows as defined
by generally accepted accounting principles and does not necessarily
indicate that cash flows are sufficient to fund all of the Company's cash
needs. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities or other measures of
liquidity determined in accordance with generally accepted accounting
principles.

8
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, before
deciding whether to make an investment in the Common Stock offered hereby.

NET LOSSES FROM OPERATIONS; PROSPECTIVE NON-CASH CHARGES; WORKING CAPITAL
DEFICIT. The Company had net losses from operations of approximately $3.5
million, $7.2 million and $5.7 million for the years ended December 31, 1993,
1994 and 1995, respectively, and $1.8 million and $2.1 million for the three-
month periods ended March 31, 1995 and 1996, respectively. During these
periods, the Company has been highly leveraged and these losses resulted
primarily from interest payments on acquisition financing, accelerated
amortization of income-producing contracts acquired through acquisitions and
other related acquisition and financing costs. The Company anticipates a net
loss from operations for the year ended December 31, 1996. There can be no
assurance that the Company will not continue to incur net losses from
operations. In the quarter in which the Recapitalization is completed, the
Company will recognize non-cash charges of at least $2.1 million in connection
with stock compensation arrangements and approximately $4.6 million relating
to write-offs of deferred financing fees, unamortized debt discount and
organizational costs. The Company will record additional future non-cash
charges to earnings in connection with its stock compensation arrangements
that will adversely affect results of operations. The Company will also record
a non-recurring gain of approximately $1.5 million from the retirement at a
discount of a preferred interest in the Partnership during the quarter in
which the Recapitalization is completed. As of March 31, 1996, the Company had
a working capital deficit of $11.0 million. The Company will have a working
capital surplus upon completion of the Recapitalization. However, there can be
no assurance that the Company will not experience working capital deficits in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--General."

DEPENDENCE ON SATELLITE DELIVERY CAPABILITIES. There are a limited number of
satellites with orbital positions suitable for DBS transmission of the
Company's signals and a limited number of available transponders on those
satellites. Satellite transponders receive signals, translate signal
frequencies and transmit signals to receiving satellite dish antennas. The
Company leases transponder capacity from Microspace Communications Corporation
("Microspace"), which also provides facilities for uplink transmission of the
Company's medium-powered DBS signals to the transponders. Microspace, in turn,
leases its transponder capacity on satellites operated by third parties,
including the Galaxy IV satellite operated by Hughes Communications Galaxy
Inc. ("Hughes") through which a majority of the Company's DBS signals are
transmitted. The term of the Company's principal transponder lease with
Microspace for the Galaxy IV satellite runs through the life of that satellite
(which is expected to continue through 2004). Although there has never been
sustained interruption of the Company's DBS signals due to transponder failure
or satellite unavailability, failure or loss, no assurance can be given that
any such event will not occur in the future. If such an event were to occur or
if Microspace were unable to provide transponder services to the Company, the
Company would have to seek alternative transponder or satellite facilities.
However, alternative facilities may not be available on a timely or cost-
effective basis or may be available only on a satellite that is not positioned
as favorably as the Company's current satellites and may require a change in
the frequency currently used to transmit the Company's signal. Any one or more
of these events would require the Company to incur additional expenditures and
could degrade the Company's ability to serve its customer base and have a
material adverse effect on the Company's financial condition and results of
operations. If the Company is required to enter into new transponder lease
agreements, no assurance can be given that it will be able to do so on terms
as favorable as those in its current agreements with Microspace. See
"Business--Business Music Services."

DEPENDENCE ON ECHOSTAR AND ITS SATELLITES. In December 1995, the Company
entered into several agreements with EchoStar, a high-powered DBS home
television service provider. Through these agreements, the Company is
furnishing EchoStar with 30 channels of digital music programming, of which 27
channels have begun to be distributed in stereo to EchoStar's residential
subscribers. The Company has only recently begun providing services via
EchoStar. There can be no assurance that either EchoStar's business or the
Company's relationship with EchoStar will be successful. In addition, the
Company's ability to expand its music services on the EchoStar satellite
system is subject to EchoStar's ability to launch a second high-powered direct
broadcast satellite by December 31, 1997, or, if a second satellite is not
launched by that date, EchoStar's willingness to

9
<PAGE>

allocate transponder capacity to the Company on EchoStar's first satellite.
Launch of the second EchoStar satellite is currently scheduled for late 1996,
but there can be no assurance that this launch will be timely or successful.
The Company is obligated to pay certain fees, rents and royalties to EchoStar
in connection with these agreements. Any business failure of EchoStar, breach
by EchoStar of its agreements with the Company or failure by the Company to
satisfy its obligations to EchoStar, or any loss, failure or malfunction of
the EchoStar satellite system could impair the Company's ability to serve
customers through the EchoStar system. See "Business--EchoStar Agreements."

RESTRICTIVE DEBT COVENANTS. The terms of the Company's new $12.5 million
two-year senior secured revolving credit facility and $45.0 million eight-year
senior secured reducing revolving credit facility contain covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, pay dividends, create liens on assets, enter
into capital leases, engage in mergers or consolidations, or engage in certain
transactions with affiliates and otherwise restrict corporate activities. In
addition, the credit facilities will require the lenders' consent for certain
acquisitions, joint ventures and other investments exceeding specified dollar
amounts and require the Company to comply with specified financial ratios and
tests, including minimum interest coverage and maximum leverage ratios. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

UNPROVEN CAPABILITIES OF NEW SERVICES. The Company's operating strategy
includes developing new services and technologies to complement and expand its
existing technologies and services. This strategy presents risks inherent in
assessing the value, strengths and weaknesses of development opportunities, in
evaluating the costs and uncertain returns of new services and in integrating
and managing new technologies. Within these new markets, the Company will
encounter technical, financial and operating challenges, including competition
from a variety of sources. There can be no assurance that the Company will
successfully develop new services or that any new service will achieve market
acceptance and generate additional revenues or earnings for the Company.

The Company has begun the development of certain Internet services and is
testing its Internet MusicServer SM service, which permits music retailers and
others to offer visitors to their websites access to digitized 30-second
samples from recordings in the Company's library of recorded songs. At
present, the economic viability of Internet-based technologies or the
Company's Internet service cannot be ascertained. There can be no assurance
that communication or commerce over the Internet will become widespread. The
Company's Internet strategy is substantially dependent upon the continued
growth in the use of the Internet and the World Wide Web for music sales and
promotional applications and market acceptance of the Company's Internet
services. There is no assurance that music sampling on the Internet will
increase sales of compact discs, that extensive music-related content and
sales will be provided over the Internet or that any other service that the
Company may develop will achieve market acceptance. There is also no assurance
that the Internet will be able to support the high bandwidth required for
multimedia services such as the MusicServerSM service. There are also
relatively limited barriers to entry to the Internet music-sampling business,
so that competition in the market may increase, and it is not certain that the
Company will be able to compete effectively with competitive services on the
Internet. There is also a risk that the record companies that own the
copyrights to the music used in the MusicServerSM service will restrict the
use of music samples by third parties such as the Company, or will decide to
enter the Internet-based music-sampling business directly. The Company may not
successfully develop, introduce or market other Internet services.
Accordingly, no assurance can be given that the Company will generate
significant revenues from Internet services. See "Business--Internet
Services."

COMPETITION; TECHNOLOGICAL CHANGE. The Company competes in the business
music and business services markets with many competitors. In providing its
business services, such as broadcast data delivery, video, audio marketing and
in-store advertising services, the Company competes with numerous companies
using broadcast as well as other delivery systems to provide similar business
services. There are numerous methods by which programming, such as the
Company's business music, broadcast data delivery, video, audio marketing and
in-store advertising services, can be delivered by existing and future
competitors, including medium and high-powered DBS, wireless cable and fiber
optic cable and digital compression over existing telephone lines.

10
<PAGE>

Many competitors or potential competitors with access to these delivery
technologies have substantially greater financial, technical, personnel and
other resources than the Company.

The communications, media and entertainment industries are undergoing
significant and rapid change, including strategic relationships and the
development of new services, delivery systems and interactive technologies.
Many other companies also offer DBS services and strategic relationships
between these companies and cable, telephone, media and other related
businesses may provide increased competition in the future using new systems
and technologies to deliver business music, business data and other similar
services. In addition, the recently enacted Telecommunications Act of 1996 may
increase competition in the markets in which the Company operates. No
assurance can be given that the Company will be able to compete successfully
with existing or potential new competitors using new delivery methods and
technologies, or that discoveries or improvements in the communications, media
and entertainment industries will not render obsolete some or all of the
technologies or delivery systems currently relied upon by the Company. See
"Business--Competition."

No assurance can be given that the Company will be able to compete
successfully with its existing or potential new competitors or maintain or
increase its current market share, that it will be able to use, or compete
effectively with competitors that adopt, new delivery methods and
technologies, or that discoveries or improvements in the communications, media
and entertainment industries will not render obsolete some or all of the
technologies or delivery systems currently relied upon by the Company.

DEPENDENCE ON LICENSED RIGHTS; RISK OF INCREASED FEES. The Company and other
business music providers license rights to rerecord and distribute music from
a variety of sources and pay royalties to songwriters and publishers through
contracts negotiated with performing rights societies such as the American
Society of Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc.
("BMI") and the Society of European Stage Authors and Composers ("SESAC"). The
industry-wide agreement between business music providers (including the
Company) and ASCAP runs through 1999; agreements with BMI and SESAC expired on
December 31, 1993 and December 31, 1995, respectively, and new agreements are
being negotiated. In 1995, the fees paid by the Company to ASCAP, BMI and
SESAC were approximately $2.6 million, $946,000 and $7,000, respectively. The
interim fee structure with BMI provides for continued licensing at the 1993
payment levels. The BMI license extension stipulates that any settlement of
ongoing fees may include retroactivity to January 1, 1994. If the fees paid by
the Company to these licensors increase, the Company's operating margin could
be adversely affected, although the Company does not believe that its
liquidity or financial condition would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business--Music Licenses."

RESTRICTIONS ON DIVIDENDS. The Company has never paid any cash dividends on
its equity securities and does not intend to declare any cash dividends in the
foreseeable future. The Company's credit facilities currently prohibit the
payment of cash dividends. In addition, the Company is prohibited from paying
cash dividends on its equity securities until the Company's obligation with
respect to the Earn-Out Payments (as such term is defined in "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources") have been determined, and any obligations
arising therefrom (including any notes which may be issued in respect thereof)
have been satisfied. See "Dividend Policy."

RELIANCE ON KEY PERSONNEL. The Company is dependent on the continued
services of its senior management personnel. The Company has in effect a $4
million key man term life insurance policy covering John R. Jester, the
Company's Chairman, President and Chief Executive Officer, but there can be no
assurance that the coverage provided by such policy will be sufficient to
compensate the Company for the loss of Mr. Jester's services. The Company
believes that the loss of any one member of senior management would not have a
material adverse effect upon the Company. However, the loss of the services of
more than one member of senior management could have a material adverse effect
upon the Company. See "Management."

CONTROL BY EXISTING STOCKHOLDERS. Upon completion of the Offering, MLP and
its general partner, Centre Partners, together with management, will
beneficially own approximately 57.0% of the Company's outstanding

11
<PAGE>

Common Stock (51.0% if the Underwriters' overallotment option is exercised in
full). As a result, Centre Partners, together with management, will be able to
determine the outcome of most corporate actions requiring a stockholder vote,
including the election of directors. MLP, Centre Partners and certain members
of management, among others, are parties to a stockholders' agreement, dated
as of May 10, 1996 (the "Stockholders' Agreement"), pursuant to which they
have agreed to vote all shares beneficially owned by them in favor of the
election of up to three directors designated by MLP. It is expected that those
designees will constitute half of the Board of Directors of the Company. See
"Certain Relationships and Related Transactions" and "Principal and Selling
Stockholders."

CERTAIN BENEFITS TO PRINCIPAL STOCKHOLDERS AND MANAGEMENT. The Company
intends to use a portion of the net proceeds of the Offering to repay
approximately $11.1 million of indebtedness outstanding under the Company's
senior credit facility, which is secured by, among other things, the
Partnership interests held by MLP, the Named Executive Officers referred to in
"Management--Executive Compensation" and twelve other members of the Company's
management (the "Management Investors"), and their respective affiliates. As
part of the Recapitalization, the security interests will be released and
these Partnership interests will be exchanged for Common Stock. See "Use of
Proceeds" and "Certain Relationships and Related Transactions." MLP has
granted to the Underwriters an over-allotment option to purchase 690,000
additional shares of Common Stock. See "Underwriting." In addition, upon
consummation of the Offering, the Company will pay Centre Partners a one-time
fee of $250,000 for financial advisory services in connection with the
Recapitalization. See "Management--Compensation Committee Interlocks and
Insider Participation."

RISKS OF ADVERSE EFFECTS OF GOVERNMENT REGULATION. The Company is subject to
the regulatory authority of the United States government and the governments
of other countries in which it provides services to subscribers. The business
prospects of the Company could be adversely affected by the adoption of new
laws, policies or regulations that modify the present regulatory environment.
The Company currently provides music services in a few areas in the United
States through 928 to 960 megahertz radio broadcast frequencies, which are
transmission facilities licensed by the Federal Communications Commission
("FCC"). In connection with the Recapitalization, these FCC licenses, held by
an affiliate of the Partnership, will be transferred to a subsidiary of the
Company. Such transfer will require FCC approval, which approval may not be
obtained prior to completion of the Recapitalization. If for any reason the
Company were to lose these FCC licenses, it would incur the expense of
transferring up to 2,500 customer locations currently served over these
frequencies to different transmission systems. Additionally, the satellites on
which the Company transmits its DBS services in the United States are licensed
by the FCC. If the FCC authorizations for any of these satellites are revoked
or are not extended, the Company would be required to seek alternative
satellite facilities. Laws, regulations and policy, or changes therein, in
other countries could adversely affect the Company's existing services or
restrict the growth of the Company's business in these countries.

In addition, the transfer of shares of Common Stock may, in certain
circumstances, be subject to provisions of the Communications Act of 1934, as
amended, and rules and policies requiring prior FCC approval of the transfer
of control of radio broadcast and other licensees, restricting the transfer of
control to a foreign government of such licensees and establishing other
licensee qualifications. See "Business--Business Music Services--Distribution
Systems" and "--Government Regulation."

ABSENCE OF PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to the Offering, there has been no public trading market for shares of the
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or continue after the Offering. The IPO Price will
be established by negotiation between the Company and the representatives of
the Underwriters. See "Underwriting." The market price of the Common Stock may
be highly volatile and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts or other events or factors. In
addition, the financial markets have experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many companies in the communications industry and that often
have been unrelated to the operating performance of these companies or have
resulted from the failure of the

12
<PAGE>

operating results of these companies to meet market expectations in a
particular quarter. Broad market fluctuations or any failure of the Company's
operating results in a particular quarter to meet market expectations may
adversely affect the market price of the Common Stock. In the past, following
periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse
effect on the Company's financial condition and results of operations.

DILUTION. Purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution of $14.87 per share (based upon an assumed
IPO Price of $15.00 per share) in net tangible book value per share of Common
Stock from the IPO Price. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have outstanding an aggregate of 11,410,339 shares of Common
Stock. All the 4,600,000 shares sold in the Offering (plus an additional
690,000 shares if the over-allotment option granted to the Underwriters is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). Upon the expiration of lock-up agreements between each of the executive
officers, directors and existing stockholders and the Underwriters, 180 days
after the date of this Prospectus (or earlier upon the written consent of
PaineWebber Incorporated) 6,810,339 shares of Common Stock outstanding prior
to the Offering may be sold in the public market, subject to the limitations
and restrictions contained in Rule 144 under the Securities Act. None of these
shares will be eligible for resale in the public market pursuant to Rule 144,
as currently in effect, for two years after completion of the Offering. In
addition, options to purchase up to 837,292 shares of Common Stock will be
outstanding upon completion of the Offering and any shares of Common Stock
issuable upon the exercise of options will be eligible for sale either
pursuant to Rule 701 or if and when such shares are registered on Form S-8 in
the future. Sales of substantial amounts of Common Stock, or the availability
of substantial amounts of Common Stock for future sale, could adversely affect
the prevailing market price of the Common Stock. Certain stockholders of the
Company have the right to require the Company to register their shares of
Common Stock under the Securities Act, and to include shares of Common Stock
in registrations proposed to be effected by the Company. See "Certain
Relationships and Related Transactions." Such stockholders have agreed not to
exercise their registration rights prior to 180 days from the date of this
Prospectus without the prior written consent of PaineWebber Incorporated. See
"Shares Eligible for Future Sale" and "Underwriting."

POSSIBLE ISSUANCES OF PREFERRED STOCK. Immediately after the Offering, the
Company will not have any shares of preferred stock outstanding. Shares of
preferred stock may be issued by the Company in the future without stockholder
approval and upon such terms as the Board of Directors may determine. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be
issued by the Company in the future. The issuance of such preferred stock
could have the effect of making it more difficult for a third party to
acquire, or discourage a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares of preferred stock. See "Description of Capital Stock--
Preferred Stock."

13
<PAGE>

THE COMPANY

The Company is the leading provider of business music in the United States.
The Company also offers its customers a range of non-music services, including
broadcast data delivery, video, audio marketing and in-store advertising
services, and sells, installs and services related equipment.

In September 1992, Centre Capital Investors L.P. ("CCI"), a private
investment partnership, of which Centre Partners is the general partner, and
the predecessor to MLP, together with the Management Investors, acting through
the Partnership, purchased substantially all of the assets and business of the
Company from a predecessor entity (the "Predecessor") controlled by Field in a
leveraged buy-out transaction (the "1992 Acquisition"). The total
consideration for the 1992 Acquisition was approximately $49.7 million, of
which $41.7 million was paid in cash and the balance was paid with a 7% non-
convertible, non-participating but accreting, preferred interest in the
Partnership. In connection with the Recapitalization, the preferred limited
partnership interest will be retired. See "The Recapitalization." Financing
for the 1992 Acquisition was obtained through a senior secured loan facility
with Union Bank of Switzerland, New York Branch ("UBS") and certain other
lenders, a subordinated loan agreement with Barclays Bank PLC, New York Branch
("Barclays") and a private placement of Partnership interests. The
indebtedness incurred to finance the 1992 Acquisition is included in the
indebtedness being repaid or refinanced as part of the Recapitalization.

The Company's business was founded in 1934 and, since September 1992, has
been conducted by the Partnership. The Company's principal executive offices
are located at 2901 Third Avenue, Suite 400, Seattle, Washington 98121, and
its telephone number is (206) 633-3000.

THE RECAPITALIZATION

The Offering is part of the Recapitalization that is designed to strengthen
the Company's capital position, reduce its total indebtedness and debt service
costs and provide it with greater operating and financial flexibility. The
Recapitalization will result in the conversion of the Company's business from
a limited partnership to a corporation (the "Incorporation") through:

(i) the conversion of approximately $5.9 million of a convertible, non-
participating but accreting, preferred interest in the Partnership into
1,420,368 participating units in the Partnership;

(ii) the retirement of 3,863,186 units in the Partnership held by certain
lenders, representing approximately 19.7% of the total equity interest in
the Partnership and the creation of a payment obligation to the holders of
such interests in the aggregate of approximately $24.6 million;

(iv) the conversion of options to purchase an aggregate of 1,834,545
units in the Partnership to options to purchase an aggregate of 837,292
shares of Common Stock of Muzak, Inc. pursuant to the Company's Replacement
Option Plan described under "Management--Replacement Stock Option Plan;"
and

(v) the retirement of a non-convertible, non-participating but accreting,
preferred interest in the Partnership held by an affiliate of Field, and
the creation of a payment obligation to the holder of such interest in the
amount of $8.9 million plus interest thereon from July 1, 1996 at 7% per
annum.

In addition to the Incorporation and the Offering, the principal elements of
the Recapitalization include the following:

14
<PAGE>

annum and approximately $11.1 million of variable rate senior secured
indebtedness having an annual interest rate at March 31, 1996 of 8.9%;

(ii) the payment of approximately $24.6 million in obligations to former
holders of the 3,863,186 units in the Partnership retired pursuant to the
Incorporation;

All elements of the Recapitalization, including the Offering, are
conditioned upon each other and will be consummated concurrently.

The following table sets forth a summary of the sources and uses of funds
associated with the Recapitalization:

<TABLE>
<CAPTION>
AMOUNT
------
SOURCES: (IN THOUSANDS)
<S> <C>
The Offering............................................. $ 63,624
Borrowings under new credit facility..................... 38,325
--------
Total sources.......................................... $101,949
========
USES:
Retirement of interests in the Partnership............... $ 24,596
Retirement of non-participating preferred interest in the
Partnership............................................. 8,900
Retirement of outstanding subordinated indebtedness...... 12,500
Retirement of a portion of outstanding senior secured
indebtedness............................................ 11,124
Refinancing of remaining senior secured indebtedness..... 38,325
Offering expenses (including underwriting discounts and
commissions)............................................ 6,504
--------
Total uses............................................. $101,949
========
</TABLE>

All of the foregoing references to dollar amounts and numbers of shares are
based upon an assumed IPO Price of $15.00 per share.

15
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from its sale of shares in the Offering are
estimated to be approximately $57.1 million (based upon an assumed IPO Price
of $15.00 per share). The Company will not receive any proceeds from the sale
of Common Stock by selling stockholders, including any shares of Common Stock
sold upon the exercise of the Underwriters' over-allotment option.

Of such proceeds, approximately $24.6 million will be used to fund the
retirement of limited partnership interests representing approximately 19.7%
of the total equity interest in the Partnership prior to the Recapitalization,
approximately $12.5 million will be used to repay outstanding subordinated
indebtedness bearing interest at an effective rate of 14.5% per annum and due
in installments between September 2001 and September 2002, approximately $8.9
million will be used to retire a non-convertible, non-participating but
accreting, preferred interest in the Partnership, and the balance of
approximately $11.1 million will be used to repay a portion of outstanding
senior indebtedness payable in semi-annual installments through January 2001
and bearing interest at a variable rate (8.9% per annum at March 31, 1996).
See "The Recapitalization." The interests in the Partnership held by MLP, the
Management Investors and their respective affiliates are pledged to secure the
outstanding senior indebtedness. In the Recapitalization, the balance of the
Company's senior indebtedness will be repaid from other borrowings, these
partnership interests will be exchanged for Common Stock and the pledges will
be released. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Certain
Relationships and Related Transactions."

DIVIDEND POLICY

The Company intends to retain future earnings to finance its operations and
does not anticipate paying cash dividends in the foreseeable future. Payment
of cash dividends is restricted by covenants in the Company's credit
facilities. In addition, the Company is prohibited from paying any dividends
or other distributions to the holders of its equity securities until the
Company's obligation with respect to the Earn-Out Payments have been
determined and any obligations arising therefrom (including any notes issued
to the Predecessor in respect of such payment) have been satisfied. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

16
<PAGE>

DILUTION

After giving effect to the Incorporation, the pro forma net tangible book
value (total assets less deferred costs, intangible assets and total
liabilities) of the Company as of March 31, 1996 was a deficit of $54.1
million, or $7.55 per share. As used below, "net tangible book value per
share" represents the quotient obtained by dividing the pro forma net tangible
book value of the Company at March 31, 1996 by the total number of shares of
Common Stock that would have been outstanding at March 31, 1996 had the
Incorporation occurred on such date. After giving effect to the Offering and
the application of the estimated net proceeds to the Company (after deducting
underwriting discounts and commissions and estimated Offering expenses), the
net tangible book value of the Company at March 31, 1996 would have been $1.5
million, or $0.13 per share. This represents an immediate increase in net
tangible book value per share of $7.68 to existing holders of Common Stock as
a result of the Offering and an immediate dilution of net tangible book value
per share of $14.87 to new investors in the Offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $15.00
Pro forma net tangible book value before the Offering... ($7.55)
Increase in pro forma net tangible book value attribut-
able
to new investors....................................... 7.68
------
Pro forma net tangible book value after the Offering...... 0.13
------
Dilution in pro forma net tangible book value to new in-
vestors.................................................. $14.87
======
</TABLE>

The following table sets forth, on a pro forma basis (after giving effect to
the Recapitalization) as of March 31, 1996, the total number of shares of
Common Stock purchased from the Company and Comcast Sound, the total
consideration paid and the average price per share paid by the existing
stockholders and by new investors (before deducting the estimated underwriting
discounts and commissions and Offering expenses payable by the Company). In
the case of the existing stockholders, the total consideration reflects
consideration paid for the partnership interests which were exchanged for
Common Stock in the Incorporation.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 6,810,339 59.7% $16,874,927 19.7% $ 2.48
New investors .......... 4,600,000 40.3 69,000,000 80.3 15.00
---------- ----- ----------- -----
Total................. 11,410,339 100.0% $85,874,927 100.0%
========== ===== =========== =====
</TABLE>

The foregoing tables exclude 837,292 shares of Common Stock reserved for
issuance upon the exercise of outstanding employee options which have an
average exercise price of $2.44 per share, none of which are exercisable as of
the date of this Prospectus. To the extent that such options are exercised,
there will be further dilution to new investors in the Offering. The foregoing
tables also exclude options with respect to 250,000 shares of Common Stock
reserved for issuance under the Company's 1996 Stock Option Plan, none of
which have been granted. To the extent such options are granted and exercised,
there will be further dilution to new investors in the Offering.

17
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company at March 31, 1996 and as adjusted to give pro forma effect to the
Recapitalization, including receipt and application by the Company of
estimated net proceeds of $57.1 million from the Offering (based upon an
assumed IPO Price of $15.00 per share). The information presented below should
be read in conjunction with the financial statements of the Company and the
historical and pro forma financial data included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL (AS ADJUSTED)
------- -------------
<S> <C> <C>
Short-term borrowings and current portion of long-term
debt................................................... $17,317 $ 387
------- -------
Long-term debt (excluding current portion):
Existing credit facility.............................. 32,519 --
New credit facility................................... -- 38,325
14.5% subordinated indebtedness (net of unamortized
discount of $1,474,000).............................. 11,026 --
Other long-term debt.................................. 605 605
------- -------
Total long-term debt (excluding current portion).. 44,150 38,930
------- -------
Redeemable preferred partnership interests.............. 15,993 --
------- -------
Ownership equity (deficit):
Partners' capital..................................... (1,058) --
Stockholders' equity:
Preferred Stock, $0.01 par value; 10,000,000 shares
authorized; none issued
or outstanding..................................... -- --
Common Stock and additional paid in capital, $0.01
par value;
30,000,000 shares authorized; 11,410,399 shares
outstanding,
pro forma (as adjusted)(1)......................... -- 57,191
Accumulated deficit................................... -- (23,666)
------- -------
Total ownership equity................................ (1,058) 33,525
------- -------
Total short-term borrowings and capitalization.... $76,402 $72,842
======= =======
</TABLE>
- --------

(1) Excludes 837,292 shares of Common Stock reserved for issuance upon the
exercise of outstanding employee options which have an average exercise
price of $2.44 per share, none of which are exercisable as of the date of
this Prospectus. Also excludes options with respect to 250,000 shares of
Common Stock reserved for issuance under the Company's 1996 Stock Option
Plan, none of which has been granted.

18
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth certain selected historical and pro forma
financial and operating data of the Company and the Predecessor as of the dates
and for the periods indicated. The following selected financial data are
qualified by reference to and should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this Prospectus as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The statements of operations data set
forth below for each of the three years in the period ended December 31, 1995
and the balance sheet data as of December 31, 1994, and 1995 are derived from
the financial statements of the Company audited by Deloitte & Touche LLP,
independent auditors, which are included elsewhere in this Prospectus.
The statements of operations data for the year ended December 31, 1991, the
eight-month period ended August 31, 1992 and the four-month period ended
December 31, 1992 and the balance sheet data as of December 31, 1991, August
31, 1992, and December 31, 1992 and 1993 are derived from audited financial
statements of the Predecessor and the Company, respectively, which are not
included herein.

The statements of operations data for the three-month periods ended March 31,
1995 and 1996 and the balance sheet data as of March 31, 1996 are derived from
unaudited financial statements of the Company that, in the opinion of
management, reflect all adjustments, which are of a normal recurring nature,
necessary to present fairly the information set forth therein. The results for
the three-month period ended March 31, 1996 are not necessarily indicative of
the results that may be expected for any other interim period or for the full
year.

The pro forma financial information is based on certain assumptions and
estimates that management believes are reasonable in the circumstances and does
not purport to be indicative of the results which actually would have been
attained had the above transactions occurred at the dates indicated or the
results which may be attained in the future.

19
<PAGE>

SELECTED FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------ ----------------------------------------------------------------------------------
THREE-MONTH PERIOD
EIGHT FOUR YEAR ENDED DECEMBER 31, ENDED MARCH 31,
YEAR MONTHS MONTHS ---------------------------------------- -------------------------------
ENDED ENDED ENDED PRO FORMA PRO FORMA
DEC. 31, AUG. 31, DEC. 31, (AS ADJUSTED) (AS ADJUSTED)
1991 1992 1992 1993 1994(1) 1995 1995(2)(3) 1995 1996 1996(2)(3)
-------- -------- -------- ------- ------- ------- ------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS DATA:
Revenues:
Music and other
business servic-
es................. $36,689 $23,771 $12,039 $36,800 $50,410 $52,489 $52,489 $12,941 $13,306 $13,306
Equipment and re-
lated services..... 19,318 12,102 6,602 21,741 33,006 34,392 34,392 8,265 7,634 7,634
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues.... 56,007 35,873 18,641 58,541 83,416 86,881 86,881 21,206 20,940 20,940
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Music and other
business servic-
es................. 9,652 6,420 3,249 10,611 13,685 14,465 14,465 3,518 3,708 3,708
Equipment and re-
lated services..... 14,753 9,513 5,235 16,756 23,413 23,895 23,895 5,720 5,254 5,254
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of rev-
enues............ 24,405 15,933 8,484 27,367 37,098 38,360 38,360 9,238 8,962 8,962
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 31,602 19,940 10,157 31,174 46,318 48,521 48,521 11,968 11,978 11,978
Selling, general and
administrative
expenses............ 19,009 14,230 5,846 19,603 28,699 28,496 28,496 7,410 7,526 7,526
Depreciation......... 8,187 3,990 1,349 4,349 8,211 9,382 9,382 2,303 2,537 2,537
Amortization ........ 6,936 5,005 2,259 6,942 9,622 8,909 8,909 2,196 2,137 2,137
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss).............. (2,530) (3,285) 703 280 (214) 1,734 1,734 59 (222) (222)
Interest expense..... 7,514 3,639 1,228 3,785 6,990 7,483 3,160 1,901 1,798 790
Other (income) ex-
pense, net.......... (539) (949) (57) (30) (21) (35) (35) (32) 122 122
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss before pro
forma income tax
benefit............. ($9,505) ($5,975) (468) (3,475) (7,183) (5,714) (1,391) (1,810) (2,142) (1,134)
======= =======
Pro forma income tax
benefit (4)......... 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Pro forma net loss... ($468) ($3,475) ($7,183) (5,714) ($1,391) ($1,810) (2,142) ($1,134)
======= ======= ======= ======= ======= =======
Redeemable preferred
return (5).......... (657) (172)
------- -------
Pro forma net loss
attributable to com-
mon
stockholders (6).... ($6,371) ($1,391) ($2,314) ($1,134)
======= ======= ======= =======
Pro forma net loss
attributable to com-
mon
stockholders per
share (6)........... ($0.84) ($0.12) ($0.30) ($0.10)
======= ======= ======= =======
Pro forma weighted
average shares
outstanding (6)..... 7,589 11,831 7,589 11,83

OTHER INFORMATION: ======= ======= ======= =======
EBITDA (7).......... $12,593 $5,710 $4,311 $11,571 $17,619 $20,025 $20,025 $ 4,558 $ 4,452 $ 4,452
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Estimated number of
domestic customer
locations:
Company........... 32,000 32,000 32,000 33,000 56,000 60,000 57,000 61,000
Franchisees....... 102,000 104,000 112,000 116,000 103,000 111,000 105,000 117,000
------- ------- ------- ------- ------- ------- ------- -------
Total........... 134,000 136,000 144,000 149,000 159,000 171,000 162,000 178,000
======= ======= ======= ======= ======= ======= ======= =======
Estimated number of
domestic DBS
customer loca-
tions:
Company........... 5,000 7,000 8,000 12,000 29,000 35,000 30,000 36,000
Franchisees....... 21,000 31,000 36,000 49,000 55,000 72,000 59,000 77,000
------- ------- ------- ------- ------- ------- ------- -------
Total........... 26,000 38,000 44,000 61,000 84,000 107,000 89,000 113,000
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------------- ---------------------------------------------------------------------------
AT DECEMBER 31, AS OF MARCH 31, 1996
AT AT AT ------------------------ -----------------------------------------
DEC. 31, AUG. 31, DEC. 31, PRO FORMA
1991 1992 1992 1993 1994 1995 ACTUAL PRO FORMA(2) (AS ADJUSTED)(2)(3)
-------- -------- -------- ------- -------- ------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $62,939 $58,837 $66,598 $66,294 $103,092 $96,439 $94,358 $94,358 $90,798
Total long-term
obligations, including
current portion........ 39,111 37,889 36,218 35,022 56,833 53,005 50,517 50,517 39,317
Redeemable preferred in-
terests................ -- -- 8,188 8,760 14,693 15,722 15,993 -- --
Ownership equity........ 11,259 7,284 12,199 8,047 7,943 1,373 (1,058) (18,561) 33,525
</TABLE>
footnotes on following page

20
<PAGE>

footnotes to table on preceding page
- -------
(1) Includes the acquisition of Comcast as of January 31, 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(2) Adjusted to reflect the Incorporation. See "The Recapitalization," Note 3
of Notes to the Company's Financial Statements and Unaudited Pro Forma
Financial Statements.

In the quarter in which the Company completes the Recapitalization, the
Company will record certain non-cash charges, including the write-off of
deferred financing fees of approximately $2.6 million, unamortized debt
discount of approximately $1.4 million and unamortized organizational costs
of approximately $600,000. The Company will also record non-cash charges
under the Company's Replacement Option Plan of at least $2.1 million in the
same quarter and additional charges of at least $330,000 during the
remainder of 1996, $880,000 during 1997, and $220,000 during 1998. In
addition, the Company will record a non-recurring gain of approximately $1.5
million from the retirement at a discount of a preferred interest in the
Partnership during the quarter in which the Recapitalization is completed.
No effect has been given to the non-recurring charges, charges under the
Replacement Option Plan or the non-recurring gain in the pro forma
adjustments for the year ended December 31, 1995 and the three-month period
ended March 31, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General" and Unaudited Pro Forma
Financial Statements.

(4) For all periods presented, the Company was a limited partnership for
federal and state income tax purposes and, accordingly, was not subject to
corporate income taxes. Pro forma net loss was computed as if the Company
were subject to federal and state taxes at an assumed combined effective
tax rate of 40% for all periods presented. The Company has not recognized
any benefit from the net operating losses and has provided a 100% valuation
allowance for the tax benefit, as it has generated insufficient levels of
taxable income.

(7) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. The Company believes
that EBITDA is an important tool for measuring certain aspects of the
financial performance of companies, such as liquidity, operating
performance and leverage. EBITDA does not represent cash flows as defined
by generally accepted accounting principles and does not necessarily
indicate that cash flows are sufficient to fund all the Company's cash
needs. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities or other measures of
liquidity determined in accordance with generally accepted accounting
principles.

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

For all periods presented, the Company operated as a limited partnership. As
such, the income tax effects of all earnings or losses of the Company were
passed directly to the partners and no provision for income taxes was
required. See "The Recapitalization."

In January 1994, the Partnership acquired the assets of its largest
franchisee, Comcast, for approximately $33 million (the "Comcast
Acquisition"). Operating results in 1994 include 11 months of Comcast
operations, while operating results in 1995 include a full year of Comcast
operations. The former Comcast operations represented approximately 28% of the
Company's revenues in 1995. Following the Comcast Acquisition, the Company
eliminated redundant administrative and field operations, resulting in
annualized net savings estimated by the Company to be approximately $1.8
million, the majority of which was realized immediately.

The Company derives revenues from its business services and from the sale,
installation and servicing of customer premises equipment. The Company's
principal business services include broadcast music services, on-premise
tapes, on-premise music video, audio marketing and in-store advertising.
Business services represented approximately 60% of total revenues in 1995.
Equipment and related revenues accounted for the remaining 40% of 1995
revenues. A large majority of the Company's broadcast and on-premise tape
revenues are generated from subscribers who typically execute five-year
contracts at rates ranging from $35 to $75 per month. These subscription rates
typically include the provision of the Company's equipment for use at the
subscriber's location. Royalties received from franchisees and international
distributors are included in broadcast music revenues and represented
approximately 7.9% of total revenues in 1995. The Company's franchisees pay
royalties to the Company based generally on 10% to 11.5% of adjusted music
revenues, which are broadcast music revenues less licensing payments and bad
debt write-offs. In-store advertising revenues are generated from the sale of
advertising for delivery to certain subscribers. On-premise music video
revenues are derived from the sale of specialized on-premise music videos
targeted for certain segments of the market place. Audio marketing revenues
are generated primarily from the sale of customized audio messages for use
with "on-hold" telephone systems. The Company also provides other broadcast
business services, including AdParting(R), data delivery services, custom
business television and other music-related services.

Equipment revenues are derived from the sale or lease of audio system-
related products, principally sound systems and intercoms, to business music
subscribers and other customers. The Company also sells electronic equipment,
principally DBS receivers and dishes as well as proprietary tape playback
equipment, audio and video equipment to its franchisees to support their
business music services. Installation, service and repair revenues consist
principally of revenues from the installation of sound systems and other
equipment that is not expressly part of a business music contract, such as
paging, security and drive-through systems. These revenues also include
revenue from the installation, service and repair of equipment installed under
a business music contract. Music contract installation revenues are deferred
and recognized over the term of the respective contracts.

Cost of revenues for business services consists primarily of broadcast,
delivery, manufacturing, licensing and research costs associated with
providing music and other business services to a subscriber or a franchisee.
Cost of revenues for equipment represents the purchase cost plus handling,
shipping and warranty expenses. Cost of revenues for installation, service and
repair consists primarily of service and repair labor and labor for
installation that is not associated with new business music subscribers.
Installation costs associated with new business music subscribers are
capitalized and charged to depreciation expense over ten years.

Selling, general and administrative expenses include salaries, benefits,
commissions, travel, marketing materials, training and occupancy costs
associated with staffing and operating local and national sales offices. Such
expenses also include personnel and other costs in connection with the
Company's headquarters functions.

22
<PAGE>

A significant portion of commissions and certain other selling costs are
capitalized on a successful-efforts basis and charged as amortization expense
over the average contract term of five years and, accordingly, are not
reflected in selling, general and administrative expenses. The Company
capitalized $1.3 million, $2.8 million and $3.2 million of such costs in 1993,
1994 and 1995, respectively.

The Company amortizes leasehold improvements over the shorter of the lease
term or five years and deferred costs and intangible assets over lives ranging
from two and one-half to ten years. These deferred costs and intangible assets
consist of the costs associated with subscriber contracts acquired from third
parties (typically amortized on an accelerated basis over eight years),
commissions and certain other sales related expenses (five years), the
acquisition and production costs of a music library (typically five years),
organizational expenses related to acquiring certain franchise operations
(five years) and capitalized financing costs (over life of the loans).

As part of the Recapitalization, the Company will adopt a performance-based
Replacement Option Plan that replaces an option plan implemented in connection
with the 1992 Acquisition. The options granted under the Replacement Option
Plan represent the same proportionate equity interest and carry equivalent
exercise prices as the options granted under the original plan, as adjusted
for the Incorporation and prior to the Offering. The Replacement Option Plan
will result in non-cash compensation expense being recorded and a significant
reduction in reported EBITDA and operating results in the future. The Company
has not been required to record non-cash compensation expense for the previous
management stock option plan because those options were not deemed
exercisable. Non-cash compensation expense will be determined with respect to
options under the Replacement Option Plan based on the difference between the
exercise price and the fair market value of the Common Stock and recognition
of the expense will begin when it is deemed that the options are, in the
judgment of management, likely to become exercisable. Such expense will be
recognized from that date to the date the options actually become exercisable
and will appear in the Company's Statement of Operations as part of operating
income (loss) on a separate line item entitled "Non-cash incentive
compensation expense."

The Replacement Option Plan provides for the granting of options to purchase
an aggregate of 837,292 shares of common stock at an average exercise price of
$2.44 per share, divided into three equal groups for vesting and exercise
purposes. One-half of the first group of options vests immediately upon the
effectiveness of the Registration Statement of which this Prospectus is a part
(the "Effective Date") and the remainder of the first group vests in equal
installments on the first and second anniversaries of the Effective Date. Once
vested, the first group of options becomes exercisable upon the earlier of (i)
such date that the average reported daily sales price (the "Sales Price") of
the Common Stock for any 80 trading days during any one-year period subsequent
to the respective vesting dates (the "Performance Period") is $13.375 per
share or greater or (ii) if earlier, the period 30 days prior to the seventh
anniversary of the Effective Date. The second and third groups of options vest
in equal 20% increments on the first through the fifth anniversaries of the
Effective Date. When vested, the second group of options becomes exercisable
only when the Sales Price is $20.00 per share or greater for the Performance
Period, and when vested, the third group of options becomes exercisable when
the Sales Price is $26.75 per share or greater for the Performance Period.
Upon the occurrence of certain change of control events, each option granted
is subject to accelerated vesting and may become exercisable at lower Sales
Price hurdles.

In connection with the first group of options, the Company will record non-
cash incentive compensation expense of at least $2.1 million in the quarter in
which the Recapitalization is completed and at least $330,000 during the
remainder of 1996, $880,000 during 1997 and $220,000 in 1998 (based upon an
assumed IPO Price of $15.00 per share and an average exercise price of $2.44
per share). The Company will record additional non-cash incentive compensation
expense related to the second and third groups of options if the market price
of the Common Stock appreciates substantially enough and for a sufficient
period of time that management deems the exercisability of such options to be
likely.

In the quarter that the Company completes the Recapitalization, the Company
will record certain other non-cash charges, including the write-off of
deferred financing fees of approximately $2.6 million, unamortized debt
discount of approximately $1.4 million and unamortized organizational costs of
approximately $600,000. The Company will also record a non-recurring gain of
approximately $1.5 million from the retirement at a discount of a preferred
interest in the Partnership during the quarter in which the Recapitalization
is completed.

23
<PAGE>

The Company anticipates that revenues for the three-month period ended June
30, 1996 will be comparable to the revenues for the three-month period ended
June 30, 1995 of approximately $21.3 million.

RESULTS OF OPERATIONS

The following table sets forth certain financial information for the periods
presented and should be read in conjunction with the Company's Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31, PERCENTAGE CHANGE
------------------------- ---------------- --------------------------------
FIRST QUARTER
1996 VS.
1994 VS. 1995 VS. FIRST QUARTER
1993 1994 1995 1995 1996 1993 1994 1995
------- ------- ------- ------- ------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Business services:
Broadcast music........ $28,023 $39,519 $40,664 $10,119 $10,258 41.0 % 2.9 % 1.4 %
On-premise tapes....... 5,067 5,434 4,895 1,247 1,128 7.2 % (9.9)% (9.5)%
Other broadcast........ 950 1,227 1,403 333 357 29.2 % 14.3 % 7.2 %
On-premise music vid-
eo.................... 1,010 1,257 1,741 294 513 24.5 % 38.5 % 74.5 %
Audio marketing........ 769 1,615 2,027 451 567 110.0 % 25.5 % 25.7 %
In-store advertising... 306 814 913 337 175 166.0 % 12.2 % (48.1)%
Other.................. 675 544 846 160 308 (19.4)% 55.5 % 92.5 %
------- ------- ------- ------- -------
Total music and other
business services... 36,800 50,410 52,489 12,941 13,306 37.0 % 4.1 % 2.8 %
------- ------- ------- ------- -------
Equipment.............. 15,885 23,060 23,901 5,771 5,283 45.2 % 3.6 % (8.5)%
Installation, service
and
repair................ 5,856 9,946 10,491 2,494 2,351 69.8 % 5.5 % (5.7)%
------- ------- ------- ------- -------
Total equipment and
related services.... 21,741 33,006 34,392 8,265 7,634 51.8 % 4.2 % (7.6)%
------- ------- ------- ------- -------
Total revenues....... 58,541 83,416 86,881 21,206 20,940 42.5 % 4.2 % (1.3)%
Gross profit:
Business services...... 26,188 36,725 38,024 9,423 9,597 40.2 % 3.5 % 1.8 %
Equipment.............. 5,139 9,596 10,450 2,564 2,492 86.7 % 8.9 % (2.8)%
Installation, service
and
repair................ (153) (3) 47 (19) (111) * * *
------- ------- ------- ------- -------
Total gross profit... 31,174 46,318 48,521 11,968 11,978 48.6 % 4.8 % 0.1 %
Gross profit margin(1).. 53.3% 55.5% 55.8% 56.4% 57.2%
Selling, general and
administrative ex-
penses................. $19,603 $28,699 $28,496 $7,410 $7,526 46.4 % (0.7)% 1.6 %
S,G&A margin(2)......... 33.5% 34.4% 32.8% 34.9% 35.9%
EBITDA(3)............... $11,571 $17,619 $20,025 $4,558 $4,452 52.3 % 13.7 % (2.3)%
EBITDA margin(4)........ 19.8% 21.1% 23.0% 21.5% 21.3%
Net loss................ ($3,475) ($7,183) ($5,714) ($1,810) ($2,142) * * *
</TABLE>
- --------
* Not meaningful.
(1) Gross profit margin represents gross profit as a percentage of total
revenues.
(2) S,G&A margin represents selling, general and administrative expenses as a
percentage of total revenues.

(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. The Company believes
that EBITDA is an important tool for measuring certain aspects of the
financial performance of companies, such as liquidity, operating
performance and leverage. EBITDA does not represent cash flows as defined
by generally accepted accounting principles and does not necessarily
indicate that cash flows are sufficient to fund all the Company's cash
needs. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities or other measures of
liquidity determined in accordance with generally accepted accounting
principles.
(4) EBITDA margin represents EBITDA as a percentage of total revenues.

24
<PAGE>

THREE-MONTH PERIOD ENDED MARCH 31, 1996 COMPARED TO THREE-MONTH PERIOD ENDED
MARCH 31, 1995

Revenues. Total revenues decreased 1.3% from $21.2 million in the first
quarter of 1995 to $20.9 million in the first quarter of 1996 as a result of a
7.6% decrease in equipment and related services revenues that was partially
offset by a 2.8% increase in business services revenues. Equipment sales
decreased 8.5% as the Company maintained its focus on higher margin sales and
reduced its participation in lower margin competitively bid equipment sales
proposals. Starting in late 1995, the Company also began to deemphasize the
sale of equipment which is not integral to the Company's business services.
Installation, service and repair revenues decreased from the strong levels
generated in the 1995 period due to fewer installations of large equipment
jobs in the 1996 period. Broadcast music revenues grew 1.4% in the 1996 period
due to increased demand and the conversion of on-premise tape subscribers to
broadcast music services, which was offset in part by the cancellation of two
national broadcast accounts during the 1996 period. On-premise tape revenues
continued to decline principally due to the Company's conversion of many of
these customers to broadcast services. On-premise music video, audio marketing
and other broadcast services revenues continued to benefit from growing demand
for these services. In-store advertising revenues declined 48.1% principally
due to sales to a single customer in the first quarter of 1995 that did not
continue into the last three quarters of 1995 or the first quarter of 1996.
Other business services revenues increased as a result of an increase in
reimbursable satellite fee revenue and the one-time sale of proprietary
software and other rights to Muzak Europe.

Gross Profit. Total gross profit was essentially unchanged, while the gross
profit margin increased from 56.4% in the first quarter of 1995 to 57.2% in
the first quarter of 1996. This improvement was principally due to an
improvement in equipment sales gross profit margin from 44.4% in the 1995
period to 47.2% in the 1996 period reflecting sales of higher margin
equipment. This improvement was partially offset by a 0.7% decline in the
business services gross profit margin primarily due to lower in-store
advertising and on-premise tape revenues and a decrease in on-premise music
video gross profit margin, combined with higher compensation, satellite and
licensing costs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 1.6% from $7.4 million in the first quarter
of 1995 to $7.5 million in the first quarter of 1996 and increased as a
percentage of total revenues from 34.9% to 35.9%. Selling and marketing
expenses decreased 4.0% from $2.7 million in the 1995 period to $2.6 million
in the 1996 period. This decrease is attributable to a decrease in non-
capitalized selling costs and reduced consulting expenses incurred in the 1995
period primarily related to the development of specialized broadcast video
which was partially offset by higher expenses in connection with the addition
of 16 salespersons during the 1996 period. General and administrative expenses
increased 4.8% from $4.7 million in the 1995 period to $4.9 million in the
1996 period as a result of an increase in relocation expenses, consulting and
legal expenses related to the EchoStar agreements and the Internet
MusicServer SM project, communication costs related to the Internet
MusicServer SM project and national account rollouts, the continued
centralization of data and collection systems, higher personal property taxes
and increased bad debt expenses.

Depreciation Expense. Depreciation expense increased 10.2% from $2.3 million
in the first quarter of 1995 to $2.5 million in the first quarter of 1996 due
to an increase in fixed assets of $7.9 million primarily related to an
increased investment in equipment for business service customers, computer and
other equipment for video production and systems upgrade and development and
new service and delivery vehicles.

Amortization Expense. Amortization expense decreased 2.7% from $2.2 million
in the first quarter of 1995 to $2.1 million in the first quarter of 1996 as a
result of the final amortization in the 1995 period of the music purchased as
part of the 1992 Acquisition.

Interest Expense. Interest expense decreased 5.4% from $1.9 million in the
first quarter of 1995 to $1.8 million in the first quarter of 1996 principally
due to a $2.5 million paydown of the Company's term loan in July 1995 and a
$2.5 million paydown of the term loan in January 1996, and a reduction in the
effective weighted average interest rate under the term loan and revolving
credit facility from 11.2% for the 1995 period to 10.6% for the 1996 period.

25
<PAGE>

Other (Income) Expense. Other (income) expense reflected expense of $122,000
in the first quarter of 1996 versus income of $32,000 in the comparable period
in 1995, primarily due to a loss on the sale of a product line acquired in the
Comcast Acquisition that was inconsistent with the Company's strategic plans
and equity in losses of Muzak Europe not included in the 1995 period.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenues. Total revenues increased 4.2% from $83.4 million in 1994 to $86.9
million in 1995 principally as a result of a 4.1% increase in business
services revenues and a 4.2% increase in equipment and related revenues.
Business services revenues increased due to an increase in the number of
broadcast music subscribers, offset partially by a reduction in the royalty
surcharges paid by franchisees for DBS services. Other business services
revenues, with the exception of on-premise tape sales, increased at more rapid
rates than broadcast music revenues due to the increased marketing of, and
increasing customer demand for, video, audio messaging, and AdParting(R)
services, among others. On-premise tape revenues declined due to the Company's
conversion of such customers to broadcast services, primarily DBS
transmission. Royalties and other fees from franchisees and international
distributors (included in broadcast music revenues) accounted for $6.9 million
or 7.9% of the Company's revenues in 1995, compared with $6.8 million or 8.2%
of the Company's revenues in 1994 due to growth in the number of customer
locations being served, partially offset by a planned reduction in DBS
surcharges. Equipment revenues increased 3.6% as a result of an increase in
leased equipment subscribers. Installation, service and repair revenues
increased 5.5% primarily related to large job revenue increases. In-store
advertising revenues increased 12.2%, principally due to sales to a single
customer in the first quarter of 1995, which did not continue into the last
three quarters of the year.

Gross Profit. Total gross profit increased 4.8% from $46.3 million in 1994
to $48.5 million in 1995. As a percentage of total revenues, gross profit
increased slightly from 55.5% in 1994 to 55.8% in 1995. The improvement in the
gross profit percentage in 1995 was due to growth in higher margin business
services, such as broadcast music, audio marketing and on-premise music video
services, and improved equipment margins.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 0.7% from $28.7 million in 1994 to $28.5
million in 1995. As a percentage of total revenues, selling, general and
administrative expenses declined from 34.4% in 1994 to 32.8% in 1995. Selling
and marketing expenses declined 5.1% from $11.3 million in 1994 to $10.7
million in 1995. This decline was primarily attributable to a reduction in
local sales offices' administrative and operating support personnel, reduced
costs of new product and service research, a decrease in promotional expenses
and lower sales award costs, offset somewhat by higher non-capitalized selling
costs. General and administrative costs increased 2.1% from $17.4 million in
1994 to $17.8 million in 1995, primarily due to relocation and expansion of
the headquarters office, additional personnel to support centralization of
local and national sales office services, higher bad debt expense and
consulting expenses for the Internet MusicServer SM and EchoStar projects.
These increased expenses were partially offset by a decrease in bonuses
accrued and expenses incurred in 1994 in connection with an unconsummated
financing.

Depreciation Expense. Depreciation expense increased 14.3% from $8.2 million
in 1994 to $9.4 million in 1995, principally as a result of an increased
investment in equipment installed at customers' premises due to an expanded
customer base, and twelve months of depreciation of the assets acquired in the
Comcast Acquisition in 1995 compared to eleven months in 1994.

Amortization Expense. Amortization expense decreased 7.4% from $9.6 million
in 1994 to $8.9 million in 1995. The decline in amortization expense was due
to the final amortization in early 1995 of music acquired in the 1992
Acquisition.

Interest Expense. Total interest expense increased 7.1% from $7.0 million in
1994 to $7.5 million in 1995. The increase in interest expense in 1995 as
compared to 1994 was the result of increased borrowing as well as an increase
in the effective weighted average interest rate under the term loan and
revolving credit facility from 10.0% in 1994 to 11.2% in 1995.

26
<PAGE>

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Revenues. Total revenues increased 42.5% from $58.5 million in 1993 to $83.4
million in 1994 primarily as a result of the Comcast Acquisition. Business
services revenues increased 37.0% from $36.8 million to $50.4 million from
1993 to 1994. Equipment revenues increased 45.2% as a result of the Comcast
Acquisition, resulting in higher sales of DBS equipment, sound system
equipment and leased drive-through equipment. Installation, service and repair
revenues increased 69.8% from 1993 to 1994 also as a result of the Comcast
Acquisition. Video revenues increased 24.5% in 1994 as compared to 1993 due to
the acquisition of an on-premises music video operation as of February 28,
1994 that significantly expanded the Company's base of video customers and its
capability to service a larger customer base. In-store advertising revenues
increased 166.0% due to increased efforts in marketing this service.

Gross Profit. Total gross profit increased 48.6% from $31.2 million in 1993
to $46.3 million in 1994 primarily as a result of the Comcast Acquisition. As
a percentage of total revenues, gross profit increased from 53.3% in 1993 to
55.5% in 1994. The improvement in the gross profit percentage in 1994 was
principally due to improved profit margins on equipment revenues and business
services revenues. The significant improvement in equipment profit margin from
32.4% in 1993 to 41.6% in 1994 was due to a greater proportion of higher
margin equipment lease revenues and more selective bidding of competitive
equipment contracts.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46.4% from $19.6 million in 1993 to $28.7
million in 1994. As a percentage of total revenues, selling, general and
administrative expenses increased from 33.5% in 1993 to 34.4% in 1994. Selling
and marketing expenses increased 44.7% from $7.8 million in 1993 to $11.3
million in 1994. This increase was attributable to the Comcast Acquisition,
and the acquisition of the video operation as well as an increase in research
and development. General and administrative expenses increased 47.6% from
$11.8 million in 1993 to $17.4 million in 1994, primarily due to the new
locations and facilities acquired from Comcast and expenses incurred in
connection with an unconsummated financing.

Depreciation Expense. Depreciation expense increased 88.8% from $4.3 million
in 1993 to $8.2 million in 1994. The significant increase in 1994 as compared
to 1993 is attributable to the acquisition of approximately $16.0 million in
tangible assets in the Comcast Acquisition.

Amortization Expense. Amortization expense increased 38.6% from $6.9 million
in 1993 to $9.6 million in 1994. The significant increase in 1994 as compared
to 1993 is attributable to the acquisition of approximately $14.0 million of
intangible assets related to the Comcast Acquisition.

Interest Expense. Total interest expense increased 84.7% from $3.8 million
in 1993 to $7.0 million in 1994 as a result of additional borrowings and an
effective weighted average interest rate under the term loan and revolving
credit facility of 10.0% in 1994 as compared to 9.1% in 1993. The additional
borrowings in 1994 were a result of the Comcast Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity needs have been primarily for capital expenditures,
business acquisitions, debt service and working capital. As of March 31, 1996,
the Company had a working capital deficit of $11.0 million compared with a
working capital deficit of $5.3 million as of March 31, 1995. The increase in
the deficit for this period was due principally to an increase in short-term
debt, utilized primarily to fund capital expenditures and repay term debt.

The Company's investing activities, excluding the Comcast Acquisition, have
historically included the purchase of on-premise customer equipment (such as
satellite dishes and receivers) and certain capitalized deferred costs related
to business acquisitions, obtaining customer contracts and creating master
recordings. Capital expenditures were $4.5 million in 1993, $9.5 million in
1994, $8.1 million in 1995, $1.8 million in the first quarter of 1995 and $2.6
million in the first quarter of 1996. Additions to deferred costs were $3.7
million

27
<PAGE>

in 1993, $4.3 million in 1994, $4.6 million in 1995, $1.2 million in the first
quarter of 1995 and $1.2 million in the first quarter of 1996. The Company
believes that its future investing activities will include strategic
acquisitions in addition to these capital expenditures and deferred customer
and music acquisition costs.

The Company's primary sources of liquidity have been cash flows from
operations and bank borrowings. Net cash provided by operating activities for
the first quarter of 1996 was $5.3 million as compared to $4.1 million for the
comparable 1995 period. This increase was due to an increase in cash from
operating assets and liabilities, primarily payables and accruals. Net cash
provided by operating activities for the year ended December 31, 1995 was
$14.2 million as compared to $15.7 million in 1994. Cash provided by the
Company's operations, adjusted for the effect of non-cash items, totaled $14.7
million in 1995, an increase of $2.3 million over the $12.4 million provided
in 1994, due primarily to a reduction in the Company's net loss through
improved operating performance. Net changes in the operating assets and
liabilities utilized cash of $500,000 in 1995 as compared to providing cash of
$3.3 million in 1994. The change in operating assets and liabilities was
primarily attributable to a reduction in accounts payable and accrued
expenses.

The Company has a term loan ($38.5 million outstanding as of March 31, 1996)
and a $13.0 million revolving credit facility ($11.0 million outstanding as of
March 31, 1996) provided by UBS and other lenders. Substantially all of the
Company's assets and the interests in the Partnership held by MLP, certain of
its affiliates and the Management Investors are pledged as collateral under
the UBS term loan and credit facility. The revolving credit facility is
available for, among other things, ongoing working capital needs and letters
of credit. This credit facility terminates on January 15, 2001. Interest
accrues on the outstanding principal amounts of the term loan and the
revolving credit facility at an interest rate based on UBS's announced base
rate plus 1.75% or LIBOR plus 3.00%. The Company intends to repay the
outstanding amounts under the UBS term loan and revolving credit facility with
the proceeds of the Recapitalization. See "The Recapitalization" and "Use of
Proceeds." As of March 31, 1996, aggregate maturities of the Company's term
loan were $3.0 million in 1996, $7.0 million in 1997, $8.0 million in 1998,
$8.0 million in 1999, $8.3 million in 2000 and $4.2 million in 2001.

The Company has negotiated a new $12.5 million two-year revolving credit
facility and a $45 million eight-year senior secured reducing revolving credit
facility (together, the "New Facility") with Bank of America NW, N.A., d/b/a
Seafirst Bank ("Seafirst"), in connection with the Recapitalization. Proceeds
will be used to repay the UBS senior credit facility. Substantially all of the
Company's assets are pledged as collateral under the New Facility. The
revolving line of credit under the New Facility expires in July 1998. Final
payment on the reducing term loan of the New Facility is due in July 2004.
Interest accrues on the outstanding principal under the revolving credit
facility and the reducing revolving credit facility at an interest rate based
upon Seafirst's prime rate or LIBOR, in each case plus a specified margin
ranging from 0.00% to 0.50% for the prime rate option and 1.00% to 2.00% for
the LIBOR option, depending upon the Company's performance as measured against
a certain specified leverage ratio. Based upon the current leverage ratio,
interest will accrue on the outstanding principal under the revolving credit
facility at an interest rate based upon Seafirst's prime rate or LIBOR plus
1.00% and will accrue on the reducing revolving credit facility at an interest
rate based upon Seafirst's prime rate or LIBOR plus 1.25%. The maximum
principal amount outstanding under the reducing revolving credit facility at
each anniversary of the closing of the facility is as follows:

<TABLE>
<CAPTION>
MAXIMUM
PRINCIPAL
YEAR OUTSTANDING
---- -----------
<S> <C>
3............................................................ $43,000,000
4............................................................ $40,000,000
5............................................................ $32,000,000
6............................................................ $22,000,000
7............................................................ $12,000,000
8............................................................ $ 0
</TABLE>

28
<PAGE>

The New Facility includes covenants that, among other things, restrict the
ability of the Company to dispose of assets, incur additional indebtedness,
pay dividends, create liens on assets, enter into capital leases, engage in
mergers or consolidations, or engage in certain transactions with affiliates
and otherwise restrict corporate activities. In addition, the New Facility
will require the lenders' consent for certain acquisitions, joint ventures and
other investments exceeding specified dollar amounts and require the Company
to comply with specified financial ratios and tests, including minimum
interest coverage and maximum leverage ratios.

The Company leases certain facilities under both operating and capital
leases. Minimum lease payments for 1996 under noncancelable leases are $6.3
million.

The Company anticipates capital expenditures of between $9.5 and $10.0
million in 1996 and additions to deferred costs and intangible assets of
between $4.3 and $4.7 million in 1996. The level of capital expenditures and
additions to deferred costs and intangible assets are subject to a variety of
factors which may cause these expenditures to exceed the ranges set forth
above.

The Company believes that subsequent to the Offering, its cash flows from
operations and borrowing availability will be adequate to support currently
planned business operations, capital expenditures and debt service
requirements at least through July 1998. If the Company engages in one or more
material acquisitions, joint ventures or alliances or other major business
initiatives requiring significant cash commitments, or incurs unanticipated
expenses, additional financing could be required.

The 1992 Acquisition of the business of the Predecessor by CCI and the
Management Investors provides for contingent earn-out payments ("Earn-Out
Payments") of between $5.0 million to $24.0 million to the Predecessor if
certain performance measures are achieved in the five years following the
transaction. The minimum performance requirement for the $5.0 million Earn-Out
Payment requires the Company to achieve a cumulative performance target (as
defined in the acquisition documents) over the five-year period ending
August 31, 1997. The Company believes that the minimum performance target
triggering an Earn-Out Payment will not be reached.

The Washington State Department of Revenue has levied an assessment against
the Predecessor for $1.7 million in sales and use and business and occupation
taxes for the period from 1987 through September 1992. Under successor
liability statutes in the State of Washington, the Company could, if the
Predecessor fails to pay its tax obligation, become liable for the assessment.
The assessment is under appeal by the Predecessor. Field and certain of its
affiliates have agreed to indemnify the Company for any liabilities in
connection with such assessment.

INFLATION AND CHANGING PRICES

Management does not believe that inflation and other changing prices have
had a significant impact on the Company's operations.

29
<PAGE>

BUSINESS

General

The Company is the leading provider of business music in the United States.
The Company and its franchisees serve approximately 178,000 customer locations
in the United States, including retailers, restaurants, offices and
manufacturing facilities. Through a network of distributors, the Company also
provides business music to subscribers outside the United States. The Company
estimates that its business music is heard by more than 80 million listeners
each day throughout the United States and abroad. The Company also offers its
customers a range of non-music services, including broadcast data delivery,
video, audio marketing and in-store advertising services. The Company's
ability to offer a package of music and non-music services over a common
transmission system has been a critical factor in enabling it to generate
additional incremental revenues from its existing customers at little or no
additional cost, gain new customers and protect its existing customer base
from competing providers that do not offer such a broad array of services.

Operating Strategy

The Company believes its competitive strengths include (i) the widespread
recognition of the Muzak(R) brand name, (ii) the Company's nationwide sales
and service infrastructure, (iii) its substantial base of customers under
long-term contracts that generate a stable revenue stream, (iv) the quality
and variety of its music programming, and (v) its multiple delivery systems
and increasing use of new delivery technologies, such as high-powered DBS and
the Internet, which facilitate its ability to market and distribute an
expanded array of services.

The Company believes it has opportunities to achieve growth in revenues and
cash flow by:

. Increasing U.S. Market Penetration. The Company intends to increase its
penetration of the U.S. market by expanding its local and national
account sales force, offering more music formats (including up to 60
broadcast formats with the EchoStar agreements), the development of
sales strategies focused on underserved market segments and aggressive
marketing of the Company's services as part of a bundled package. These
services include, in addition to business music, data delivery, on-
premise music video and in-store advertising services, among others.

. Pursuing Strategic Relationships and Acquisitions. The Company intends
to pursue additional strategic relationships, acquisitions and joint
ventures, such as the 1995 agreements with EchoStar and the 1994
acquisition of Comcast. The New Facility will require the lenders'
consent for certain acquisitions, joint ventures and other investments
exceeding specified dollar amounts. See "Risk Factors--Restrictive Debt
Covenants" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

. Exploiting New Market Opportunities. With the commencement of its
agreements with EchoStar, the Company has begun to generate revenues
from the residential marketplace. The Company has also developed and is
currently testing its proprietary MusicServerSM, which permits real-time
delivery of digitized song samples over the Internet to music retailers
and others (including companies such as CDnow!, Tower Records and
Microsoft) that require access to a large library of recorded music.

. Expanding in International Markets. The Company plans to continue its
expansion in Europe through Muzak Europe. This joint venture couples the
Company's broadcast technology skills with Alcas's market knowledge and
marketing expertise. The Company also plans to expand into Latin America
and Asia by establishing similar strategic relationships in those
markets.

. Enhancing Operating Margins. The Company seeks to enhance operating
margins through continued centralization of operations and leveraging
fixed expenses over a wider customer base. The Company strives to
exploit less costly transmission technologies and to reduce the capital
required to initiate service to a customer.

30
<PAGE>

BUSINESS MUSIC SERVICES

MUSIC FORMATS

The Company conducts on-going research into the effects of music on human
behavior. This research has shown that certain types of music may reduce
employee stress and improve worker performance by counteracting the fatigue
cycles that affect workers, particularly those involved in repetitive work.
This research also has shown that, in retail environments, certain types of
music may induce consumers to purchase more and may help the retailer in its
efforts to project a particular image of a store. The Company uses its
research to create proprietary music program formats that will have a
favorable impact on listeners. In addition, the Company's sales staff uses the
results of its research to explain to prospective subscribers the benefits of
business music and to assist each subscriber in choosing a music format which
will further the subscriber's desired business goal. These music formats cover
a wide range of musical tastes.

The Company's best-selling format, Environmental Music(R), is a unique blend
of completely instrumental music that is distributed to subscribers via DBS
transmission and local broadcast technology. Environmental Music(R) is
principally comprised of instrumental versions of popular songs that have been
adapted and rerecorded by the Company ("covers"), instrumentals that have been
composed and recorded exclusively for inclusion in the Environmental Music(R)
program ("originals"), and some commercially available instrumental
recordings, and is generally used in business offices and manufacturing
facilities to improve employee concentration and reduce stress. The
Environmental Music(R) library consists of approximately 30,000 recordings
owned by the Company, of which approximately 5,000 are actively used at any
given time. The library includes the instrumental recordings of titles made
popular by a wide variety of artists and composers, ranging from George
Gershwin to Elvis Presley, Boyz II Men and Toad the Wet Sprocket. The Company
spends over $400,000 annually to update the library and adds approximately
1,000 new selections each year. In 1993, in order to improve the quality of
its active Environmental Music(R) library, the Company digitally remastered
all of its recordings on compact discs.

Foreground music, consisting principally of original artist recordings, is
most commonly used in public areas, such as restaurants and retail
establishments, primarily as a sales enhancement tool. The Company's most
popular foreground music product, FM-1(R), features moderate tempo, original
artist recordings of familiar adult contemporary favorites. Like Environmental
Music(R), FM-1(R) has been developed for distribution to subscribers via DBS
transmission and local broadcast technology. With its broad appeal, FM-1(R) is
second to the Environmental Music(R) channel in the total number of subscriber
locations served and is the Company's most widely-used format in the
restaurant and retail markets. FM-1(R) features a broad range of popular
artists from the last 30 years, with an emphasis on current popular music. FM-
1(R) artists include Sting, Celine Dion, Elton John and Bonnie Raitt, among
others.

31
<PAGE>

In addition to FM-1(R), foreground music formats developed by the Company for
DBS or local broadcast transmission include:

HITLINE(R) ADULT CONTEMPORARY
An up-to-the-minute mix of top chart A more consumer-oriented version of
hits. FM-1(R) with higher repetition of
current hits.

COUNTRY CURRENTS(R)

An upbeat mix of current and recent ADULT ALTERNATIVE
country music hits. An eclectic mix of artists and
styles with a progressive edge.

JUKEBOX GOLD(R)

Rock 'n' roll hits of the '50s, '60s NON-STOP HIP HOPSM
and early '70s. The hottest new music from the
streets.

'70S SONGBOOKSM

A mix of familiar hits spanning the POWERROCKSM
late '60s to early '80s. Hard-edged hits and heavy metal
album tracks.

URBAN BEATSM
The best of contemporary urban hits THE EDGESM
from today's hottest artists. A mix of top hits and album tracks
from the college and alternative
music charts.

CONTEMPORARY JAZZ FLAVORSSM

Today's light contemporary jazz,
mainstream jazz and soft vocals. CLASSIC ROCK
A non-stop collection of the best
rock 'n' roll tunes of all time.

LIGHT CLASSICAL

An artful blend of chamber and small
orchestral pieces from the Baroque NEW COUNTRY
and Romantic periods. An upbeat mix of top chart hits from
today's country superstars.

EXPRESSIONS(R)
Light hits from yesterday and today COUNTRY CLASSICSSM
plus instrumental versions of hit A blend of classic Country hits from
songs, easy jazz and acoustic music. the 1950s, '60s and '70s.

CONTEMPORARY INSTRUMENTALS CONCERT CLASSICSSM
Smart contemporary instrumentals for The most renowned classical
businesses where vocals are symphonies.
inappropriate.

JAZZ TRADITIONSSM

HOT FMSM The more traditional, acoustic side
The upbeat side of current Adult of the jazz genre.
Contemporary music.

BIG BAND ERA

EUROSTYLESM A blend of the best known standards
Dance and Top 40 tracks hot off the and hits from vocalists and
European music charts. instrumental artists from the 30's,
40's, and 50's.

LATIN STYLESSM EASY INSTRUMENTALSSM
A smooth blend of today's Spanish-
language hits and Salsa rhythms. A mix of lush and soothing
instrumental favorites.

FIESTA MEXICANASM
An upbeat blend of Mexican regional CONTEMPORARY CHRISTIAN
styles including Mariachi, Nortena The very best from the top artists
and Tejano. of contemporary Christian popular
music.

HOLIDAY
From November 1st through December KIDZONESM
31st the Holiday Channel features a A bright, upbeat mix of sing alongs,
blend of traditional and folk songs, soundtracks and pop hits
contemporary holiday music. targeted to kids ages 3-10.

32
<PAGE>

The Company has also developed approximately 80 different tape-based formats
of foreground music targeted to the specialized business needs of subscribers
with more focused customer demographics. Among the formats offered are
contemporary jazz, chamber music, reggae, hard rock, German music, Chinese
music and seasonal (holiday) music. These music programs are distributed to
subscribers in the form of long-playing audio tapes that are replayed by the
subscriber on its own premises using specially-designed equipment that has
been installed by the Company. Subscribers typically receive an initial tape
library of approximately 40 hours of music programming and are allowed
unlimited exchanges of tapes during their first 30 days of service, thereby
enabling them to fine-tune their format selections to their individual
preferences and requirements. New tapes are generally sent to subscribers on a
fixed schedule (30, 60 or 90 days), as selected by the subscriber, although
subscribers can elect unlimited exchange privileges. In all cases, subscribers
are required to return old tapes upon receipt of new tapes, and pricing varies
with the frequency of exchange. As of March 31, 1996, the Company and its
franchisees had approximately 18,000 subscribers for taped-based services.

DISTRIBUTION SYSTEMS

The Company's Environmental Music(R) and FM-1(R) programs are distributed to
subscribers either through the Company's medium-powered DBS system or by local
broadcast technology. The Company also uses its medium-powered DBS system to
distribute these programs to its franchisees for local broadcasting to the
franchisees' subscribers. Medium-powered DBS systems utilize satellite dishes
ranging from 0.75 to 1.8 meters in diameter. At March 31, 1996, approximately
113,000 subscriber locations were served by its medium-powered DBS
transmission and approximately 47,000 locations were served by local broadcast
technology. In addition, at that date, on-premise tape programs were being
distributed to approximately 18,000 subscriber locations.

Satellite transmission has become the Company's primary delivery medium for
its business music programs and most of its newest program formats are
generally available only via satellite. The Company's proprietary Music
Plus(R) service permits its medium-powered DBS subscribers to choose the
traditional Environmental Music(R) and FM-1(R) formats as well as up to
fourteen other foreground music formats from a single satellite transmission
signal. In addition, its proprietary DayParting(R) and WeekParting(R) services
enable a subscriber to arrange for automatic switching from one music format
to another on a predetermined schedule to adjust to changing customer
demographic patterns.

The Company leases substantially all of its transponder capacity from
Microspace, which also provides facilities for the uplink of the Company's
signals to Microspace's transponder. Microspace, in turn, leases its
transponder capacity on satellites operated by third parties, including the
Galaxy IV satellite operated by Hughes, on which a majority of the Company's
DBS signals are transmitted. The term of the Company's principal transponder
lease with Microspace for the Galaxy IV satellite runs through the life of
that satellite (which is expected to continue through 2004). Microspace may
terminate its agreements with the Company if the Company materially breaches
its obligations thereunder or if any governmental restriction results in a
sustained interruption of the Company's performance thereunder. Microspace
also is entitled to terminate its agreements with the Company immediately upon
termination of its underlying agreement with Hughes. See "Risk Factors--
Dependence on Satellite Delivery Capabilities."

The Company has begun offering high-powered DBS transmission service through
the EchoStar satellite system, as more fully described below under "--EchoStar
Agreements." High-powered DBS systems utilize satellite dishes as small as 18
inches in diameter. The Company's ability to expand its music services on the
EchoStar satellite system is subject to EchoStar's ability to launch a second
high-powered direct broadcast satellite by December 31, 1997, or, if a second
satellite is not launched by December 31, 1997, EchoStar's willingness to
allocate additional transponder capacity to the Company on EchoStar's first
satellite. See "Risk Factors--Dependence on EchoStar and its Satellites" and
"--EchoStar Agreements."

Local broadcast transmission is used by the Company and its franchisees to
distribute business music in localized metropolitan areas where the
concentration of subscriber locations is sufficiently large to justify the
cost. Local area FM broadcasting is primarily made via commercial FM radio
station subcarriers and requires

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the use of a separate subcarrier and on-premises subscriber receiver for each
program format being distributed. Accordingly, local broadcasting is not cost-
effective for delivery of more than two formats to a particular area and is
generally limited to the Company's most popular program formats, Environmental
Music(R) and FM-1(R).

OTHER SERVICES

NON-MUSIC BROADCAST SERVICES

The Company offers a variety of non-music services to its medium-powered DBS
business music subscribers that complement its music services. These services
are generally "bundled" and marketed in conjunction with the Company's
business music services. As a result, these services serve to stimulate sales
of music services to new customers. In addition to providing incremental
revenue, these services enable the Company to maintain strong relationships
with its business music subscribers. These non-music services generally carry
higher margins, since they require low incremental costs and when the
associated revenue is shared by the Company and its franchisees, the Company
receives 50% or 60% of these revenues in lieu of royalty payments.

The Company currently offers the following non-music business services to
its medium-powered DBS subscribers:

. AdParting(R). AdParting(R) permits the subscriber to receive customized
audio messages ("spots") interspersed in its business music service and to
control the message content of the spot. This service is used by retailers
ranging from supermarkets and convenience stores, to fast food restaurants
and fashion retailers. At March 31, 1996, the Company was providing
AdParting(R) to approximately 12,000 subscriber locations.

. Broadcast Data Delivery. The Company's broadcast data delivery service
provides point-to-multipoint electronic mail as well as computer to
computer bulk data transfer. This service provides the subscriber with a
low cost alternative to two-way data transmission systems. For example,
fast food chains use this service to deliver software and other data
updates to in-store computers at their outlets, while wholesale grocery
distributors use it to provide price, inventory, product recall and
delivery information to their network retailers. At March 31, 1996, the
Company was providing broadcast data delivery services to approximately
5,200 subscriber locations.

. Custom Business Television. The Company takes advantage of the
availability of occasional use video transponder space to offer its
customers the opportunity to broadcast private customer-specific video
programming. At March 31, 1996, the Company was providing custom business
television services to approximately 600 subscriber locations.

ON-PREMISE MUSIC VIDEO--ZTV(R)

The Company programs, duplicates on videotape and sells its proprietary
ZTV(R) on-premise music video service to subscribers wishing to increase the
impact of music through video. The Company's on-premise video programs allow
subscribers to create an "MTV(R)-type" environment for their customers through
specially programmed, long-playing videotapes. The ZTV(R) taped music videos
are produced and shipped directly from the Company's production facilities to
more than 3,000 viewing locations. Subscribers currently using the ZTV(R)
service include Macy's, Bloomingdale's, Lord & Taylor, Filene's Basement,
Oshman's Sporting Goods and Rent-A-Center.

ZTV(R) offerings are available in the following categories, each consisting
of multiple long-playing programs that are supplied to subscribers on a 30, 60
or 90-day rotation:

. Music and Entertainment Programs. Programs produced for a variety of
retailing environments, such as department stores, specialty shops,
athletic footwear stores, children's apparel stores, sporting goods
stores, toy and hobby stores, drug stores and appliance stores. These
programs include licensed music

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video elements in addition to sports clips, cartoon and fashion segments
and other elements appropriate to the demographics of a particular
customer or application. These targeted programs are produced monthly and
are supplied in four-hour tapes.

. Music Video Programs. These are segued music video programs, representing
a style and tempo of music applicable to particular business environments,
and are produced monthly in two-hour and four-hour lengths.

. VeeJay Programs. These monthly programs are produced exclusively for
nightclubs and dance clubs and are furnished in one-hour lengths.

AUDIO MARKETING

The Company creates, produces and records spoken messages for use with "on-
hold" business telephone systems, AdParting(R) broadcasts and other forms of
in-store messaging and advertising.

IN-STORE ADVERTISING

The Company markets in-store "point of purchase" audio advertising and
merchandising services for transmission through its medium-powered DBS system.
The Company has established an industry-specific network (SuperLink(R)) of
grocery wholesalers and wholesaler-supplied retailers and sells time on the
network to advertisers seeking to deliver a message simultaneously to multiple
locations in the network.

ECHOSTAR AGREEMENTS

Through its agreements with EchoStar (the "EchoStar Agreements"), the
Company has begun providing 30 channels of digital music programming, of which
27 channels are being distributed in stereo to EchoStar's residential
customers, thus providing the Company with access to the residential consumer
market for the first time. EchoStar, as part of its overall sales activities,
will brand and market 27 channels of music programming provided by the Company
and currently plans to package these channels as an automatic inclusion in the
majority of its service packages. The launch of EchoStar's second high-powered
satellite, currently anticipated for late 1996, will give the Company the
exclusive right to distribute approximately 30 additional channels to business
music subscribers and will also provide EchoStar an additional three channels.
However, there can be no assurance that the launch of the second satellite
will be successful or timely.

The music services offered through EchoStar contain much of the Company's
Music Plus(R) programming but are broadcast in digital stereo to appeal to
residential customers instead of the monophonic format used in the Company's
medium-powered DBS transmission system, which is more appropriate to business
music applications. The Company's Environmental Music(R) and FM-1(R) channels
are transmitted in the monophonic format over the EchoStar System to appeal to
business music subscribers.

The EchoStar agreements will allow the Company to expand the range of music
that can be made available to businesses. They also provide the Company with
access to a family of television programming services that the Company
believes can be sold in several critical market segments, such as the
hospitality and retailing markets. The availability of these television
services is expected to allow the Company to penetrate commercial market
segments and reach new customers that have traditionally been outside of its
core subscriber base. The Company believes that EchoStar's high-powered DBS
delivery technology also provides the Company with the opportunity to realize
significant cost savings in furnishing music services to business subscribers.
EchoStar's receiving equipment is smaller, lighter in weight, and simpler to
install than the Company's medium-powered DBS receiving equipment, and as DBS
television service increases in popularity, this equipment is expected to be
mass manufactured and marketed, thus reducing its cost. In addition, the
EchoStar receiving equipment generally is not proprietary and has uses and
applications beyond commercial business music. Accordingly, the Company
believes that subscribers to business music services through the EchoStar
system may be more likely

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to purchase the necessary receiving equipment rather than rely on Company-
provided equipment, as has generally been the case to date, thus permitting
the Company to reduce its per-subscriber capital investment with only a
limited reduction in the monthly subscription charge.

Pursuant to the EchoStar Agreements, EchoStar will pay the Company a
programming fee for each residential music subscriber and will pay the
Company's franchisees a commission on sales by EchoStar distributors to
commercial customers in a franchisee's territory. Pursuant to the EchoStar
Agreements, the Company pays EchoStar a fee for uplink transmission of the 30
exclusive channels and rents space at EchoStar's Cheyenne, Wyoming uplink
facility. The fees for the uplink of the channels and use of the uplink
facility increase significantly upon the launch of EchoStar's second
satellite, when the Company will be allocated an additional 2.4 megahertz of
transponder capacity. Launch of the second satellite is expected to occur in
late 1996. The Company and its franchisees are obligated to pay EchoStar a
royalty on music sales from EchoStar channels to commercial customers.

EchoStar has agreed that it will not (i) provide transponder space to, (ii)
enter into or maintain distributor agreements or relationships with, or (iii)
enter into any agreements for the programming or delivery of any audio
services via DBS frequencies with, a specified group of the Company's
competitors. The Company has agreed it will not (i) secure transponder space
for, (ii) enter into or maintain distributor agreements or relationships with,
or (iii) enter into any agreement for the programming or delivery of any of
the Company's services with any competitor of EchoStar via DBS frequencies or
with specified competitors of EchoStar via K-band frequencies.

The Company may terminate its agreements with EchoStar if EchoStar is unable
to launch its second satellite by December 31, 1997, unless EchoStar allocates
2.4 megahertz of transponder capacity on the EchoStar-I satellite for the
Company's exclusive use.

EchoStar may cancel the terms of the EchoStar Agreements related to the
provision of residential music channels at any time. Upon such cancellation,
EchoStar is required to pay to the Company the depreciated book value of the
Company's capital investment in equipment to support residential music
channels and to continue to provide 2.4 megahertz of transponder capacity for
use by the Company. The Company and its franchisees also would be permitted to
continue to market and sell the video services carried on the EchoStar system.

The EchoStar relationship is still in its formative stage and there can be
no assurance that the benefits anticipated by the Company will be realized.
See "Risk Factors--Dependance on EchoStar and its Satellites."

INTERNET SERVICES

The Company has begun the development of certain Internet music services
under the umbrella of its Enso Audio Imaging Division (http://www.muzak.com).

The Company is seeking to exploit recent software developments in real-time
delivery of audio via low-cost, high-speed modems to provide access to
digitized samples of recordings in its library to businesses having
informational or retailing sites on the Internet. The design of the Company's
Internet MusicServer SM service allows the Company to use a hardware and
software server system to, among other things, supply services to many
different Internet-based retailers and thus provide music samples to many
retailers more economically than those retailers could provide themselves. The
MusicServer SM service permits music retailers and others to offer visitors to
their websites access to digitized 30-second samples from the Company's
library of recorded music. This service, which permits, among other things, a
consumer to preview recordings offered for sale by a retailer, currently is
being provided to CDnow!, an on-line retailer of compact discs and audio
cassettes. The Company has also entered into agreements to provide the
MusicServer SM service to Tower Records and Microsoft.

The Company's Internet services are in planning, trial and evaluation
stages, and there can be no assurance that Internet services will be
economically viable or generate significant revenue for the Company. See "Risk
Factors--Unproven Capabilities of New Services."

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EQUIPMENT AND RELATED SERVICES

The Company sells or leases various audio system-related products,
principally sound systems and intercoms to its business music subscribers and
other customers. The Company also sells electronic equipment, principally DBS
receivers and dishes as well as proprietary tape playback equipment, to its
franchisees to support their business music services business. All the
equipment is manufactured by third parties, although some items bear the
Muzak(R) brand name. Revenues from equipment and related services accounted
for 40% of the Company's revenues in 1995 and 36% of such revenues during the
three-month period ended March 31, 1996.

The Company and its franchisees also sell, install and maintain non-music
related equipment, such as intercoms and paging systems, for use by their
business music subscribers and other customers. Although the maintenance of
program receiving equipment provided to business music subscribers is
typically included as part of the overall music subscription fee, installation
and maintenance of audio or other equipment not directly related to reception
of the Company's business music service is provided on a contractual or time-
and-materials basis. Labor rates and charges for installation and service vary
by location and are determined by the Company or its franchisee. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

MARKETING

COMPANY SALES OFFICES

The Company has 35 sales offices in the United States, including in seven of
the top ten U.S. markets (the greater metropolitan areas of New York, Los
Angeles, Chicago, San Francisco, Boston, Dallas and Detroit). These 35 sales
offices accounted for approximately 72% of the Company's revenues in 1995 and
approximately 71% of such revenues during the three-month period ended March
31, 1996.

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The following are the locations of the Company's local sales offices (major
offices are shown in boldface in order of market size):

NEW YORK, NY (LONG ISLAND CITY) SEATTLE/TACOMA, WA
Hicksville, NY Spokane, WA

LOS ANGELES, CA (BURBANK) MINNEAPOLIS, MN

Tustin, CA

DENVER, CO
CHICAGO, IL Colorado Springs, CO

Peoria, IL
Milwaukee, WI ORLANDO, FL

Moline, IL
Springfield, IL PORTLAND, OR
Medford, OR

SAN FRANCISCO, CA
Sacramento, CA SAN DIEGO, CA

San Jose, CA
INDIANAPOLIS, IN

BOSTON, MA Ft. Wayne, IN

Providence, RI
Exeter, NH HARTFORD, CT

DALLAS, TX CINCINNATI, OH
Tyler, TX Columbus, OH

DETROIT, MI BUFFALO, NY

SCRANTON, PA
Holidaysburg, PA

FRANCHISEES

The Company has 81 franchisees serving 138 separate territories in the
United States. The Company's relationships with its franchisees have been very
stable. More than 80% of its franchisees have been affiliated with the Company
for over 20 years and, during the last ten years, the Company has terminated
relations with only one franchisee. Each franchisee has exclusive
responsibility for sales in its territory, except for sales to national
accounts, sales of in-store advertising services and on-premise music video.
All marketing literature, customer and training videos and sales materials are
designed and produced by the Company and made available to its franchisees.
The Company also conducts sales training for its franchisees' sales personnel.

The Company currently has a standard form of franchise agreement in effect
for 132 of 138 of its franchised territories. The standard form of agreement
has a renewable ten-year term, and grants to the franchisee an exclusive
license to offer and sell specified business music services and certain non-
music broadcast services and to use certain of the Company's registered marks
within a defined territory. The agreement also prohibits franchisees from
marketing or selling competing products. The agreement includes provisions
relating to distribution of services via the Company's medium-powered DBS
system and via EchoStar, and establishes terms for the provision of services
to "national accounts" on a unified basis.

Under the standard form of agreement, franchisees pay the Company (i) a
monthly fee based on the number of business locations within the specified
territory, (ii) a monthly royalty equal to 10% of billings for broadcast
business music services (subject to certain deductions and adjustments) and
(iii) additional amounts for non-music broadcast services and on-premise tape
services. In addition, franchisees have paid a variable surcharge of

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billings to customers for eight years following the commencement of medium-
powered DBS services in the franchisee's territory. As a result of their
agreement to participate in the delivery of services via the EchoStar
satellite system, franchisees also pay a surcharge of monthly recurring
billings in consideration of the Company's development and implementation of
services for delivery over the EchoStar satellite system. Franchisees are also
responsible for paying performing rights fees in connection with the provision
of services in their territories.

Revenues from the sale of other broadcast business services are shared
between the Company and its franchisees and the Company receives 50% or 60% of
these revenues in lieu of royalty payments. Franchisees generally pay a
monthly fee for use of various medium-powered DBS-delivered business music
services offered by the Company, such as Dayparting(R) and Weekparting(R).

NATIONAL SALES PROGRAM

The Company has established a national sales program to market its services
more effectively to subscribers with numerous locations in various
territories, including those served by franchisees, and to address the needs
of these subscribers for uniform service and centralized billing for all of
their locations. Subscribers with 50 or more locations operating in four or
more territories are deemed to be "national accounts." The national sales
program includes a committee of representatives of the Company and its
franchisees that oversees the pricing and other material terms for national
account subscriber contracts. The Company, through its Seattle headquarters,
coordinates the servicing of national accounts by its franchisees and
allocates revenues from national accounts among the participating franchisees.
The national sales office is comprised of 10 salespeople and is supported by
additional customer service personnel. At March 31, 1996, the Company and its
franchisees had national accounts representing over 65,000 subscriber
locations (of which approximately 40,000 were franchisee subscriber
locations), including those of Taco Bell, McDonald's, Burger King, Bob Evans,
Boston Markets, Crate & Barrel, Kroger, Staples, Hallmark and Wal-Mart. None
of the Company's national accounts represents more than 3% of the Company's
consolidated revenues, and the Company's top five national accounts represent
in the aggregate less than 10% of consolidated revenues.

INTERNATIONAL SALES

The Company has agreements with 15 international distributors and
franchisees in 10 countries outside the United States, including Canada,
Mexico, Japan, Argentina and Australia. These distributors and franchisees
either pay royalties to the Company based on their sales of business music
services or a flat fee based on the number of subscribers they serve.
Royalties and other fees from international sales accounted for approximately
2% of the Company's revenues in 1995.

In addition, in August 1995, the Company formed the Muzak Europe joint
venture with Alcas to more aggressively market the Company's services in
Europe. The joint venture, which is headquartered in Hilversum, The
Netherlands, has been offering business music and non-music services via
satellite transmission since January 1996 and is seeking to establish
relationships with key distributors throughout Europe. As of March 31, 1996,
Muzak Europe had entered into agreements with distributors in Ireland, the
United Kingdom, The Netherlands and Belgium. In addition, it recently acquired
the Company's German distributor. As of March 31, 1996, Muzak Europe was
providing services to approximately 3,400 subscriber locations throughout
Europe.

Muzak Europe is a Netherlands corporation in which the Company and Alcas
each own 50% of the outstanding shares. The joint venture agreement between
the Company and Alcas that established Muzak Europe contains restrictions on
the disposition of both parties' shares in Muzak Europe. A credit facility
entered into by Muzak Europe to finance the purchase of the Company's German
distributor requires the Company and Alcas to make any additional investments
in Muzak Europe necessary to maintain equity of four million Netherlands
guilders (approximately $2.5 million), and of at least 25% of its consolidated
total assets. Any additional equity investments must be made equally by the
Company and Alcas. The credit facility also restricts the transfer of the
Company's shares in Muzak Europe.

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The Company plans to expand into Latin America and Asia by establishing
similar strategic relationships in those markets.

Until recently, the Company has not aggressively pursued the development of
its international business. However, the Company believes that the
international market offers significant growth potential. Although the Company
is now pursuing this market, no assurance can be given that the Company will
achieve significant growth in the international market.

COMPETITION

The Company's principal direct competitors in providing business music
services are AEI Music Network, Inc. ("AEI") of Seattle, Washington, and 3M
Sound and Communications, an affiliate of Minnesota Mining and Manufacturing
Corporation. In addition, the Company competes with a number of local
independent providers of business music. DMX, Inc. and Digital Cable Radio
Associates L.P. market and sell commercial-free music programming over cable
to residential cable television subscribers and have launched DBS services
aimed at business users. No assurance can be given that such competition will
not attract customers to whom the Company markets its services, including its
existing customers. In broadcast data delivery, video, audio marketing and in-
store advertising services, the Company faces competition from numerous
companies using broadcast as well as other delivery systems to provide similar
business services.

There are numerous methods by which programming, such as the Company's
business music services, broadcast data delivery, video, audio marketing and
in-store advertising services, can be delivered by existing and future
competitors, including various forms of DBS services, wireless cable and fiber
optic cable and digital compression over existing telephone lines. Many
competitors or potential competitors with access to these delivery
technologies have substantially greater financial, technical, personnel and
other resources than the Company. In addition, the larger communications
industry of which the Company is a part is undergoing significant and rapid
change, including the development of new services, delivery systems and
interactive technologies. In addition, the recently enacted Telecommunications
Act of 1996 (the "Telecommunications Act") may increase competition in the
markets in which the Company operates. The Telecommunications Act will result
in comprehensive changes to the regulatory environment for the
telecommunications industry as a whole. The legislation will permit telephone
companies to enter certain broadcast services businesses. The entry of
telephone companies into such businesses, with greater access to capital and
other resources, could provide significant competition to the Company. In
addition, the legislation will afford relief to DBS transmission providers by
exempting them from local restrictions on small-size reception antennae and
preempting the authority of local governments to impose certain taxes. The
Company cannot reasonably predict the substance of rules and policies to be
adopted by the FCC in implementing the provisions of the Telecommunications
Act, or their effect on competition in the market for the Company's services.

The Company competes internationally with AEI and a number of regional
business music providers, some of whom have substantially greater financial,
technical, personnel and other resources than the Company.

The Company competes on the basis of service and system quality, versatility
and flexibility, the variety of its music formats, the availability of its
broadcast data and other non-music services and, to a lesser extent, price.
Even though it is seldom the lowest-priced provider of business music in any
territory, the Company believes that it can compete effectively on all these
bases due to the widespread recognition of the Muzak(R) name, its nationwide
sales and service infrastructure, the quality and variety of its music
programming and its multiple delivery systems. However, no assurance can be
given that the Company will be able to compete successfully with its existing
or potential new competitors or maintain or increase its current market share,
that it will be able to use, or compete effectively with competitors that
adopt, new delivery methods and technologies, or that discoveries or
improvements in the communications, media and entertainment industries will
not render obsolete some or all of the technologies or delivery systems
currently relied upon by the Company.

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MUSIC LICENSES

Most music is copyrighted and the Company is required to enter into license
agreements to rerecord and play music in public spaces. The Company has
various types of licensing agreements and arrangements with major rights
owners and organizations to permit the production and distribution of its
business music, including (i) master performance licensing agreements with
ASCAP, BMI and SESAC that permit public performance of copyrighted music in a
customer's location, (ii) mechanical licensing agreements under which the
Company receives rights to rerecord and make copies of copyrighted music and
(iii) licensing agreements with record companies that allow the Company to
produce, advertise and distribute to its on-premise tape subscribers audio
tapes containing original artist recordings.

The Company's agreement with ASCAP expires on May 31, 1999. During 1995, the
Company paid ASCAP fees aggregating approximately $2.6 million. The Company's
agreement with BMI expired on December 31, 1993 and its agreement with SESAC
expired on December 31, 1995. The Company has entered into an interim fee
structure with BMI and is in negotiations with BMI and SESAC with respect to
new agreements. The interim fee structure with BMI has been in place on an
ongoing month-to-month basis since the expiration of the underlying agreement,
and provides for continued payments at 1993 levels. The BMI license extension
stipulates that any settlement relating to ongoing fees may be retroactive to
January 1, 1994. Negotiations on a new contract with BMI began in early 1994
and at this time it is not known when negotiations will be completed. The
Company discontinued use of SESAC licensed material upon expiration of the
underlying agreement. Negotiations on a new contract with SESAC began in mid-
1995 and it is not known when these negotiations will be completed. During
1995, the Company paid BMI and SESAC fees aggregating approximately $950,000
and $7,000, respectively. The Company's total fees for mechanical licenses and
original artist recording licenses and licensing agreements with record
companies have not been material.

The Digital Recordings Act of 1995 ("The Digital Recordings Act") was
enacted into law on November 1, 1995. The Digital Recordings Act amends U.S.
copyright law to provide sound recording owners with an exclusive performance
right in sound recordings that are performed through digital transmissions.
The legislation was drafted to protect performers and copyright owners
potentially disadvantaged by the emergence of digital subscription services.
The Digital Recordings Act provides a compulsory license for non-interactive
subscription services, but does not provide a compulsory license for
interactive services (where the listener selects a musical piece based upon a
menu or schedule). As music services to or within a business are specifically
exempted from the provisions of the Digital Recordings Act, the digital
performance right does not apply to the Company's traditional business music
services (whether analog or digital). However, to the extent the Company
provides digital music services to residential customers, via satellite or
other broadcast delivery or via the Internet or other digital means, the
Digital Recordings Act would require the payment of additional royalties.

GOVERNMENT REGULATION

The Company is subject to the regulatory authority of the United States
government and the governments of other countries in which it provides
services to subscribers. The business prospects of the Company could be
adversely affected by the adoption of new laws, policies or regulations that
modify the present regulatory environment. The Company currently provides
music services in a few areas in the United States through 928 to 960
megahertz radio broadcast frequencies, which are transmission facilities
licensed by the FCC. In connection with the Recapitalization, these FCC
licenses, held by an affiliate of the Partnership, will be transferred to a
subsidiary of the Company. Such transfer will require FCC approval, which
approval may not be obtained prior to completion of the Recapitalization. If
for any reason the Company were to lose these FCC licenses, it would incur the
expense of relocating up to 2,500 customer locations currently served over
these frequencies to different transmission systems. Additionally, the
satellites on which the Company transmits its DBS services in the United
States are licensed by the FCC. If the FCC authorizations for any of these
satellites are revoked or are not extended, the Company would be required to
seek alternative satellite facilities. Laws, regulations and policy, or
changes therein, in other countries could adversely affect the Company's
existing services or restrict the growth of the Company's business in these
countries.

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PROPERTIES

The Company's headquarters in Seattle, Washington, consisting of
approximately 43,300 square feet, its 35 local and two national sales offices,
which occupy an aggregate of approximately 150,000 square feet, as well as
office and satellite uplink facilities at Raleigh, North Carolina and
Cheyenne, Wyoming and two warehouses in Seattle, are leased. The Company's
total lease payments during 1995 were approximately $2.4 million. In addition,
the Company owns office and warehouse facilities, aggregating approximately
21,000 square feet, in Buffalo, New York, Irving, Texas and Peoria, Illinois.
The Company considers its facilities to be adequate to meet its current and
reasonably foreseeable needs.

EMPLOYEES

At March 31, 1996, the Company had 715 full-time and part-time employees, of
whom 197 held sales and marketing positions, 190 held administrative positions
and 328 held technical and service positions. A total of seventy-four of the
Company's technical and service personnel are covered by ten union contracts
with the International Brotherhood of Electrical Workers ("IBEW"). The IBEW
contracts have currently effective terms that expire on dates ranging from
November 30, 1996 to May 31, 1999. All of the IBEW contracts provide for
successive automatic one-year renewals, unless a notice of renegotiation or
termination is given prior to the end of the then-effective term. The Company
does not have any pending renegotiations of any of the IBEW contracts, but
anticipates that some of the contracts may be renegotiated as their current
terms expire. The Company believes its relationships with its employees and
the IBEW are good.

LEGAL PROCEEDINGS

The Company is subject to various proceedings arising in the ordinary course
of business, none of which, individually or in the aggregate, is expected to
have a material adverse effect on the Company's financial condition, results
of operations or liquidity.

42
<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR MANAGEMENT PERSONNEL

Certain information concerning directors, executive officers and other
members of senior management of the Company is set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Directors and Executive Officers:
<S> <C> <C>
John R. Jester.......... 55 Chairman, President and Chief Executive Officer
James F. Harrison....... 49 Senior Vice President, Sales and Marketing
Kirk A. Collamer........ 43 Vice President and Chief Financial Officer
Thomas J. Gentry........ 60 Vice President and General Manager, DBS Division
John A. Neal............ 60 Vice President, Owned Operations
Paul F. Balser.......... 54 Director
Mark E. Jennings........ 34 Director
Bruce G. Pollack........ 37 Director
Other Senior Management Personnel:
Wallace R. Borgeson..... 51 Vice President, Centralized Operations
Bruce B. Funkhouser..... 47 Vice President, Programming and Licensing
L. Dale Stewart......... 49 Vice President, Operations and Engineering
Jack D. Craig........... 61 Vice President, Affiliate Sales and Development
Richard Chaffee......... 52 Vice President, Owned Affiliate Operations
Roger C. Fairchild...... 47 Vice President, Owned Affiliate Sales and Market Development
J. Gary Henderson....... 42 President, In-Store Marketing Group
</TABLE>

John R. Jester has been a Director of Music Holdings Corp. ("Music
Holdings"), an affiliate of Centre Partners and the general partner of MLP
Acquisition L.P., the managing general partner of the Partnership, since
September 1992, and has been President and Chief Executive Officer of the
Partnership and its predecessors since January 1988. Mr. Jester is the
Chairman, President and Chief Executive Officer of the Company. Prior to
joining the Predecessor, Mr. Jester served from 1985 to 1987 as President of
US West Information Systems. From 1983 to 1985, Mr. Jester was President of
Executone Inc. Prior to that, Mr. Jester held various financial and management
positions with Contel Corporation, ITT Corporation and C & P of Maryland, Inc.
Mr. Jester currently serves as a director of Montana Power Company.

James F. Harrison has been Senior Vice President for Sales and Marketing of
the Partnership and the Predecessor since March 1988 and will continue in this
position with the Company. Prior to joining the Predecessor, Mr. Harrison
served from 1986 to 1987 as President of Telegence Corporation, a start-up
data communications manufacturer. From 1985 to 1986, Mr. Harrison was Vice
President of Marketing with US West Information Systems. From 1983 to 1984,
Mr. Harrison was Vice President of Business Market Development for Contel
Corporation's unregulated businesses. From 1981 to 1982, he was head of
Communications Marketing Division at Wang Laboratories, Inc., and from 1976 to
1980, Mr. Harrison was PBX Systems Engineering and Development Supervisor and
Member of the Technical Staff for Human Factors Research with Bell
Laboratories, Inc.

Kirk A. Collamer, a certified public accountant, has been Vice President of
Finance and Administration and Chief Financial Officer of the Partnership
since August 1995 and will continue in this position with the Company. Prior
to joining the Partnership, Mr. Collamer served from July 1990 to July 1995 as
Vice President of Finance at Ameritech Corporation for its Enhanced Business
Services division and Chief Financial Officer of its New Zealand subsidiary.
Prior to that time, Mr. Collamer held a variety of financial and accounting
positions with Jack Daniel Distillery/Brown-Forman Corporation, Aladdin
Industries, Inc. and Arthur Andersen LLP.

43
<PAGE>

Thomas J. Gentry has been Vice President and General Manager of the DBS
Division of the Partnership and the Predecessor since June 1988 and will
continue in this position with the Company. Prior to joining the Predecessor,
Mr. Gentry served from 1985 to 1987 as President and Chief Executive Officer
of SkySwitch Satellite Communications. Mr. Gentry has over 30 years of
experience in telecommunications and satellite communications with
Westinghouse Defense Group, COMSAT Corporation, Western Union and Contel
A.S.C.

John A. Neal has been Vice President, Owned Operations of the Partnership
and the Predecessor since January 1991 and will continue in this position with
the Company. From October 1988 to December 1990, Mr. Neal served as Vice
President of National Sales for the Predecessor. From 1987 to 1988, Mr. Neal
was Vice President and Chief Operating Officer of Executone
Telecommunications, Rochester, New York. From 1979 to 1987, he was Vice
President of Sales for Contel Executone, where he developed and managed
Executone's National Account program.

Paul F. Balser has been a Director of Music Holdings since September 1992
and is a Director of the Company. Mr. Balser was a partner of Centre Partners
from 1986 until August 1995. In August 1995, Mr. Balser resigned as an officer
of the managing general partner of Centre Partners to become a founding
partner of Generation Capital Partners L.P., a newly organized private
investment partnership. From 1982 to 1986, Mr. Balser was a Managing Director
and a member of the Board of Directors of J. Henry Schroeder Corp. Mr. Balser
currently serves as a director of Kansas City Southern Industries, Inc.
(NYSE), The Carbide/Graphite Group, Inc. (Nasdaq), The Quarton Group--
Publishers, Inc., Jungle Jim's Playlands, Inc., Scientific Games Holdings
Corp. (Nasdaq) and Victory Holdings Corp.

Mark E. Jennings has been a Director of Music Holdings since September 1992
and is a Director of the Company. Through August 1995, Mr. Jennings was a
partner of Centre Partners where he has been employed since 1987. In August
1995, Mr. Jennings resigned as an officer of the managing general partner of
Centre Partners to become a founding partner of Generation Capital Partners
L.P. From 1986 to 1987, Mr. Jennings was employed at Goldman, Sachs & Co. in
its Corporate Finance Department. Mr. Jennings currently serves as a director
of The Carbide/Graphite Group, Inc. (Nasdaq), Jungle Jim's Playlands, Inc.,
Scientific Games Holdings Corp. (Nasdaq) and Johnny Rockets Group, Inc.

Bruce G. Pollack has been a Director of Music Holdings since September 1995
and is a Director of the Company. Mr. Pollack is a partner of Centre Partners,
which he joined in January 1991, and is a Managing Director of Centre Partners
Management LLC, which was formed in December 1995 to manage investments on
behalf of Centre Capital Investors II, L.P. and affiliated entities. From 1988
to June 1991, Mr. Pollack was an officer and director of RSG Partners, Inc.
and its predecessors, and from 1985 to 1988, Mr. Pollack was an officer of TSG
Holdings, Inc. Mr. Pollack currently serves as a director of Johnny Rockets
Group, Inc., The Quarton Group--Publishers, Inc., Jungle Jim's Playlands,
Inc., Drake Holdings Limited and Victory Holdings Corp. On December 28, 1992,
a petition under chapter 11 of the Federal bankruptcy code was filed by SC
Corporation and its operating subsidiaries, of which Mr. Pollack served as a
vice president until January 1991. Mr. Pollack is also a director of, and
prior to October 4, 1994 was a vice president of, Victory Markets Inc. and New
Almacs Inc., operating subsidiaries of Victory Holdings Corp. that filed
petitions under chapter 11 on September 20, 1995.

Wallace R. Borgeson has been Vice President of Centralized Operations of the
Partnership since August 1995 and will continue in this position with the
Company. From April 1990 to August 1995, Mr. Borgeson served as Vice President
of Finance and Administration of the Partnership and the Predecessor. From
1988 to 1990, Mr. Borgeson was the Chief Financial Officer of Hickory Farms,
Inc., and from 1971 to 1988, he served in various capacities with Wurlitzer
Company, most recently as Chief Financial Officer.

Bruce B. Funkhouser has been Vice President of Programming and Licensing of
the Partnership and the Predecessor since October 1987 and will continue in
this position with the Company. From 1983 to 1987, Mr. Funkhouser served as
Programming and Production Manager for YesCo, Inc., which was merged with a
predecessor to the Predecessor in 1986. Prior to 1983, Mr. Funkhouser was a
record company owner and producer, former broadcasting manager and on-air
talent and Professor of Communications at Bellevue

44
<PAGE>

Community College. He is a member of The American Federation of Television and
Radio Artists and The National Academy of Recording Arts and Sciences.

L. Dale Stewart has been Vice President of Operations and Engineering of the
Partnership and the Predecessor since November 1987 and will continue in this
position with the Company. From 1986 to 1987, Mr. Stewart was Acting General
Manager and Operations Manager at the Predecessor's New York City office. From
1984 to 1986, Mr. Stewart was General Manager of the Corpus Christi, Texas
franchise, and prior to that he worked for the franchisee in San Antonio,
Texas.

Jack D. Craig has been Vice President, Affiliate Sales and Development of
the Partnership and the Predecessor since September 1988 and will continue in
this position with the Company. From 1983 to 1988, Mr. Craig was Vice
President, Dealer Sales for AEI. From 1979 to 1983, Mr. Craig was
Marketing/Sales Manager for Aiphone Corporation, a leading intercom
manufacturer. Prior to joining Aiphone Corporation, Mr. Craig served as Vice
President/Account Supervisor for 11 years with J. Walter Thompson Advertising.

Richard Chaffee has been Vice President, Owned Affiliate Operations of the
Partnership and the Predecessor since July 1987 and will continue in this
position with the Company. Since joining a predecessor to the Predecessor in
1968, Mr. Chaffee has served in both local sales offices and franchisee
operations in New York, Boston, Chicago, Minneapolis and Charlotte, primarily
as Chief Engineer and Operations Manager.

Roger C. Fairchild has been Vice President, Owned Affiliate Sales and Market
Development of the Partnership since December 1993 and will continue in this
position with the Company. From January 1991 to December 1993, Mr. Fairchild
provided consulting services to the Partnership and the Predecessor through
Strategic Growth Advisory, a marketing and business development consultancy.
From 1989 to 1991, Mr. Fairchild was President of a start-up voice processing
equipment manufacturer. From 1988 to 1989, Mr. Fairchild was Director of
Marketing for ADC Telecommunications, Inc., a $175 million growth-stage
telecommunications manufacturer. From 1983 to 1988, Mr. Fairchild served as a
vice president of operations and marketing for a US West Information Systems
subsidiary.

J. Gary Henderson has been President of the In-Store Marketing Group of the
Partnership since December 1993 and will continue in this position with the
Company. From April 1991 to November 1993, Mr. Henderson was a private
investor. From 1986 to April 1991, Mr. Henderson was Executive Vice President
and Chief Marketing Officer of POP Radio Corporation. From 1982 to 1986, Mr.
Henderson was Account Director for Actmedia, Inc.

There are no family relationships among the directors and executive officers
of the Company.

BOARD OF DIRECTORS; COMMITTEES

After completion of the Offering, the Company intends to elect two
additional persons as directors who will not be officers or employees of the
Company or partners, officers or employees of Centre Partners or any of their
respective affiliates.

Pursuant to the Certificate of Incorporation and By-Laws of the Company, the
Board shall consist of such number of directors as the Board of Directors
shall determine from time to time. The Board has initially set the number of
directors at six. Currently, the Board consists of four directors, and the two
vacancies will be filled with two disinterested directors as described above.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected by
and serve at the discretion of the Board.

Pursuant to the Stockholders' Agreement, MLP, Centre Partners and the
Management Investors have agreed to vote all shares beneficially owned by them
in favor of the election of three directors designated by MLP. See "Certain
Relationships and Related Transactions" and "Principal and Selling
Stockholders."

45
<PAGE>

Following the Recapitalization, the Board of Directors will form an Audit
Committee and a Compensation Committee. The functions of the Audit Committee
will be to recommend to the Board independent auditors for the Company, to
analyze the reports and recommendations of such auditors and to review
internal audit procedures and controls. The functions of the Compensation
Committee will be to review compensation of the Chairman of the Board, and
employee benefit and incentive plans and to present recommendations thereon to
the Board. The Compensation Committee will also administer the Company's
Replacement Option Plan and 1996 Stock Option Plan. The Compensation Committee
will be composed of three directors, two of whom will be "disinterested" (as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")).

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and to each of the Company's four other
most highly compensated executive officers (together with the Chief Executive
Officer, the "Named Executive Officers") for services in all capacities
rendered to the Company and its subsidiaries in 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION COMPENSATION(2)
- ------------------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
John R. Jester, $213,725 -- -- $2,310
President and Chief Executive
Officer
James F. Harrison, $172,750 -- -- $2,310
Senior Vice President, Sales &
Marketing
John A. Neal, $155,000 -- -- $1,744
Vice President, Owned
Operations
Thomas J. Gentry, $152,000 -- -- $1,995
Vice President, DBS Division
Wallace R. Borgeson, $113,000 -- -- $1,624
Vice President, Centralized
Operations(3)
</TABLE>
- --------

(1) Bonuses in respect of services rendered in 1994 were determined and paid
in 1995 ($20,000 for Mr. Harrison, $25,000 for Mr. Neal, $18,000 for Mr.
Gentry and $12,000 for Mr. Borgeson). No bonuses were awarded to Named
Executive Officers with respect to services rendered in 1995.
(2) Consists of contributions by the Company to a defined contribution 401(k)
plan.

(3) Mr. Borgeson served as an executive officer of the Partnership and the
Predecessor until August 1995.

No restricted stock awards, stock appreciation rights or long-term incentive
plan awards were awarded to, earned by or paid to the Named Executive Officers
during the fiscal year ended December 31, 1995. Pursuant to the Incorporation,
the Named Executive Officers will be granted options to purchase Common Stock
in substitution for outstanding options to purchase Partnership interests. See
"--Replacement Stock Option Plan."

DIRECTORS' COMPENSATION

Directors who are also employees of the Company receive no remuneration for
services as members of the Board or any committee of the Board. Directors who
are not employed by the Company receive an annual retainer of $20,000 plus
$3,000 for each meeting of the Board that he attends commencing, in the case
of the Centre Partners designees, in 1997. See "Certain Relationships and
Related Transactions." In addition, the 1996 Stock Option Plan provides for
the grant to each non-employee director of options to purchase 6,000 shares of
Common Stock upon the later of (i) the consummation of the Offering and (ii)
the initial election of such director

46
<PAGE>

to the Board, and automatically grants options to purchase 3,000 shares of
Common Stock on the date on which the annual meeting of the Company's
stockholders is held each year. The purchase price of the Common Stock covered
by such options is the fair market value of such Common Stock on the date of
grant. These options become exercisable at the rate of one-third per year
commencing one year after the date of grant.

CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

Effective August 31, 1992, the Company entered into five-year employment
agreements with each of John R. Jester, President and Chief Executive Officer
of the Company, and James F. Harrison, Senior Vice President of the Company.
Under his employment agreement, Mr. Jester currently receives an annual base
salary of $220,000, subject to cost of living adjustments. Under his
employment agreement, Mr. Harrison currently receives an annual base salary of
$178,000, subject to cost of living adjustments. Mr. Jester will receive a
bonus equal to 50% of his annual base salary if the Company achieves a
specified performance target for the 12 months ended December 31, 1996, which
target the Company believes will not be reached. If the target is not reached,
the Board of Directors may nonetheless award Mr. Jester a bonus in an amount
and on the terms determined by the Board of Directors (which amount shall not
exceed 50% of his annual base salary). Each of the agreements also provides
for a severance payment equal to the annual base salary and pro rata bonus in
the event of termination due to disability or death during the term of
employment. Both employment agreements also contain confidentiality covenants
and non-solicitation covenants which extend for five and two years,
respectively, beyond the term of the agreements. The Company can terminate
either agreement without further liability in case of the officer's fraud
against, or embezzlement from, the Company, indictment or conviction of a
felony or misdemeanor having a material adverse effect on the Company or
material failure to discharge his duties. In addition, the Company can
terminate the agreements if there is a material uncured default under the
Company's credit agreements or if the Company's cumulative performance level
is less than 80% of the cumulative target projected for any month; provided
that in either such case the Company is required to pay a severance payment
equal to, in the case of Mr. Jester, his annual base salary plus a pro-rated
bonus, or, in the case of Mr. Harrison, his annual base salary. The Company
may otherwise terminate the agreements for any reason during their terms by
paying a severance payment equal to the lesser of (i) two times the then-
effective annual base salary and (ii) the amount of compensation to which Mr.
Jester or Mr. Harrison, as the case may be, would be entitled to receive
between the date of termination and the fifth anniversary of the employment
agreement had the agreement in question not been terminated; but in no event
less than one year's annual base salary at the then effective rate. Mr. Jester
would also be entitled to receive a pro-rated bonus if cumulative performance
targets exceed projections for the twelve-month period preceding such
termination.

Pursuant to a letter dated July 7, 1995, Kirk A. Collamer, Vice President
and Chief Financial Officer of the Company, was hired at an annual salary of
$160,000 and is eligible for discretionary bonuses. In addition, Mr. Collamer
was entitled to purchase up to 150,000 units of partnership interests, of
which 60,000 units (which are exchangeable for 27,384 shares of Common Stock
as part of the Incorporation) were subscribed and paid for at $1.75 per unit
and the remainder forfeited. Mr. Collamer was granted options to purchase
150,000 additional units of partnership interests at $1.75 per unit,
conditional upon the performance of the Company which will be replaced with
options to purchase 68,460 shares of Common Stock at $3.83 per share under the
Replacement Option Plan. See "--Replacement Stock Option Plan." Mr. Collamer
also received $120,000 relating to the sale of his home in Chicago and his
relocation to Seattle.

REPLACEMENT STOCK OPTION PLAN

In August 1992, the Partnership adopted, and issued options under, the
Partnership's Management Option Plan (the "Partnership Option Plan"). As part
of the Recapitalization, the Company will adopt the Replacement Option Plan to
replace the Partnership Option Plan. Outstanding options granted under the
Partnership Option Plan will be replaced with options under the Replacement
Option Plan, and the Partnership Option Plan will be terminated, in each case
effective upon consummation of the Offering.

47
<PAGE>

The Replacement Option Plan provides for the granting of options to purchase
an aggregate of 837,292 shares of Common Stock (subject to adjustment in the
event of stock dividends, stock splits and other contingencies), which will be
granted to 26 existing senior management members at an average exercise price
of $2.44 per share in substitution for the outstanding options held by such
senior management members under the Partnership Option Plan. Options granted
under the Replacement Option Plan are not intended to qualify as "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"). The Replacement Option Plan is qualified
under Rule 16b-3 under the Exchange Act.

The Replacement Option Plan requires the Board of Directors to designate an
option committee (the "Committee") to administer the Replacement Option Plan,
consisting of no fewer than two directors who are "disinterested persons"
within the meaning of Rule 16b-3 under the Exchange Act (or any successor rule
or regulation). The Board of Directors may at any time remove members from and
may fill any vacancy on the Committee. The Committee has the authority, in its
discretion and subject to the express provisions of the Replacement Option
Plan to determine, among other things, the persons to receive options, the
date of grant of such options, the number of shares to be subject to each
option, and the purchase price of each share subject to such options. The
Company will receive no monetary consideration for the granting of options
under the Replacement Option Plan.

The purchase price of shares of Common Stock issuable upon exercise of each
option granted pursuant to the Replacement Option Plan will be the same as the
exercise prices of the options granted under the Partnership Option Plan,
adjusted to reflect the conversion of units of partnership interest into
shares of Common Stock in the Recapitalization. Options granted under the
Replacement Option Plan expire seven years from the date of grant.

Options granted pursuant to the Replacement Option Plan are divided into
three groups for vesting purposes, each comprised of one-third of the options
granted to each optionholder. One-half of the first group of options vests
immediately upon the Effective Date and the remainder of the first group vests
in equal installments on the first and second anniversaries of the Effective
Date. Once vested, the first group of options becomes exercisable: (i) if the
Sales Price during the Performance Period is $13.375 per share or greater; or
(ii) if earlier, during the period 30 days prior to the seventh anniversary of
the Effective Date.

The second and third groups of options vest in equal 20% increments on the
first through fifth anniversaries of the Effective Date. When vested, the
second group of options becomes exercisable only when the Sales Price is
$20.00 per share or greater for the Performance Period (the "Second Group
Exercisability Threshold"), and when vested, the third group of options
becomes exercisable when the Sales Price is $26.75 per share or greater for
the Performance Period (the "Third Group Exercisability Threshold").

In the event of any change in the outstanding shares of Common Stock through
reorganization, stock dividend, subdivision or combination of shares, or other
like change in capital structure of the Company, appropriate adjustments will
be made by the Committee to each outstanding option under the Replacement
Option Plan and to the maximum number of shares of Common Stock which may be
acquired pursuant to the exercise of options, and the price per share subject
to outstanding options shall be proportionately adjusted.

In the event of (i) a "change in control" of the Company, as defined in the
Replacement Option Plan, or (ii) the consummation of a public offering of
shares of Common Stock by MLP and/or Centre Partners for an aggregate gross
sales price of not less than $50 million pursuant to a request for
registration under the Stockholders' Agreement, in each case within the first
two years following the effective date of the plan, for purposes of
determining whether the options shall become exercisable the Sales Price used
in determining the Second Group Exercisability Threshold will be reduced to
$17.75 per share and the Sales Price used in determining the Third Group
Exercisability Threshold will be reduced to $22.375 per share. See "Certain
Relationships and Related Transactions." The Committee, in its sole
discretion, may determine that, upon the occurrence of a change in control,
each option then outstanding will terminate within a specified number of days
after notice to the holder, and such holder will receive, with respect to each
share subject to such option, cash in

48
<PAGE>

an amount equal to the excess of the fair market value of such share
immediately prior to the occurrence of such transaction over the exercise
price per share of such option. The provisions described in the preceding
sentence will be inapplicable to an option granted within six (6) months
before the occurrence of a transaction described above if the holder of such
option is subject to the reporting requirements of Section 16(a) of the
Exchange Act.

Options granted under the Replacement Option Plan are non-transferable,
except by will, the laws of descent and distribution, or pursuant to a
qualified domestic relations order. As a condition to the exercise of any
option under the Replacement Option Plan, the optionee is required to become
party to the Stockholders' Agreement. See "Certain Relationships and Related
Transactions."

Under the Replacement Option Plan, John R. Jester will receive options to
purchase 148,331 shares for $2.19 per share; James F. Harrison will receive
options to purchase 93,563 shares for $2.19 per share; John A. Neal will
receive options to purchase 63,896 shares for $2.19 per share; and Thomas J.
Gentry will receive options to purchase 63,896 shares for $2.19 per share; and
Wallace R. Borgeson will receive options to purchase 63,896 shares for $2.19
per share.

1996 STOCK OPTION PLAN

As part of the Recapitalization, the Board of Directors of the Company will
adopt a stock option plan (the "1996 Stock Option Plan"). The 1996 Stock
Option Plan is intended to afford certain key employees and outside directors
of the Company who are responsible for the continued growth of the Company an
opportunity to acquire a proprietary interest in the Company.

The 1996 Stock Option Plan provides for the granting of options to purchase
an aggregate of 250,000 shares of Common Stock (subject to adjustment in the
event of stock dividends, stock splits and other contingencies). Options
granted under the 1996 Stock Option Plan are not intended to qualify as
"incentive stock options" within the meaning of Section 422A of the Code. The
1996 Stock Option Plan is qualified under Rule 16b-3 under the Exchange Act.

The 1996 Stock Option Plan requires the Board of Directors to designate an
option committee to administer the 1996 Stock Option Plan, consisting of no
fewer than two directors who are "disinterested persons" within the meaning of
Rule 16b-3 under the Exchange Act (or any successor rule or regulation). The
Board of Directors may at any time remove members from and may fill any
vacancy on the Committee. The Committee has the authority, in its discretion
and subject to the express provisions of the 1996 Stock Option Plan to
determine, among other things, the persons to receive options, the date of
grant of such options, the number of shares to be subject to each option, and
the purchase price of each share subject to such options. The Company will
receive no monetary consideration for granting options under the 1996 Stock
Option Plan.

The 1996 Stock Option Plan also provides for the grant to each non-employee
director of the Company of options to purchase 6,000 shares of Common Stock
upon the later of (i) the consummation of the Offering and (ii) the initial
election of such director to the Board, and automatically grants options to
purchase 3,000 shares of Common Stock on the date on which the annual meeting
of the Company's stockholders is held each year. See "--Directors'
Compensation."

The purchase price of shares of Common Stock issuable upon exercise of each
option granted pursuant to the 1996 Stock Option Plan will be the fair market
value of the shares on the date of grant. Options granted under the 1996 Stock
Option Plan expire seven years from the date of grant. Options granted
pursuant to the 1996 Stock Option Plan will vest in three equal installments
over three years commencing one year after the date of grant, and are
exercisable when vested.

In the event of any change in the outstanding shares of Common Stock of the
Company through reorganization, stock dividend, subdivision or combination of
shares, or other like change in capital structure of the Company, appropriate
adjustments will be made by the Committee to each outstanding option under the
1996

49
<PAGE>

Stock Option Plan and to the maximum number of shares of Common Stock which
may be acquired pursuant to the exercise of options, and the price per share
subject to outstanding options shall be proportionately adjusted.

In the event of a "change in control" of the Company as defined in the 1996
Stock Option Plan, all then outstanding options shall immediately become
exercisable. The Committee, in its sole discretion, may determine that, upon
the occurrence of a change in control, each option then outstanding will
terminate within a specified number of days after notice to the holder, and
such holder will receive, with respect to each share subject to such option,
cash in an amount equal to the excess of the fair market value of such share
immediately prior to the occurrence of such transaction over the exercise
price per share of such option. The provisions described in the preceding
sentence will be inapplicable to an option granted within six (6) months
before the occurrence of a transaction described above if the holder of such
option is subject to the reporting requirements of Section 16(a) of the
Exchange Act.

Options granted under the 1996 Stock Option Plan are non-transferable,
except by will, the laws of descent and distribution, or pursuant to a
qualified domestic relations order. As a condition to the exercise of any
option under the 1996 Stock Option Plan, the optionee is required to execute
the Stockholders' Agreement. See "Certain Relationships and Related
Transactions."

SENIOR MANAGEMENT INCENTIVE PLAN

In January 1996, the Company adopted the Senior Management Incentive Plan
(the "Incentive Plan"), to provide for annual incentive awards to senior
executives of the Company.

The Incentive Plan will be administered by the Compensation Committee.
Initially, there will be eleven participants in the Incentive Plan, including
Messrs. Jester, Harrison, Neal, Gentry and Borgeson.

Annual incentive awards under the Incentive Plan will be based on the
achievement by the Company of target levels of three distinct measures:
EBITDA, operating cash flow (as defined in the Incentive Plan) and revenue
growth in a calendar year. The annual incentives for participants may range
from no award (if minimum target levels are not reached) to a maximum of 43%
(if maximum target levels are reached) of base salary in effect at the end of
a plan year. No awards will be made under the Incentive Plan unless the
minimum target level for EBITDA is reached, regardless of the performance
levels for the other measurements. The Incentive Plan will first be effective
for the 1996 plan year.

If a participant's employment is terminated during a plan year, a pro-rated
bonus may be awarded at the discretion of the Compensation Committee.
Performance target levels may be modified, at the discretion of the
Compensation Committee, for significant transactions, such as acquisitions,
divestitures or development projects.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the Recapitalization, there has been no Compensation Committee of
the Board of Directors. During fiscal 1995, executive compensation decisions
were made by the Board of Directors of the general partner of the managing
general partner of the Partnership, which consisted of Messrs. Balser,
Jennings, Jester and Pollack.

Paul F. Balser and Mark E. Jennings, each of whom is a director of the
Company, are limited partners of MLP and prior to August 1995 were officers of
Park Road Corporation ("Park Road"), the managing general partner of Centre
Partners. Bruce G. Pollack, a director of the Company, is a limited partner of
MLP and is an officer and director of Park Road.

Centre Partners was paid (i) $324,000 for its efforts in initiating,
structuring and consummating the Comcast Acquisition and (ii) $150,000 as
consideration for the guarantees by MLP and CCI of a $10.0 million unsecured
loan made by UBS (the "UBS Loan"). In addition, the Company agreed to pay
Centre Partners $300,000 if any amounts were required to be paid under either
the MLP or CCI guarantee. Such guarantees have been discharged and no payments
were required to be made thereunder.

50
<PAGE>

The interests in the Partnership held by MLP, certain of its affiliates and
the Management Investors, including Mr. Jester, are pledged to secure the
outstanding indebtedness under the Company's senior secured credit facility.
Upon completion of the Recapitalization, these interests will be exchanged for
Common Stock, the indebtedness will be repaid and the pledges will be
released. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

During each of 1992, 1993 and 1994, the Company paid to Centre Partners the
aggregate amount of $100,000 for the services of the Centre Partners designees
as directors of Music Holdings for the subsequent calendar year. In 1996, the
Company will pay to Centre Partners $162,500 for services provided by the
Centre Partners designees during 1995 and 1996.

Upon consummation of the Offering, the Company will pay Centre Partners a
one-time fee of $250,000 for financial advisory services in connection with
the Recapitalization.

In connection with the Recapitalization, MLP, Centre Partners and Mr.
Jester, among others, entered into the Stockholders' Agreement. For a
description of the terms of the terms of the Stockholders' Agreement, see
"Certain Relationships and Related Transactions."

BENEFIT PLAN

The Company maintains a 401(k) defined contribution savings and retirement
plan (the "Benefit Plan") that covers substantially all of the Company's
employees, including certain Named Executive Officers. Under the Benefit
Plan's savings portion, eligible employees may contribute from 2% to 14% of
their compensation per year, subject to certain tax law restrictions. The
Company may make a matching contribution of up to a maximum of 100% of the
first 2% and 50% of the next 4%, up to 6% of the total base salary contributed
by the employee each year. The Company's contributions under the retirement
portion of the Benefit Plan are determined annually by the Company, but may
not exceed 3% of the eligible employee's annual compensation. Benefit Plan
participants are immediately vested in their contributions as well as the
Company's contributions.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Pursuant to the provisions of the Delaware General Corporation Law (the
"DGCL"), the Company has adopted provisions in its Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for
a breach of fiduciary duty as a director, except for liability as a result of
(i) a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
the DGCL; and (iv) transactions from which the director derived an improper
personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.

The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the fullest extent permitted under DGCL. The Company has entered
into separate indemnification agreements with its directors and officers which
are, in some cases, broader than the specific indemnification provisions
contained in the DGCL. The indemnification agreements require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers (other than liabilities arising from willful misconduct of a
culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company as to which
indemnification is being sought, nor is the Company aware of any pending or
threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.

51
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the Recapitalization, Music Holdings Corp., MLP, the
Management Investors, Comcast, UBS, Barclays, Exeter Venture Lenders, L.P.
("Exeter") and Internationale Nederlanden Finance Corp. ("ING"), among others,
entered into an Exchange and Transfer Agreement, dated as of May 10, 1996,
with the Company, pursuant to which, effective upon completion of the
Offering, these parties will convey their interests in the Partnership to the
Company in exchange for (i) Common Stock of the Company, in the case of MLP,
the Management Investors, Comcast Sound and certain other partners, and (ii)
cash, in the case of UBS, Barclays, Exeter and ING, to be paid upon closing of
the Offering with proceeds of the Offering. See "The Recapitalization," "Use
of Proceeds" and "Principal and Selling Stockholders."

In January 1994, the Company purchased substantially all of the assets of
Comcast in the Comcast Acquisition for total consideration of approximately
$33.0 million, $28.0 million of which was paid in cash and the balance of
which was paid with a $5.0 million 7% preferred limited partnership interest
of the Partnership. In connection with the Recapitalization, Comcast Sound's
interest in the Partnership will be converted into 648,261 shares of Common
Stock.

In order to finance the Comcast Acquisition, the Company's secured term loan
and revolving credit facility, in respect of which UBS acts as agent bank and
is a lender, were increased. In addition, the Company borrowed $10.0 million
under the UBS Loan. In November 1994, the UBS Loan was repaid in full with
proceeds from a subordinated financing involving the sale of $7.0 million in
additional preferred partnership interests to existing investors, including
MLP and the Management Investors, with a pledge of the limited partnership
interests to the lenders under the term loan and revolving credit facility,
and an increase in a subordinated debt facility provided by Barclays and
Exeter. Barclays and Exeter were also granted the right to purchase for
nominal consideration additional units of Partnership interests representing
approximately 2.8% of the Partnership's equity.

In the Recapitalization, units in the Partnership owned by UBS representing
approximately 8.9% of the Partnership's equity will be conveyed to the Company
for cash in an amount to be determined on the basis of the IPO Price, that
would be equal to $11.1 million assuming an IPO Price of $15.00 per share, and
rights to purchase units in the Partnership held by Barclays, representing
6.9% of the Partnership's equity, will be purchased by the Company for an
amount to be determined on the basis of the IPO Price, that would be equal to
$8.7 million assuming an IPO Price of $15.00 per share. Subordinated
indebtedness in the amount of $12.5 million and bearing interest at an
effective rate of 14.5% provided by Barclays and other lenders will be repaid
in the Recapitalization. See "The Recapitalization," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

During the years ended December 31, 1993, 1994 and 1995, and three-month
periods ended March 31, 1995 and 1996, the Company incurred interest expense
of approximately $3.7 million, $6.9 million, $7.4 million, $1.9 million and
$1.8 million, respectively, in connection with the UBS term loan and revolving
credit facility and the Barclays subordinated debt facility. In addition, in
1993, 1994 and 1995, the Company paid an aggregate of $250,000, $1.9 million
and $122,000, respectively, in fees to UBS and Barclays in connection with
increases in the Company's term loan and establishment of and increases in the
revolving credit facility and the subordinated debt facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

In connection with the Recapitalization, MLP, Centre Partners, Comcast
Sound, the Management Investors and the Company, among others, entered into
the Stockholders' Agreement, pursuant to which the parties agreed (i) that the
stockholder parties will vote their Common Stock to cause the Board of
Directors of the Company to consist of six directors, (A) three of which shall
be designated by MLP and Centre Partners (the "Centre Holders") so long as the
Centre Holders own more than 30% of the outstanding shares of Common Stock,
two of which shall be designated by the Centre Holders so long as the Centre
Holders own less than 30% of the outstanding shares but more than 15% of the
outstanding shares, and one of which shall be designated by the Centre Holders
in the event the Centre Holders own less than 15% of the outstanding shares so
long as the Centre Holders own any shares, (B) one of which shall be the Chief
Executive Officer of the Company, and (C) two of

52
<PAGE>

which shall be independent directors and (ii) that the stockholders party
thereto will have the right to have the Common Stock of the Company that they
hold registered under the Securities Act (x) in the event that the Company
undertakes the registration of the Company's Common Stock subsequent to the
Offering or (y) upon the written requests (not to exceed three) of the Centre
Holders. In the event that the number of securities that the Centre Holders
and the Management Investors desire to include in any offering, combined with
the number of shares to be included in the offering by the Company (if the
offering is being done pursuant to the Company's undertaking), exceeds the
amount of securities that can be sold in an orderly fashion within a price
range acceptable to the Company, the stockholders party thereto other than the
Management Investors shall have priority and can participate in that offering
to the fullest extent possible prior to any participation by the Management
Investors. In addition, the Management Investors agreed in the Stockholders'
Agreement (i) not to include any shares in the first registration of Common
Stock following the Offering initiated at the request of the Centre Holders
and (ii) not to sell, transfer, assign or encumber any shares of Common Stock
prior to the consummation of the first registered offering of Common Stock
following the Offering that is initiated at the request of the Centre Holders
or in any shelf registration statement filed pursuant to a request by the
Centre Holders under the Stockholders' Agreement.

For additional information, see "Management--Compensation Committee
Interlocks and Insider Participation."

53
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of the date hereof (after giving
effect to the Incorporation) and as adjusted to reflect the sale of the Common
Stock offered hereby, by (i) Comcast Sound, (ii) each stockholder known by the
Company to beneficially own more than five percent of the Common Stock, (iii)
each director of the Company, (iv) the Named Executive Officers and (v) all
directors and executive officers of the Company as a group. Except pursuant to
applicable community property laws or as otherwise noted below, each of the
stockholders identified in the table has sole voting and investment power with
respect to the shares beneficially owned by such person.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR OWNERSHIP AFTER
TO OFFERING OFFERING
-------------------- --------------------
NAME AND ADDRESS OF NUMBER OF SHARES TO BE SOLD NUMBER OF
BENEFICIAL OWNER SHARES PERCENT IN THE OFFERING SHARES PERCENT
------------------- --------- ------- ----------------- --------- -------
<S> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS,
DIRECTORS AND NAMED
EXECUTIVE OFFICERS:
Centre Partners 5,581,800 62.5% -- 5,581,800(2) 48.9%(2)
L.P.(1)................
30 Rockefeller Plaza
Suite 5050
New York, New York
10020
John R. Jester.......... 167,565 1.9% -- 167,565 1.5%
James F. Harrison....... 99,105 1.1% -- 99,105 0.9%
Thomas J. Gentry........ 72,372 0.8% -- 72,372 0.6%
John A. Neal............ 79,871 0.9% -- 79,871 0.7%
Wallace R. Borgeson..... 45,640 0.5% -- 45,640 0.4%
Paul F. Balser.......... -- (3) -- (3) -- -- (3) -- (3)
Mark E. Jennings........ -- (3) -- (3) -- -- (3) -- (3)
Bruce G. Pollack........ -- (4) -- (4) -- -- (4) -- (4)
All directors and
executive officers as
a group (8 persons).... 464,553(5) 5.2%(5) -- 464,553(5) 4.1%(5)
SELLING STOCKHOLDER:
Comcast 648,261 7.3% 358,423 289,838 2.5%
Corporation(6)........
1500 Market Street
Philadelphia, PA 19102
</TABLE>
- --------

(1) Includes shares held by MLP, of which Centre Partners is the general
partner. Centre Partners may be deemed to be indirectly controlled,
through Park Road, the managing general partner of Centre Partners, by
Lester Pollack, a managing director of Lazard Freres & Co. LLC and the
father of Bruce G. Pollack, a director of the Company.

(2) Assumes that the over-allotment option to purchase 690,000 shares of
Common Stock granted to the Underwriters by MLP is not exercised. If the
over-allotment option is exercised, Centre Partners will beneficially own
4,891,800 shares, representing 42.9% of the outstanding Common Stock.

(3) Excludes shares held by Centre Partners and MLP. Messrs. Balser and
Jennings are limited partners of MLP and prior to August 1995 were
officers of Park Road. Each disclaims beneficial ownership of such shares.

(4) Excludes shares held by Centre Partners and MLP. Mr. Pollack is a limited
partner of MLP and is an officer and director of Park Road. He disclaims
beneficial ownership of such shares.
(5) Excludes shares held by Centre Partners and MLP.

(6) Comcast Sound is a wholly-owned subsidiary of Comcast Corporation.

54
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 11,410,339 shares of
Common Stock outstanding. Of the shares of Common Stock that will be
outstanding after completion of the Offering, 4,600,000 shares (plus an
additional 690,000 shares if the over-allotment option granted to the
Underwriters is exercised in full) will be freely tradeable by persons other
than "affiliates" as defined in Rule 144 under the Securities Act (the
"Affiliates") of the Company, without restriction or further registration
under the Securities Act.

Assuming no exercise of the over-allotment option granted to the
Underwriters, the remaining 6,810,339 shares of Common Stock will be deemed
"restricted securities" as defined in Rule 144 and may not be sold in the
absence of registration under the Securities Act or pursuant to an exemption
from such registration, including exemptions provided by Rule 144. Even if
such exemptions are available, all of the holders of Common Stock or any
securities convertible into or exercisable or exchangeable therefor, as well
as all holders of options to purchase Common Stock, have agreed, subject to
certain exceptions, not to, directly or indirectly, offer, sell or otherwise
dispose of such shares for a period of 180 days after the date of this
Prospectus, without the prior written consent of PaineWebber Incorporated. See
"Underwriting."

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years (including the holding period of any prior owner except
an Affiliate) may sell within any three-month period a number of such
restricted shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock and the reported average weekly trading
volume on the Nasdaq National Market of the Common Stock during the four
calendar weeks preceding such sale. The Commission has proposed certain
amendments to Rule 144 that would reduce the requisite holding period from two
years to one year. Sales under Rule 144 are also subject to certain manner-of-
sale provisions, notice requirements and the availability of current public
information about the Company. A person who is not deemed to have been an
Affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned restricted securities for at least three years, may
sell such shares under Rule 144 without regard to the volume limitations,
manner-of-sale provisions, current public information requirements or notice
requirements. Under Rule 144 as currently in effect, none of the restricted
securities will be eligible for public sale pursuant to Rule 144 until at
least two years after the date of the Recapitalization.

Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701 under
the Securities Act. Rule 701 permits Affiliates to sell their Rule 701 shares
under Rule 144 without complying with the holding period requirements of Rule
144. Rule 701 further provides that non-Affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares.

The Company may in the future file a registration statement on Form S-8
covering all shares of Common Stock issuable under the Company's stock option
plans in effect on the date of this Prospectus. The Company has outstanding
stock options and options available for future grant with respect to an
aggregate of approximately 1,087,292 shares of Common Stock as of the date of
this Prospectus. It is a condition to the exercise of options under the
Company's stock option plans that the optionee agree to become a party to the
Stockholders' Agreement which provides among other things that such holder
shall not sell, transfer, assign or encumber any shares of Common Stock prior
to the consummation of the first registered offering of Common Stock following
the Offering initiated at the request of the Centre Holders or in any shelf
registration statement filed pursuant to a request by the Centre Holders under
the Stockholders' Agreement. See "Certain Relationships and Related
Transactions."

Upon lapse of the foregoing restrictions, up to an aggregate of 837,292
shares issuable upon the exercise of outstanding options under the Replacement
Option Plan will be eligible for sale in the public markets if and when the
options are exercised.

55
<PAGE>

The Company has also agreed, subject to limited exceptions, not to, directly
or indirectly, offer, sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable therefor for
a period of 180 days after the date of this Prospectus, without the prior
written consent of PaineWebber Incorporated. See "Underwriting."

Prior to the Offering, there has been no market for the Common Stock and no
predictions can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of shares of Common Stock for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market, or the
perception that such sales could occur, could have an adverse impact on the
market price of Common Stock.

Pursuant to the Stockholders' Agreement, MLP and Centre Partners have
certain rights to include any or all of the shares owned by them in a
registration undertaken by the Company, or, in certain cases, to require
registration of such shares upon written requests (not to exceed three). In
addition, the Management Investors and certain other stockholders party to the
Stockholders' Agreement currently have certain piggy-back registration rights
with respect to registrations of securities undertaken by the Company on its
behalf as well as in secondary registrations requested by the Centre Holders,
subject to reduction in specified circumstances. See "Certain Relationships
and Related Transactions."

56
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions the Company's Certificate of Incorporation (the "Certificate") and
its By-Laws (the "By-Laws") is a summary and is qualified in its entirety by
reference to the provisions of the Certificate and the By-Laws, copies of
which have been filed with the Securities and Exchange Commission as exhibits
to the Company's Registration Statement of which this Prospectus is a part.

The authorized capital stock of the Company consists of (i) 30,000,000
shares of Common Stock and (ii) 10,000,000 shares of preferred stock, par
value $0.01 per share ("Preferred Stock").

COMMON STOCK

As of the date of this Prospectus and after giving effect to the
Incorporation, there are 22 holders of record of Common Stock and 7,168,762
shares of Common Stock were issued and outstanding. The holders of the Common
Stock are entitled to one vote per share on all matters on which the holders
of Common Stock are entitled to vote. The holders of the outstanding shares of
Common Stock are entitled to receive dividends as and when declared by the
Board of Directors out of funds legally available therefor after the payment
of any dividends declared but unpaid on any shares of Preferred Stock then
outstanding. See "Dividend Policy." The holders of the Common Stock have no
cumulative voting rights, no pre-emptive rights and no rights to convert their
shares of Common Stock into any other securities. Because holders of Common
Stock do not have cumulative voting rights, the holders of the majority of the
shares of Common Stock represented at the meeting can elect all the directors.
All of the outstanding shares of the Common Stock are, and the shares of
Common Stock being offered by the Company hereby will be, fully paid and
nonassessable. On liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata the net assets of the
Company remaining after preferential distribution to holders of Preferred
Stock, the payment of all creditors and liquidation preferences, if any.

MLP, Centre Partners, the Named Executive Officers and certain other
stockholders have entered into the Stockholders' Agreement with the Company
with respect to the Common Stock held by them. See "Certain Relationships and
Related Transactions."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Securities
Transfer, Inc.

PREFERRED STOCK

The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of Preferred
Stock and to fix the designation, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of Preferred Stock. Any series of Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
to be distributed upon liquidation, dissolution or winding up. There are no
agreements or understandings for the issuance of Preferred Stock, and the
Board of Directors has no present intent to issue any Preferred Stock. The
existence of authorized but unissued Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise. For example, if in the due exercise of its fiduciary obligations,
the Board of Directors were to determine that a takeover proposal is not in
the Company's best interests, the Board of Directors could cause shares of
Preferred Stock to be issued without stockholder approval in one or more
private offerings or other transactions that might dilute the voting or other
rights of the proposed acquiror or insurgent stockholder or stockholder group.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above could decrease the amount of earnings and assets
available for distribution to holders

57
<PAGE>

of Common Stock and adversely affect the rights and powers, including voting
rights, of such holders and may have the effect of delaying, deferring or
preventing a change in control of the Company.

DELAWARE BUSINESS COMBINATION STATUTE

Upon consummation of the Offering, the Company will be subject to Section
203 of the DGCL. In general, subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless (i) prior to such date the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder, (ii) upon the consummation
of the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced
(excluding for purposes of determining the number of shares outstanding those
shares owned by (x) persons who are directors and also officers and (y)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer) or (iii) on or subsequent to such date
the business combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders, not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. Section 203 defines a "business
combination" to include certain mergers, consolidations, asset sales and stock
issuances and certain other transactions resulting in a financial benefit to
an "interested stockholder." In addition, Section 203 defines an "interested
stockholder" to include any entity or person beneficially owning 15% or more
of the outstanding voting stock of the corporation and any entity or person
affiliated with such an entity or person.

58
<PAGE>

UNDERWRITING

The underwriters named below, acting through PaineWebber Incorporated and
Montgomery Securities (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement by and
among the Partnership, the Company, Comcast Sound, MLP and the Representatives
(the "Underwriting Agreement"), to purchase from the Company and Comcast
Sound, and the Company and Comcast Sound have severally agreed to sell to the
Underwriters, respectively, 4,241,577 shares and 358,423 shares of the
Company's Common Stock, which in the aggregate equals the number of shares of
Common Stock set forth opposite the name of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
--------------------------------------------------------------- ---------
<S> <C>
PaineWebber Incorporated.......................................
Montgomery Securities..........................................
---------
Total........................................................ 4,600,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to certain
conditions. The Underwriting Agreement also provides that the Underwriters are
committed to purchase, and the Company and Comcast Sound are obligated to
sell, all of the shares of Common Stock offered by this Prospectus, if any of
the shares of Common Stock being sold pursuant to the Underwriting Agreement
are purchased (without consideration of any shares that may be purchased
through the exercise of the Underwriters' overallotment option).

The Representatives have advised the Company and Comcast Sound that the
Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover of this
Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to other dealers not in excess of $ per share. After
the initial public offering of the Common Stock, the public offering price,
the concessions to selected dealers and reallowance to other dealers may be
changed by the Representatives.

MLP has granted to the Underwriters an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to an additional
690,000 shares of Common Stock at the initial public offering price set forth
on the cover page of this Prospectus, less the underwriting discounts and
commissions. To the extent the Underwriters exercise the over allotment
option, each of the Underwriters will become obligated, subject to certain
conditions, to purchase such percentage of such additional shares of Common
Stock as is approximately equal to the percentage of shares of Common Stock
that each is obligated to purchase as shown in the table set forth above. The
Underwriters may exercise such option only to cover over-allotments, if any,
incurred in the sales of shares of Common Stock.

The Company, the Partnership, Comcast Sound and MLP have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

59
<PAGE>

The Company and each of its stockholders and holders of options to purchase
Common Stock have agreed not to offer, sell, contract to sell, or grant any
option to purchase or otherwise dispose of any shares of Common Stock owned by
any of them prior to the expiration of 180 days from the date of this
Prospectus, except (i) for shares of Common Stock offered hereby, (ii) with
the prior written consent of PaineWebber Incorporated, (iii) in the case of
any stockholder of the Company, gifts or transfers to (or to a trust
exclusively for the benefit of) members of the family, or one or more
beneficial owners, of such stockholder or their successors, subsidiaries or
controlled or controlling entities, in each case who agree to the terms of
such "lock-up" agreement and (iv) in the case of the Company, for the issuance
of shares of Common Stock upon the exercise of options, or the grant of
options to purchase shares of Common Stock, under the Replacement Option Plan
and the 1996 Stock Option Plan.

Prior to this Offering, there has been no public market for the Common Stock
of the Company. The IPO Price will be established through negotiations between
the Company, the Underwriters and the Representatives. Among the factors to be
considered in determining the IPO Price, in addition to prevailing market
conditions, will be certain financial information of the Company, the history
of, and the prospects for, the Company and the industry in which it competes,
an assessment of the Company's management, its past and present operations,
the prospects for, and timing of, future revenues of the Company, the present
state of the Company's development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. The IPO Price set forth on the cover page
of this Prospectus should not, however, be considered an indication of the
actual value of the Common Stock. Such price is subject to change as a result
of market conditions and other factors. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to this Offering at or above
the IPO Price.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company and the selling stockholders by
Weil, Gotshal & Manges LLP, New York, New York. Certain legal matters in
connection with the offering of the Common Stock will be passed upon for the
Underwriters by Bogle & Gates P.L.L.C., Seattle, Washington.

EXPERTS

The financial statements of Muzak Limited Partnership included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement. These financial statements and the
financial statement schedule have been included herein and elsewhere in the
Registration Statement in reliance upon the reports of said firm given upon
their authority as experts in accounting and auditing.

The financial statement of Muzak, Inc. included in this Prospectus has been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and has been so included in reliance upon the report
of said firm given upon their authority as experts in accounting and auditing.

The financial statements of Comcast Sound Communications, Inc. and
subsidiaries included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to allocated management fees and costs), and have been so
included in reliance upon the report of said firm given upon their authority
as experts in accounting and auditing.

60
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") pursuant to the Securities Act, covering the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
summaries of the material terms of such contract, agreement or document. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibits for a more
complete description of the matter involved. The Registration Statement
(including the exhibits and schedules thereto) filed with the Commission by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

The Company is not currently subject to the informational requirements of
the Exchange Act. As a result of the Offering, the Company will become subject
to the informational requirements of the Exchange Act. The Company will
fulfill its obligations with respect to such requirements by filing periodic
reports with the Commission. In addition, the Company intends to furnish to
its stockholders annual reports containing audited financial statements
certified by its independent auditors and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.

61
<PAGE>

MUZAK, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Balance Sheet as of March 31, 1996.................. F-3
Unaudited Pro Forma Statement of Operations for the three-month period
ended March 31, 1996................................................... F-4
Unaudited Pro Forma Statement of Operations for the year ended December
31, 1995............................................................... F-5
Notes to Unaudited Pro Forma Financial Statements....................... F-6
MUZAK LIMITED PARTNERSHIP
Independent Auditors' Report............................................ F-7
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996...... F-8
Statements of Operations for the years ended December 31, 1993, 1994,
and 1995 and the three-month periods ended March 31, 1995 and 1996..... F-9
Statements of Partners' Capital for the years ended December 31, 1993,
1994, and 1995 and the three-month period ended March 31, 1996......... F-10
Statements of Cash Flows for the years ended December 31, 1993, 1994,
and 1995 and the three-month periods ended March 31, 1995 and 1996..... F-11
Notes to Financial Statements........................................... F-12
MUZAK, INC.
Independent Auditors' Report............................................ F-24
Balance Sheet as of May 8, 1996......................................... F-25
Note to Financial Statement............................................. F-26
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-27
Statement of Operations for the year ended December 31, 1993............ F-28
Statement of Cash Flows for the year ended December 31, 1993............ F-29
Notes to Financial Statements........................................... F-30
</TABLE>

F-1
<PAGE>

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following pro forma financial information sets forth historical
information which has been adjusted to reflect a recapitalization (the
"Recapitalization") which includes, among other things, (i) certain
transactions associated with the conversion of the Company into a corporate
form (the "Incorporation"), (ii) the income tax effects of the Incorporation
assuming the Incorporation occurred on September 1, 1992, (iii) the issuance
by the Company of 4,241,577 shares of Common Stock at an assumed offering
price of $15.00 per share in an initial public offering, net of related fees
and expenses, (iv) the application of the net proceeds to pay short-term
obligations established as part of the Incorporation, repayment of the
$12,500,000 of subordinated debt, and a reduction of the principal balance due
under the variable rate senior secured indebtedness, and (v) a reduction in
interest expense from the application of proceeds to reduce the Company's
long-term obligations.

Non-recurring expenses for the year ended December 31, 1995 and three-month
period ended March 31, 1996 for (i) the write-off of $3,056,000 and
$2,814,000, respectively, of deferred financing costs, (ii) the write-off of
$1,536,000 and $1,474,000, respectively, of unamortized discount associated
with long-term obligations expected to be repaid with the offering proceeds,
and (iii) the write-off of $878,000 and $746,000, respectively, of
organizational costs associated with the limited partnership structure have
not been reflected in the Unaudited Pro Forma Statements of Operations.
Similarly, the non-recurring gain of approximately $1.3 million resulting from
the retirement at a discount of a non-convertible, non-participating but
accreting, preferred interest in the partnership has not been reflected in the
Unaudited Pro Forma Statements of Operations. In addition, non-cash stock-
based incentive compensation expenses under a compensatory stock option plan
adopted concurrently with the Recapitalization ("Replacement Option Plan")
have not been reflected in the Unaudited Pro Forma Statements of Operations.

The Unaudited Pro Forma Statements of Operations assume the Recapitalization
took place on January 1, 1995, the beginning of the earliest period presented.
The Unaudited Pro Forma Balance Sheet assumes the Recapitalization took place
on the date presented. See "Notes to Unaudited Pro Forma Financial
Statements." The pro forma information is based on certain assumptions and
estimates that management believes are reasonable in the circumstances and
does not purport to be indicative of the results which actually would have
been attained had the above transactions occurred at the dates indicated or
the results which may be attained in the future. This information should be
read in conjunction with the Company's audited financial statements and
related notes included elsewhere in this Prospectus.

F-2
<PAGE>

MUZAK, INC.

UNAUDITED PRO FORMA BALANCE SHEET

MARCH 31, 1996

(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
MUZAK INCORPORATION RECAPITALIZATION MUZAK, INC.
LIMITED PRO FORMA MUZAK, INC. PRO FORMA PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA ADJUSTMENTS (AS ADJUSTED)
----------- ------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equiva-
lents................ $ 1,770 $ 1,770 $ 1,770
Accounts receivable,
net of allowance
for doubtful accounts
of $654.............. 14,534 14,534 14,534
Inventories........... 3,081 3,081 3,081
Prepaid expenses...... 1,559 1,559 1,559
Other................. 327 327 327
------- -------- --------
Total current as-
sets............... 21,271 21,271 21,271
Property and equipment,
net.................... 36,543 36,543 36,543
Deferred costs and in-
tangible assets, net... 35,551 35,551 ($3,560)(5) 31,991
Other................... 993 993 993
------- -------- --------
Total................. $94,358 $ 94,358 $ 90,798
======= ======== ========
LIABILITIES AND OWNERSHIP EQUITY
Current Liabilities:
Revolving credit fa-
cility............... $10,950 $ 10,950 ($10,950)(7)
Accounts payable...... 6,609 6,609 $ 6,609
Advance billings...... 3,603 3,603 3,603
Accrued expenses...... 4,708 4,708 4,708
Repurchase obliga-
tions................ $ 8,900(1) 33,496 (8,900)(6)
24,596(3) (24,596)(6)
Current portion of
long-term
obligations.......... 6,367 6,367 (5,980)(7) 387
------- -------- --------
Total current lia-
bilities........... 32,237 65,733 15,307
Long-term obligations,
net of current
portion................ 44,150 44,150 (11,124)(6) 38,930
1,474 (5)
(12,500)(6)
16,930 (7)
Unearned installation
income................. 3,036 3,036 3,036
Redeemable preferred
partnership interests.. 15,993 (10,202)(1)
(5,791)(2)
Ownership Equity
Partners' capital (def-
icit):
Limited partners' in-
terests.............. 4,875 (24,596)(3)
19,721 (4)
General partners' in-
terests.............. (5,933) 5,933 (4)
------- -------- --------
Total partners' cap-
ital (deficit)..... (1,058)
Stockholders' equity:
Common stock and paid
in capital........... 71 (4) 71 57,120 (6) 57,191
Accumulated deficit... (19,792)(4) (18,632) (5,034)(5) (23,666)
(5,931)(4)
5,791 (2)
1,302 (1)
------- -------- --------
Total stockholders'
equity............. (18,561) 33,525
------- -------- --------
Total ownership equity.. (1,058) (18,561) 33,525
------- -------- --------
Total................... $94,358 $ 94,358 $ 90,798
======= ======== ========
</TABLE>

F-3
<PAGE>

MUZAK, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
OTHER
MUZAK INCORPORATION RECAPITALIZATION MUZAK, INC.
LIMITED PRO FORMA MUZAK, INC. PRO FORMA PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA ADJUSTMENTS (AS ADJUSTED)
----------- ------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Music and other
business services..... $13,306 $13,306 $13,306
Equipment and related
services.............. 7,634 7,634 7,634
------- ------- -------
Total revenues........ 20,940 20,940 20,940
------- ------- -------
Cost of revenues:
Music and other
business services..... 3,708 3,708 3,708
Equipment and related
services.............. 5,254 5,254 5,254
------- ------- -------
Total cost of
revenues............. 8,962 8,962 8,962
------- ------- -------
Gross profit.......... 11,978 11,978 11,978
Selling, general and
administrative
expenses............... 7,526 7,526 7,526
Depreciation............ 2,537 2,537 2,537
Amortization............ 2,137 2,137 2,137
------- ------- -------
Operating loss........ (222) (222) (222)
Interest expense........ 1,798 1,798 ($1,008)(9) 790
Other expense, net...... 122 122 122
------- ------- -------
Net loss before pro
forma income tax
benefit................ (2,142) (2,142) (1,134)
Pro forma income tax
benefit................ $0(8) 0 (9)
------- ------- -------
Pro forma net loss...... (2,142) (2,142) (1,134)
Redeemable preferred
return................. (172) 172(1)
------- ------- -------
Pro forma net loss
attributable to common
stockholders........... ($2,314) ($2,142) ($1,134)
======= ======= =======
Pro forma net loss
attributable to common
stockholders per
share.................. ($0.30) ($0.10)
======= =======
Pro forma weighted
average shares
outstanding............ 7,589 11,831
======= =======
</TABLE>

F-4
<PAGE>

MUZAK, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
OTHER
MUZAK INCORPORATION RECAPITALIZATION MUZAK, INC.
LIMITED PRO FORMA MUZAK, INC. PRO FORMA PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA ADJUSTMENTS (AS ADJUSTED)
----------- ------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Music and other
business services..... $52,489 $52,489 $52,489
Equipment and related
services.............. 34,392 34,392 34,392
------- ------- -------
Total revenues........ 86,881 86,881 86,881
------- ------- -------
Cost of revenues:
Music and other
business services..... 14,465 14,465 14,465
Equipment and related
services.............. 23,895 23,895 23,895
------- ------- -------
Total cost of
revenues............. 38,360 38,360 38,360
------- ------- -------
Gross profit.......... 48,521 48,521 48,521
Selling, general and
administrative
expenses............... 28,496 28,496 28,496
Depreciation............ 9,382 9,382 9,382
Amortization............ 8,909 8,909 8,909
------- ------- -------
Operating income...... 1,734 1,734 1,734
Interest expense........ 7,483 7,483 ($4,323)(9) 3,160
Other income, net....... (35) (35) (35)
------- ------- -------
Net loss before pro
forma income tax
benefit................ (5,714) (5,714) (1,391)
Pro forma income tax
benefit................ $0(8) 0(9)
------- ------- -------
Pro forma net loss...... (5,714) (5,714) (1,391)
Redeemable preferred
return................. (657) 657(1)
------- ------- -------
Pro forma net loss
attributable to common
stockholders........... ($6,371) ($5,714) ($1,391)
======= ======= =======
Pro forma net loss
attributable to common
stockholders per
share.................. ($0.84) ($0.12)
======= =======
Pro forma weighted
average shares
outstanding............ 7,589 11,831
======= =======
</TABLE>

F-5
<PAGE>

MUZAK, INC.

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

(1) Adjustment to reflect the conversion of a non-convertible, non-
participating but accreting, preferred interest in the partnership into a
payment obligation as part of the Incorporation and the non-recurring gain
from the retirement of such interest.

(2) Adjustment to reflect the conversion of a non-convertible, non-
participating but accreting, preferred interest in the partnership into
Common Stock as part of the Incorporation.

(3) Adjustment to reflect the conversion of certain partnership interests into
payment obligations as part of the Incorporation.

(4) Adjustment to reflect the exchange of the general and certain limited
partnership interests for Common Stock as part of the Incorporation.

(5) Adjustment to record the write-off of the unamortized debt discount and
deferred financing costs associated with the early extinguishment of debt
through the application of net proceeds and write-off of organizational
costs associated with the limited partnership.

(6) Adjustment to give effect to the use of proceeds from the issuance of
4,241,577 shares of Common Stock being offered by the Company to fund the
payment of (i) the payment obligations created in the Incorporation, (ii)
the subordinated debt, and (iii) a portion of the senior variable rate
notes.

(7) Adjustment to give effect to borrowings under the new credit facility to
refinance the Company's remaining indebtedness.

(8) Adjustment to reflect an income tax benefit and related 100% valuation
allowance (assuming an effective tax rate of 40%) as if the Company had
operated in a corporate form from the beginning of the period and been
subject to federal and state income taxes.

(9) Adjustment to reduce interest expense as a result of the paydown of debt
from the application of net proceeds of the offering and refinancing of
the remaining indebtedness with the new credit facility. The assumed
principal reductions, refinanced indebtedness balances and resulting pro
forma interest savings are as follows:

<TABLE>
<CAPTION>
THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 INTEREST SAVINGS MARCH 31, 1996 INTEREST SAVINGS
---------------------- ---------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
Principal Reductions.... $11.1 million at 11.2% $1.2 million $11.1 million at 10.6% $0.3 million
$12.5 million at 14.5% $1.8 million $12.5 million at 14.5% $0.4 million
Refinanced
Indebtedness........... $38.3 million at 3.3% $1.3 million $38.3 million at 3.3% $0.3 million
------------ ------------
$4.3 million $1.0 million
============ ============
</TABLE>

F-6
<PAGE>

INDEPENDENT AUDITORS' REPORT

General and Limited Partners
Muzak Limited Partnership
Seattle, Washington

We have audited the accompanying balance sheets of Muzak Limited Partnership
(the "Company") as of December 31, 1995 and 1994, and the related statements
of operations, partners' capital, and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Muzak Limited Partnership as of December
31, 1995 and 1994, and the results of operations and its cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP
Seattle, Washington

March 6, 1996

(June 29, 1996, as to Notes 3, 8 and 11)

F-7
<PAGE>

MUZAK LIMITED PARTNERSHIP

BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1994 1995 1996
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 1,445 $ 1,115 $ 1,770
Accounts receivable, net of allowance for
doubtful accounts
of $736, $632 and $654........................ 15,868 15,534 14,534
Inventories.................................... 4,070 3,473 3,081
Prepaid expenses............................... 1,462 1,543 1,559
Other.......................................... 491 357 327
-------- ------- -------
Total current assets......................... 23,336 22,022 21,271
Property and equipment, net...................... 37,588 36,586 36,543
Deferred costs and intangible assets, net........ 41,435 36,706 35,551
Other............................................ 733 1,125 993
-------- ------- -------
Total assets................................. $103,092 $96,439 $94,358
======== ======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Revolving credit facility...................... $ 6,000 $ 9,300 $10,950
Accounts payable............................... 8,085 6,818 6,609
Advance billings............................... 4,337 4,533 3,603
Accrued expenses............................... 3,525 2,902 4,708
Current portion of long-term obligations....... 4,455 5,911 6,367
-------- ------- -------
Total current liabilities.................... 26,402 29,464 32,237
Long-term obligations, net of current portion.... 52,378 47,094 44,150
Unearned installation income..................... 1,676 2,786 3,036
Commitments and contingencies (Note 8)...........
Redeemable preferred partnership interests....... 14,693 15,722 15,993
PARTNERS' CAPITAL (DEFICIT):
Limited partners' interests.................... 7,368 5,637 4,875
General partners' interests.................... 575 (4,264) (5,933)
-------- ------- -------
Total partners' capital (deficit)............ 7,943 1,373 (1,058)
-------- ------- -------
Total liabilities and partners' capital...... $103,092 $96,439 $94,358
======== ======= =======
</TABLE>

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

F-8
<PAGE>

MUZAK LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE-
MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Music and other business
services....................... $36,800 $50,410 $52,489 $12,941 $13,306
Equipment and related services.. 21,741 33,006 34,392 8,265 7,634
------- ------- ------- ------- -------
Total revenues................ 58,541 83,416 86,881 21,206 20,940
------- ------- ------- ------- -------
Cost of revenues:
Music and other business
services....................... 10,611 13,685 14,465 3,518 3,708
Equipment and related services.. 16,756 23,413 23,895 5,720 5,254
------- ------- ------- ------- -------
Total cost of revenues........ 27,367 37,098 38,360 9,238 8,962
------- ------- ------- ------- -------
Gross profit...................... 31,174 46,318 48,521 11,968 11,978
Selling, general and
administrative expenses.......... 19,603 28,699 28,496 7,410 7,526
Depreciation...................... 4,349 8,211 9,382 2,303 2,537
Amortization...................... 6,942 9,622 8,909 2,196 2,137
------- ------- ------- ------- -------
Operating income (loss)......... 280 (214) 1,734 59 (222)
Interest expense.................. 3,785 6,990 7,483 1,901 1,798
Other (income) expense, net....... (30) (21) (35) (32) 122
------- ------- ------- ------- -------
Net loss before pro forma income
tax benefit.................... (3,475) (7,183) (5,714) (1,810) (2,142)
Unaudited pro forma information
(Note 3):
Pro forma income tax benefit.... -- -- -- -- --
------- ------- ------- ------- -------
Pro forma net loss.............. ($3,475) ($7,183) (5,714) ($1,810) (2,142)
======= ======= =======
Class C redeemable preferred
return......................... (657) (172)
------- -------
Pro forma net loss attributable
to common stockholders......... ($6,371) ($2,314)
======= =======
Pro forma net loss attributable
to common stockholders per
share ......................... ($0.84) ($0.30)
======= =======
Pro forma weighted average
shares outstanding............. 7,589 7,589
======= =======
</TABLE>

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

F-9
<PAGE>

MUZAK LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE UNAUDITED THREE-
MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS B
CLASS A CLASS B LIMITED PREFERRED TOTAL
GENERAL LIMITED CLASS A LIMITED PARTNERS' LIMITED LIMITED
PARTNERS' PARTNERS' PUT/CALL PARTNERS' SUBSCRIPTIONS PARTNERS' PARTNERS'
INTERESTS INTERESTS OPTIONS INTERESTS RECEIVABLE INTERESTS INTERESTS TOTAL
--------- --------- -------- --------- ------------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... $ 8,921 $ 1,315 $ 927 $1,628 ($ 592) $ -- $ 3,278 $12,199
Net loss............... (2,422) (360) (255) (438) (1,053) (3,475)
Payment of foreign
income taxes.......... (56) (8) (6) (10) (24) (80)
Preferred return on
redeemable preferred
interests............. (399) (59) (42) (72) (173) (572)
Redemption of Class B
limited partnership
interest.............. (50) 25 (25) (25)
------- ------- ------ ------ ------ ------ ------- -------
Balance, December 31,
1993................... 6,044 888 624 1,058 (567) -- 2,003 8,047
Net loss............... (4,802) (887) (561) (933) (2,381) (7,183)
Payment of foreign
income taxes.......... (43) (8) (5) (8) (21) (64)
Preferred return on
redeemable preferred
interests............. (624) (115) (73) (121) (309) (933)
Contributions by
partners.............. 967 175 (246) 7,000 7,896 7,896
Principal payments on
subscriptions
receivable............ 180 180 180
------- ------- ------ ------ ------ ------ ------- -------
Balance, December 31,
1994................... 575 (122) 952 171 (633) 7,000 7,368 7,943
Net loss............... (3,690) (682) (621) (721) (2,024) (5,714)
Payment of foreign
income taxes.......... (51) (14) (9) (12) (35) (86)
Preferred return on
redeemable preferred
interests............. (665) (123) (112) (129) (364) (1,029)
Preferred return on
preferred limited
partners' interests... (433) (80) (73) (85) 671 433 --
Principal payments on
subscriptions
receivable............ 259 259 259
------- ------- ------ ------ ------ ------ ------- -------
Balance, December 31,
1995................... (4,264) (1,021) 137 (776) (374) 7,671 5,637 1,373
Net loss............... (1,383) (256) (233) (270) (759) (2,142)
Payment of foreign
income taxes.......... (12) (2) (2) (2) (6) (18)
Preferred return on
redeemable preferred
interests............. (175) (32) (30) (34) (96) (271)
Preferred return on
preferred limited
partners' interests... (99) (18) (17) (19) 153 99 --
Contribution by
Partner............... 105 (105) -- --
------- ------- ------ ------ ------ ------ ------- -------
Balance, March 31,
1996................... ($5,933) ($1,329) ($ 145) ($996) ($ 479) $7,824 $ 4,875 ($1,058)
======= ======= ====== ====== ====== ====== ======= =======
</TABLE>

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

F-10
<PAGE>

MUZAK LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE-
MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................ ($3,475) ($7,183) ($5,714) ($1,810) ($2,142)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Provision for doubtful
accounts..................... 464 610 810 156 173
Depreciation.................. 4,349 8,211 9,382 2,303 2,537
Amortization, net of deferred
financing costs.............. 6,942 9,622 8,909 2,196 2,137
Deferred financing cost
amortization................. 529 1,159 1,310 333 304
Loss in equity of joint
venture...................... -- -- -- -- 43
Changes in operating assets and
liabilities:
Accounts receivable........... (3,442) (1,890) (476) 1,841 916
Inventories................... (476) (259) 597 848 393
Accounts payable.............. 1,137 1,970 (1,267) (1,152) (209)
Accrued expenses.............. (840) 1,198 (623) (913) 701
Advance billings.............. 507 1,200 194 84 175
Unearned installation income.. 577 1,099 1,110 273 250
Other, net.................... 154 (79) (35) (27) 10
------- ------- ------- ------- -------
Net cash provided by operating
activities................... 6,426 15,658 14,197 4,132 5,288
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Additions to property and
equipment...................... (4,537) (9,531) (8,116) (1,803) (2,552)
Additions to deferred costs and
intangible assets.............. (3,698) (4,273) (4,641) (1,173) (1,224)
Acquisitions of businesses and
ventures, net of cash
acquired....................... -- (33,294) (557) -- --
Other, net...................... 42 52 3 26 60
------- ------- ------- ------- -------
Net cash used in investing
activities................... (8,193) (47,046) (13,311) (2,950) (3,716)
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Borrowings under revolving notes
payable, net................... 3,250 2,250 3,300 750 1,650
Borrowings on term debt......... -- 34,034 -- -- --
Principal payments on term
debt........................... (900) (11,500) (4,111) (1,500) (2,490)
Payments on other long-term
debt........................... -- (986) (30) 45 (45)
Payments under capital leases... (484) (413) (432) (112) (15)
Contributions by partners....... -- 8,076 259 25 --
Other, net...................... (104) (64) (202) (9) (17)
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities......... 1,762 31,397 (1,216) (801) (917)
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents.... (5) 9 (330) 381 655
CASH AND CASH EQUIVALENTS,
beginning of period.............. 1,441 1,436 1,445 1,445 1,115
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period........................... $ 1,436 $ 1,445 $ 1,115 $ 1,826 $ 1,770
======= ======= ======= ======= =======
</TABLE>

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

F-11
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND
1996 IS UNAUDITED.)

1. THE COMPANY AND ITS BUSINESS:

Muzak Limited Partnership (the "Company") provides business music services
and also produces, markets and sells broadcast data delivery, video, audio
marketing and in-store advertising services through a network of domestic and
international franchises and owned operations. The franchisees are charged a
fee based on their revenues, as well as certain other fees, in exchange for
broadcast music, marketing, technical and administrative support. The Company
and its franchisees also sell, install and maintain electronic equipment
related to the Company's business.

The Company develops and uses proprietary techniques for blending music into
programs which have a measurable and predictable effect on listeners. The
Company's music is primarily sold for use in public areas, such as retail
establishments and restaurants, and work areas, such as business offices and
manufacturing facilities. Services are distributed through direct broadcast
satellite transmission, local broadcast transmissions and pre-recorded tapes
played on the customers' premises.

The Company is subject to certain business risks which could affect future
operations and financial performance. These risks include rapid technological
change, competitive pricing, concentrations in and dependence on satellite
delivery capabilities, and development of new services.

Business Acquisitions

As of September 1, 1992, the Company commenced operations in its current
form (the "Partnership") through an acquisition (the "1992 Acquisition") of
substantially all of the assets, including the right to operate under its
current name, from a predecessor partnership (the "Seller"). The acquisition
was accounted for as a purchase with the purchase price allocated to the
individual assets, based on their estimated fair values at the date of
acquisition.

On January 31, 1994, the Company acquired substantially all the net assets
of Comcast Sound Communications, Inc. ("Comcast"), previously the Company's
largest franchisee. The net assets were acquired for approximately $33
million, including a $5 million redeemable preferred partnership interest
issued to Comcast and closing costs. The acquisition was financed through
additional bank borrowings and the contribution of certain assets by Comcast
in exchange for a redeemable preferred partnership interest. The transaction
was accounted for as a purchase with the purchase price allocated to the
individual assets based on the fair values at the date of acquisition.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial information, as of and for the three-month periods
ended March 31, 1995 and 1996, was prepared by the Company in a manner
consistent with the audited financial statements and pursuant to the rules and
requirements of the Securities and Exchange Commission. The unaudited
information, in management's opinion, reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results
of the periods presented. The results of operations for the three month period
ended March 31, 1996, are not necessarily indicative of the results to be
expected for the entire year.

Cash Equivalents

Short-term investments with maturities at the date of purchase of ninety
days or less are considered cash equivalents. Their recorded amount
approximates fair value.

F-12
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)

Inventories

Inventories consist primarily of electronic equipment and are recorded at
the lower of cost (first-in, first-out) or market.

Property and Equipment

Property and equipment consist primarily of equipment provided to
subscribers and machinery and equipment, recorded at cost. Major renewals and
betterments are capitalized to the property accounts while replacements,
maintenance and repairs that do not improve or extend the lives of the
respective assets are expensed.

Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the related assets, ranging from five to forty
years. Assets acquired under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated useful
lives or the term of the related leases.

Deferred Costs and Intangible Assets

Income producing contracts, acquired through acquisitions, are being charged
to amortization expense on an accelerated method over their period of expected
benefit of eight years. Deferred financing costs are being charged to interest
expense on the effective interest method over the term of the related
agreements. Other deferred costs and intangible assets are recorded at cost
and are being charged to amortization expense over their estimated useful
lives or their period of expected benefit ranging from two and one-half to ten
years.

The carrying value of long lived assets is reviewed on a regular basis for
the existence of facts or circumstances that may indicate that the carrying
amount is not recoverable. To date, no impairment has been indicated. Should
there be an impairment in the future, the Company will measure the impairment
based on the discounted expected future cash flows from the impaired assets.

Revenue Recognition

Revenues are recognized in the month that the services are provided. Fees
from franchisees are recognized as music revenues in the month that the
franchisee generates its revenues. Equipment and related services revenues are
recorded in the period that the installation is completed.

Advance Billings

The Company bills certain customers in advance for contracted music and
other business services. Amounts billed in advance of the service period are
deferred when billed and recognized as revenue in the period earned.

Unearned Installation Income

The Company defers recognition of income from the installation of equipment
provided to subscribers and recognizes these amounts as revenue on a straight-
line basis over the average subscriber service period.

Income Taxes

The income tax effects of all earnings or losses of the Company are passed
directly to the partners. Payment of foreign income taxes is reflected as a
reduction to the partners' capital accounts. Thus, no provision or benefit for
federal, state, local or foreign income taxes is required.

F-13
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Accounting for Stock-Based Compensation

Statement of Financial Accounting Standard ("SFAS") Number 123, "Accounting
for Stock-Based Compensation" was recently issued and is effective for the
Company beginning January 1, 1996. SFAS Number 123 requires expanded
disclosures of equity-based compensation arrangements with employees and does
not require, but encourages compensation cost to be measured based on fair
value of the equity instrument when awarded. The Company, as allowed, intends
to continue to measure equity-based compensation using its current method of
accounting prescribed by Accounting Principles Board Opinion Number 25 that
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will be required to disclose certain
additional information related to its stock-based compensation; however,
management believes the impact to the financial statements, as a whole, will
not be material.

3. UNAUDITED PRO FORMA INFORMATION:

Statements of Operations

The Company has operated as a partnership since the 1992 Acquisition, and
accordingly, has not recorded any provision or benefit for federal and state
income taxes, nor any related assets or liabilities. Prior to the closing of
the proposed public offering the Company will change its structure to a
corporate form, as described in Note 11. The objective of the pro forma
information is to show what the effects on historical financial statements
might have been for the years ended December 31, 1993, 1994 and 1995 and
three-month periods ended March 31, 1995 and 1996 had the Company operated in
the corporate form since inception. These pro forma adjustments reflect a tax
benefit for state and federal income taxes based upon an estimated effective
rate of 40%, as if the Company was subject to such taxes. A 100% valuation
allowance has been recorded, based on the Company's insufficient levels of
taxable income available to recognize benefits of the net operating loss
carryforwards.

The pro forma adjustments also include the preferred return attributable to
the Class C Preferred Limited Partnership interest which is anticipated to be
retired by the Company upon completion of the Initial Public Offering of its
common stock, as described in Note 11.

Net Loss Attributable to Common Stockholders

Pro forma net loss attributable to common stockholders per share is based on
the weighted average number of shares outstanding, and after consideration of
the dilutive effect of stock options granted, using the treasury stock method.
Pursuant to rules of the Securities and Exchange Commission, all stock options
granted at a price less than the initial public offering price during the
twelve months preceding the Offering date have been included as common stock
equivalents in the calculation of weighted average shares outstanding for all
periods presented. All other common stock equivalents are excluded from the
calculation of weighted average shares outstanding, as they are anti-dilutive.

F-14
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. PROPERTY AND EQUIPMENT, NET:

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Equipment provided to subscribers............ $ 37,305 $ 42,847 $ 44,273
Machinery and equipment...................... 6,469 7,628 8,378
Vehicles..................................... 2,403 2,872 2,856
Furniture and fixtures....................... 1,948 2,133 2,170
Land and buildings........................... 1,001 858 858
Leasehold improvements....................... 710 833 848
-------- -------- --------
Total property and equipment............... 49,836 57,171 59,383
Less--accumulated depreciation and amortiza-
tion........................................ (12,248) (20,585) (22,840)
-------- -------- --------
$ 37,588 $ 36,586 $ 36,543
======== ======== ========
</TABLE>

5. DEFERRED COSTS AND INTANGIBLE ASSETS, NET:

Deferred costs and intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Income producing contracts................... $ 39,676 $ 39,826 $ 39,826
Deferred subscriber acquisition costs........ 4,604 7,784 8,570
Master recording rights and deferred
production costs............................ 6,310 7,770 8,184
Deferred financing costs..................... 5,661 5,783 5,783
Organization costs........................... 4,202 4,454 4,471
Non-compete agreements....................... 846 846 846
Other........................................ 634 702 710
-------- -------- --------
Total deferred costs and intangible
assets.................................... 61,933 67,165 68,390
Less--accumulated amortization............... (20,498) (30,459) (32,839)
-------- -------- --------
$ 41,435 $ 36,706 $ 35,551
======== ======== ========
</TABLE>

6. LONG-TERM OBLIGATIONS:

Long-term obligations are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
Variable rate senior term loan.................. $45,100 $40,989 $38,499
Fixed rate subordinated note, net of unamortized
discount
of $1,792, $1,536 and $1,474................... 10,708 10,964 11,026
Capital lease obligations....................... 705 762 748
Other........................................... 320 290 244
------- ------- -------
Total long-term obligations................... 56,833 53,005 50,517
Less--current portion........................... ( 4,455) ( 5,911) (6,367)
------- ------- -------
$52,378 $47,094 $44,150
======= ======= =======
</TABLE>

F-15
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. LONG- TERM OBLIGATIONS, (CONTINUED)

Credit Agreements

The variable rate senior term loan is a $46,600,000 term loan (the "Credit
Agreement") with a group of banks for which Union Bank of Switzerland (the
"Agent Bank"), an affiliate of a limited partner, is acting as agent. The
Credit Agreement also includes a $13,000,000 revolving credit facility. The
terms of the Credit Agreement, as amended, require the Company to meet certain
financial ratios and performance criteria and impose restrictions on capital
spending, the incurrence of additional debt, and distributions to partners,
among other things. Distributions to partners are limited to distributions
that offset tax liabilities to the partners resulting from the Company's
taxable income. Substantially all of the Company's assets and proceeds from
certain insurance policies are pledged as collateral under the Credit
Agreement.

The fixed rate subordinated note (the "Subordinated Note") was obtained from
a group of banks that were issued options to purchase Class A limited
partnership units (the "Put/Call Units") in connection with this credit
arrangement. The value of these Put/Call Units has been accounted for as debt
discount and amortized on the effective interest method over the term of this
note. The Subordinated Note requires the Company to maintain certain
performance criteria and covenants, similar to, but less restrictive than the
Credit Agreement. Substantially all of the Company's assets and proceeds from
certain insurance policies are pledged as collateral under this agreement.

Interest Rates and Payments

Interest under the Credit Agreement is paid at an interest rate based on the
Agent Bank's prime rate or LIBOR in quarterly installments. During the years
ended December 31, 1993, 1994 and 1995, the effective weighted average
interest rates on borrowings under the Credit Agreement were 9.1%, 10.0% and
11.2%, and for the three-month periods ended March 31, 1995 and 1996 were
11.2% and 10.6%, respectively, including the effects of the interest rate swap
agreement described below. Interest under the Subordinated Note is paid in
semi-annual installments at a rate of 12.5%, an effective rate of 14.5%, after
amortization of the debt discount. The capital lease obligations require
monthly installments of interest at a weighted average interest rate of
approximately 10.0%. Total cash paid for interest on long-term obligations was
approximately $3,340,000, $5,460,000 and $5,760,000 for the years ended
December 31, 1993, 1994 and 1995, and for the three-month periods ended March
31, 1995 and 1996 were $2,009,000 and $1,944,000, respectively.

Future Maturities

The variable rate senior term loan under the Credit Agreement requires semi-
annual principal installments through 2001. The Subordinated Note payable is
due in semi-annual installments in 2001 and 2002. The lease obligations are
due in monthly installments through 1999. The revolving credit facility
terminates and requires final payment on January 15, 2001. Total future
maturities of long-term obligations, for the five years following December 31,
1995 are: $5,911,000 in 1996; $7,323,000 in 1997; $8,139,000 in 1998;
$8,064,000 in 1999; and $8,297,000 in 2000.

Interest Rate Hedging

The Company has entered into an interest rate swap agreement with the Agent
Bank that effectively fixed the rate on $10,000,000 of the debt under the
Credit Agreement at December 31, 1995 and March 31, 1996. Net settlements are
recorded in interest expense. The risk of credit loss in the event of non-
performance by the counterparty to the swap agreement is considered by
management to be minimal.

F-16
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. LONG-TERM OBLIGATIONS, (CONTINUED)

Financing Costs Paid to Related Parties

As of December 31, 1995 and March 31, 1996, the Agent Bank was an affiliate
of a Class A limited partner. In addition, the Subordinated Note holder held
the Put/Call Units. During the years ended December 31, 1993, 1994 and 1995,
and three-month periods ended March 31, 1995 and 1996, the Company incurred
interest expense related to these credit facilities of $3,670,000, $6,888,000,
$7,367,000, $1,868,000 and $1,770,000, respectively. Of these amounts,
$1,046,000, $1,336,000 and $905,000 are included in accrued expenses at
December 31, 1994 and 1995 and March 31, 1996, respectively. In addition, the
Company paid fees to the holders of the senior and subordinated notes payable
of $250,000, $1,943,000 and $122,000 in 1993, 1994 and 1995, respectively,
related to amendments to the Credit Agreement and the subordinated note
agreement. During the year ended December 31, 1994, the Company paid the
general partner $474,000 for its efforts related to obtaining the Company's
credit facilities and acquiring Comcast.

Fair Value

The recorded amount of the Company's long-term debt and related deferred
financing costs approximate current market prices for the same or similar
issues available to the Company for debt with similar remaining maturities.

7. BENEFIT PLANS:

Defined Contribution Plan

The Company maintains a defined contribution savings and retirement plan
(the "Benefit Plan") that covers substantially all employees. Under the
savings portion of the Benefit Plan, eligible employees may contribute from 2%
to 14% of their compensation, subject to Internal Revenue Code limitations.
For the years ended 1993, 1994 and 1995 the Company, at its discretion, may
contribute a matching amount of up to 50% of the first 6% contributed by the
employee. Employees are 100% vested in their contribution at all times and
vest 100% in the Company portion at December 31 of the year of the
contribution. The Company recorded contribution expense for the savings
portion of the Benefit Plan of approximately $114,000, $170,000 and $181,000
for the years ended December 31, 1993, 1994 and 1995 and $44,000 and $46,000
for the three-month periods ended March 31, 1995 and 1996, respectively.

The retirement portion of the Benefit Plan is determined annually by the
Company at its discretion, but may not exceed 3% of the eligible employee's
compensation. The employees vest in the retirement portion of the Benefit Plan
ratably over five years, but become fully vested in the event of death,
disability or the attainment of the age of 65. The Company accrued $180,000
and $260,000 for the retirement portion of the Benefit Plan for the years
ended December 31, 1993 and 1994, respectively. No amounts were accrued for
the year ending December 31, 1995, or the three-month periods ended March 31,
1995 and 1996.

Multi-Employer Defined Contribution Plans

The Company participates in several multi-employer defined contribution
benefit plans that provide benefits to employees covered by certain labor
union contracts. The amount of expense related to contributions to these plans
was approximately $83,000, $110,000 and $108,000 for the years ended December
31, 1993, 1994 and 1995 and approximately $27,000 and $30,000 for the three-
month periods ended March 31, 1995 and 1996, respectively. These amounts were
determined by union contract and the Company does not administer or control
the funds.

F-17
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

Leases

The Company leases certain facilities and equipment under both operating and
capital leases. In addition, the Company has entered into agreements to obtain
satellite channel capacity and subsidiary communication authorization rights
for the transmission of programs to the Company's customers. Total rental
expense under operating leases was approximately $5,590,000, $6,384,000 and
$7,698,000 for the years ended December 31, 1993, 1994 and 1995 and $1,873,000
and $1,588,000 for the three-month periods ended March 31, 1995 and 1996,
respectively.

Future annual minimum lease payments under noncancelable leases for the
years ended December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996................................................... $338 $ 6,011
1997................................................... 275 4,842
1998................................................... 147 3,955
1999................................................... 67 3,202
2000................................................... 2,765
Thereafter............................................. 6,208
---- -------
Total minimum lease payments........................... 827 $26,983
=======
Less amount representing interest...................... (65)
----
Present value of future minimum capital lease payments
included in long-term obligations..................... $762
====
</TABLE>

Assets acquired under capital leases were $135,000, $460,000 and $489,000
for the years ended December 31, 1993, 1994 and 1995, respectively. Assets
recorded under capital leases were $1,294,000, $1,141,000 and $1,198,000 with
accumulated amortization of $428,000, $307,000 and $358,000 as of December 31,
1994 and 1995 and March 31, 1996, respectively.

Contingent Purchase Consideration

The 1992 Asset Purchase Agreement, as amended ("Purchase Agreement"),
provides for contingent payments to the Seller if certain performance levels
are achieved in the five years following the closing of the 1992 Acquisition.
If the performance levels are achieved the Company will owe the Seller
additional purchase price of $5 million to $24 million. Any such payments, if
earned, will be allocated to the assets acquired or, if applicable, recorded
as additional purchased assets. No amounts have been paid or accrued as of
December 31, 1995 or March 31, 1996 pursuant to this provision, as the
possibility of obtaining the required performance objectives has been deemed
remote by management.

Taxes

An assessment was made against the Seller resulting from an audit performed
by the Washington State Department of Revenue for sales and use and business
and occupation taxes paid for the period from 1987 through September 1992.
Under successor liability statutes in the state of Washington, the Company
could, if the Seller fails to pay its tax obligation, become liable for the
assessment outstanding against the Seller of approximately $1,700,000. This
assessment is under appeal by the Seller. The Seller and certain of its
affiliates have agreed to indemnify the Company for any liabilities in
connection with such assessment.

F-18
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES, (CONTINUED)

Employment Agreements

The Company has five-year employment agreements with certain senior
executive officers. These five-year agreements, expiring August 31, 1997,
provide certain benefits to the officers if involuntarily terminated by the
Company. As of December 31, 1994 and 1995 and March 31, 1996 no amounts have
been accrued related to these agreements.

Legal Proceedings

The Company is subject to various legal proceedings which arise in the
ordinary course of business. Company management believes none of these
proceedings, individually or in the aggregate, will have a material adverse
effect on the financial condition or results of operations of the Company.

9. REDEEMABLE PREFERRED PARTNERSHIP INTERESTS:

The redeemable preferred partnership interests are comprised of a Class C
and a C-1 preferred partnership interest. Both are non-voting interests that
do not participate in the Company's profits or losses. A summary of these
interests and their accumulated returns by period are as follows:

<TABLE>
<CAPTION>
CLASS C CLASS C-1 TOTAL
------- --------- -------
<S> <C> <C> <C>
Balance, January 1, 1993.......................... $ 8,188 $ -- $ 8,188
Preferred return................................. 572 -- 572
------- ------ -------
Balance, December 31, 1993........................ 8,760 -- 8,760
Class C-1 contribution........................... -- 5,000 5,000
Preferred return................................. 613 320 933
------- ------ -------
Balance, December 31, 1994........................ 9,373 5,320 14,693
Preferred return................................. 657 372 1,029
------- ------ -------
Balance, December 31, 1995........................ 10,030 5,692 15,722
Preferred return................................. 172 99 271
------- ------ -------
Balance, March 31, 1996........................... $10,202 $5,791 $15,993
======= ====== =======
</TABLE>

Class C Interest

The Class C limited partner is entitled to receive the amount of its initial
contribution of $8,000,000, plus a return of 7% compounded annually, through
November 30, 2002, the date of redemption. The Class C limited partner is
entitled to a preference in liquidation equal to its contribution plus
accumulated return. A general partner may, at its sole discretion, require the
Class C limited partner to exchange its interest for a note equal its then
aggregate liquidation preference amount. If the Class C limited partnership
units remain outstanding on November 30, 2002 the Company is required to
redeem such units for an amount equal to the Class C contribution plus
accumulated return.

Class C-1 Interest

The Class C-1 limited partner is entitled to receive the amount of its
initial contribution of $5,000,000, plus a return of 7% compounded annually,
through January 31, 2004, the date of redemption. The Class C-1 limited
partner may become, at its option, a participating partner. Upon becoming a
participating partner, the Class C-1

F-19
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. REDEEMABLE PREFERRED PARTNERSHIP INTERESTS, (CONTINUED)

limited partner will forfeit any accrued portion of the return. If it has not
previously become a participating partner, the Class C-1 limited partner is
entitled to a preference in liquidation equal to its contribution plus
accumulated return. Unless the Class C-1 interest becomes a participating
interest, a general partner may, at its sole discretion, require the Class C-1
limited partner to exchange its interest for a note equal to its then
aggregate liquidation preference amount. If such exchange occurs prior to the
time the Class C-1 limited partner has the opportunity to obtain participation
status, the Class C-1 limited partner will also be issued an option to acquire
the participating interest on substantially the same terms as if such exchange
had not occurred. If the Class C-1 limited partner has not obtained
participation status, or has not exchanged such units for notes, on or prior
to January 31, 2004, the Company is required to redeem such units for an
amount equal to the Class C-1 contribution plus accumulated return.

10. PARTNERS' CAPITAL:

Partners' capital is comprised of two general partners ("General Partners'
Interests"); Class A limited partners and Class B limited partners ("Limited
Partners' Interests"); Put/Call Units, and; preferred limited partners'
interests.

Put/Call Units

In connection with obtaining the fixed rate subordinated note payable, the
Company issued a lender an option to purchase 1,529,898 units of Class A
limited partnership interests, for an aggregate exercise price of $10. These
units are currently exercisable. The estimated value of the Put/Call Units was
recorded as a debt discount and is being amortized as an adjustment to
interest expense over the life of the related debt obligation.

Subscriptions Receivable

Officers and key employees of the Company have acquired limited partnership
interests, a portion of which were financed with subscription notes. As of
December 31, 1994 and 1995 and March 31, 1996, the Class B limited partners'
capital accounts were reduced by subscription notes receivable. Interest
income on the subscriptions receivable totaled $51,000 and $49,000 for the
years ended December 31, 1994 and 1995, and $14,000 and $8,000 for the three-
month periods ended March 31, 1995 and 1996.

Preferred Limited Partners' Interests

The preferred limited partners' interests, which were issued on November 4,
1994, do not participate in the Company's profits or losses. Such limited
partners are entitled to receive an 8% return, compounded quarterly, on the
amount of their initial contribution and are generally entitled to a priority
on distributions from the Company. At December 31, 1995 and March 31, 1996,
the return was credited to the preferred limited partners. These limited
partners are also entitled to a preference in liquidation equal to their
initial contribution plus accumulated and unpaid return. Upon the occurrence
of certain events, the units may, at the option of the Company, be redeemed by
the Company for an amount equal to the then aggregate liquidation preference
amount. The units (and any accrued and unpaid return) may, at the option of
the holder, be converted into units of Class B limited partnership interest at
any time.

Option Plan

Certain limited partners and key employees of the Company have the ability,
under certain conditions, as defined in the Management Option Plan (the
"Management Option Plan"), to exercise options to purchase partnership units.
These options vest at a rate of 20% per year, however, the scheduled vesting
rate of the options

F-20
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. PARTNERS' CAPITAL, (CONTINUED)

will be delayed and exercise precluded, if the Company fails to meet certain
performance standards, similar to those described in Note 8.

Activity under this plan and option price information is as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
--------- ------------
<S> <C> <C>
Balance, January 1, 1993............................... 1,704,545 $1.00
Options granted....................................... -- --
Options canceled...................................... (70,000) 1.00
--------- ------------
Balance, December 31, 1993............................. 1,634,545 1.00
Options granted....................................... 165,000 1.50 - 1.75
Options canceled...................................... (85,000) 1.00
--------- ------------
Balance, December 31, 1994............................. 1,714,545 1.00 - 1.75
Options granted....................................... 150,000 1.75
Options canceled...................................... (30,000) 1.00
--------- ------------
Balance, December 31, 1995............................. 1,834,545 1.00 - 1.75
--------- ------------
Options granted....................................... -- --
Options canceled...................................... -- --
--------- ------------
Balance, March 31, 1996................................ 1,834,545 $1.00 - 1.75
========= ============
</TABLE>

Non-cash compensation expense resulting from this plan, if any, will be
charged to operations over the periods subject to these conditions when
management determines that it is probable that these performance objectives
will occur. From the inception of the Management Option Plan through March 31,
1996, no options have become exercisable. As the possibility of obtaining the
required performance objectives has been deemed remote by management, no
compensation expense has been recorded.

Put Option

After September 4, 1998, a general partner and certain of the Class A
limited partners can require the Company to purchase limited partnership units
held by them at fair market value. However, such right may not be exercised if
the purchase of units would have a material adverse effect on the Company or
would be in contravention of any then existing agreement to which the Company
is a party.

Allocation of Profits and Losses

Losses are allocated among the general partners and Class A and B limited
partners based upon the total of the interests held by each individual,
including the Put/Call Units under option, as a percentage of the total of all
such interests.

11. SUBSEQUENT EVENTS:

Incorporation and Public Offering

In April 1996, the general and limited partners authorized a plan to
establish the Company in corporate form (the "Incorporation") and also
authorized the filing of a Registration Statement for the initial underwritten
public offering of its common stock. The offering is expected to close in July
1996. The Incorporation will include the exchange of partnership units for
shares of common stock in a newly formed corporation.

F-21
<PAGE>

MUZAK LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS, (CONTINUED)

A summary of this anticipated exchange, as of June 29, 1996, of Partnership
units for the common stock of the new corporation is as follows:

<TABLE>
<CAPTION>
NUMBER
OF
NUMBER OF SHARES
UNITS AS OF OF COMMON
MARCH 31, 1996 STOCK
-------------- ---------
<S> <C> <C>
General Partners..................................... 9,100,585 4,153,534
Class A limited partnership.......................... 34,900 15,928
Class B limited partnership.......................... 1,836,953 838,391
Preferred limited partnership........................ 3,314,287 1,512,651
Class C-1 redeemable preferred partnership........... 1,420,368 648,260
---------- ---------
15,707,093 7,168,764
========== =========
</TABLE>

The Class C interests, the Put/Call Units and a portion of the Class A
interests are anticipated to be exchanged by the Company for short-term
obligations to be paid from proceeds of the public offering. A portion of the
shares of common stock received in exchange for Class C-1 interests will also
be included in the public offering.

Refinancing

In May 1996 the Company initiated plans to refinance debt under the Credit
Agreement. Based on current proposals under consideration, the terms of this
refinancing will likely involve a reduction in the principal payments over the
next five years and less restrictive financial covenants while maintaining the
Company's current borrowing capacity.

Option Plans

Upon the Incorporation, the Company intends to adopt a performance based
option plan (the "Replacement Option Plan") that replaces the Management
Option Plan. The Replacement Option Plan provides for the granting of options
to purchase an aggregate of 837,292 shares of common stock at an average
exercise price of $2.44 per share, divided into three equal groups for vesting
and exercise purposes. One-half of the first group of options vests
immediately upon the completion of the public offering (the "Effective Date")
and the remainder of the first group vests in equal installments on the first
and second anniversaries of the Effective Date. Once vested, the first group
of options becomes exercisable upon the earlier of (i) such date that the
average reported daily sales price (the "Sales Price") of the Common Stock for
any 80 trading days during any one-year period subsequent to the respective
vesting dates (the "Performance Period") is $13.375 per share or greater or
(ii) if earlier, the period 30 days prior to the seventh anniversary of the
Effective Date. The second and third groups of options vest in equal 20%
increments on the first through the fifth anniversaries of the Effective Date.
When vested, the second group of options becomes exercisable only when the
Sales Price is $20.00 per share or greater for the Performance Period, and
when vested, the third group of options becomes exercisable when the Sales
Price is $26.75 per share or greater for the Performance Period. Upon the
occurrence of certain change of control events, each option granted is subject
to accelerated vesting and may become exercisable at lower Sales Price
hurdles.

Non-cash compensation expense will be recorded with respect to options under
this option plan based on the difference between the exercise price and the
fair market value of the common stock beginning on such date that it is deemed
that the options are, in the judgment of management, likely to become
exercisable. Such non-cash expense will be recorded from such date to the date
the options become exercisable.

F-22
<PAGE>

Additionally in 1996, the Company intends to adopt another option plan (the
"1996 Option Plan") principally to provide incentives to key employees and
directors not included in the Replacement Option Plan. The purchase price of
shares of common stock issuable upon exercise of each option granted pursuant
to the 1996 Option Plan will be the fair market value of the shares on the
date of grant. Options to be granted will expire seven years from the date of
grant, will vest in three equal installments over three years, and will be
exercisable when vested. An option committee will administer the Plan and
determine, among other things, the persons to receive options, the date of
grant of such options, the number of shares to be subject to each option, and
the purchase price of each share subject to such options.

F-23
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors

Muzak, Inc.

Seattle, Washington

We have audited the accompanying balance sheet of Muzak, Inc. (the
"Company") as of May 8, 1996. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, such financial statement presents fairly, in all material
respects, the financial position of Muzak, Inc. as of May 8, 1996 in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Seattle, Washington

May 8, 1996

F-24
<PAGE>

MUZAK, INC.

BALANCE SHEET

AS OF INCEPTION MAY 8, 1996

<TABLE>
<S> <C>
ASSETS
Cash................................................................... $ 1
===
STOCKHOLDERS' EQUITY
Preferred Stock--authorized 10,000,000 shares of $0.01 par value each;
no shares issued and outstanding...................................... --
Common Stock--authorized 30,000,000 shares of $0.01 par value each; 100
shares issued and outstanding......................................... $ 1
---
TOTAL................................................................ $ 1
===
</TABLE>

F-25
<PAGE>

NOTE TO FINANCIAL STATEMENT

Muzak, Inc. (the "Company") was formed on May 8, 1996, to facilitate the
transactions resulting from a recapitalization of Muzak Limited Partnership
("MLP"). As part of the recapitalization, the Company intends to issue
additional shares of common stock and assume certain obligations in exchange
for outstanding partnership units of MLP. In addition, the Company intends to
file a registration statement for the initial underwritten offering of its
common stock. The offering is expected to close in July 1996. Subsequent to
the offering, Muzak, Inc. intends to be the parent company for Muzak
Communications, Inc. and Muzak Services, Inc.

F-26
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
Comcast Corporation
Philadelphia, Pennsylvania

General and Limited Partners
Muzak Limited Partnership
Seattle, Washington

We have audited the accompanying consolidated statements of operations and
retained earnings and cash flows of Comcast Sound Communications, Inc. (a
wholly owned subsidiary of Comcast Corporation) and subsidiaries (the
"Company") for the year ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Comcast Sound Communications, Inc. and subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions effective January 1, 1993, to conform with Statement of Financial
Accounting Standards No. 106.

As discussed in Note 5 to the consolidated financial statements, Comcast
Corporation provided financing, allocated management fees and costs, and
conducted certain other business transactions with the Company. The
accompanying consolidated financial statements may not necessarily be
indicative of the conditions that would have existed or the results of
operations if Comcast Sound Communications, Inc. and subsidiaries had been
unaffiliated with Comcast Corporation.

Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 10, 1994

F-27
<PAGE>

COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 1993

<TABLE>
<S> <C>
Revenues:
Music and other business services................................ $16,710,062
Equipment and related services................................... 9,410,707
-----------
Total revenue................................................... 26,120,769
Cost of revenues.................................................. 10,255,239
-----------
Gross profit.................................................... 15,865,530
Selling, general and administrative expenses...................... 12,338,877
Depreciation and amortization..................................... 3,078,293
-----------
Operating income................................................ 448,360
Interest expense.................................................. 443,201
Other income...................................................... (70,866)
-----------
Income before income taxes and cumulative effect of accounting
change......................................................... 76,025
Income taxes...................................................... (152,000)
-----------
Loss before cumulative effect of accounting change................ (75,975)
Cumulative effect of accounting change............................ (405,000)
-----------
Net loss........................................................ (480,975)
Retained earnings, beginning of year.............................. 9,060,949
-----------
Retained earnings, end of year.................................... $ 8,579,974
===========
</TABLE>

See notes to consolidated financial statements.

F-28
<PAGE>

COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 1993

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss........................................................ ($ 480,975)
Noncash items included in net loss:
Cumulative effect of accounting change......................... 405,000
Depreciation and amortization.................................. 3,078,293
Deferred income taxes.......................................... 242,000
-----------
3,244,318
Adjustments to reconcile net income to net cash provided by op-
erating activities:
Increase in accounts receivable, inventories, and prepaid
charges and other assets...................................... (1,515,717)
Increase in accounts payable and accrued expenses, state income
and other taxes,
and deferred revenue.......................................... 327,118
-----------
Net cash provided by operating activities...................... 2,055,719
-----------
FINANCING ACTIVITIES
Repayment of long-term debt..................................... (11,929)
Proceeds from note payable...................................... 121,235
Net transactions with Comcast and affiliates.................... 1,668,899
-----------
Net cash provided by financing activities...................... 1,778,205
-----------
INVESTING ACTIVITIES
Additions to property and equipment............................. (4,389,710)
Deferred charges and other...................................... (221,938)
-----------
Net cash used in investing activities.......................... (4,611,648)
-----------
Net decrease in cash and cash equivalents...................... (777,724)
CASH AND CASH EQUIVALENTS, beginning of year...................... 1,397,347
-----------
CASH AND CASH EQUIVALENTS, end of year............................ $ 619,623
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid................................................... $ 445,000
Income taxes paid............................................... 483,000
</TABLE>

See notes to consolidated financial statements.

F-29
<PAGE>

COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Comcast Sound
Communications, Inc. and its subsidiaries (the "Company"). The Company
provides sound communication services in the following states: California,
Colorado, Connecticut, Florida, Illinois, Indiana, Michigan, New York,
Pennsylvania and Texas. All significant intercompany accounts and transactions
among the consolidated entities have been eliminated. Through January 31,
1994, the Company was a wholly owned subsidiary of Comcast Corporation
("Comcast") (See Note 6).

Cash and cash equivalents includes cash on deposit and overnight investments
at a financial institution.

Depreciation of property and equipment is provided by the straight-line
method over estimated useful lives of 3-25 years.

Deferred charges and other assets include contract acquisition costs and
non-compete covenants and are being amortized over estimated useful lives
ranging from 5-10 years.

Excess of costs over net assets acquired is being amortized over 40 years
except for costs arising prior to November 1, 1970 of approximately $441,000,
which are not being amortized.

Revenues from the sale, service and installation of equipment are recognized
at the time the customer receives the product or service. Revenue for audio
services to customers under five-year contracts is recognized over the
contract period when earned.

Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 2), and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (see Note 5).

2. INCOME TAXES

The Company joins with Comcast in filing a consolidated federal income tax
return. Effective January 1, 1993, Comcast and the Company adopted SFAS No.
109. SFAS No. 109 generally provides that deferred tax assets and liabilities
be recognized for temporary differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities and expected
benefits utilizing net operating loss ("NOL") carryforwards. The impact on
deferred taxes of changes in tax rates and laws, if any, applied to the years
during which temporary differences are expected to be settled is reflected in
the financial statements in the period of enactment.

Pursuant to the deferred method under Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes," which was applied in 1992 and prior
years, deferred income taxes were recognized for income and expense items that
were reported in different years for financial reporting purposes and income
tax purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.

In 1992 and prior years, under a tax sharing arrangement between the Company
and Comcast, income taxes were computed based upon book income and were
recorded as due to Comcast and affiliates. This tax sharing arrangement was
amended with the adoption of SFAS No. 109 to require the Company to pay to
Comcast taxes currently payable as if the Company was filing separate tax
returns.

F-30
<PAGE>

COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has determined the amount of its deferred tax liability balance
at January 1, 1993, computed on a separate return basis, using Comcast's
effective tax rate, and has adjusted the due to Comcast and affiliate to
separately report this amount as a deferred tax liability, computed under SFAS
No. 109. The cumulative effect of adopting SFAS No. 109 is not material to the
Company's results of operations. Income tax expense consists of the following
components:

<TABLE>
<CAPTION>
1993
---------
<S> <C>
Current expense (benefit):
Federal......................................................... ($174,000)
State........................................................... 84,000
---------
(90,000)
---------
Deferred expense:
Federal......................................................... 222,000
State........................................................... 20,000
---------
242,000
---------
Income tax expense............................................... $152,000
=========

The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following items:

<CAPTION>
1993
---------
<S> <C>
Federal tax at statutory rate ................................... $ 26,600
State income taxes, (net federal benefit)........................ 67,600
Increase in corporate federal income tax rate from 34% to 35%.... 43,000
Other............................................................ 14,800
---------
Income tax expense............................................... $152,000
=========
</TABLE>

3. COMMITMENTS

The Company and its subsidiaries lease office, warehouse and distribution
space and other equipment under various noncancellable operating leases.
Certain of the lease agreements contain renewal options.

At December 31, 1993, minimum annual commitments for rentals under
noncancellable leases are:

<TABLE>
<S> <C>
1994.............................................................. $1,066,779
1995.............................................................. 853,741
1996.............................................................. 651,311
1997.............................................................. 469,926
1998.............................................................. 303,615
Thereafter........................................................ 488,176
----------
$3,833,548
==========
</TABLE>

Rental expense (including amounts charged by Comcast) was approximately
$1,399,000 in 1993.

4. RELATED PARTY TRANSACTIONS

Management fees are charged by Comcast based on the Company's recurring and
nonrecurring revenues in 1993. Under these policies, management fees of
approximately $2,601,000 were charged to the Company and recorded in selling,
general and administrative expense in 1993. The 1993 management fee included
charges to

F-31
<PAGE>

[CHART OMITTED]

[Chart omitted depicting schematic representation of the Company's five
different distribution technologies linked in the center by the Company's goal
of using such technologies to meet customers' various needs.]

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDER-
WRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLIC-
ITATION IS UNLAWFUL.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
The Company.............................................................. 14
The Recapitalization..................................................... 14
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Capitalization........................................................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 30
Management............................................................... 43
Certain Relationships and Related Transactions........................... 52
Principal and Selling Stockholders....................................... 54
Shares Eligible for Future Sale.......................................... 55
Description of Capital Stock............................................. 57
Underwriting............................................................. 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Available Information.................................................... 61
Index to Financial Statements............................................ F-1
</TABLE>

---------------

UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURI-
TIES WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DE-
LIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD AL-
LOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

4,600,000 SHARES

[MUZAK LOGO APPEARS HERE]

COMMON STOCK

---------------

PROSPECTUS

---------------

PAINEWEBBER INCORPORATED

MONTGOMERY SECURITIES

---------------

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the Registrant's estimated expenses in
connection with the issuance of the securities being registered, other than
underwriting discounts and commissions.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 29,187
NASD Filing Fee............................................... 8,470
Printing and Engraving Expenses............................... 250,000
Counsel Fees and Expenses..................................... 870,000
Financial Advisory Fee........................................ 250,000
Accountants' Fees and Expenses................................ 280,000
Blue Sky Fees and Expenses.................................... 7,500
Transfer Agent and Registrar Fees and Expenses................ 6,000
Nasdaq National Market Listing Fee............................ 30,725
Director and Officer Insurance Premiums....................... 276,000
Miscellaneous................................................. 42,118
----------
Total....................................................... $2,050,000
==========
</TABLE>
- --------
* To be filed by amendment

All such fees and expenses have been or will be paid by the Registrant.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), the law of the state in which the Registrant is incorporated,
empowers a corporation within certain limitations to indemnify a director,
officer, employee or agent of the corporation and certain other persons
serving at the request of the corporation in related capacities against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonable incurred by him in connection with any
action, suit or proceeding to which he is or was threatened to be a party
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, as long as he acted in good faith
and in a manner which he reasonably believed to be in, or not opposed to, the
best interests of the corporation. With respect to any criminal proceeding, he
must have had no reasonable cause to believe his conduct was unlawful. No such
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the Court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in view of all
of the circumstances of the case such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery of the State of
Delaware or such other court shall deem proper.

The Certificate of Incorporation of the Registrant provides that any person
may be indemnified against all expenses and liabilities to the fullest extent
permitted by the DGCL. The By-Laws allow the Registrant to advance or
reimburse litigation expenses upon submission by the director, officer or
employee of an undertaking to repay such advances or reimbursements if it is
ultimately determined that indemnification is not available to such director,
officer or employee and allow the Registrant to purchase and maintain
insurance for its directors and officers against liability asserted against
them in such capacity whether or not the Registrant would have the power to
indemnify them against such liability. The Registrant intends to acquire
directors' and officers' liability insurance.

II-1
<PAGE>

As permitted by Section 102 of the DGCL, the Certificate of Incorporation of
the Registrant provides that no director shall be liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director other than (i) for breaches of the director's duty of loyalty to the
Registrant and its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for the unlawful payment of dividends or unlawful stock purchases or
redemptions under Section 174 of the DGCL and (iv) for any transaction from
which the director derived an improper personal benefit.

The Underwriting Agreement being filed as Exhibit 1 hereto provides for
indemnification of directors and officers of the Registrant under certain
circumstances, including for liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with the closing of the acquisition of the franchises of
Comcast Sound Communications, Inc. ("Comcast"), on January 31, 1994, the
Registrant issued a $5.0 million 7% preferred limited partnership interest of
the Partnership to Comcast. This transaction was exempt from registration
under Section 4(2) of the Securities Act as not involving a public offering.
No underwriter was involved in the transaction.

In November 1994, the Registrant amended its senior credit facility whereby
the Company's $10.0 million loan from Union Bank of Switzerland, New York
Branch, was repaid in full with proceeds from a subordinated financing
involving the sale of $7.0 million additional preferred partnership interests
to certain existing investors, identified below, with a pledge of the limited
partnership interests to the lenders under the senior credit facility and an
increase in the number of units subject to the option agreement of Barclays
Bank PLC, New York Branch. This transaction was exempt from registration under
Section 4(2) of the Securities Act as not involving a public offering. No
underwriter was involved in the transaction. The purchasers of the preferred
partnership interests were MLP Holdings L.P., MLP Acquisition L.P., UBS
Capital Corp., Barclays Bank PLC, John A. Hawkins, John R. Jester, James F.
Harrison, Thomas J. Gentry, Jack D. Craig, Richard Chaffe, Bruce B.
Funkhouser, L. Dale Stewart, Dino J. DeRose, J. Gary Henderson and Susan P.
Chetwin.

On May 10, 1996, prior to the filing of the Registration Statement, the
general and limited partners of the Partnership agreed to exchange the
outstanding partnership interests in the Partnership for cash and shares of
Common Stock pursuant to the Exchange and Transfer Agreement as part of the
Recapitalization described under "The Recapitalization" in the Prospectus.
Each of the general and limited partners of the Partnership party to such
transaction is identified on the signature pages of the Exchange and Transfer
Agreement filed as Exhibit 2 to this Registration Statement. This transaction
was exempt from registration under Section 4(2) of the Securities Act and Rule
506 thereunder as not involving a public offering. No underwriter was involved
in the transaction.

In addition, as part of the Recapitalization, options to purchase
partnership interests outstanding under the Partnership's Management Option
Plan will be replaced with options to purchase shares of Common Stock under
the Company's Replacement Stock Option Plan. The Replacement Stock Option Plan
is being adopted pursuant to the terms of the Partnership's Management Option
Plan in connection with the exchange of partnership interests for shares of
Common Stock of the Company and was consented to by the optionholders on May
10, 1996. To the extent such transaction constitutes an offer and sale of
securities, such transaction is exempt from registration under Section 4(2) of
the Securities Act as not involving a public offering and/or Rule 701 under
the Securities Act. No underwriter is involved in the transaction.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Registration Statement:

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
* 1 --Form of Underwriting Agreement
** 2 --Exchange and Transfer Agreement dated as of May 10, 1996, among
Muzak, Inc., Music Holdings Corp., the holders of partnership
interests of Muzak Limited Partnership, Barclays Bank PLC and
Exeter Venture Lenders, L.P.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
** 3.1 --Certificate of Incorporation of the Registrant
** 3.2 --By-Laws of the Registrant
** 4.1 --Stockholders' Agreement of the Registrant
* 5 --Opinion of Weil, Gotshal & Manges LLP
**+10.1 --Asset Purchase Agreement dated as of March 11, 1992, among Muzak
Limited Partnership, Field/Muzak Inc., The Field Corporation and MLP
Operating, L.P., as amended by Muzak Limited Partnership's letters
dated April 22, 1992, August 6, 1992 and August 20, 1992, Amendment
No. 1 dated as of June 26, 1992, Amendment No. 2, dated July 31,
1992 and Amendment No. 3, dated as of August 26, 1992
**10.2 --Asset Purchase Agreement and Contribution Agreement dated as of
November 24, 1993 among Comcast Corporation, et al. and Muzak
Limited Partnership
**10.3 --Amended and Restated Credit Agreement dated as of September 4,
1992, as amended as of October 22, 1992 and as of December 15, 1993;
and as amended and restated as of January 31, 1994 among Muzak
Limited Partnership, Union Bank of Switzerland, New York Branch,
Internationale Nederlanden (U.S.) Capital Corporation and the other
Lenders parties thereto and Union Bank of Switzerland, New York
Branch, as Agent; as amended by Waiver and Agreement dated as of
February 10, 1994; Waiver and Amendment No. 1 dated as of October
31, 1994; Waiver and Amendment No. 2 dated as of November 2, 1994;
Amendment No. 3 and Consent dated as of November 4, 1994; Amendment
No. 4 to Amended and Restated Credit Agreement dated as of November
17, 1994; Waiver dated January 10, 1995; Waiver dated as of July 31,
1995; Amendment No. 5 to Amended and Restated Credit Agreement dated
as of November 7, 1995; and Waiver dated as of April 1, 1996
**10.4 --Amended and Restated Term Notes issued as of September 4, 1992,
amended and restated as of January 31, 1994
**10.5 --Subordinated Loan Agreement dated as of September 4, 1992, as
amended, between Muzak Limited Partnership and Barclays Bank PLC,
New York Branch
**10.6 --Option Agreement dated as of September 4, 1992 between Muzak
Limited Partnership and Barclays Bank PLC, New York Branch
**+10.7 --Uplink Facility Agreement dated as of December 28, 1995 between
EchoStar Satellite Corporation and Muzak Limited Partnership
**+10.8 --DBS Programming Affiliation Agreement dated as of December 28, 1995
between EchoStar Satellite Corporation and Muzak Limited Partnership
**+10.9 --Video Programming Sales Agent Agreement dated as of December 28,
1995 between EchoStar Satellite Corporation and Muzak Limited
Partnership
**+10.10 --Form of Muzak(R) Participating Affiliate Agreement
**10.11 --Third and Broad Office Lease dated June 8, 1994, between Martin
Selig and Muzak Limited Partnership
**10.12 --ASCAP License
**10.13 --Joint Venture Agreement dated August 2, 1995 between Muzak Limited
Partnership and Alcas Holdings B.V.
**10.14 --Muzak(R) Master Affiliate Agreement (Mexico) dated March 1, 1992
between Muzak Limited Partnership and Audioplan S.A.
**10.15 --Muzak(R) Master Affiliate Agreement (Canada) dated August 30, 1990
between Muzak Limited Partnership and Chum Limited, as amended--Form
of Underwriting Agreement
**10.16 --FCC Licenses
**10.17 --Form of License Agreement (New Franchise Agreement), as amended
**10.18 --Form of Music Services Agreement
**10.19 --Form of Multi-Territory Account Service Agreement
**10.20 --Form of Sales of Adjunct Services and Form of Muzak Adjunct
Services Subscriber Agreement
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
**+10.21 --Transponder Lease Agreement dated December 9, 1993 between
Microspace Communications Corporation and Muzak Limited Partnership
**+10.22 --Transmission Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited Partnership
**+10.23 --Transponder Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited Partnership
**+10.24 --Transponder Lease Agreement dated April 27, 1995 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.25 --Transponder Lease Agreement dated July 5, 1995 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.26 --Transponder Lease Agreement dated April 29, 1996 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.27 --Agreement to Provide Telecommunications Service dated August 8 and
9, 1995 between Keystone Communications Corporation and Muzak
Limited Partnership
**+10.28 --Sales Agreement and License dated September 28, 1995 between
Mainstream Data, Inc. and Muzak Limited Partnership
**10.29 --Muzak Limited Partnership Tempo Savings and Retirement Plan
**10.30 --Muzak Limited Partnership Tempo Savings and Retirement Trust
**10.31 --Muzak Limited Partnership Management Incentive Plan
**10.32 --Muzak Limited Partnership Management Option Plan
*10.33 --Muzak, Inc. Senior Management Stock Option Plan
*10.34 --Muzak, Inc. 1996 Employee Stock Option Plan
**10.35 --Employment Agreement dated August 31, 1992 of John R. Jester
**10.36 --Employment Agreement dated August 31, 1992 of James F. Harrison
**10.37 --Employment Letter dated July 7, 1995 of Kirk A. Collamer
11 --Calculations of pro forma net loss attributable to common
stockholders per share and supplemental pro forma net loss
attributable to common stockholders per share
**21 --List of Subsidiaries of the Registrant
23.1 --Consent of Deloitte & Touche LLP and Report on Financial Statement
Schedule of Muzak Limited Partnership
23.2 --Consent of Deloitte & Touche LLP
23.3 --Consent of Deloitte & Touche LLP
*23.4 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5)
**24 --Power of Attorney (included on the signature page to this
Registration Statement)
**27 --Financial Data Schedules
</TABLE>
- --------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested

<TABLE>
<C> <S>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves
</TABLE>

All other Schedules have been omitted because the information is not
applicable or is presented in the financial statements or the notes thereto.

II-4
<PAGE>

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant under the General Corporation Law of the
State of Delaware or pursuant to the Registrant's Certificate of Incorporation
or By-Laws or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on July 1, 1996.

MUZAK, INC.
(Registrant)

/s/ John R. Jester
By __________________________________
John R. Jester
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURES TITLE DATE
---------- ----- ----
Chairman, President and
/s/ John R. Jester Chief Executive Officer July 1, 1996
_____________________________________ (Principal Executive
JOHN R. JESTER Officer)

Vice President and Chief
/s/ Kirk A. Collamer Financial Officer July 1, 1996
_____________________________________ (Principal Financial
KIRK A. COLLAMER Officer and Principal
Accounting Officer)

* Director
_____________________________________ July 1, 1996
BRUCE G. POLLACK

* Director
_____________________________________ July 1, 1996
PAUL F. BALSER

* Director
_____________________________________ July 1, 1996
MARK E. JENNINGS

/s/ Kirk A. Collamer
By___________________________________
Kirk A. Collamer Attorney-in-fact

II-6
<PAGE>

MUZAK LIMITED PARTNERSHIP

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II (REG 210.12-09)

<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
--------------------- ----------
WRITE-
BALANCE AT CHARGED TO CHARGED TO OFFS, NET BALANCE
BEGINNING COSTS AND OTHER OF AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Allowance for Doubtful
Accounts............... $736,000 $810,000 ($914,000) $632,000
======== ======== ========= ========
YEAR ENDED DECEMBER 31,
1994
Allowance for Doubtful
Accounts............... $558,000 $610,000 $359,000(a) ($791,000) $736,000
======== ======== ======== ========= ========
YEAR ENDED DECEMBER 31,
1993
Allowance for Doubtful
Accounts............... $648,000 $464,000 ($554,000) $558,000
======== ======== ========= ========
</TABLE>
- --------
(a) Comcast Acquisition as of January 31, 1994.

S-1
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
* 1 --Form of Underwriting Agreement
** 2 --Exchange and Transfer Agreement dated as of May 10, 1996,
among Muzak, Inc., Music Holdings Corp., the holders of
partnership interests of Muzak Limited Partnership, Barclays
Bank PLC and Exeter Venture Lenders, L.P.
** 3.1 --Certificate of Incorporation of the Registrant
** 3.2 --By-Laws of the Registrant
** 4.1 --Stockholders' Agreement of the Registrant
* 5 --Opinion of Weil, Gotshal & Manges LLP
**+10.1 --Asset Purchase Agreement dated as of March 11, 1992, among
Muzak Limited Partnership, Field/Muzak Inc., The Field
Corporation and MLP Operating, L.P., as amended by Muzak
Limited Partnership's letters dated April 22, 1992, August 6,
1992 and August 20, 1992, Amendment No. 1 dated as of June 26,
1992, Amendment No. 2, dated July 31, 1992 and Amendment No.
3, dated as of August 26, 1992
**10.2 --Asset Purchase Agreement and Contribution Agreement dated as
of November 24, 1993 among Comcast Corporation, et al. and
Muzak Limited Partnership
**10.3 --Amended and Restated Credit Agreement dated as of September
4, 1992, as amended as of October 22, 1992 and as of December
15, 1993; and as amended and restated as of January 31, 1994
among Muzak Limited Partnership, Union Bank of Switzerland,
New York Branch, Internationale Nederlanden (U.S.) Capital
Corporation and the other Lenders parties thereto and Union
Bank of Switzerland, New York Branch, as Agent; as amended by
Waiver and Agreement dated as of February 10, 1994; Waiver and
Amendment No. 1 dated as of October 31, 1994; Waiver and
Amendment No. 2 dated as of November 2, 1994; Amendment No. 3
and Consent dated as of November 4, 1994; Amendment No. 4 to
Amended and Restated Credit Agreement dated as of November 17,
1994; Waiver dated January 10, 1995; Waiver dated as of July
31, 1995; Amendment No. 5 to Amended and Restated Credit
Agreement dated as of November 7, 1995; and Waiver dated as of
April 1, 1996
**10.4 --Amended and Restated Term Notes issued as of September 4,
1992, amended and restated as of January 31, 1994
**10.5 --Subordinated Loan Agreement dated as of September 4, 1992, as
amended, between Muzak Limited Partnership and Barclays Bank
PLC, New York Branch
**10.6 --Option Agreement dated as of September 4, 1992 between Muzak
Limited Partnership and Barclays Bank PLC, New York Branch
**+10.7 --Uplink Facility Agreement dated as of December 28, 1995
between EchoStar Satellite Corporation and Muzak Limited
Partnership
**+10.8 --DBS Programming Affiliation Agreement dated as of December
28, 1995 between EchoStar Satellite Corporation and Muzak
Limited Partnership
**+10.9 --Video Programming Sales Agent Agreement dated as of December
28, 1995 between EchoStar Satellite Corporation and Muzak
Limited Partnership
**+10.10 --Form of Muzak(R) Participating Affiliate Agreement
**10.11 --Third and Broad Office Lease dated June 8, 1994, between
Martin Selig and Muzak Limited Partnership
**10.12 --ASCAP License
**10.13 --Joint Venture Agreement dated August 2, 1995 between Muzak
Limited Partnership and Alcas Holdings B.V.
**10.14 --Muzak(R) Master Affiliate Agreement (Mexico) dated March 1,
1992 between Muzak Limited Partnership and Audioplan S.A.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S> <C>
**10.15 --Muzak(R) Master Affiliate Agreement (Canada) dated August 30,
1990 between Muzak Limited Partnership and Chum Limited, as
amended--Form of Underwriting Agreement
**10.16 --FCC Licenses
**10.17 --Form of License Agreement (New Franchise Agreement), as
amended
**10.18 --Form of Music Services Agreement
**10.19 --Form of Multi-Territory Account Service Agreement
**10.20 --Form of Sales of Adjunct Services and Form of Muzak Adjunct
Services Subscriber Agreement
**+10.21 --Transponder Lease Agreement dated December 9, 1993 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.22 --Transmission Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.23 --Transponder Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.24 --Transponder Lease Agreement dated April 27, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.25 --Transponder Lease Agreement dated July 5, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.26 --Transponder Lease Agreement dated April 29, 1996 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.27 --Agreement to Provide Telecommunications Service dated August
8 and 9, 1995 between Keystone Communications Corporation and
Muzak Limited Partnership
**+10.28 --Sales Agreement and License dated September 28, 1995 between
Mainstream Data, Inc. and Muzak Limited Partnership
**10.29 --Muzak Limited Partnership Tempo Savings and Retirement Plan
**10.30 --Muzak Limited Partnership Tempo Savings and Retirement Trust
**10.31 --Muzak Limited Partnership Management Incentive Plan
**10.32 --Muzak Limited Partnership Management Option Plan
*10.33 --Muzak, Inc. Senior Management Stock Option Plan
*10.34 --Muzak, Inc. 1996 Employee Stock Option Plan
**10.35 --Employment Agreement dated August 31, 1992 of John R. Jester
**10.36 --Employment Agreement dated August 31, 1992 of James F.
Harrison
**10.37 --Employment Letter dated July 7, 1995 of Kirk A. Collamer
11 --Calculations of pro forma net loss attributable to common
stockholders per share and supplemental pro forma net loss
attributable to common stockholders per share
**21 --List of Subsidiaries of the Registrant
23.1 --Consent of Deloitte & Touche LLP and Report on Financial
Statement Schedule of Muzak Limited Partnership
23.2 --Consent of Deloitte & Touche LLP
23.3 --Consent of Deloitte & Touche LLP
*23.4 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5)
**24 --Power of Attorney (included on the signature page to this
Registration Statement)
**27 --Financial Data Schedules
</TABLE>
- -------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested

<PAGE>

EXHIBIT 11

MUZAK, INC.

STATEMENT OF COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)

FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE-MONTH PERIOD ENDED MARCH 31,
1996

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
DECEMBER 31, PRO FORMA MARCH 31, PRO FORMA
1995 (AS ADJUSTED) 1996 (AS ADJUSTED)
------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Pro forma net loss
attributable to common
stockholders............. ($6,371) ($1,391) ($2,314) ($1,134)
========= ========== ========= ==========
Computation of common
stock and common stock
equivalents outstanding:
Common stock............ 7,168,758 7,168,758 7,168,758 7,168,758
Common stock
equivalents............ 420,655 420,655 420,655 420,655
Estimated shares to
provide proceeds to
repay indebtedness..... 4,241,577 4,241,577
--------- ---------- --------- ----------
Common stock and common
stock equivalents
outstanding.............. 7,589,413 11,830,990 7,589,413 11,830,990
========= ========== ========= ==========
Pro forma net loss
attributable to common
stockholders per share... ($0.84) ($0.12) ($0.30) ($0.10)
========= ========== ========= ==========
</TABLE>

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULE OF
MUZAK LIMITED PARTNERSHIP

We consent to the use in this Registration Statement relating to the sale of
shares of Common Stock of Muzak, Inc. on Form S-1 of our report dated March 6,
1996 (June 29, 1996, as to Notes 3, 8 and 11) on the financial statements of
Muzak Limited Partnership as of December 31, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995, appearing in the Prospectus,
which is a part of this Registration Statement, and to the references to us
under the headings "Selected Financial Data" and "Experts" in such Prospectus.

Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Muzak Limited
Partnership, listed in Item 16(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

Deloitte & Touche LLP
Seattle, Washington

July 1, 1996

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement relating to the sale of
shares of common stock of Muzak, Inc. on Form S-1 of our report dated May 8,
1996 on the financial statement of Muzak, Inc. as of May 8, 1996, appearing in
the Prospectus, which is part of the Registration Statement.

Deloitte & Touche LLP

Seattle, Washington

July 1, 1996

<PAGE>

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement relating to the sale of
shares of common stock of Muzak, Inc. on Form S-1 of our report dated February
10, 1994 on the financial statements of Comcast Sound Communications, Inc. and
subsidiaries for the year ended December 31, 1993, appearing in the Prospectus,
which is part of this Registration Statement.

Deloitte & Touche LLP
Philadelphia, Pennsylvania

July 1, 1996